Nobody is Going to Pay You For Your Ideas

Yesterday somebody posted an interesting comment on the bottom of my post ‘How to Sell an Idea to a Big Company.’ Sadly, that post explains to people why they can’t sell their ideas to big companies. Most of the 70-some comments there are from people who ignore what the post says and share how great their ideas are. This one is slightly different. This commenter

entepreneur-in-residence.jpg

This person acknowledges the problem, as follows:

How do I sell not an idea but my involvement in creating ideas to a reputable company? Is there a way for me to work (preferably from home) and continually provide my endless supply of ideas to a company? How do I go about getting a job where I am the idea man; where I am a part of the think tank for a company; where I can show them what is wrong and why and how they can do it better and blow away the competition in the process? Is it even possible to have such a dream job or am I just fooling myself?

If you have to ask, then yes, you’re fooling yourself.

Because although it is true that some very special people get jobs like that — Alan Kay, for example, computer pioneer, extremely accomplished; or click the image here to see a piece from the New York Times about Entrepreneurs in Residence — it takes accomplishments to validate ideas. Those entrepreneurs in residence are there for ideas, but they didn’t get there by having ideas. They got there by executing on ideas.

I think the people who walk around thinking they have multiple great ideas, but have no accomplishment to prove it, don’t understand how ideas work. Untested ideas are like unwritten novels. All unwritten novels are brilliant — on the minds of would-be authors who didn’t write them. You and I can’t evaluate our own ideas. We’re too close  to them.  Real ideas are out there in the world, bouncing around, until somebody locks onto them, does something with them, executes, and makes them happen.  That gives them value.

The only thing you can do with a great idea is execute. And nobody in their right mind will pay you until you’ve done that, and more than once. You have valuable ideas: then prove it.

 

Spot Quiz: What Percent of Small Business Owners Manage Cash Flow

cash-ball-chain-bigstock-5041553 (1)I’m fascinated by the numbers Denise O’Berry turns up in her post Use Metrics To Manage Cash Flow – Small Business Expert Denise O’Berry. She quotes results of a survey sponsored by the American Institute of CPAs, which surveyed 500 owners of businesses averaging less than 10 employees and less than $2 million in revenues.

According to this, the biggest worry of small business owners, is (drumroll):

The number one issue facing small business is ensuring adequate cash flow from operations, according to 83% of survey respondents.

That’s Denise quoting Bill Reeb, CPA, surprising nobody. It is sort of like saying the number one issue in health is breathing.

(Of course, this is the AICPA asking … do you think (I’m just asking, that’s all) the results might have been different if the survey were taken by, say, the American Marketing Association? That increasing sales might have shown up as the top worry? That idea intrigues me. I’m just not a big fan of facts via surveys.) 

But this gets even more interesting, as Denise adds this:

Driving this issue is the fact that 51% of those surveyed say they don’t use a cash flow budget or forecasts to help manage their business and 32% say they don’t have specific metrics in place to monitor performance on a daily or weekly basis. And only 17% agreed that daily or weekly metrics are as important to them as their financial statements.

I commented on Denise’s post, wondering whether there might be a relationship between the roughly half of business owners who don’t plan and manage their cash flow and businesses whose normal operations don’t involve the cash-flow killers, sales on credit or product inventory. Sales on credit are not credit card sales, but rather business-to-business sales in which product or service is delivered to a business along with an invoice that will be paid later. That relates to collection days and accounts receivable. And product inventory means working capital is tied up in building and holding inventory, which separates the cash flow from the normal sales less cost of sales flow shown in a profit and loss statement.

I’ll tell you what taught me to watch cash flow, always, and very carefully: the lack of it. It wasn’t two years at business school; it was a growth spurt (sales doubled) that sucked up all the cash and left me looking for a second and third mortgage to keep the business going. That’s something you don’t forget.

 

 

When So-called Experts Say Don’t Do a Business Plan…

… don’t be confused. What they really mean is … experts speak half truths

  1. Don’t do a long static formal business plan. Do a lean, just-big-enough business plan. Deal with it as a constantly-renewing latest version, with a shelf life of a few weeks at most. Don’t fill it with excess supporting information.
  2. They won’t even look at a business plan until after they’ve understood the main points from a summary memo, and — in most cases — been through the pitch and met the people. The idea that potential investors would read a business plan as a first step, from somebody they’ve never met, without going through preliminary materials … is laughable.

Understand where the business plan fits in the process of securing investment.

  1. It’s not the calling card, not the sales brochure, not something you ever send to somebody who doesn’t already know you, your business, and the basic story.
  2. It’s likely to come up for deals that have gotten through some filters first. Investors will ask for it as part of the due diligence that starts after they understand the deal and are interested in pursuing it further.
  3. It explains a deal: problem, solution, product-market fit, potential market, potential growth, scalability, defensibility, traction, major milestones, management team, and essential projections of financial progress and, in cases where this applies, trackable progress in traffic, visits, downloads, users, and so forth.
  4. It’s the screenplay for the summary memo and the pitch. Even though investors won’t want the plan immediately, you’ll need it, when you pitch, to refer to later to answer questions like “can you grow faster with more money” or “how would it look with double the sales force?”

And you don’t have to call it a business plan. The lean startup advocates, for example, like to call it anything but a business plan, but ask them about it, and they’ll confirm you need to cover the same ground as I have in my point 3 above.

My suggestion: call it a lean business plan.

The Broken Spreadsheet That Birthed a Business

I thoroughly enjoyed doing this Mixergy Interview, published this week, about how I bootstrapped Palo Alto Software from zero to about $10 million annual revenues:

Tim Berry on Mixergy
Tim Berry on Mixergy

It started one morning at 2 a.m., when I had to deliver a finished set of financials the next morning. It was 2 a.m. and I was tired and done with the financials but I had done something in either Lotus 1, 2, 3 or Excel because I use both. I don’t remember which one it was but I had done something to break the damn spreadsheet! If the financials are going to work, when you change the assumptions the balance still balances and the cash flow, and so on.

So it was 2 a.m. and I had broken the spreadsheet. I thought to myself, there is so much productizability in this. I have to be [building this out,] assumptions, inputs, outputs [and so on], so that this doesn’t happen again.

Mixergy is a collection of interviews with entrepreneurs. Andrew Warner, founder, does a great job interviewing, and collecting interviews. The goal is a collection of thoughts and stories about entrepreneurship. I’m proud to be included.

Andrew posts the complete transcript along with the interview, so it’s easier to browse. Here’s another snippet, about raising venture capital and buying them back:

But then, and this is what’s important for the story, you need compatibility with your investors. When the whole thing crashed in 2001, then we had completely different business models. Our investors needed us to have an exit, a liquidity event. Valuations were back down onto what they really were, you know, two and a half times revenues, for example, for a healthy software company.

But two and a half times revenues wasn’t enough money to make me and my wife and our family feel like we wanted to just sell the business. I had to be 10 or 20 times revenues. But, our VCs were trapped as minority investors. And they were trapped forever. I now have eight angel investments. I understand how bad it is to be trapped as a minority investor with no hope of a liquidity event. I don’t want investors, even as a minority, who aren’t happy with me or my company, so we negotiated. Their lead partner there told me later that not until the negotiations were done, “Tim, actually I can tell you now, you are our best investment for 1999.”

Andrew led me through a lot of stories: How I failed as a hippy, how we got started on the web, how we realized we needed downloadable software, how I changed my role seven years ago to open the field for a new management team, and others.

Rant: Entrepreneurship, Dropouts, and Bad PR

I was writing an email to these folks and I just stopped and deleted the draft. Why waste the time raising entrepreneurs I don’t even know.book cover

My complaint? I got to my office this morning after a few weeks elsewhere and found the results of a concentrated campaign for me to write about a certain entrepreneur and his startup. He’s all about how he’s so successful as a college dropout. I have one package containing a coffee mug with chocolate drops, and another with a copy of his book. Both contain a personalized letter from him, with what looks like a signature. Both contain business cards that are ‘sort of’ from him, but not exactly. And the only contact info I get is an impersonal email address info@[company omitted].

So, let’s get this straight: You want me to write about you, but you don’t even give me your email address? Is that just me, or is it insulting?

I connected this to multiple emails from somebody in his company, pitching me talking to him or interviewing him, also without including his email address. I’d say WTF, but I’m more mild mannered than that, so only WTH.

Besides, the college dropout theme ticks me off. The illustration here is taken from the cover of his self-published book. And the email campaign spins off the college dropout thing. I think that’s building your image around what’s essentially bad advice.

One thing is all the reasons like you or the next person or anybody else had to drop out of college — too bad, but common enough, and nothing for me to judge — but quite another is purposely building your entrepreneurship pitch around you having dropped out of college. Yeah, sure, Bill Gates, Steve Jobs, and Mark Zuckerberg, I know. But none of them ever made that his secret sauce; the college dropout thing just happened. Bill Gates regrets dropping out of college. Steve Jobs hung around Reed College for the education, even after he dropped out. And Zuckerberg? OK he had a tiger by the tail, who can blame him?  But does he go around bragging about it?

Sadly, formal education becomes a luxury for some. I wish it were available for all. But I’m sure anybody who can get an education is better off with it than without it. And that goes for entrepreneurs too. No, you don’t learn to be an entrepreneur in courses. But what you do learn doesn’t hurt. And there’s a whole life outside of business.

I Really Don’t Like All This Sh*t

 

Some of the best and brightest, some of the most educated people I know, have decided that it’s cool to use the word “sh*t” to replace the old-fashioned words “things,” “stuff,” “work,” and so on. That’s too bad.allthatshit

Of course I remember “get your sh*t straight,” a phrase that’s as old as the golden age of hippies in the late 1960s. That was as common as “groovy” back in the day. So, millennials: you hate “groovy,” right? Yeah, that feels old to me too. And I’m old. But did you have to adopt shit?

But, damn! Google “do epic sh*t” and you’ll find a meme that could have been — (but way less cool) — do good things or do good stuff. Except, of course, that then it would never have been a meme.

I guess it’s my age — baby boomer, I admit — but I can’t make the leap.

Back in the late 1990s I saw one of my favorite editors ever, Teri Epperly of Palo Alto Software, cringe when our website appeared one morning with the promise of “good stuff.” That, back then, was awkwardly informal, colloquial. And Teri was (is still) a really good editor. I helped her through that, then, as just a sign of the times. But she and I would agree completely on the use of “good sh*t.”

Shit, to me, sounds like shit. And it isn’t good, let alone epic. I don’t want to get sh*t done, I don’t want to do good sh*t, and I don’t want to make sh*t happen.

New Research on How to Motivate Your Employees

Motivating employees is case by case
Motivating employees is case by case

How to motivate employees? According to new research, messages from on high need to be more abstract and less details. And messages from immediate supervisors need to be more concrete. Here’s the summary:

In particular, they found that the right message from the right person — a concrete call to action from a leader close to a follower and an abstract message from a leader hierarchically distant from a follower — elicited a stronger commitment and willingness to take action. Their studies also proved the opposite was true, that when distant leaders formulated concrete, overly detailed messages or when direct managers delivered abstract messages, their employees were far less engaged, committed, and motivated.

That’s from How Do You Motivate Your Employees? on one of the Stanford business school sites. It reports on research by Stanford Business School Professor  Nir Halevy and Bar-Ilan University in Israel professor Yair Berson, examined the way in which leaders — “whether they are country presidents, chief executives or midlevel managers” — communicate with their followers.

The two researchers looked specifically at something known as construal level theory, which states that the psychological distance between a leader and his or her followers influences the concreteness or abstractness of that leader’s communication in the eyes of followers.

What I like about this research is it quietly acknowledges the importance of making case-by-case conclusions. This appeals to me much more than research that looks at a single case and extrapolates that to the whole world.

And I also liked, in the summary I liked to above, some simple advice anybody can use:

With the results of these studies in mind, Halevy says business leaders can take practical steps to more effectively motivate, communicate, and manage their reports, whether they are direct or indirect. “Think about the omnipresence of micromanaging,” says Halevy. “A lot of people think it’s ideal to be a hands-on manager, that even though I’m the CEO, I’m very ‘hands-on.’ What we’re saying with this paper is that sometimes that might actually backfire. Maybe it’s not such a good idea.” Halevy says managers will get their subordinates to do more of what they want them to do if there is construal fit. “You want your subordinates to internalize what you’re asking them to do, and with construal fit, it’s easier for people to process your message,” he says. “The less effort to process, the faster the action.”

 

3 Things Never to Tell an Entrepreneur About her/his Spouse

I just read 7 Things Never to Tell Your Spouse About Business Finances, posted by Barry Molz on Amex OPEN forum. I like Barry and I like his work.  I’ve been on his podcast before and it was great. But his tone of voice in this post makes me uncomfortable. Dont tell your spouse

If you’re curious, compare Barry’s tone in that post to mine in some of my (somewhat confessional) posts on me and my wife and entrepreneurship: My biggest startup boost, for example; or this true story on relationships vs. new business. And yes, my wife and I have been married 44 years, in a relationship that has survived years of scraping to support a startup, and sending five kids through college; so maybe I maybe I know something about this.

It’s not that Barry doesn’t offer some good advice within his post. He does. For example, if you’re dealing with cash flow problems, Barry advises:

Don’t give your spouse a daily cash report, since it’s always changing. Instead say, “Money will be tight for the rest of the year.” You will be right most of the time.

But there is no excuse for the multiple references to the spouse as “she” in that post. I know Barry and he knows better. This is nasty stereotyping. The whole “don’t worry your pretty head” motif is 1.) offensive and 2.) obsolete. Ironically, all of Barry’s advice here has nothing to do with gender so there is no reason whatsoever to make the spouse female. Making the advice gender specific dilutes it.

And secondly, regardless of gender, keeping a spouse in the dark about serious business issues is a really bad idea. Specifically, Barry’s suggestion about what to tell a spouse when a major investor pulls out …

Don’t say anything, and work privately to learn to project your cash flow better so you can survive the bumps in the road.

… is really bad advice. What a terrible thing to suggest. First of all, that idea makes for an incredibly lonely entrepreneur. Nobody normal can help fretting over that kind of situation. Not to share it with the most important person in your life, who is by definition a person who is going to share the consequences if you go under is horrendously bad advice.

And here’s another piece of really bad (well, maybe just insulting) advice on what to say when you have a buyer for the company:

If you do tell her about any pending deals, make sure she understands that nothing is set in stone until the money is in the bank. Also, don’t give her the dollar details; when the deal closes and the money is in the bank you can say: “Honey, what can we do with an extra $100 million?

The first part of that advice is not bad, but condescending, and unfortunately also gender specific. The second part is insulting.

My apologies to Barry for a bit of a rant, but I’m the father of four daughters and this stuff really gets my goat.

I’ve discussed this topic in other posts and in my opinion it’s best to be open and honest with your partner. In fact, being candid has immense benefits. Here’s an extract from one of my previous posts that illustrates how essential my partner has been in helping me to succeed:

[This was the] biggest boost to starting a business: My wife said “go for it; you can do it.” And she meant it. At several key points along the way, she made it clear that we would take the risk together. There was never the threat of “I told you so, why did you leave a good job, you idiot!” What she said was “if you fail, we’ll fail together, and then we’ll figure it out. We’ll be okay.”