Category Archives: Business Strategy

An Entrepeneurial [SIC] Misspelling

Business Strategy

Alright I admit it. I don’t like grammatical errors and misspellings, I don’t like them, Sam I Am, not one little bit. I’ve done some peeveblogging on this site along those lines. But when I’m wrong, I’m wrong.

I was happily heading for my blog at entrepreneur.com (Up and Running) tonight when I came across a strange and bewildering complete redo of not only my blog, but the whole entrepreneur.com site. Wow, how could that have happened, I asked myself. See if you catch it on the banner here.

Entrepeneurcom
Not easy to catch? No, I missed it too. There’s an entire site, offering entrepreneur.com information — or so it seems, I didn’t explore much — at "entrepeneur.com." That’s simply a misspelling of entrepreneur. And a business opportunity.

Or is that buisness opportunity? Bussiness opportunity? Do Google searches on either one of these, see what happens, I dare you.  I fear that Palo Alto Software owns some domain names that catch misspellings of business plan.

So, in deference to blog discussions of the right domain names, let’s hear it for entrepeneurs [SIC] who build businesses on the wrong domain names.

–Tim

Business Self Help: You Can’t be an Original by Copying

Business Planning, Business Strategy, Growing a Business

Very nice post last week by Brian McCann at Management R&D: Business for Boneheads.  He makes a very good point.  You can’t really interview a bunch of successful companies and reach useful conclusions that a reader can take to his or her own situation.

My take on this, slightly different angle from Brian’s but in complete agreement, is that as soon as you adopt something that worked for somebody else, you are already changing it and so it is no longer original, and neither are you.  I don’t think he means that studying other businesses is bad, but simply that you can’t just extrapolate to a different situation.

This makes good sense.

— Tim

Another Angle on Great Customer Service

Business Strategy

One of the little-known side paths of great customer service is figuring out who’s a customer, and who isn’t. I just picked up a fascinating report about Sprint dropping customers who call customer service too often. Here’s the link:

Sprint breaks up with high-maintenance customers | Tech news blog – CNET News.com

Is this crazy? I’m not sure. Would it be better to explore further, proactively talk to those customers, one by one? That sounds good, as I write it, makes me feel like I’m saying the right thing.

Still, I have two nagging doubts. One was a lecture I attended from a customer service expert who’d been very successful with auto mechanic businesses. He was extreme about giving the customers everything they wanted, but added, at one point:

"But remember, not everybody is a customer. Some people take advantage so much that you can’t afford them. Bending over backwards once or twice is great business, but with some extreme cases, you have to ask them not to come back."

This is a set of interesting questions for me, questions that I’m not prepared to answer.

— Tim

Who’s Crashing the Facebook Party

Business Strategy, Entrepreneurship

[Ed note. I posted this earlier today on the Huffington Post. I am cross posting here as a courtesy to my blog subscribers. ]

The first shoe dropped less than a year ago when Facebook stopped restricting its membership to college users. Before that it was like a private college party, started at Harvard, popular in major college campuses. Social life on campus revolved around Facebook. Facebook’s 23-year-old founder Mark Zuckerberg dropped the second shoe on May 25 as he announced an unprecedented amount of access to developers. Facebook is now a business opportunity, with everybody welcome. So long, private party; and hello world.

The party crashers are business users, looking to gain access to Facebook’s growing party of 28 million members. Access means eyeballs, and eyeballs means, at least in theory, money. Facebook, presumably, is looking to gain traction with some of the nearly 200 million registered users of MySpace, its Web 2.0 rival.

The new Facebook API gives Web programmers a crack at one of the most visited sites on the Internet, ranked between top 10-20 most visited websites as of June 2007, and the number one site for photos in the United States, ahead of public sites such as Flickr, with over 8.5 million photos uploaded daily. It is also the seventh most visited site in the United States (according to wikipedia).

So, not surprisingly, "Facebook vs. MySpace" is all over the blogs. Blogs compare user registration rates, volume of logons, time on the system, and recently valuations. They also compare features, interface, prevalence of bullying, even — certainly the most interesting — a Berkeley PhD student’s analysis of class distinction between Facebook (upper, educated) and MySpace (not). Some experts read that as evidence that the two don’t actually compete, but rather just coexist, with different user bases. Others point out a growing overlap of users operating in both sites.

Developers came quickly. iLike Inc levered its Facebook release to become the fastest-growing digital music service on the Web. Picnik, a photo sharing application, has registered 200,000 users. Major players including Washington Post and Red Bull are already there.

Developers don’t get a clear route to making money. They do get access to millions of users, but the traffic runs through Facebook. Most (if not all) of the new apps are free. iLike lets users purchase music they find through links to friends. There are branding implications for some, and traffic statistics for others.

While MySpace has made no formal response, earlier this week LinkedIn founder Reid Hoffman announced his site’s API to make it more of a platform like Facebook. LinkedIn is a business networking site, sharing resumes and recommendations.

So suddenly groups are mixing. What used to be college students in Facebook, business people in LinkedIn, and the rest of Web 2.0 in MySpace, is now a free-for-all.

The newcomers are also wary. I asked a 33-year old software company CEO about Facebook vs. LinkedIn. "I don’t want to mix my business contacts with social contacts," she answered, "but there’s no question that Facebook is suddenly very interesting. The API makes it much more attractive." She, however, is keeping her business networking in LinkedIn.

College students, meanwhile, are taken aback. I know a Stanford junior who called it "weird" to see her 31-year-old brother in Facebook holding a baby daughter. Students have been using Facebook to cement relationships, link friends, set up activities, join groups, and find out who is the good-looking guy on the third floor. One campus folktale is about the guy whose girlfriend broke up with him by changing her settings on Facebook, from "in a relationship" to single and looking. Now they find business people in their 30s, married with children.

— Tim

The iPhone as Classic Drama

Business Stories, Business Strategy
[Ed note: I posted this first on the Huffington Post last Friday. I’m cross posting it here for the convenience of my readers here. — Tim]

I’m eagerly awaiting the iPhone introduction, but not just because I want one. I’m looking forward to the drama of Jobs, Apple, and cool gadgets vs. the stock market and financial analysis. I’m hoping that Apple and Steve Jobs can establish coolness as a wild-card measure of long-term health in a stock market world ruled by short-term metrics like gross margins and last quarter’s earnings. It’s a classic drama, complete with a hero, a fatal flaw, and, I hope, final redemption.

    Some of this is standard drama of product launch. What if the iPhone comes out flawed with some problem that didn’t show up in the media build-up? What if the decision to hold it to the single wireless provider blows up? What if Jobs’ media genius has built demand way beyond what Apple can deliver? Will the experts still like iPhone after the launch? Will they call Apple the morning (or quarter) after?

    iphone steve jobs

    Beyond that, there is a classic hero theme, complete with a tragic flaw, to richen the drama. Apple computer’s history is a business case on mismanagement by stock prices, and — here’s where I get really interested — Steve Jobs’ exile which coincides quite well with the stock-price-driven myopia that nearly killed the company. He was out when that was happening. Jobs was exiled in 1985 just as the addition of practical hard disks made Macintosh the best personal computer in the world. In his absence, instead of using that advantage to build market share, Apple’s post-Jobs management let the stock prices manage its strategy. Stock prices followed margins, so Macintosh pricing stayed high. Apple’s share of the world, which should have gone up because of product quality, went down.

    Steve Jobs really knows cool. He called it "insanely great" during the early days of Macintosh. The Macintosh, Steve Jobs’ pet project, made computers cool for the first time ever in 1984. I was around Apple a lot back then, consulting to its Latin America group. The word was that Jobs wanted lower pricing. Jobs wanted market share. Jobs wanted Macintosh for everybody, which the ads called "the rest of us." And then Jobs was out.

    Some blamed Apple’s slide on its decision not to sell system software to other hardware makers, but that was a symptom, not the cause. The real problem, the tragic flaw, was a compensation plan at the highest level that meant key decisions tracked stock prices instead of long-term strength. Almost every manager I dealt with agreed that the pricing was hurting share, and that share would be better for the long term, and that prices should go down. The competitors managed 30 percent gross margin while Apple stayed at 50 percent, meaning that companies like Dell, Compaq, IBM, and HP, charged about $2,000 for what cost them $1,400, while Apple charged $2,800. Apple watchers normally cite this as the biggest mistake Apple made. What they don’t realize is that focus on stock prices was the real problem. The operating system decision was a symptom, not a cause. The stock price fixation was true for a long time. Apple’s premium pricing gave its competition (read: Microsoft Windows) time to catch up.

    Before I go on with the drama I should clarify something. I’m not one of those diehard "Apple is good, Microsoft is bad" people. I’m just watching here. My software company develops in Windows and for Windows. I don’t think Microsoft is evil. I do own a Macintosh and several iPods, but I work with Windows. And I don’t think Apple saves souls.

    I should add that I have no objection to premium pricing as sound business strategy. It makes sense in a lot of markets. I like high-priced restaurants and expensive cars. What made premium pricing a mistake for the Macintosh, however, was that it constrained unit sales in a business that depends on a community of software developers, hardware developers, accessory makers, retail stores, and broad compatibility for its ultimate success. The iPod wouldn’t have been what it is today if the price hadn’t dropped after the initial surge of excitement. The Macintosh could have been the industry standard if Apple had priced it aggressively enough in those formative years. Some high tech products — computers, entertainment devices, and cell phones among them — depend on a bandwagon (we call it a platform) as part of their success.

    I do have an objection to business strategy led around by the nose by short-term fixated stock market prices. As the launch approaches, I’m rooting for the iPhone to succeed, frankly, not because of Apple or Steve Jobs but because it could challenge the impact of stock prices on long-term business strategy. Business lives on its metrics, and the most fundamental metric of all is supposed to be the price of the stock. Managers are supposed to protect the price of the stock. Way too many managers are paid more or less according to the rise or fall of the stock price. And that’s bad. Stock prices go up and down on very short-term factors.

    Stay tuned. The best part of the drama is about pricing, and that part is still to come. Yes, I know the iPhone is expensive at launch, but that’s probably planned as part of Jobs’ genius for drama. Keep the price high in the beginning so people like me can pay the price premium happily. But I do hope they drop it over time, like they did with iPod pricing. I want Jobs and Apple to atone for those old mistakes during Jobs’ exile, and show the resolve to build a platform, not a niche. I hope that Apple builds share, and software developer interest, and third-party accessories, and broad compatibility. I want the Apple to do with the iPhone what it did with the iPod, and what Microsoft did with Windows, which is what Apple failed to do with the Macintosh. I want the best product to win in the market, and I want a history of innovative and desirable products to count as much in the stock price as high margins.

    I haven’t been close to Apple for years now, but the synchronicity of Jobs’ second coming and the iPod doesn’t seem like coincidence. Jobs’ sense of business is refreshingly clean and focused on the product. He’s always designed for himself. I really enjoyed watching that twinkle in his eye last month while he was talking to Bill Gates: "I just think about being able to get up every day and go in and hang around these great people and hopefully create something that other people will love as much as I do."

    Do We All Undervalue Bootstrapping?

    Bootstrapping, Business Planning, Business Stories, Business Strategy, Growing a Business

    In business schools, in popular blogs, in business publications, and in general discussion of starting a business, we undervalue bootstrapping. We teach starting a business as if every new business requires sophisticated venture capital. I understand how this can be educational. It means teaching business planning, which is the ultimate business teaching tool, and investment analysis, ROI, IRR etc. Still, of the 700,000 or so new businesses launched every year, about 5,000 had VC money, and maybe 30,000 had angel investment. The rest were bootstrapped.

    I think the investment option is overrated. It’s better to own your own than to land investment, at least if you can pull it off. As the old song says, “God bless the child that’s got its own.” The opportunity itself should determine whether investment is required. lf it takes more resources than the founders can muster, then it needs investment.

    The cliché asks which is better, a piece of a watermelon or a whole grape. But what if that comparison is skewed wrong? Which would you rather have, a slice of an orange or a whole tangerine?

    I have good associations with bootstrapping. I was on the board as Philippe Kahn took $20K from his father, plus one $90k bundling deal from a PC manufacturer, and levered up Borland International without outside investment until he didn’t need it. He did it with a great product, strong demand, smart management, and cash-only sales instead of the mainstream, working-capital-hungry channels. Borland went public less than three years after it started. Palo Alto Software grew slowly without outside capital. We had to slipstream a larger vendor whose advertising budget was 10x ours. We ended up with 70% share in our niche and owning the company outright.

    Bootstrapping isn’t just about owning the whole pie. It’s also about the luxury of being able to experiment and, at times, making mistakes. Philippe was unconventional. Could he have had that freedom if he’d had conventional VC financing?

    A few years ago I was judging a major intercollegiate venture competition in which one team looked especially strong, it’s $5 million 3-year forecast seemed as likely as any of the others, but it didn’t need any outside investment. It was the best plan (IMHO) but it didn’t win. The judges, mostly investors, couldn’t figure out how to deal with that plan. It didn’t win the competition. It should have.

    —Tim

    At eBay Live: Why Brown is Green

    Business Stories, Business Strategy, Marketing

    With all the resources they’ve spent on branding themselves as brown, UPS has a booth full of people with green t-shirts.  What’s up with that?

    Img_0117

    It turns out to be not nearly as unplanned as it looks. I asked a smart woman at the booth why they weren’t wearing brown shirts.

    "On purpose," she answered. "UPS is green. We’re talking about packaging and shipping options that are green, meaning environmentally friendly."

    So what seems like a branding error is actually working as an icebreaker and conversation piece leading to an important discussion. Nicely done.

    True Story: Entrepreneur Meets MBA

    Business Stories, Business Strategy, Growing a Business, Teaching Business

    You can look up Philippe Kahn in Wikipedia if you want. He started Borland International on his own and took it from zero to $60+ million per year and an IPO in less than four years. Borland has been bought and sold several times over since then. Philippe has built some other companies, he’s become famous and wealthy and he’s earned it.

    I was a co-founder of Borland International, one of four members of the original board when it was founded. I had been recommended to Philippe as a business plan consultant and he had needed a business plan. We met, we worked together, and things clicked. When he offered to give me stock and asked me to join the board as the company started, I agreed.

    That was in 1983. I was 35 years old but I was also a recent MBA, only 2 years out of Stanford. Philippe had far more to teach me about business than I realized. Not that he wasn’t schooled — he had a good degree in math from France — but he wasn’t MBA-schooled. And I, on the other hand, trusted analysis first and intuition later.

    So as Philippe guided Borland from start-up to success, we disagreed repeatedly as he chose business strategies that defied schooling and analysis, and, over and over, he was right, and the MBA analysis was wrong. Never have I made so much money while being so often wrong.

    Take pricing as an example. Turbo Pascal, which was line for line, pound for pound, one of the best software products ever made, fell into our lap in October of 1983. [Side note: that’s a good story, you can read it in Fire and the Valley, and I intend to tell it in this blog, but not now]. That was just a few months after the JRT scandal, in which somebody brought out a $30 Pascal package to compete against the $450 mainstream offering, only to go broke after charging a lot of credit cards that weren’t refunded. Furthermore, my MBA analysis pointed out, with the leader at $450 per unit there was no reason to go cheap. Too cheap would hurt credibility, I said. And we were brand new, we didn’t have working capital to handle volume.

    Philippe, however, politely ignored my logic and set Turbo Pascal at $49.95 per unit. And he was so right, I was so wrong, if I hadn’t had equity to console me it would have hurt a lot. The pricing move was brilliant, that plus some very gutsy marketing got Turbo Pascal’s wings up and soaring very fast, and Borland International never looked back.

    I have a second example: Quattro Pro. Philippe aimed his competing product squarely at the industry leader in 1985 and published the first "Lotus 1-2-3 compatible" PC spreadsheet. I said it was crazy to take on Lotus at that point in our history, Philippe did anyhow, and, once again, he was right and I was wrong. And again, because I was a shareholder, I benefited.

    I keep this story not because I like to chronicle mistakes (although I don’t mind doing that, it doesn’t hurt and it seems useful to others) but because I think this illustrates something that happens all too often. A good educated guess often trumps classic analysis.

    —Tim

    The Fish Bowl, the Free Prize, a Lesson

    Business Stories, Business Strategy, Marketing

    The first time I took our company to exhibit in a trade show we brought along a big plastic fish bowl with a sign that said: "Free Drawing! Drop your business card in the bowl for a free copy of Business Plan Pro®."

    Three days later we had four fishbowls full of business cards. Business cards, business cards, and not a lead among them. Fortunately we typed in only a few hundred names and sampled the marketing results before we spent the resources to input thousands. The list was useless. None of the people sampled wanted our product.

    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 hundred good leads. We input the data and followed up and made some sales.

    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. Thousands of bad leads are worth nothing, while a few hundred good leads have real value.

    This is about selling business plan software. Not everybody wants business planning, and those who don’t aren’t good prospects. It’s hard, or expensive, or both to sift through a lot of leads to find those who have real interest.

    A few years later the fishbowl story helped our marketing team recognize that we didn’t want mysterious banner ads or free prize offers that generated lots of clicks and few prospects. We wanted to attract the few interested people, not huge numbers of people who couldn’t care less. 

    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.  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?

    For the record, since I like the idea of true stories, this actually happened in 1988 and 1989 at the MacWorld expos in San Francisco, and the product was Business Plan Toolkit®, ancestor of Business Plan Pro®.

    –Tim

    Cheaper and Easier

    Business Stories, Business Strategy, Current Affairs, Entrepreneurship, Web/Tech

    It’s hard to focus on the very important point Guy Kawasaki makes as he lists the costs of Truemors.com amidst the clamor of the so-called industry elite complaining about the Truemors site itself, or, even more bizarre, wondering why legal costs were $4K. Who cares?

    The real point is that this means barriers are coming down. This is about accessibility, and leveling the playing field. The latest Web wave has radically changed the rules of the game. The new Web 2.0 wanna-be entrepreneurs aren’t locked out of the game by the supposedly elitist venture capital (VC) crowd. Just do it. Or shut up.

    This has been true for a while. Do a good Web search and you’ll find dozens of references. I attended a recent session in San Francisco led by Michael Arrington of TechCrunch that focused  on this same basic point. You can read about that in David Hornik’s (he was a panelist in that session)  Web 2.0 Expo post at his Ventureblog.

    Ten years ago it took a few million dollars to fund a Silicon Valley industry-elite high-profile start-up. Now it takes $250K or so, maybe even $500K, or even, if you’re able to pretend that  Guy Kawasaki’s personal brand isn’t the same as capital, only $15K. That’s the real point.

    The capital market has some serious sorting out to do. Arrington was convinced that the decimation of general start-up costs threatens the business model of the mainstream venture capitalists. He argued that VC firms have to invest large amounts of money over limited timeframes, so they need deals that absorb $2 million or so each, not $300K. Hornik of August Capital and fellow VC Michael Eisenberg of Benchmark Capital bravely insisted that the low start-up costs were only from idea to validation, and would need VC money to take the next steps. Let the market decide that one.

    While the industry implications are the main point, the flap at Guy’s blog and Digg is worth a good laugh. The expletives fly as the supposed Internet intelligentsia actively dislike the Truemors site. Guy has to be laughing at that while the traffic pours in. The site picked up 246,210 page views when the Inquirer called it the “worst website ever.” I recommend reading the comments on Guy’s blog, many of them aggressively insulting, and remember as you do, that he gets to approve or delete each comment. Again: who cares?

    And legal costs give us another bit of comic relief. The $12K total costs include $4,824.14 in legal costs. Dozens of comments rake Guy over the coals for either inflating costs or being stupid to pay them. That’s hilarious! Again, who cares? Aside from that, this guy (no pun intended) has an international reputation and a major business to protect, and his office is in Palo Alto, CA; you can spend that much in legal costs in one meeting.

    Those are just distractions. The main point is much more important. Quoting Guy on this: "One thing is for sure: no entrepreneur can tell me that he needs $1 million, four programmers, and six months to launch this kind of company. Things are a whole lot cheaper and easier these days."

    –– Tim