Entrepreneurship

Commentary on an HBR article about Start-ups & Entrepreneurship

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A friend posted this article on LinkedIn.com. Due to character limitations for comments, I decided to post my response here. Below is a link to the article referenced: https://hbr.org/2019/07/building-a-startup-that-will-last

The article is interesting, but the emphasis on “second and third acts” assumes that the start-up will successfully navigate the first act. Even with addressing what the author views as key points this is still a very big assumption. The reasons for Longevity and Success are far more complex and multi-dimensional, but it does place a spotlight on some of the more important areas of focus.

Long-term success requires several things: The right combination of having a unique goal that has the potential to make a big impact (think “No software” from Salesforce.com); Innovative ideas to achieve that goal; A diverse team to build the product (a mix of visionaries, insightful “translators,” technical experts, designers, planners, adept doers, etc.); Very good sales / business development / marketing to describe a better way of doing things and converting that to new business; and ultimately a management team focused on sustainable and scalable growth.

The point made about the need to, “Articulate a value framework oriented toward societal impact, not just financial achievement” seems a bit superficial and too tactical in nature.

First, there are unintended consequences to most new technologies. Social Media is a recent example, but Genetic Editing and AI are two areas that are likely to provide more examples over the next decade. Not every societal impact will be positive, and having a negative impact could very well lead to the untimely demise of that company.

Second, the two ideas (societal impact and financial achievement) are not mutually exclusive. When I owned my consulting company we had a goal of funding $1M worth of medical research that would find a cure for Arthritis. We allocated half of our net profits for this goal. Every employee was on-board with this because there was a tangible example of why it mattered (my daughter). We invested $500K, helped launch a few careers for some brilliant MD/Ph.Ds and at least one national protocol came out of their research.

Mission and Vision are so important to a company, yet so many companies fail to view this as anything more than a marketing effort. Those companies fail to realize that this is as much to motivate and inspire their employees, as it is to grab the attention of a prospective customer. These should be both inspirational and aspirational, such as the “BHAG” (Big Hairy Audacious Goals) that Collins and Porras wrote about 25 years ago.

Regarding Endurance and the assertion that “…the best businesses are intrinsically Image of globe with network of connected dots in the space above it.aligned with the long-term interests of society,” my take is slightly different. The best businesses are always looking for trends and opportunities in an ever-changing global competitive landscape – as opposed to looking to their competitors and trying to ride on their coattails. Companies with a culture of fostering innovation as a way to learn and grow (Amazon and Google are two great examples) are able to find that intersection of “good business” and “positive societal impact.” It is much more complex than a simple one-dimensional outlook.

But, it was a good article to help reframe ideas and assumptions around growth.

One Successful Approach to Innovation that worked for an SMB

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When I owned a consulting company we viewed innovation as an imperative. It was the main thing that created differentiation, credibility, and opportunity. We had an innovation budget, solicited ideas from the team, and evaluated those ideas quarterly.

Almost as important to me was that this was fun. It gave everyone on the team the chance to suggest ideas and participate in the process. That was meaningful and supported the collaborative, high-performance culture that had developed. The team was inspired and empowered to make a difference, and that led to an ever-increasing sense of ownership for each employee.

The team also had a vested interest in having the process work, as quarterly bonuses were paid based on their contributions to the company’s profitability. There was a direct cause and effect correlation with tangible benefits for every member of the team.

We developed the following 10 questions qualify & quantify the potential of new ideas:

  1. What will this new thing do?
    • It is important to be very detailed as this was used to create a common vision of success based on the idea being presented.
  2. What problem(s) does this solve and how so?
    • This seems obvious, but if you are not solving a problem (which could be something like “lack of organic expansion”) or addressing a pain point then selling this new product will be an uphill challenge.
  3. What type of organizations have those problems and why?
    • This was fundamental to understanding if a fix was possible from a practical perspective, what the value of that fix might be for the target buyer, and how much market potential existed to scale this new offering.
  4. What other companies have created solutions or are working on solutions to this problem?
    • The lack of competition today does not mean that you are the first one to attack this problem. Due diligence can help avoid repeating the failure of others, and potentially provide lessons learned by others and help you avoid similar pitfalls.
  5. Will this expand our existing business, or does it have the potential to open up a new market for us?
    • There are upsides and downsides to each answer, but breaking into a new market can take more time and be more difficult, time-consuming, and expensive to achieve.
  6. Is this Strategic, Tactical, or Opportunistic?SOX Brochure Cover
    • An idea may fall into multiple categories. When Sarbanes-Oxley (SOX) Act became law we viewed a new service offering as both a tactical means to protect our managed services business as well as an opportunistic means to acquire new customers and grow the business.
  7. What are the Cost, Time, and Skill estimates for developing a Minimally Viable Product (MVP) or Service?
  8. What are the Financial Projections for the first year?
    • Cost to develop and go-to-market.
    • Target selling price, factoring-in early adopter discounts.
    • Estimated Contribution Margin Ratio (for comparison with other ideas being considered).
    • Break-even point.
  9. Would we be able to get an existing customer to pre-purchase this?
    • A company that is willing to provide a PO that commits to making a purchase of that MVP within a specific timeframe increased our confidence in the viability of the idea.
  10. What are the specific Critical Success Factors to be used for evaluation purposes?
    • This was an important lesson learned over time that helped minimize emotional attachment to the idea or project, as well as providing objective milestones for critical go / no-go decision making.

 

This process was purposeful, agile, lean, and somewhat aggressive. We believed it gave our company a competitive advantage over larger companies that tended to respond slower to new opportunities and smaller competitors that did not want to venture outside their wheelhouse.

With each project, we learned and became more efficient and effective, and made better investment decisions that positively impacted our success. We monitored progress on an ongoing basis relative to our defined success criteria, and adjusted or sunset an offering if it stopped providing the required value.

The process was not perfect…

For example, we passed on a couple of leading-edge ideas such as a “Support Robot” in 2003 that was essentially an interactive program that used a machine-learning algorithm. It was to be trained using historical log files, could quickly and safely be tested in a production environment, refined as needed and ultimately validated.

This automation could have been used with our existing managed services and Remote DBA customers to further mitigate the risk of unplanned outages. Most importantly, it would have provided leverage to take-on new business without jeopardizing quality or adding staff – thereby increasing revenue and profit margin.

At the time we believed this would be too difficult to sell to prospective customers (“pipe dream” and “snake oil” were some of the adjectives we envisioned), so it appeared to lack a few items required by the process. Live and learn.

In summary, having a defined approach for something as important as business needs innovation to grow and prosper, as best demonstrated by market leaders like Amazon and Google (read the 10-K Annual Reports to gain a better understanding of their competitive growth strategies that are largely based on innovation).

Implementing this type of approach within a larger organization requires additional steps, such as getting the buy-in from a variety of stakeholders and aligning with existing product roadmaps, but is still the key to scalable growth for most businesses.

Good article on being an Entrepreneur

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Nearly every morning I start the day out by reviewing news on business, technology, and finance / markets. Occasionally there is a general interest article that I stumble across. Today it was a short article about Curt Culver, Co-Founder of Culver’s restaurants.

There are several great points that seem like common sense in hindsight, but are often well out of focus during the “heat of the battle” as you are building your business. Mr. Culver touches several of them:

  1. The Importance of having the proper Work / Life Balance
    • For me personally, this was one of the toughest aspects of growing my business. I was working 100+ hours a week, traveling a minimum of 50% of the time, and was often “not there,” even when I was spending time with my family.
      • My habits also set the expectations for others on the team, and I later realized that this created some strife at home for them as well.
    • The turning point for me was when my youngest daughter, then 4 years old, was telling her twin brother and my older daughter that, “Daddy really does love us, he just works all the time so that we can live here and have all of this stuff.” It was painful enough to hear that, but was a wake-up call about what is really important in life – people (especially family and friends), not “stuff.”
  2. The Need to Develop others on your Team
    • From past experiences I understood the need to hire the best people who you could afford – people with complementary skills (not just clones of yourself), and who were better than you in at least one aspect.
    • One of my goals around developing my team was to have everyone understand the big picture, and empower them to make good decisions for the business. 
      • While most of this occurred, my goal was to have each and every person think and act like owners of the business. That level of engagement and accountability only happened with my most senior person, who was also my first hire and actually did own a small part of the company.
    • The moment when I recognized success was during a mission-critical ERP system upgrade for our largest customer – a multi-billion dollar semiconductor reseller. I sat-in on project and team meetings, reviewed reports, and asked a few questions, but that was it. It was a very proud and empowering moment for me.
      • The weekend of the pre-migration test I received a call telling me that everything had been successful and that the migration was going forward the next weekend.
      • The following weekend I received a nightly summary email, and on Sunday afternoon received a call telling me that the new system was operational and supporting production with ease.
  3. Culture
    • Mr. Culver states that, “Culture is all about people.” That is true, but it is just one aspect of culture.
    • To me, the Cultural Identity of your company starts out as something aspirational, and grows into the glue that bonds each and every member on your team. It helps bring out the best in everyone, including the camaraderie and support that comes from working with people who you like and trust.
      • There were two unexpected consequences of actively focusing on culture, which were:
        1. We quickly transformed into a High Performance Organization. Everyone pushed to continually “raise the bar.” There was healthy competition between people, but each member of the team was there to be a “safety net” for others as having the team win was far more important that winning as an individual.
        2. New Hires that were not a good fit recognized that very quickly, and usually quit within the first 2-3 weeks. I only had to terminate one person during the probationary period that wasn’t a good fit.
  4. Having a Support System
    • Mr. Culver addresses failure and the importance of family to help support you in times of need.
    • One of the biggest lessons learned for me personally was nothing that I did or accomplished with my company would have been possible without the support of my wife, children, parents and in-laws (the later two providing financial support during the early years in times of need).
      • With understanding comes humility.

These are lessons learned that can be applied to any size organization, and in my opinion are a great investment in the future growth, value, and longevity of your company.

Here is the link to the article referenced – https://www.qsrmagazine.com/start-finish-what-inspires-execs/craig-culver-culture-all-about-people

Lessons Learned from Small Business Ownership

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I learned many valuable lessons over the course of the 8 years that I owned my consulting business. Many were positive, a few were negative, but all were educational. These lessons shaped my perceptions about and approaches to business, and in general have served me well. This post will just be the first of many on the topic. Picture of a man next to a sign that says "grand opening"

The lessons learned covered many topics: How to structure the business; Business Goals; Risk; Growth Initiatives and Investment; Employees and Benefits; Culture; Marketing and Selling; Hiring and Firing; Bringing in Experts; Partners and Contractors; The need to let go; Exit Strategies and more. In my case these were compounded by efforts to start a franchise for the consulting system we developed, and then our international expansion to the UK.

It’s amazing how more significant those lessons are (or at least feel) when the money is coming out of or going into “your pocket.” Similar decisions at larger companies are generally easier, and (unfortunately) often made without the same degree of due diligence. Having “skin in the game” does make a difference.

Businesses are usually started because someone is presented with a wonderful opportunity, or because they feel they have a great idea that will sell, or because they feel that they can make more money doing the same work on their own. Let me start by telling you that the last reason is usually the worst reason to start a business. There is a lot of work to running a business, a lot of risk, and many expenses that most people never consider.

I started my business because of a great opportunity. There were differences of opinion about growth at the small business I was working for at the time, and this provided me with the opportunity to move in a direction that I was more interested in (shift away from technical consulting and move towards business / management consulting). Luckily I had a customer (and now good friend) who believed in my potential and the value that I could bring to his business. He provided both the launching pad and safety net (via three month initial contract) that I needed to embark on this endeavor. The first lesson learned is to start a business for the right reasons.

More to come. And, if you have questions in the meantime just leave a comment and I will reply.  Below are some of the statistics on Entrepreneurship that can be pretty enlightening:

Global Entrepreneurship Monitor (GEM) Summary of 2011 Global Report

Bureau of Labor Statistics stats on Entrepreneurship in the US

Forbes article on Entrepreneurial Activity