Friday, November 28, 2014

Business Roulette

Sometimes in business we like to think that certain tactics we developed in one industry can translate over into another, but as is often the case they do not.  Yes, you always have to look out for strategies that might move from one industry to another, but sometimes these "conversions" can end up with unintended consequences as this short story illustrates.
An African ambassador visited Russia and was entertained by his opposite number, the Russian ambassador. For three days, the African ambassador was wined, dined, and generally treated to the best hospitality that Russia had to offer.

On the last day of his visit, the Russian ambassador said, "As your stay is coming to an end, it's time for you to play our traditional game, Russian roulette. One of the six chambers of this gun is loaded - you spin the cylinder, point the gun at your head, and pull the trigger."

This phased the African slightly, but he was a proud man of a warrior people, and to show fear would be unthinkable. Both men took their guns, spun, and pulled the triggers.

Both chambers were empty, and both ambassadors breathed a sigh of relief.

The African ambassador was impressed with the courageous game, and thought hard about the subject before the Russian Ambassador was due to visit his country the next year.

When the visit came, the African ambassador treated the Russian with all hospitality, until the final day of his stay. Leading him to a private room in the palace, the African ambassador spoke, "Now, time for you to sample our game, African roulette". He then led the Russian into the room, the only occupants of which were six stunning and naked women.

The African ambassador said, "These women are the most beautiful members of one of our tribes. Any one of them will give you a oral sex - take your pick."

The Russian was not entirely averse to this idea, but he couldn't see the connection with Russian Roulette. He said, "Well, ok, great, but where's the roulette part? Where's the danger?"

With a big grin on his face, the African ambassador answered:"One of them is a cannibal."

Wednesday, November 26, 2014

Startup Sins

During my 15 years of helping start and working for start-up companies, I have learned a few things from all the mistakes I have made and from the mentors and advisors I have met and worked with. Though there are dozens of things you may have to worry about when starting a company, I will highlight the 3 Deadly Startup Sins that will pretty much guarantee your eventual failure.

Leadership

Actually, Leadership is the number one element in the eventual success of any new endeavor. And the number one mistake made with most start-ups is assuming that the founder or inventor should be the person running the company. History has proven this is often not the best course of action for the success of a company. Henry Ford stated that even though Thomas Edison was the smartest person he had ever met, he was a horrible businessman.

I have seen far too many people, who happen to be brilliant inventors or scientist, be absolutely horrible leaders. Ever endeavor, large or small, rises and falls on leadership. A great leader can take a mediocre idea and make it successful, while a poor leader will ruin a superior idea with poor execution, lack of buy-in, sloppy team building, and total disregard for the “laws of physics” when running a startup company.

I am not saying a founder cannot learn to be a leader. I am saying that if you have a chance to secure a great, proven leader, do so as soon as possible. If not, make sure that you put as much effort into getting good leadership as you do in perfecting your product. Without this leadership, you will have great difficulty in building out your team, keeping them together, and attracting investments.

Strategy / Marketing / Positioning

These three concepts really go hand and hand. Know your Market and your Customer. I cannot stress enough about this. You better know how you will differentiate yourself in the market place as well as who your target customer is. I mean, know intimately what are they buying now, who is the biggest player, why are they good, where are the opportunities, and how are you going to exploit them. Also, what are you doing differently for everyone else? Does your product, systems, or services have a sustainable competitive advantage? How are you “cheating” or "gaming" the system? Knowing and understanding the answers to these questions will help you position your product or service better in the eyes of your potential customers and help reduce the friction involved in growing sales.

Another big mistake most startups make is assuming what they are dong is so unique and different that there are no competitors in their space. If you think you do not have any competition then you are just delusional, and you should stop what you are doing right now.

Even when the first integrated circuit came onto the market, it had competition, and it was from the vacuum tube. Everything has competition. Actually, the MORE competition and the larger the market, the better your chances are for success. Why? Because in a large market, your competition cannot do everything, and your company can feed off the crumbs that other companies are not focused on to stay alive. And if you are lucky, you can hold on long enough so that your cheaper, faster, better product or service can truly revolutionize the industry.

Be prepared to change. Rarely will your product or service hit the target on the first, second, or third time. Hopefully, you will get within 70% to 80% of your target. All that you are trying to do is “be where the puck is going to be” because your markets and targets in the future are constantly moving. As such, if you stick with your initial “idea” you may find that your market has moved away, new competition has surfaced, or what you thought was a good idea is not anymore; and that revenues will not keep up with expectations.

Greed

The hardest thing to do for an entrepreneur is to divvy up your company. You put in the sweat, hours, capital, and ideas for getting this baby going, and now you feel you are entitled to own the lion’s share. Just remember this, it is better to have a small piece of a hugely successful endeavor, than 100% of nothing. Greed may be good in the movies, but it is a sure way to failure for a startup.

As such, be generous with the core team of individuals you entice to come onto your team. If you do decide to take the lion’s share of the stock, you will have to give up a huge amount of salary in exchange. If you do not give enough stock to your core team, be prepared to have one or all of them leave just when you need them most. Also, be prepared to pay more hard cash for talent if you do not give up some extra “free” stock.  Of course, being generous does NOT mean being foolish.  Make sure your get "effort" and "output" from those you are giving stock to.  That means make ownership contingent on some tangible milestone in the future and if it not met, explain to them you will need that stock to find someone else to do it. 

Once you hand out the “founder’s” shares, the next step is getting investors to pony up real money and invest in your company. For most founders, this becomes an increasingly difficult task, primarily because you are too close and too invested in the company to make a truly rational decision. You either think your idea is worth more that an investor is willing to pay, or your feel the investor just wants to take over your company. You might be right on both counts, but there are ways to protect both your and your investor to achieve a win-win solution. One sure way to scare off investors is to put a sky-high valuation on your “idea,” or ask for tons of money up front without any sales history. It can happen (i.e. Amazon.com) but it is rare.

Any investor in your company should want the same thing you want, a successful endeavor that eventually gets to significant cash-out position. In actuality, you really should not focus too greatly on what valuation you get in your first round, as there are numerous ways for you to minimize the hit you take, in terms of giving away your company, in the long run. One way is to offer the purchase back ½ of the stock the initial investor paid for 2 times the amount within a specific period of time. Or you can forgo giving stock until the 2nd round of investment, and instead take a loan with a high interest rate. That “premium” interest rate can be applied to the 2nd round valuation. In addition, you can also offer a sweetener to the first investor. The important thing here is not to get too hung up on valuation and to think long term.

Secondly, make sure your investor is right for your business. Not all money is the same. A colleague and successful entrepreneur, Tom Dye, once told me to watch out for wedgies. A wedgie is someone who is trying to get leverage in your company without really doing anything to help you. They usually think that because they have invested, they know you business better than you, should have more control than you, and are not so much interested in creating a successful company, as just being in control. If you are unfortunate to have one of these investors, I feel sorry for you. You will be spending 80% of your time trying to please or answer to a wedgie, and not enough managing your company, customers, or product development.

Noticed I said little or nothing about what your product should do or what markets you should be in, or how much margins you should try to make, or how to bring your product or service into the market. You can make money anywhere if there is a need, a fairly sizable market, and a differentiated product. It will be much harder to do if you commit any of the startup sins mentioned above.

Thursday, November 13, 2014

Cell Phone Etiquette

Sometimes, with all the electronic conveniences we have to communicate with we forget that not everyone wants to be privy to a conversation you are having, and during a trip of any length, many of us would just like to "turn off."  Of course, sometimes people as so involved with what they are doing they do not realize what incredible bores they can be.  Here is a little story on how a gentleman handled this situation with aplomb.
After a tiring day, a commuter settled down in his seat and closed his eyes.

As the train rolled out of the station, the young woman sitting next to him pulled out her mobile phone and started talking in a loud voice:

"Hi sweetheart. It's Sue. I'm on the train".
"Yes, I know it's the six thirty and not four thirty, but I had a long meeting".
"No, honey, not with that Kevin from the accounting office. It was with the boss".
"No sweetheart, you're the only one in my life".
"Yes, I'm sure, cross my heart!"

Fifteen minutes later, she was still talking loudly.

When the man sitting next to her had enough, he leaned over and said into the phone, "Sue, hang up the phone and come back to bed."

Sue doesn't use her mobile phone in public any more.

Wednesday, November 12, 2014

Obstacles as Opportunites

In my entrepreneurial journey, I have been fortunate enough to have met both good and bad mentors and entrepreneurs.  The one thing that make a good entrepreneur it the fact that KNOW the the journey is going to be hard and arduous, but they decide to do it anyway.  What makes a poor entrepreneur is a person who thinks there is a shortcut, or an magic wand that will make the "successful."  Yes, some successful entrepreneurs "look" like they just magically made their fortune, but that is such an illusion.  Everyone of them had to fight, and scratch, and claw and yes, a few got a little bit luckier than most, but it was NEVER easy.  And if you think creating something new is easy, stop right now.  You will never make it.

Actually, most of the successful entrepreneurs had to pivot when they ran into an unforeseen obstacle in their path. Yes, even the mighty Google did not know how it was going to make money until someone came up with the idea for AdWords. YouTube was one week away from closing its doors before Google bought them.  The bottom line is that we all have to face obstacles, what we do with them makes all the difference in the world as this story highlights.

The Obstacle in Our Path
Long ago, a king had a boulder placed on a roadway. Then he hid himself and watched to see if anyone would remove the huge rock.

Some of the king's wealthiest merchants and courtiers came by and simply walked around it. Many loudly blamed the king for not keeping the roads clear, but none did anything about getting the stone out of the way.

Then a peasant came along carrying a load of vegetables. On approaching the boulder, the peasant laid down his burden and tried to move the stone to the side of the road. After much pushing and straining, he finally succeeded.

As the peasant picked up his load of vegetables, he noticed a purse lying in the road where the boulder had been. The purse contained many gold coins and a note from the king indicating that the gold was for the person who removed the boulder from the roadway. The peasant learned what many others never understand: Every obstacle presents an opportunity to improve one's condition.
Although this may be a old fable,it highlights how a seemingly difficult problem can be a huge and profitable opportunity for you and your company. So, ask yourself what difficult problems or situations, that if you apply yourself and perhaps great effort, can be changed into in new break through or product?  As I often say, "Necessity maybe the mother of invention, but dissatisfaction is its father."

Customer complaints, new competition, changes in the market, a loss of a big customer, these are all great catalysts to look at a situation a different way, and "discover" a new solution. Yes, it takes effort, but anything worthwhile in achieving, always does.

Wednesday, November 5, 2014

Why Politicians Lie (and Marketers too)

I thought, now that the elections are behind us, and we have been inundated with thousands of hours of hyperbolic advertising, debating, and otherwise misleading statements about such and such doing this and that, I thought I would ponder why politicians (and to a large degree marketers) can seemingly be saying two different things about the same subject. Are they just liars, or is there something completely different going on? As it is often said, there are two sides to every coin, and in debating anything you should be able to equally argue for the pro or con of an idea. I think this little testimony from a Texas legislator sums it up best.
In 1952, Armon M. Sweat, Jr., a member of the Texas House of Representatives, was asked about his position on whiskey. What follows is his exact answer (taken from the Political Archives of Texas):
"If you mean whiskey, the devil's brew, the poison scourge, the bloody monster that defiles innocence, dethrones reason, destroys the home, creates misery and poverty, yea, literally takes the bread from the mouths of little children; if you mean that evil drink that topples Christian men and women from the pinnacles of righteous and gracious living into the bottomless pit of degradation, shame, despair, helplessness, and hopelessness, then, my friend, I am opposed to it with every fiber of my being.

However, if by whiskey you mean the oil of conversation, the philosophic wine, the elixir of life, the ale that is consumed when good fellows get together, that puts a song in their hearts and the warm glow of contentment in their eyes; if you mean Christmas cheer, the stimulating sip that puts a little spring in the step of an elderly gentleman on a frosty morning; if you mean that drink that enables man to magnify his joy, and to forget life's great tragedies and heartbreaks and sorrow; if you mean that drink the sale of which pours into Texas treasuries untold millions of dollars each year, that provides tender care for our little crippled children, our blind, our deaf, our dumb, our pitifully aged and infirm, to build the finest highways, hospitals, universities, and community colleges in this nation, then my friend, I am absolutely, unequivocally in favor of it.

This is my position, and as always, I refuse to compromise on matters of principle."
So while we may think someone is contradicting themselves or even lying to us, at times, they might just be telling the story or offering their opinion from a different point of view.  Just be careful as marketers that you do not deliberately deceive your clients into thinking you can do both. For politicians, it really does not seem to matter.