Category Archives: Growing a Business

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

The Magic of Metrics

Business Planning, Growing a Business, Journalism

I love metrics.  Metrics in business means some specific set of numbers you measure and get measured by, ideally numbers that anybody can understand.  You know you have metrics when you find yourself checking the metrics every morning, every day, or every hour.
Cheering Crowd
I think it’s a good thing.  It makes a game of it. You get a score.  I’m a person who times myself when I run, and I run very slow, but I still note whether it takes me more or less time on the days I do it.  I like scores.  I like to compete.  I usually compete against myself and my past, but still, I like to compete. 

When I was with United Press International in Mexico City, many years ago, every day when we came into the office we had "the logs" as a metric.  The logs were a scoring of how many newspapers used our story and how many used the competition (Associated Press) story.  When it was a story I’d written, the logs were like a football score.  If more newspapers used my story than the AP story, I’d won.  Scores were like 12-7, 4-3, 20-1, etc.  I still remember the one I won 23-1, a story about a mudslide.  My lead was people "buried in a tomb of mud" and the newspapers liked it.

Fast forward to business today.  Ideally, every person in the company has his or her own metric to watch.  The CEO watches a bunch of them, of course, but the bunch is composed of lots of separate metrics.  The customer service rep counts calls taken, or orders.  The tech support rep counts issues resolved every day.  The product development people watch returns, tech support issues per capita, and issue flow.  The finance people watch balances, interest income, and margins.  The online Web people watch visits, pages, pay-per-click yield, orders, sales volume, and search placements.
Istock_000000408066small
My vision of a company working well is people checking and sharing their metrics.  They are accountable for metrics, and proud when they do well.  The goals are built into the plan, and the actual results are compared against the plan, regularly.  The plan is reviewed and revised and the course is corrected based on, among other things, the metrics.

Of course the metrics have to be the right metrics.  Don’t track somebody on things they can’t control, and don’t accidentally use metrics to push the wrong buttons.  For example, years ago I had a sales manager tracked on  sales dollars alone, who also controlled expenses and pricing.  Sales went up but margins went way down.  That was predictable.  Track a customer service agent on call volume alone, or a tech support rep on issues handled, and customer satisfaction will suffer.

The metrics should also be built around a reasonable plan.  They need to be aligned with the plan, so they tie directly into strategy. 

And metrics have to be tracked.  They are part of a larger planning process in which plans are kept alive and reviewed and courses are corrected as assumptions change.

These days I am particularly happy with the flow of the metrics in my particular job.  Until recently I was responsible for the entire company, the CEO.  My metrics were all over the map.  Sales, profits, cash flow, unit sales, payroll, health, wealth, and the pursuit of happiness, all of which was pretty vague and hard to track.  Today I’m still president, but my job is about teaching, writing, speaking,  and blogging.  And blogging gives me a single set of metrics (traffic, page views, subscribers, etc.) I can watch and enjoy, or suffer, every day.  Like back in the old days, at UPI. That’s cool.

Yes, Happy Employees Make Good Companies

Entrepreneurship, Growing a Business

Do  happy employees make good companies? Rob May asked this question on his businesspundit blog maybe six weeks ago. He cited research. The results were inconclusive. There seemed to be correlation between happy employees and good financial performance, but it wasn’t clear which caused which. He had a couple posts on that in May, and in a comment on the second post, UCLA Law Professor Stephen Bainbridge agrees and cites additional research along the same lines. 

I like BusinessPundit; I read every post and usually agree with it. On this case I’d disagree, except that I’m not sure whether author Rob May is buying the implied conclusion, or not. He seems to be interested in the research more because it’s surprising than because it’s useful. Research that seemingly contradicts common knowledge is always more interesting.

As far as I’m concerned, that question might or might not merit research in the context of large companies, but in the real world, your business and mine, there is no question. Until you get big enough (God help you) to ignore people because there are so many in so many different locations, or so many different cubes, having happy employees is vital.

As a business owner or operator  you’re going to walk into your office every morning greeting the people who work there. You’re going to work with them shoulder to shoulder, as a teammate. You’ll get coffee with them, have lunch, sit at meetings going over plans and presentations and problems and solutions. You’re going to know their spouses and children, and eventually you’ll meet the parents of the younger ones and the children of the older ones. If they aren’t happy, then your life in the office is hell. Who among us is thick-skinned enough to not feel the heavy air of an unhappy company? Do you want to live with that? Can that possibly be good for business?

People have to believe in what they’re doing. Working at something you don’t believe in causes intolerable stress over the long term. For them to believe in it, it has to be something of value, and they have to be treated fairly. I call that common knowledge. I don’t think it’s particularly surprising. You already knew that.

Part of the problem is that a healthy community and teamwork are necessary but not sufficient conditions for good business. In the long term, without a good relationship with employees, your company won’t prosper. Having a good relationship with employees, however, isn’t enough to guarantee success. There are so many other factors. Necessary but not sufficient is hard to pinpoint.

So what’s with the research here? I don’t want to critique PhD-level studies, that’s hardly my charter with this blog; but this collection is more interesting to me as examples of the problems in research than for their findings. In trying to answer a pretty obvious question they generate — in my mind at least — more questions about research than useful answers. And, after dealing with the questions, I’d like to jump past the research and comment on the question itself.

First question is how do you measure happiness in the happy employees? Is it that they say they’re happy, or that they don’t leave the company, or perhaps you measure their stress levels and vitals. To be fair, the studies themselves are thorough and rigorous on this point, but still, this is hard to measure. It reminds me of the work (I posted on it yesterday) Dr. Robert Sapolsky at Stanford University does to study ape populations; the scientists shoot the apes with a dart to put them to sleep and then measure indicators of stress in the body. They have to shoot the apes when they’re not looking, though, because otherwise the researchers are measuring the ape’s stress of walking around the jungle with researchers shooting darts at them. 

The second question is how you decide which companies are good companies. Analysts usually use standard financial indicators or the all-time-favorite – stock prices, even though stock prices are only available for public companies and they are a few large companies at the top of the pyramid. What about the other 25 million companies? And if profits or stock prices are the barometer, is that for the long term, short term, or what? I’ve posted before about problems measuring things by stock prices, which are generally influenced by short-term performance, not long-term strategic positioning.

So am I developing an anti-research theme in this blog? I hope not. Still, some of these studies show how hard it is to do good research on some topics, and how much you have to trust your instinct. Now that — trust your instinct too, maybe with some research to educate your guesses — could be a theme.

— Tim

Adam Osborne on Product Release Brinkmanship

Entrepreneurship, Growing a Business

I just left a comment on John Jantsch’s excellent Duct Tape Marketing blog, an interesting post titled Sometimes You’ve Got to Burn the Boats. John is recommending building brinkmanship deadlines into your marketing *gulp*. I’ve done it but I don’t want to write about it.  It’s something like managing to make it across a rickety burning falling bridge — you don’t want to call back to others to follow you, for fear of watching them not make it and fall.

What I do want to write about is the late Adam Osborne, founder of Osborne Computers, writer, columnist, and inspiration to a generation of computer writers turned entrepreneurs.

I had the privilege of dealing with Adam Osborne a few times during the early Silicon Valley days. Two of his sayings come to mind:

  1. "Adequate is good enough," he said, more than once. He was talking about product development and technology business. "Ship it."
  2. He also espoused what he liked to call the Adam Osborne Trade Show Theory of Productivity, which was, in detail: "80% of the GDP is finished the night before the trade show opens."

— Tim

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

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

Growing a Business

Books, Growing a Business

I realize it’s a bit out of date, a 1987 b00k, but Paul Hawken‘s Growing a Business is still my favorite business book.  Growing_a_business It’s the first one I recommend.

Hawken tells real stories of real businesses wrapped around people doing what they like because they like doing it, they think it should be done, and the doing of it flows simply into the logic of filling needs and offering value. Two guys in Vermont get involved with their ice cream. They start selling it. It ends up being Ben and Jerry’s Ice Cream. It’s a great story.

They aren’t all bearded ex hippies. The stories include a bank in Palo Alto, Patagonia (outdoor clothes), Apple computer, etc. What they have in common is a sense of organic, natural growth from the foundations of doing what you want to do, when that’s something that other people want to have done.

It helped for me that I was a customer of the bank in Palo Alto, and of Ben and Jerry’s, Patagonia, and Apple Computer, and my wife loved buying at Smith and Hawken. I believe in the underlying idea that businesses depend on value — value to the customer — and values — the people in the business have to believe in it. 

The business in this book isn’t what you learn in business school. It’s what you want to do. It isn’t about building a business to make money, but rather building a business because it should be built and you want to do it. With that kind of foundation, it seems — and I’ve seen for years now, with hundreds of different business — it grows.

— Tim

ps: I shared the podium with Paul Hawken in the late 1980s, at Apple, when I was speaking on business planning and he was speaking about the ideas behind this book. He seemed a man whose persona was based on ideas, on the underlying values. I’m not surprised at the way his career has gone since. 

Dumb Investors: a Dumb Idea

Entrepreneurship, Growing a Business, Starting a Business, Teaching Business

Last Fall my son Paul dealt with a potential consulting client with a website business who wanted to bring in investors. They had half a million dollars of seed money, but it was running out. “They tell me they’re looking for someone without investing experience who won’t interfere with management and will take less equity than normal,” he told me. “In other words, they want dumb investors.”  He didn’t push his proposal. He got out of that business relationship.

"Wanting dumb investors", to use Paul’s phrase, comes up a lot. Here’s just a sampling of some email questions I’ve received that seem to indicate that same kind of thinking:

… I need capital to hire
and build the appropriate infrastructure, but I don’t want to borrow. How can I get the $ I need
(between $300k and $700k) without losing much equity? And how would you suggest I go about it?

I am about ready to start fund raising. The business will be set up
as an S corporation. The business is a gym-type operation, and the
current financials predict I will need a total of $800,000 for proper
capitalization. I personally can put in $80,000, and will manage/work
there every day putting in that oh-so-necessary sweat equity. What percentage of a company should a person expect to give up to
receive various types of equity? Seed money? 1st round? 2nd round? etc.

… we are at a start-up stage, having developed proprietary
auction search technology and have set up to go live via our own
start-up capital in the order of $100K. Given that we can build up some
semblance of traffic, would it make sense to bypass an angel round of
financing which would provide around $500,000 in return for 50% or more
of our company in equity, and go directly to a first-stage VC round
where we can solicit $2-5 million in return for a 10-30% equity stake?

I’m amazed at how often this idea comes up. I think it’s usually disguised as wanting a good deal, or looking for a way to not "give away too much equity." I have dealt with people who assume investors are more attractive the worse the deal they negotiate.

The first question here, hidden in the mess, is whether or not you want to build the kind of business that takes outside investment. Most of the time this is a question of resources. First you develop your plan to get a good view of what’s required, then you compare what’s required to the resources you have on your own. If you can’t do it on your own, and you can’t scale it down, and you still want to do it, then you need investors.

And if you’re going to deal with investors, think of it as a long-term relationship like a marriage. Don’t look for dumb investors. Look for investors to build your company, not tear it apart. Or don’t look for investors at all.

— Tim

 

Don’t Just Ask an Expert, Wear Down Your Shoes

Business Planning, Entrepreneurship, Growing a Business

Question:

I own an Irish pub [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.

Answer:

What a great opportunity for taking a fresh look at your market! Well okay, that sucks, I guess it’s not a great opportunity at all, except maybe for me, because it gives me a chance to make a point. Anyhow …

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 a magazine for bar owners? Call the magazines you read, specialized for bar owners, and ask the managing editor if something’s up in the industry. You might get some good PR out of it, and the trade-magazine journalists usually know what’s going on better than anybody else.

Tim

Must-see Videos on Ted.Com

Entrepreneurship, Growing a Business

TED (Technology, Entertainment, and Design) has opened up a new website at www.ted.com that gives the world access to some great talks and presentations. Here are some must-see short videos for anybody involved in business and/or life:

  1. Richard St. John Secrets of Success in 8 words, 3 minutes. 
  2. Seth Godin on Sliced Bread and Other Marketing Delights.
  3. Malcolm Gladwell on What We Can Learn from Spaghetti Sauce.
  4. Barry Schwarz on the Paradox of Choice.

Actually there’s so much to recommend on this site that I’m in danger of Schwarz’ problem, too much choice. Browse the speakers and the topics. It’s so worth your time.

— Tim