Category Archives: Business Mistakes

Startup Culture is as Leaders Do

The question over on Quora was How should a new startup develop and sustain a strong company culture? I decided not to answer the essential how-to, but rather to share my experience in this area, which is more like a reality check on startup culture than anything else.  The following is straight from my Quora answer.

Culture is not what you say

Culture isn’t what anybody says, it’s what the leaders do. You can write mottos and pin poster on the wall, send memos around, write mission statements and mantras, develop tag lines, and repeat seemingly meaningful phrases at meetings … but what determines the culture is what leadership values – not what it says it values, either, but what it actually values with actions, policies, decisions, priorities, rewards, praise and everything else that happens all day every day.

Leaders, as people, rarely change who they really are. They will nurture new ideas or not, listen or not, treat their people fairly or not, depending on their values, their past, and who they are. Sometimes people can change over time, but that’s rare.

Leaders frequently believe their words and ignore or fail to realize that their actions contradict their words. This is why businesses are so full of hype and spin and meaningless drivel in mission statements and the like. Have you ever seen a company that doesn’t say they believe customer service (for example) is extremely important? But how many flow that thought into actual policies and performance. Similarly, is there any business that doesn’t say it values innovation? But how many businesses actually reward people for questioning authority or trying to do things differently? These are big-company examples everybody knows, but I use them to make a point about startups.

What’s a strong culture?

And your question itself offers an implicit example in itself. You say “strong culture.” What’s that? One leader could say a strong culture is when people compete with each other constantly, spend infinite hours in the office, and value stress. The next could say strong culture is one that develops a mission to make the world a better place, treats everybody fairly, and cares about its customers. Which is strong?

What matters is who you are and what you do, not who you want to be, or what you say you believe.

 

Build Yourself a Compatible Goals Filter

Suggestion: on any kind of business relationship, take a step back, open your eyes, and look for compatible goals.

For example, one variety of hell is a startup with founders and investors having different goals. Differences on how to achieve goals are hard enough. You can talk out those differences. But when investors want one thing, and founders something else entirely, there’s trouble brewing. Companies can aim for growth, profits, or cash flow independence. Everybody involved should agree.

Use the framework of compatible goals to look at small business team members and compensation. That can be as simple as targets for gross margin (price less direct cost) instead of just sales. Years ago I hired an honest, ambitious, hard-working salesman with a compensation package tied to sales. He hit the sales targets by pricing deals so close to below cost that we didn’t have enough money to cover overhead. That was my fault, not his.

Use creative compensation schemes and bonuses. How can you make the goals of the customer service people compatible with the overall company goals? What do you do about targets, metrics, and bonuses? What about product development, as in programming? Editing? The more thought to compatible goals, the more likely to succeed.

You should also use the framework of compatible goals to look at business alliances. Do you want the same thing as those people from the other company? Can you both find a win? Are your goals for this deal compatible with theirs? Asking deeper questions about goals can lead to better, more useful negotiations.

Beware of the Myth of Persistence

I worry a lot about the myth of persistence. Persistence won’t necessarily make your business successful unless a lot of other things are also right. And persistence alone can turn failure into disaster. But still, people who should know better—people who succeeded—still talk about it all the time.

brick wall

There’s a logical trick to it. Almost everybody who made it through hard times while building a business can credit persistence because they stuck through it, and, eventually, made it. But what we forget or ignore is all those people who didn’t make it, persisted, and still went under, losing more money, and sometimes even important relationships, and people they care about, because they persisted.

Persistence is only relevant if the rest of it is right. There’s no virtue to persistence when it means running your head into walls forever. Before you worry about persistence, that startup has to have some real value to offer, something that people want to buy, something they want or need. And it has to get the offer to enough people. It has to survive competition. It has to know when to stick to consistency, and when to pivot.

So persistence is simply what’s left over when all the other reasons for failure have been ruled out. Those successful entrepreneurs who talk about their experience? They’re not lying. They look back on it, and it was persistence that saw them through. Because every startup is a lot of work, a lot of mistakes, a lot of failures. So a lot of startups that might have made it otherwise fail because it’s just too damn hard to stay with it.

This is one of several phenomena related to the problem of survivor bias. We hear way more from people who made it, and not nearly enough from the people who didn’t.

And then, if everything else is right, persistence matters.

How Can I Get Startup Funding Without Giving Away Half the Company?

I’m surprised how often I get asked the question in the title, or variations of it, from people in startups. And you will hear discussions in which experts recommend ways to get investors who take less equity and demand less control. That seems short-sighted or worse.  I posted here years ago dumb investors is a dumb idea. But this question keeps coming up.A Bad Idea

If you’re working on a startup, understand the tradeoffs. Don’t try to find investors who don’t take ownership. Asking that question is like asking “how can I get somebody to spend their money without giving them anything?”

Ask yourself why somebody, anybody, would spend their money to build your business instead of to build their own, buy a house, car, or go on vacation? What do they get out of that? They aren’t the government. They can spend their money any way they like. So what – besides a share in ownership – can you give them for their money?

“Giving away” is the wrong way to say it. You share, in return for money; and, if you do it right, help, contacts, and collaboration (if you find the right investors). It’s like a marriage.

How much ownership your investors get is a matter of agreeing on how much your business is worth, and then dividing how much money you get into that. For example, if you can convince your investors that your business is worth $1 million, and they spend $500K, then yes, in that case, you gave up half. And it’s not that easy, either. If investors aren’t convinced you have a good team, good product-market fit, scalability, defensibility, and a reasonable chance at exit, then don’t worry about what you share with them, because they won’t want any part of it, for any amount of shared ownership.

If you worry about giving up ownership, that’s valid, but instead of complaining about investors, look up Bootstrapping here on this blog. Most startups bootstrap because few have what it takes to attract investors. It’s harder, but if you make it, then you own it all yourself. Or, if you have a startup that needs more money than you have, and offers a good business opportunity for that money, then think of investors as partners and find investors you can work with, and respect. Or bootstrap.

This question came up again on Quora over the weekend. If you’d like some alternative answers, here’s the link: How can I get funding for my startup without forfeiting half my ownership in the business?

(Image: Flickr cc, by snail_race)

My Fish Bowl Story of Marketing Mistakes

Here’s a mistake I made that taught me a lot and helped me teach others.

The Mistake

OLYMPUS DIGITAL CAMERA

Many years ago, I took a new product – early business planning software – to its first trade show. We did the standard booth thing, brought along products, and sell sheets, business cards, and so forth. And we put a plastic fishbowl on top of our main table, in front of a large sign that said “Free Drawing. Drop your business card here for a free business planning software.”

Each of the three days, at the end of the day, we drew a card from the bowl. Later we sent the winners their software. And when the trade show was done, we ended up with four fishbowls full of business cards; in fact we had more than 500 cards.

And those cards were completely useless to us. The people who left them weren’t really leads for us. They didn’t actually want business planning software. They had brought cards to the trade show and they dropped those cards into every box, hat, or bowl that offered them something free. The leads were way more expensive to follow up than what they yielded in sales when we did. Thank heavens we had the sense to test a few dozen first, before we went to the expense of getting them all typed into an accessible list.

The Correction

The following year we took the same product to the same trade show and the same fish bowl too. That second year, however, we put a sign by the bowl that said: “For more information about Business Plan Pro, drop your business card here.”

After that trade show we ended up with a few dozen good leads – dozens, not hundreds. Those people were actually interested in what we were selling. Calling them back was worth the effort.

The Lesson

I’ve used this story often in teaching and seminars and managing my own company because to me it illustrates the importance of target marketing and focus. In this example, quality of leads is much more important than quantity. Hundreds of bad leads are worth nothing, while a few dozen good leads have real value.

What distinguishes the good leads from the bad leads is their interest. People walking the aisles at a trade show drop their business cards in any fish bowl offering something free, whether they are interested or not in what that exhibitor is selling. We didn’t want a lot of cards. We wanted cards from people interested in our specific product, business planning software, and not cards from anybody (via lucica at dress head).  The marketing follow-up was expensive , whether it was inputting data from business cards or mailing information, and the marketing yield was good with well-targeted prospects and bad with generalized prospects.

Some businesses depend more on targeting than others. Think about that for your business. Do you sell to everybody? Or do you sell to a specialized group? What kind of fishbowl do you want?

Experts, Experts Everywhere, and Not a Pause to Think

My title for this post is taken (slightly modified, but better known as shown here than in the original) from Coleridge’s The Rhyme of the Ancient Mariner:

“Water, water, everywhere, and not a drop to drink.”

I’m worried that one downside of our amazingly connected world, in relation to small business and entrepreneurship, is that business experts are everywhere, falling over themselves to offer answers and expertise. It’s tough to criticize, especially since I’m as guilty as anybody. But still … is it possible that we use ask an expert hoping for a right or correct answer when the real question is not write or correct, but gut feel? Is it possible we give to much credence to the outside expert and not enough to doing the hard guessing ourselves?

Let me explain.

Seeking the right answer

I take questions on my ask-me form at timberry.com. Here’s one I received.

Worn ShoesI own an Irish pub [US place omitted]. I do not know what is going on, but my day business is not doing well. The staff has remained the same, the atmosphere is the same, but the number of clients has dropped. Is this just due to tougher economic times? I know that other bars in our area feel the same, but we cannot figure out what is going on. Could you please give me some advice.

Don’t get me wrong, please; I’m not advocating ignorance. And I like smart people and admire experts. But I worry that in many real-world business situations, asking some expert, via email, about the nuts and bolts of your specific situation. It gets in the way. It clouds your thinking. You should be asking that question, yes, but also, wear out your shoes finding the answer for yourself, first. Ask experts the big general questions. Not the specifics of your own business.

Nobody can answer that question from afar, with just a general description. That’s totally impossible. There’s no useful answer without getting into that bar, and into that neighborhood, and talking to people. Which is, in my expression, wearing out your shoes.

Wear out your shoes

The question, and the situation, cries out for taking a fresh look.

Don’t just ask an expert, get out there. This is urgent. Talk to people. Ask them. Walk the streets looking for the faces you recognize, stop them, politely, and ask them what’s changed.

Watch some other nearby bars and count their customers. How many people go into the place in an hour, how many exit. Have a drink at other bars and talk to their customers. Look at their prices.

Call some other Irish bars a few towns away and talk to the owners. Ask them if they’re having the same problem. Ask them why or why not.

This is your business, and asking experts it good, but don’t be sitting around waiting for experts … wear down your shoes. Is there a trade association? How about blogs and online sites for bar owners? Call the blogs you read, specialized for bar owners, and ask the online editor if something’s up in the industry. You might get some good attention out of it, and the writers sometimes (sad that it’s not always) know what’s going on better than anybody else.

State Supreme Court Decides in Favor of Nasty Reviews

The Oregon Supreme Court just reaffirmed the legal protection of nasty Court Protects Nasty Reviewsreviews as free speech.

Which reminds me of the ongoing opportunity and problem of reviews. Amazon.com reviews, Yelp reviews, Google, TripAdvisor, and all of them are a combination of powerful, important, and yet also full of problems. Users care and we generally love the idea of picking and choosing based on what all those nice other people decided to share with us. And business owners care too, we live and die with reviews. But there is that temptation to write your own reviews, game the system, get your business five starts by hook or by crook. And there’s that related temptation to use reviews to hurt competition.

In the Oregon case from just last week, the Eugene Register Guard reported the court sides with online review writer in dispute with wedding venue owner. The issue was between wedding venue owner Carol Neumann and customer/reviewer Christopher Liles.

Two days after attending a wedding on Neumann’s property in June 2010, Liles posted to Google Reviews a highly unfavorable rundown of his experience at Dancing Deer Mountain. Titled “Disaster!!!! Find a different wedding venue,” the review called Neumann “two-faced,” “crooked” and “rude.”

Oops. Neumann sued for $7,500 in damages for defamation, and that suit was thrown out. Neumann appealed and won. The state supreme court just reversed the appeal. The Register Guard reported:

The state Supreme Court ruled Thursday that an online reviewer’s highly critical remarks about the wedding venue owner are protected free speech.

So reviews are protected by the first amendment. Liles’ Lawyer summarized:

Strongly stated opinions about goods and services — no matter how derogatory — are protected speech so long as such expression does not include or imply provably false statements of fact.

Interesting. And it makes sense. But I have some questions for you:

  1. How to you react to the blistering reviews that seem full of venom? I tend to discount them. I take the excess emotion as a sign that there is more there than just the words. I’m very wary of what seems like revenge reviews. I’m reminded of a seething-with-rage review of a restaurant in which the reviewer wrote “they refused to seat us because they said we were drunk.” So I don’t take that as such a negative.
  2. What do you do to deal with reviews that are written by the business owners, friends, families, and employees? Can you tell? I look for real detail and granularity to validate a review. And I also prefer places that have hundreds of reviews, rather than just a few, because it’s harder to game reviews in high volume.
  3. What do you do with reviews written in bad faith by competitors. For example, I’m pretty sure some restaurant owners write bad reviews for the restaurant across the street. How can we tell?

My Dumb MBA Mistake

I’ve made a lot of mistakes. You can’t build a business from scratch without making mistakes. It’s an entire category on this blog, more than 150 posts. This dumb MBA mistake wasn’t my worst, but it’s one of the easiest to explain afterwards, and I hope one that might help others avoid making it too. There is a moral to this story.

Mexico-City-Kainet-Flickr-ccIt was August of 1981, early morning, in the office of John Lutz, managing partner of McKinsey Management Consulting in Mexico City. I was three months out of Stanford with an MBA degree, working for McKinsey Management Consulting in Mexico City.

The McKinsey offices sat in a very stylish high-profile office building overlooking a critical freeway junction over Chapultepec Park, linking the fancy Las Lomas residential area with Polanco and the Paseo de Reforma main business district. The streets were wet from rain overnight, and the freeway was, as almost always, jammed. The sky was dense, a mixture of rainclouds and smog.

I needed to quit. It was so embarrassing. I didn’t like to see myself as the archetypical fancy MBA blowing off the first job. I was 33 years old, married, and my wife was expecting our fourth child. I was way too mature for this stuff. But still …

I had arranged a job waiting for me with Creative Strategies International in San Jose. From where I was, returning back to the San Francisco peninsula, Silicon Valley, seemed like returning from exile back to paradise. I liked Creative Strategies, and liked living back in the states. I wanted out of McKinsey.

I really didn’t like the job with McKinsey. It was stupid to have taken it. It was a job meant for a 26-year-old single person blinded by ambition and unencoumbered by relationships. Like most professional firms, success involved putting up with a corporate culture that spent 12 to 14 hours a day in the office, whether or not there was work to be done. The firm actively discouraged families by encouraging long-term business travel but without families, and by running 5-day strategy meetings at beach resorts and forbidding families coming along, even at the family’s own expense. I was not supposed to disagree with partners on … well, you get the idea.

I certainly didn’t belong. I’d been entrepreneurial for 10 straight years, making my own way with freelance journalism and, later, my own consulting, and I wasn’t up to faking awe for the partners. And as a family, we didn’t belong in Mexico City. I had loved that place for nine years in the 70s, it had been good to me, but I was done. My wife is Mexican, she grew up in Mexico City, and had family there, but she was tired of it too. The city was too big, too hard to deal with. We had left in 1979 and shouldn’t have gone back in 1981. I fell for the money and prestige, stupidly, because it wasn’t enough to keep me.

So, back in the office with John Lutz, did I tell him why I was leaving? That I didn’t like the job, had made a bad decision, didn’t like Mexico, I’m sorry, it won’t work.

No. I didn’t. I told him I needed a lot more money.

This is one of the best arguments ever for telling the damn truth, even when it’s embarrassing. I’m still embarrassed, but I’m older now, and, well, I think this is a good lesson to share.

So they gave me more money, and then how dumb did I look?

I still left, and I left looking really stupid. Why didn’t I just tell the truth in the first place?

So there’s the moral to the story. You’ll be in a situation where you’re tempted to slant away from the truth to make it easier, but remember before you do how bad you’ll look if the other side answers the wrong issue, forcing you to admit it was never the real problem. So here there is. It bothered me for a long time but that was 25 years ago or so, and hey, I’ve made a lot of other mistakes since, the sting has worn off on this one. I hope you find the story useful.

(Image: Mexico City via Kainet Flickr CC)

Displacement Principle in Startups and Small Business

It’s really pretty simple. Intuitive. I didn’t learn about it in business school; I learned about it while building and running a real business. I decided to call it the displacement principle.

Displacement Principle: In the real world of small business, everything you do rules out something else you can’t do.

Displacement

My favorite metaphor is dropping a brick into a full bucket of water. What happens? Displacement happens. Water splashes out of the bucket.

I’ve seen the same thing happen as people try to grow their businesses. It’s easy to add lots of new items to the lists of what else ought to be done. As you do, ask yourself:

Do we have the resources? Will this idea generate those resources? And, if not, what are we not doing when we start doing this.

Everything you do displaces something else that you can’t do. Learn to live with this and you’ll do better planning your business, and, particularly, growing your business.