Category Archives: Advice

Biggest Mistake? Mistaking Business for Life

Advice, Work Life Balance,

(Note: I’m posting here my latest column for the Eugene Register Guard Blue Chip monthly magazine. These are not new themes for this blog, but I like what I say here. This is reposted here with permission.)

Let’s put startups, entrepreneurship and life in proportion.

A webinar participant asked me last week about what I think are the biggest mistakes I see in startups. That made me think, and here’s what I came up with. And common mistakes that you and I should avoid. So here’s a list. But first, three stories:

  1. My friend Larry found the job of his dreams and moved from the Silicon Valley, which he loved, to Atlanta for the new job. Six months later he was back. When I asked him what happened, he said: “Tim, it’s easier to find a new job than a new wife.” That was 20 years ago. He and his wife are still married. And Larry doesn’t regret his decision.
  2. A former student asked me, three years after he graduated, what to do about his wife not wanting him to start a new company. He said he had done the business plan and was sure it would work, but his wife was against it. I told him to get a clue. If he couldn’t convince his wife, a) maybe it wasn’t such a great idea; and b) that adds huge personal risk on top of the business risk.
  3. Years ago I was stuck over whether to leave a good job to start my own business. My wife and I had heavy student debt, four kids and a mortgage. She said: “Do it. Let’s take the risk. If it doesn’t work, we’ll figure it out. You won’t fail alone; we’ll fail together.” So I did it. And it worked.
So here, after the stories, is my list:
  1. Don’t sacrifice your life for your business. If you can, make your business enhance your life. And avoid the mistake of confusing business with life.
  2. If business threatens good, important relationships, then dump the business. (The corollary to that one — in honor of my four daughters, who know this — is that if a bad relationship holds you back for no good reason, dump him, not the business).
  3. Don’t use business as an excuse for selfishness and obsession. I’ve lived through this. There is an overpowering temptation to push everything else aside and dive into the business. Everybody who wants you to do anything else is annoying, and “Don’t they realize you’re building a business?” You miss dinner, the kids’ games and teachers’ conferences, everything that matters to anybody else in your life.
  4. If you make it, don’t pretend you did it alone. In my case, for example, I get introduced as chairman and founder of a successful software company, as if I’d done that alone. My ego likes that. But from the very start my wife was there with the risk, the thinking, the key decisions, the strategy, who and what to prioritize, and (repeating on purpose) especially the risk. We both had to sign the papers for the credit line at the bank. We both put our house and everything we owned into play. Perhaps even more importantly, my wife made sure I didn’t fall into that obsession trap. She insisted I stop working for family dinner, every night, even if I had to continue working into the evening. She scheduled vacations in advance, and prepaid them, so I wouldn’t just cancel. She didn’t let me dive into the business and never come out. She maintained that sense of proportion and I’m grateful to her for that.

Final thought: People who start businesses, run businesses and grow businesses have to be able to live with mistakes. You can’t do it without making lots of mistakes. Be able to deal with that. But keep the mistakes inside the business, not in the rest of your life.

(Image: shutterstock.com)

On Trying to Start Two Businesses At Once

Advice, Starting a Business, ,

Do you recognize this question: “Do I start two businesses at one or just one at a time?” I received it over the weekend from my ask-me form on my website. And I have two completely contradictory answers and then an explanation. 

First, the question (leaving out parts of it that would identify the person asking it):  

I am about to start a business called [omitted] a digital marketing agency. But I also want to start another one, a mining research consultancy company called [omitted]. I am passionate about both but just wondering if I should start both at the same time or start one then use the profit from the first one to start the second one.

Before I answer, I have to enjoy the optimism there. How nice to be wondering whether to fund the second success with profits from the first. 

My answer: Focus. It’s going to take a lot of work to start up either one of these. Don’t dilute your efforts. Choose one. It’s going to be harder than you think. Do a business plan for it, then execute, and review and revise the plan constantly. 

The contradiction: I’m right now doing exactly the opposite of what I recommend. I’m working on a social media business and a mobile apps business, both of which I’m doing with co-founders, without staff,  and without outside investment.

The explanation: It’s dumb, but I get up in the morning, like the idea, and I can’t resist. I have patient co-founders. 

So I’m hypocritical, yes. Do what I say, not what I do. 

Image: Vlue, shutterstock.com

A Marketing Expert’s Must-Read Advice on Living Better

Reflections, Work Life Balance,

I’m proud to say John Jantsch, the world’s number one expert on small business marketing,  is a friend of mine. I’ve worked with him for years and I’ve learned a lot from him. For example, I still use his definition of marketing (“getting people to know, like, and trust you”) almost daily. 

His wisdom has spread well beyond marketing for a while now. For example, it was John who first suggested to me, several years ago, that regular exercise pays off in productivity time, instead of taking productivity time. 

And I’m glad to see he’s sharing some similarly important concepts, about life as well as business. in his Recover You series on his Small Business Marketing blog. This is must-read material. 

Today’s post is How to Breathe and Why You Must. Here’s a snippet:

Breathing is perhaps the most mindless of all human behaviors and what I’ve discovered is that an intentional practice of mindful breathing is perhaps one of the most powerful tools you can employ.

Earlier this month he posted How to Change Your Thoughts and Why You Must. Here’s a bit from that one: 

Starting today, carve out a 15-minute period and consciously commit to foregoing any thought of judgment. Take a walk on a busy street while you monitor your thoughts and see how actively your mind want to make judgments about everything you see. For some people just keenly witnessing their thoughts for even fifteen minutes is incredibly mind-opening.

Do yourself a favor. Read and follow this series of posts. 

(Image: Taken from John’s post. Photo credit: Mait Jüriado via photopin cc)

10 Ways to Be Smart in Business Discussions

Advice, Leadership, Management
  1. Listen. 
  2. Look at the eyes of the person talking. 
  3. Don’t be thinking about how to interrupt and make your point; absorb that person’s point first. change your mind
  4. Keep your mind open. Smart people don’t win arguments; they gain insight. Let your argument go. 
  5. Acknowledge points made by others. Absorb those points. Get them. Get them before you try to counter them.  
  6. Understand counter examples. If somebody says trees lose their leaves in the fall then pine trees are a counter example. Counter examples can narrow or disprove a point. The can be logically significant. 
  7. Understand analogies. One of my favorites is “paying somebody to write a business plan is like paying somebody to exercise for you.” Analogies can shed light on a subject. They can also be off target, and not apply. 
  8. Question the assumptions. Make them explicit. Ask about underlying or hidden assumptions. Help to get people into the right context.  Question them if that’s appropriate. 
  9. Never be shy about asking what you don’t know. “I’m sorry, I don’t know that term” makes you smart, not dumb. Lots of businesses develop their own insider acronyms and forget that nobody else knows what it means. Don’t assume that the term you don’t know is a commonplace term and you should have known it. 
  10. Change your mind sometimes. Often. Smart people listen, think, acknowledge, and, learn. They have open minds. And open minds will change when they absorb new ideas and new angles. Changing your mind makes you smarter. 

Sticky Questions on Startup Ownership and Buy-Sell

Advice, Business Ethics, Business Stories, Starting a Business, Valuation,

I received this interesting detailed question from the ask me form on my website. I’ve decided to answer it here. I think my answer might be useful for others with similar questions. I’m putting the question in quotes, paragraph by paragraph, and adding my response directly where it comes in the question. 

It starts like this:

A person ‘X’ owns 15% stake in a startup company – not by investing money but purely by virtue of having dedicating hours for building a product for the company. No salary was to be paid as per an initial agreement. The 15% stake was deduced by a simple calculation: (value of company) / (number of hours worked) x (dollars per hour).

Was it clear in the initial agreement that the formula here was to be used in future buy-sell transactions? Was that agreed to by all? 

The question continues: 

The value of company is therefore, sum of [(number of hours worked) x (dollars per hour)] and [hard cash invested by a person ‘Y’, also taking into consideration year-on-year appreciation of this hard cash]. Lets call that VC.

No, it’s not. The value of the company is what somebody pays for it when they buy it. And if nobody is buying it, then the value of the company is an estimated value. There are lots of formulas for estimating it, and estimates will vary widely. I’ve got more on that below, in my specific recommendations. 

However, it could be valued like you propose, for purposes of a buy-back transaction, if there was a buy-sell agreement that set that formula in the beginning. That’s if and only if. Issues like these are the reason experts recommend that partners and cofounders talk about the eventualities and agree, before the business starts, on how they’ll be handled. You have to agree beforehand or you’re stuck with arguing and negotiating the valuation afterwards. And when you try to pull it apart afterwards, without the benefit of an agreed-upono buy-sell formula, then many formulas might apply. 

And here’s the heart of the question: 

The company is not profitable yet. Person ‘X’ decides to give up his 15% stake of the company. My questions:

– How much is ‘X’ entitled to receive as the value for 15% stake? 
– Calculating backward, would X receive as much as [(number of hours worked) x (dollars per hour)]? 
– How does this change if the only buyers of the 15% stake are also two other stake-holders within this company, one of them by virtue of cash invested in the company, and the other by virtue of hours spent working for the company?

Normally, unless otherwise specified, owning 15 percent of a company means you own some shares that amounted to 15 percent of the total shares issued when they were issued. Ownership privileges are defined in company documents. You might have a seat on a board of directors, or not. You might get dividends when that’s relevant. And you’ll be able to sell those shares subject to securities and exchange regulations. 

Just hypothetically, as an example, say you agreed two years ago that you got 15% because you had put $15,000 worth of work on it for free and the founders agreed then that it was worth $100,000. If it’s launched and very successful now, with sales of $1 million annually, then it’s worth something like one or two times revenues, less a discount for debts, less a discount for not being liquid. In that case your 15% is worth something like $100,000. On the other hand, if it launched, has no sales, no profits, and has spent all its money, then your 15% is worth about zero. Companies are almost never worth a formula based on hours worked. 

So unless you have that buy-sell agreement stipulating the formula you’re using, then it doesn’t apply. Here’s what I recommend. 

  1. Agree on an estimated valuation. The formula you’re suggesting seems like it might be one-sided and self-serving. Good luck with it because it’s going to be hard. Expect disagreements. Depending on how much money is at stake and how severe the disagreement, you might need to work with an attorney and a valuation expert you can agree on. Here are some posts on this blog about valuation. This one is particularly relevant: 5 things business owners need to know about valuation. Sales, sales growth, profitability, and scalability and defensibility make it worth more. Debt, and not being liquid shares, low growth, and losses make it worth less. 
  2. Take 15% of that valuation and negotiate with your cofounders based on that value. I hope for your sake and the sake of your cofounders that things are going well for this business and they’re happy to buy you out. If they aren’t, then you’ll have to keep discounting until you get to an amount they’ll pay you. Or just keep your 15% of the shares, stop working for the company, and hope that someday they’ll be worth something. 

The moral of the story: please, the vast majority of business marriages (partnerships, startups with founders, etc.) end in divorce. Do a business pre-nuptial agreement, which is what they call a buy-sell agreement. 

 

 

Greatly appreciate your response and all your help!

50 Great Productivity Tips from Famous People

Creativity, Personal Productivity, , , , , ,

The blog at onlineMBA has an interesting post called 50 terrific productivity secrets of the rich and famous. It’s a lot of fun, and some good tips too. You can see the highlights here in the graphic. But click the post … it’s hard to stop reading.

They aren’t all straight lines to productivity, like Bill Gates’ “go paperless,” Warren Buffet’s “say no,” or Winston Churchill’s “take a break away from your desk.” They also include some really good life tips like Richard Branson’s “don’t forget to work out,” Arianna Huffington’s “get enough sleep,” or –one of my favorites — Mark Cuban’s “avoid meetings.”

 

Q&A: How Do I Finance My Company Without Losing Control?

Advice, Angel investment, Q&A, Starting a Business,

Question:

I need $250,000 to get my business started, but from what I see on the web, I’m going to have to give away the business, practically, to get that money from investors. And I don’t want to borrow the money because it’s a startup and I can’t be sure I’ll succeed.

cash ball and chain

My answer:

  1. You may be worrying about the wrong thing entirely because investors want know part of you or your business. Don’t even try to get angel investors unless you can convince them that there’s a reasonable chance that the money they give you today will give them ownership in a company that they’ll be able to sell to somebody else for 5, 10, or more times that amount of money in 3-5 years. “Reasonable chance” is just that, a decent shot at it, we know you can’t be certain. But can you convince people that it’s worth spending money on your business for their chance of return?   Ask yourself: do you have what investors want? If you don’t, then don’t waste time on this.
  2. Investors write checks. They expect something back in return. If they they write checks for your business instead of to buy a fancy car or second home, that’s because they expect to own something for a while and make money on it when they sell it. Don’t complain about giving them ownership.
  3. Real investors want control for good reasons. Good investors end up as partners. Don’t give up control if you don’t have to, but depending on how good your business looks, and how much startup experience you have, sharing control might be the only way to go. Or the best way. 
  4. I’ve written it many times, although this isn’t mine originally: choose an investor like you would choose a spouse. Find somebody compatible, who can offer help and advice, and ad to your team.
  5. If you manage to convince friends and family to invest in your business and give them a bad deal, you’re going to have to live with that problem for a long time.
  6. 10 good reasons not to seek investors for your startup.
  7. You don’t want to borrow the money because there’s too much risk? But it’s your startup, right? Why should anybody else take the risk you don’t want to take. Banks aren’t supposed to take risks either; it’s against the banking laws.
  8. Not that you should borrow the money, even if you can because you have house equity or something to pledge as collateral. Weigh your own risks and returns.
  9. If you want peace of mind, scale that business plan back to a size you can manage with your own resources. It’s possible for some businesses.
  10. Look for alternative financing like early prepaid sales, or share of future revenues, etc. Read 5 non-traditional ways to get startup money.

(Image: cash chained, bigstockphoto.com.)

Good Advice Often Makes Bad Things Happen

Advice, Leadership,

Mike Myatt, who writes on leadership, says it straight. In a post titled Really Bad Advice, he first sets the scene:

I just finished reading an article where the author (a self professed innovation guru) recommended strategy be aligned with capability, and that to allow ambition to exceed capability is a nothing short of a recipe for disaster.

And then he tears into that: 

Let me get right to it – if you want to fail as a leader then please follow the flawed advice given by the wizard of innovation mentioned in the opening paragraph. But if you want to rise above the crowd and become a truly innovative leader, I’d ask you to regard said advice for what it is – more of the same. It’s just another well-intentioned sound bite that will destroy your company and your career if you choose to follow it.

The underlying problem, much more general than Mike’s specific issue, is quite common: Good advice makes bad things happen. Business, like life itself, is not a one-size-fits-all proposition. Every case is different. What worked for me could easily be disastrous for you. I’m flattered when people ask my advice, but I’m always hoping they have the common sense to listen, digest, evaluate my story for their situation, and execute on it only if it actually makes sense for them, then, in their situation. I shudder when it seems like people are going to just execute on my advice without internalizing first. 

Meanwhile, back with the specific issue on strategy, Mike puts his objection very clearly: 

leaders who complain about a lack of resources, are simply communicating they are not very resourceful. Great leaders find a way to develop and/or acquire the best capability in order to create a certainty of execution around a winning strategy. If you want to fail as a leader, hire B and C talent and ask them to win with an inferior strategy. Thinking in a limited manner will only accomplish one thing – it will limit your future.

That too, I think, is good advice that might or might not apply to some other situation. To be taken in moderation, and used with care.

Conclusion: This goes straight to my general feeling that there are no such things as best practices. 

(Image: bigstockphoto.com)

Restaurants, Bootstrapping, Good Stories, and Divine Intervention

Bootstrapping, Green Business, Growing a Business

This is a great look at one example of a successful restaurant business. Jonathan Fields calls it “bootstrapping with a bit of divine intervention.” That story is about four minutes in. The whole interview is interesting, and a good background look for anybody curious about the restaurant business, particularly one successful restaurant business, not stylized for cable TV.

If for any reason you don’t see the video, click here to get to the original on YouTube.

This is a really good interview, with a lot of good stories, about real life in the restaurant business.

And while I’m on the subject, this is part of a series Jonathan is doing called the “Good Life Project.” It’s a great collection. You can find that here on YouTube, on Jonathan’s Career Renegade channel.

Q&A: Are There Business Classes That Busy Smallbiz Owners Can’t Afford Not to Take?

Back to Fundamentals, Business Education, Q&A, ,

Over this weekend I was in email with a college student who asked me to answer some questions about business education, as part of a class project. I found this one interesting, and one that comes up a lot, so I decided to post the question and my answer here today. 

The question: 

On your blog, you strongly recommend getting an education for the purpose of living your life better. However, I know many people who have sadly passed that opportunity — they are parents and are overtaxed by their own small businesses. Is there a minimum curriculum you recommend to help these people deal with their own businesses — classes that busy owners can’t afford NOT to take?

My answer: 

I like your question and I think that’s a very useful idea. I would recommend basic courses in accounting, finance, and marketing. Most of business is learnable outside of a classroom but understanding cash flow and the principles of marketing is a very real advantage. Debits and credits, the difference between sales, costs, profit, assets, liabilities, and capital, and the difference between cash and profits are essential, in my opinion. Also, the fundamentals of marketing including market segmentation, target marketing, and market focus are every bit as important in the new world of social media as they were 50 years ago in the old world of advertising. Although you can learn those outside of a classroom, it’s the kind of knowledge base you can pick up quicker in a class.

For the record, I practiced what I preach. I did the Stanford MBA while married with 3 kids with no economic help from family, from savings my wife and I had managed from a Journalist’s salary while raising our kids, and working part time. The meager savings lasted just the first quarter of the first year and the rest was financed with my own part-time income and debts. So I know that’s hard to do because I did it, and I don’t want people to think that when I recommend it that I’m being unrealistic about what it takes. And I want to add, also, that when I have recommended it, I’ve always been respectful of the fact that it may be a luxury that not everybody can afford. 

Thanks for asking. 

(Image: istockphoto.com)