Category Archives: Business Mistakes

Proving Again that Business Ideas Have no Value

Business Ideas, Business Mistakes, Web/Tech, , , ,

Hold a mirror up to a mirror, and you get some kind of representation of infinity, or something like infinity, intriguing but hard to explain. Just do it.

That’s something like what happened to me yesterday with a riff on business ideas. It started with my first view ideaswatch.com, which is a new website where people can suggest, list, and discuss new business ideas. Think of things you want. Things you wish existed. Those are business ideas.

I love it for several reasons: new business ideas are fun; they’re not owned so they shouldn’t be hoarded; they stimulate entrepreneurs; and the site seems well done. And this reinforces my own insistence that too many people overvalue business ideas; that an idea without implementation is just an idea, worth nothing. So why not share?

But it gets better. I clicked onto the site and started browsing the ideas already posted, and I found this one, called “Startup Failures.” Just to make it clear, the image here isn’t the main page. It’s a specific idea, one of hundreds posted on the site.

In case you can’t read the fine print, the idea is:

What if there was a website where people shared their startup failures so others can learn from that.

Which is where we start ruminating on the nature of ideas, and how nobody really owns an idea. Because:

  • First,  there already is something like that, The Mistake Bank, the work of my friend John Cadell. It’s not specifically about failed startups, but its tagline is: learning from faux pas, miscalculations and decisions gone wrong. I posted about it here on this blog last month.
  • Just last weekend, by complete coincidence, none other but my daughter Megan was on twitter musing about roughly the same thing. The source tweet isn’t exactly the same thing, but it’s close. And their tweets were picked up by others. So people like the idea.

So we have a cool site encouraging people to post and discuss new ideas, and we have a new idea I found there, that’s a good idea, that I’d like to see exist. And we see here that, like all cool ideas, it’s already percolating. It’s out there.

And whoever makes it work deserves to make the money. If you, for example, take this and make money on it, then you and nobody else deserves the money. The value is building the business, not having the idea.

Can You Define Good Management Technique?

Business Mistakes, Leadership, Management, , , , ,

With due respect to some of the great thinkers who have, I don’t understand how anybody even tries to define, teach, or even predict good management technique.

Even if it’s just one manager and one person being managed, there are already three huge factors: the manager, the other person, and the situation. Both the people involved have their strengths and weaknesses and all that. And the situation itself, what’s going on, is an entire additional set of factors. Then there’s baggage from the past, and, well, it becomes an infinite problem. Higher math. Condemned to infinite case-by-case analysis. screen shot

I think about what I’ve heard about coaches in professional athletics. Sometimes a supposedly hard-nosed, tough coach will win the championship, and sometimes a supposedly “people person,” softer coach, will. And occasionally you hear about a coach who is either hard or soft to each individual player, depending on his sense of how that specific player responds. There too, though, with coaching, it’s a pretty complex problem, because it’s about the nature of the coach, the nature of the player, and the nature of the situation.

So too with wielding authority in your own business.

What reminded me today was Karen Hough’s Handling Tough Conversations in 3 Simple Steps, on Small Business Trends. She’s sharing data from interviews with more than 1,000 of managers in larger companies. She found that the hardest part of their job was “tough conversations.” Here’s a quote:

Conflict makes most people nervous, so we avoid having those tough conversations, even if we know it may produce a better outcome. A study of more than 1,000 project managers across 40 companies found that if project leaders were willing to break a code of silence, they could substantially improve their ability to execute on initiatives.

Although that study was done with middle managers in larger corporations, I know that it applies very well to small business and entrepreneurship. The code of silence is a reluctance to deal with poor performance, bad news, and negative feedback. It’s certainly a problem every manager has to face.

In her post, Karen shares is three-pronged strategy to break what she calls the code of silence, changing the motif from authority to coaching. It’s not a cure-all by any means, but it could help. And I wish I had a better solution to offer, but I don’t.

Do You Really Learn From Mistakes? Seriously?

Business Mistakes, ,

I have a healthy respect for the value of mistakes. You might have seen my recent post on 5 truths about mistakes, or perhaps the business mistakes category on this blog. I’ve certainly made my share. (Wow … I see that category has 100 posts. This one, fittingly, is the 100th).

With that as background, I’m happy to report that John Caddell tells me he’s repositioned his site The Mistake Bank on a blog platform, so we can all see it again. It was set up for a while on a Ning platform. He had taken it down.

For a quick sample of that, try
Are positive recognition & confronting mistakes in conflict? John starts by quoting Edward Hallowell’s new book, “Shine: Using Brain Science to Get the Best from Your People:

The need to learn from mistakes is one of our most time-honored principles, drummed into us from early in our lives, through our educational years, and into our careers. But new research is showing otherwise, as does most people’s daily experience. Think about it. Do you usually learn from your mistakes? Or do you just feel embarrassed or upset and try to forget or cover up what happened?

John, however, believes in acknowledging mistakes and learning from them. That’s the reason the Mistake Bank exists. He says:

But his underlying premise is wrong, in my view. Confronting and learning from mistakes is not the opposite of positive recognition. And they are not mutually exclusive. In fact, a highly positive culture is required to give employees safety to reveal and correct mistakes quickly, rather than hide them.

Hallowell, quoted by John, moves from acknowledging mistakes to public humiliation, as if you can’t do one without the other. He says:

Do performance reviews that detail your shortcomings really help you? Or do they bring you down? Does being criticized in public improve your performance, or not?

I say that logic is flawed. Sure, you run into some bad bosses who berate people in front of others, and occasionally you’ll find somebody who seriously believes that’s a good management technique. But I don’t. And I’ll bet you don’t either. But I don’t think many people would agree that acknowledging mistakes happens only with public criticism. Would you?

And John cites a study of nurses and safety that found …

nurses in “safe” cultures committed more mistakes than nurses in less safe environments, until she discovered that psychological safety allowed the nurses to be more candid in revealing and discussing mistakes rather than hiding them.

What do you think? I’m pretty sure I’m voting with John on this one. And I’m also glad, as I said above, to see the Mistake Bank is up and running again.

ps: John told me in email that my value of mistakes post “unwittingly encouraged” him to put the Mistake Bank back up. I’m glad. I’m also afraid most of my best work is unwitting.

True Story of Business Disaster With a Compensation Plan Lesson

Back to Fundamentals, Bootstrapping, Business Mistakes, Business Stories, True Stories, ,

This is a true story. Names aren’t included for obvious reasons. Don’t ask.

Once upon a time a product-obsessed software entrepreneur who didn’t like sales hired a sales-oriented entrepreneur who liked selling software. It seemed like a match made in heaven, as they say. Both of them could focus on what they liked doing.

dollars flying

The company was just starting. The software guy owned it, and paid the sales guy’s salary, and they both agreed on some very attractive incentives for the sales guy if he could double sales to a million dollars in the next year.

So they agreed, and both of them went to work. As time went by, the product-obsessed software guy focused on his computer and the code, while the sales guy made calls in the next room. When the code was ready, they worked together to create packaging. They had somebody duplicate disks (this was before the Internet) and assemble packages. And the product launched. The sales guy made more calls, and a major distributor agreed to carry the product. Soon after, several major retail chains agreed to carry the product.

When the year ended, the sales guy had made his million dollar quota. And two months later the company was swamped in debt, broke, and threatened with bankruptcy. About a quarter of the million dollar sales had been sold into the channels, but not out of the channels to actual end-user customers. So it was coming back.  And the distributors expected the broke company to buy the software back for what they’d been sold for, less a substantial amount for shipping and co-promotional marketing.

What happened?

The worst thing was that the software packages didn’t sell well from store to end user. The sales guy got it into the channels, and the stores put it on the shelves, but people didn’t buy it. And channels don’t take those losses. They send the stuff back.

To compound that problem, neither the sales guy nor the software guy knew about sell-through reports. Had they asked, the stores would have given them advance warning that the stuff wasn’t selling, called sell-through reports. Then they would have known disaster was brewing, and maybe they could have slowed things down, changed the packaging, or at least known what was about to happen to them when the stores started shipping the product back to them. (Which is a great example of the old adage: you think education is expensive? Try ignorance.)

And the second worst thing was that the sales guy had done deal after deal to get product into the channel by offering distributors and retail chains deep discounts and special deals with freebies, like two units for the price of one, or 5 for 3, and so on.

So, although sales had in fact passed the the million-dollar mark, after the returns were netted out it was only about $750,000. Plus, costs had gone from about 20% of sales to almost 65% of sales. And the $250,000 received for the software that hadn’t sold through had been spent.

The compensation lesson: the sales guy had been offered a huge bonus for getting sales to $1 million. The gross margin had nothing to do with it. And returns weren’t even considered. So he met his numbers, and it was a business disaster.

The whole fiasco reminds me of one fundamental principle of compensation: whatever the compensation plan rewards is the behavior it encourages. If sales is all that’s mentioned, then sales — not management, not information, not optimizing your company’s position — is all you’re going to get. Do you give commissions on sales, or gross margin? Do you pay commissions when the sale is made, or when the customer pays? Do you have a return allowance that holds commissions up?

(Image: Losevsky Pavel/Shutterstock)

5 Vital Truths About Business Mistakes

Advice, Business Mistakes, Entrepreneurship,

(Note: I posted this last Thursday on American Express OPEN Forum. I’m reposting here.)

I’m not a baseball fan and I try to avoid sports metaphors, but there are some things I love about baseball that I treasure for their relevance in entrepreneurship and business management.

Baseball doesn’t pretend perfection. Pitchers get to miss their target three times free for every batter. Batters get to miss the target two times free. The best batter in history hit just a bit over .400, meaning six outs per every 10 times at bat. Anybody who batter better than .300 (three hits out of ten at bats) is highly regarded, if not a star. And people make errors on defense — and they call them errors, record them, and keep stats on them.

Small business owners should have it so good.

I’ve been running my own business for several decades now, which is long enough, I have to admit, to learn to live with mistakes. So now I want to give back, a bit, and share these five vital truths about mistakes:

1. You make mistakes

What worries me most about how much we all make mistakes is the whole mystique about excellence that leads to denial and distortions. I think of the song by Shaggy, ‘It Wasn’t Me.’ Reflect on your own work: do you make mistakes? If you don’t answer that with an immediate ‘Yes,’ then you’re in danger of being one of those delusional managers who blames others.

Don’t kid yourself. The longer you survive in business, the more mistakes you’ll make. It comes with the territory. Like in baseball, if you get up to bat you’re going to make those outs. If you’re the pitcher, you’re going to throw some pitches that weren’t strikes. And out on the field, you’re going to make some errors. You have to recognize it to deal with it.

If you’ve been at business for a while, then anybody close to you — like friends and family and especially team members in the business — can quickly point to a mistake you’ve made to fit any context. Be aware that it’s true for anybody in your position. Remind them, if you feel it’s appropriate, that you’re in the business of making mistakes, and if it weren’t for what you’ve done right, you wouldn’t still be in the game.

2. Accepting mistakes is good, but analyzing them is better

Much as I admire the general principles of Zen (as I understand them), just accepting the fact that you’re making all those mistakes isn’t good enough. Grab them, bring them into your head, and twist them around a bit to see what they can teach you about yourself, your business, and people in general. Keep an inventory of mistakes you can use to apply to future problems. They’re food for thought, eye openers, and reminders. Don’t forget them. Analyze them. Understand them.

It’s about vision. Humility does a lot more for business vision than corrective lenses.

Some people say amnesia is good for thinking and process and mental health; I disagree. Don’t dwell on your mistakes. Don’t beat yourself up over them. But keep them close enough to help with the future.

3. Beware of the quicksand mistakes

I’ve written about quicksand problems before. Life is full of them, which means business is full of them, too. When you’re trapped in quicksand, struggling makes it worse (or so I’m told; I haven’t had the experience). The quicker you struggle, the faster you sink. You relax and accept your fate and you’ll last longer, and maybe get rescued.

Some kinds of mistakes are quicksand problems: if you acknowledge them and change direction, you’re way better off than if you try to fix them or hide them. Call out the mistake, file it, analyze it, and use it. Don’t pretend you didn’t make it.

4. Understand uncertainty

We need to remind each other that we walk a perpetual treadmill of uncertainty. We never once make a decision knowing the future, but we are all the time discovering we guessed wrong, in the past, about what was going to be happening in the future. You have to always keep in mind that when you made that mistake you didn’t know what was going to happen. You were guessing, then, about what you know now. Ease up on yourself.

5. Mismanaged mistakes are team killers

Those of us in command must always remember that our people make mistakes, too, just like we do. Leadership and management come together on this point. When you give a task to somebody on your team you have to recognize that they make mistakes just like you do. You have to help them deal with mistakes, leading by example, and collaborating. You can’t pretending these mistakes didn’t happen. But you can’t grind people’s faces into them either.

Think of this concrete example: You want somebody to reserve hotels for your business travel. You don’t like the hotel they reserved. What, and how, do you tell them so that they reserve you one you like better next time? If you do this one wrong, they’ll never reserve a hotel for you again without giving you so much information and making you make so many choices that it would be easier to just do it yourself. When that happens, it’s not their fault, it’s yours; it’s your reaction to some past mistake.

(Image credit: DeepspaceDave/Shutterstock)

Tip: Mistakes Are More Fun Than Tips

Blogs and blogging, Business Mistakes, Writing,

Here’s a continuing trend: tips and what-not-to-do lists get better readership as lists of mistakes.  It’s not a new trend, it’s not a surprising one, but one worth remembering.

What reminds me this morning is a collection of posts by Geoffrey James on BNET:

Notice on these posts we get a double dose: Not just mistakes, but superlative mistakes, and in an “of all time” context. It’s an interesting approach. The lists include some I’d never heard of (I’d never heard of Six Sigma, listed as the #1 stupidest management fad of all time), some very general (“leadership” is listed as #2 dumbest management concept of all time), and several well reasoned takes on long-term thinking, well worth reading.  Geoffrey does a good job at standing back and poking holes on some overused phrases.

On the same theme, you might notice in my illustration here that the most popular item at BNET today is “Business Blunders of the Year.” There are some mixed reviews on that particular piece, by the way, perhaps because a slide-show format, nice for lists of five or 10 points, doesn’t hold up to lists of 75 (yes, that’s 75 business blunders).

Being contrarian really works.

Business is Where Home is Good

Business Mistakes, Entrepreneurship, Starting a Business, , , ,

Yesterday I posted Home is Where Business is Good here. Today, the exact opposite. That seems like a contradiction, I know; but it isn’t really. I I love a good paradox.

Yesterday’s post was about living where you have to when it’s not your choice. Generally, employees have to move. They get transferred.

Entrepreneurs, with some exceptions, get to make a choice. You start a company. You move a company. And sometimes you move yourself to start a company. Usually it’s your choice.

My wife and I have made our choices several times, with varying results. The illustration here is Eugene OR, which is where we’ve lived for 18 years after moving Palo Alto Software here from its original location in Palo Alto CA. I posted here about that. We moved from Eugene to Mexico City once for a job, and we moved from Mexico City to Palo Alto for a job. We tried and failed to start a company in Mexico City, where the location was a disadvantage for our particular venture at that particular time. I was a founding director of a company that moved from the heart of the Silicon Valley in San Jose to the other side of the Santa Cruz mountains, in Scott’s Valley, and went public in less than four years.

I really don’t recommend moving from where you are to someplace else because the new location is better for the business you want to start. Move because you want to, yes; particularly if you’re young, and not tied down, and more so if it’s somewhere you want to move to. And move if you’re in the middle of nowhere, with to infrastructure, so you’re at a huge disadvantage. But don’t move because people say some other location is better. The business advantage you get is really unlikely to make up for the personal disadvantages of moving from somewhere you know and like.

The United States is a national economy. Sure there are the startup clusters, but success stories are everywhere. So are Internet access, Fedex, UPS, Kinko’s, and commercial airports. Some people swear by the cities, some prefer the towns. Some like a lot of action, which comes with a lot of smog and traffic and such; some don’t. If you’re going to build your own business, you get to choose.

One of the best moments of my years owning a business was when my wife said:

If we’re going to put up with all the downside of owning our own business, let’s get some of the upside, and move to where we want to live.

So we moved to Eugene. And 18 years later, we’re still glad we did.

(Image: I picked it up from a Eugene city website)

Looking For the Rest of this Patent Story

Business Mistakes, Technology, True Stories,

What a shame. Although we all like neatly packaged stories — heroes and villains, good vs. evil, David vs. Goliath — it’s rarely that simple.

For example, late last year there was what seemed to be a great David vs. Goliath story about this inventor guy who teaches at Yale getting $625 million from Apple Computer for violating his patents. Or so it seemed to me, that is, until I read that this happened in Tyler, Texas. The world capital of patent trolls.

What’s up with that? Well you might want to read Apple Don’t Go to Court in Tyler, Texas from back in 2008. Or better yet, this description published last year by Tyler Directory, a local publication:

What happens is a company buys up some patents that they already know are being infringed upon with the express purpose of making income through litigation. These patent trolls do not wish to make something with the patent they bought but are looking to sue as many large corporations as they can.

This patent trolling makes millions and millions of dollars for these companies as well as their lawyers. Not only does the patent troll need to open up a business in Tyler or East Texas to pursue litigation here but their lawyer must be local counsel.

In this case, I’m afraid, whatever the merits of the case, the David took the Goliath to a drastically slanted playing field. You could read this 2006 piece in TechDirt on the same phenomenon. East Texas loves patent trolls.

The inventor in this case, David Gelernter, seems easy to like. He says it’s not about the money …

Before the verdict was announced Gelernter spoke to the blog BigThink about the case: “[It’s] not because of the money, but because of the deliberate failure to acknowledge work that we would have made freely available as academics. …. We’d like to see credit where credit is due.”

It all sounds good to me. Except then he went and set up an office in East Texas, pretty damn far from Yale, to sue in East Texas patent troll heaven.

But wait — is he wrong to do what optimizes his chances to win? After all, if I owned a patent, and I wanted payback from a large company, I’d go to East Texas with it too. I’d do what makes me most likely to win. But I’ve seem some horrifically unreasonable patent troll lawsuits win money. That, in my opinion, is money for nothing. And I assume the lawyers get huge chunks of it too. It seems ugly.

But things are never that simple.

Say What? Cash Is Not King, But Accounting Is?

Business Mistakes,

Over the weekend I read Why Cash Is NOT King by Jay Goltz at NYTimes.com. If you’ve been in entrepreneurship or small business at all, that title is disturbing. We all know cash is king. Profits aren’t necessarily cash.

So what’s up with this? Is it just man bites dog, good journalism because it’s surprising, reversing standard wisdom? Or is there any useful point to it?

Actually, yes, there is a point, but buried it in his last paragraph. It’s in my title. And his contrarian main point is weak. It is good journalism (and he’s writing for NYtimes, and I’m not) but not good business.

So why his title? Well, first he cites the Bernie Madoff scandal, obviously cash without profit because it was stolen. But that’s just a diversion, which really has nothing to do with you or me. Here’s what he really says:

There are many ways to have cash without profit. It could be borrowed, or from investors, or from customer deposits, or from inventory that was sold but not replaced, or from the sale of an asset.

While that’s completely true, it’s also trivial because all of these examples are obvious. Can you imagine not knowing that the cash in the bank is borrowed money? But the exact opposite, profit without cash, is not intuitive, way more dangerous, and way more common. Because they are hidden, run-silent-run-deep problems, not intuitive at all. Profits soar, cash plummets. That’s worse because of the Dickens effect: best of times, worst of times.

Jay does know better. I checked. I found his excellent Six Shocks of Entrepreneurship post from earlier this year. Number two on the list is “the accountant must be wrong” and number four is “where’s all the money?” “Cash is King,” he says. Sound familiar?

But Jay does eventually get to a point worth making: The importance of good accounting and financial management. Most of the deadly cash-is-king problems are caused by sloppy business numbers: overstating profits and missing cash problems because of timing of booking sales, costs, and expenses; calling direct costs or expenses assets; confusing sales with payments, etc.  Jay says, in his second-to-last paragraph:

If you are starting a business, running a business or even investing in a business, you should learn basic accounting: income statements, balance sheets, depreciation, amortization, retained earnings. Accounting is not just for paying taxes. It is for knowing how your company is doing, for doing price analyses, for budgeting, for projections and for borrowing money.

Now that I can agree with completely. Good accounting does in fact bring those run-silent-run-deep problems to the surface. And I kind of like, but with one huge addition, his actual conclusion:

Maybe there is no king. It’s accounting, it’s profits, it’s cash, and it’s sales. It’s not catchy, but business isn’t that simple. You need them all. Now that you can take to the bank.

If only he’d added planning in there. Accounting is about what has already happened, while planning is about doing something about it.