Category Archives: Entrepreneurship

Experts, Experts Everywhere, and Not a Pause to Think

Business Mistakes, Business Strategy,

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

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

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

Let me explain.

Seeking the right answer

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

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

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

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

Wear out your shoes

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

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

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

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

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

State Supreme Court Decides in Favor of Nasty Reviews

Business Mistakes, Business Stories, , ,

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

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

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

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

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

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

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

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

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

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

Entrepreneurship and Leadership with Mark Maples

Business Ethics, Business Ideas, Leadership, Starting a Business, Work Life Balance, ,

My Friday video for this week is on entrepreneurship and leadership from the Stanford Ecorner. If you haven’t been there for a while, check it out. There is a new interface, and it’s a great collection of speakers on entrepreneurship, startups, business, and investment.

Here’s the intro from the site:

Silicon Valley veteran Mike Maples Jr. shares heartfelt advice urging aspiring entrepreneurs to “only do things that you think have a chance to be legendary.” By committing to always doing exceptional work and being around inspiring people, Maples says you will reap the cumulative benefits of a lifetime of excellence, and be able to enjoy it again whenever you look back.

http://ecorner.stanford.edu/embeddedPlayer.html?mid=3749&width=500

This is a two-minute excerpt from a longer talk.

My Dumb MBA Mistake

Advice, Business Mistakes, Business Stories, MBA,

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

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

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

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

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

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

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

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

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

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

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

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

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

(Image: Mexico City via Kainet Flickr CC)

A Good Idea is Like A Beautiful Day. Everybody Owns It.

Business Ideas, Entrepreneurship, Starting a Business

My answer to this question on Quora about ideas vs. execution  “ideas don’t matter, only execution matters”? – has been getting a lot of views. So I decided to repost it here.

Zihuatenejo MexicoThe answer to this is that millions of people – and I mean that, literally, millions of people – right now, as I write this, as you read this, believe they have great business ideas. And hundreds have already taken this question to Quora, how do I get money for my idea?

I’ve written this several times on Quora in answers to several questions very simple to this one. But here it goes again:

A good idea is like a beautiful day. Everybody owns it. You use it or you don’t. Other people may make better use of it than you do.

Go ahead, quote me. Make my day.

It’s not exactly that the idea doesn’t matter. It’s that you don’t own your ideas. You don’t know how many other people have the same idea at the same time. You don’t know how many fatal flaws there are in your ideas, fatal flaws that you wouldn’t know until you started executing. Until you do some work for the idea, you don’t own it, and you can’t sell it, so it doesn’t matter.

Execution, on the other hand, is what gives an idea value. Businesses have value, and execution turns an idea into a business. The hard part is that execution also takes work, money, and doesn’t mean success. Quite often, after the work and the money are spent, execution has merely shown that the idea wasn’t really an opportunity. It was just an idea.

 

Displacement Principle in Startups and Small Business

Business Mistakes, Business Strategy, Planning Fundamentals

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

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

Displacement

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

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

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

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

10 Tips for Finding a Startup Job

Entrepreneurship

What? You actually want to find a startup job? What with the mythology of startup jobs having low pay, long hours, and high risk? If so, good for you, and good luck to you. I tend to lean towards starting your own, but startup experience first is also a good idea. And with a small company, especially a startup, you get to see the whole thing, not just one small piece of a very large organization.

Just to clarify, this infographic ends with a pitch for posting your resumé on the site that authored it, and I don’t know that site so I can’t recommend it (or recommend against it either; I just don’t know it). But I like the information here, so I am posting the infographic. I did rename the post to cite 10 tips instead of 12, because the 12th tip is a pitch for the site that authored it, so it doesn’t count; and tips #1 and #2 are too close to the same thing, so – truth in titles – I called it 10. And just barely, really, because that tip #6 on how to dress is pretty close to bogus. Who wears a suit anymore anyhow?

12 Tips That Will Get You Hired at a Startup

What ‘Accurate’ Means in a Business Plan

Business Plan Contest, Business Planning, Venture Contests, ,

Questions_iStock_000011860969_modified (1)I just answered this questionon Quora. I think it’s an interesting question, one that comes up often enough, and one whose answer is worth considering.

How can I write a very accurate business plan. I’m hoping to win a grant in a business plan competition?

The rest of this post is my answer on Quora, reposted here with Quora’s (implied) permission:

This is an important question, but also a big one, hard to answer in a few hundred words. And I’m going to stick with the subset of business plans that apply to business plan competitions. These are more traditional and formal business plans, written to communicate with outsiders, and therefore significantly bigger than the lean plan (see below) you need to just run a business.

What Accuracy Means in a Business Plan

It starts with this: in your summary and descriptions of the business model, company formation, market, business offering, and management team, your readers take accuracy for granted and so should you. Tell the truth about your business and what you plan to do. Period. Accuracy isn’t a variable.

I have to guess that you bring up accuracy in the context of projections, specifically your market forecast, sales forecast, projected profit and loss, projected balance sheet, and projected cash flow.

Accuracy in market information

With market information, make sure you distinguish between the statistics, demographics, and descriptions you present as facts – external available information, with sources cites – and estimates and projections.

Approach this with the understanding that there are no facts about the future, just guesses; and there is no guarantee that the information you’d like to have will be publicly available. So therefore you have to develop reasonable estimates, based on assumptions, for which accuracy is mainly a matter of making your assumptions logical, and transparent.

Here’s a real example from a plan I was involved in recently for a social media consulting firm (Have Presence):

  1. The target market is small business owners who want social media presence, don’t want to do it themselves (or don’t have time), and have the budget to pay for a service.
  2. To develop an estimate for the U.S. portion of the market, I start with known statistics on small businesses in the U.S. and cite the source (in this case, the U.S. Small Business Administration), to arrive at some number, say 5.5 million (I’m not taking the time, while answering, to go check the actual number; but it’s a real number, publicly available, with a reliable source).
  3. From there I have to make an estimate of how many of those 5.5 million business owners meet the criteria of wanting presence, not doing it themselves, and having budget. There is no way to get the actual number with any accuracy. I have to estimate. And whether I end up saying it’s 2%, 5%, 10% or 20%, the quality of accuracy in this specific case is a combination of going from known statistics to estimates, and keeping the estimates clarified.
  4. If I really cared – perhaps because I was entering a business plan contest with my plan – I could probably figure out how to educate my guess in point #3 by looking at Facebook statistics, Twitter statistics, businesses by number of employees, and so forth – that would still leave me with estimates, but better estimates. In fact, I’m fine with what I did in point #3 because that tells me there is enough market to go for … whether it’s half a million to two million potential clients is irrelevant for business decisions, because it’s enough.

So this is just one example. Accurate in market description is a matter of combining what can be known with what can’t be an has to be estimated.

 Accuracy in Financial Projections

Financial projections are always wrong, by definition, but they’d better be laid out correctly, reasonable, transparent, in line with industry standards, and, above all, credible.

  1. The goal is to connect the dots in the financials so that spending is in proper proportion to sales and capital resources, and cash flow is sensitive to factors such as sales on account and inventory that make it different from profit and loss. Show that you understand how the financials are going to work in the real world. What drives what.
  2. The sales forecast has to be credible. Make sure you lay it out from the details up, not from top down. That means transparent assumptions about drivers, so for a product in retail channels it’s something like monthly sales per store, and stores carrying the product; and for a web business is traffic via organic, traffic via PPC, and conversion rates; and so on. Definitely not a top-down forecast, meaning show a huge market and a small percent of market.
  3. Profitability has to be credible. One of the most common flaws I see in business plans for competitions is absurd profitability, 30%, 40%, and more as profits to sales, in an industry in which the major players make 5% or 10% on sales.  That’s a huge negative. Accuracy in P&L means having realistic percent of sales for marketing expenses, general and admin expenses, and development expenses.
  4. Cash flow has to be credible. Another common flaw is failing to understand how sales on account and accounts receivable affect cash flow for business-to-business businesses; and yet another is failing to see the cash flow implications of having to buy product inventory and carry it before selling it.

Accuracy in the main body, descriptions, etc.

For the rest of the plan, industry information, competitive information, and so on, what’s really important is that you clearly distinguish between factual information from valid sources and guesses and estimates.

One of the worst things you can do in a business plan competition or pitching investors is to get caught presenting as fact something that one of the judges or investors knows is inaccurate. If you aren’t sure, clarify, disclose, call your guesses guesses. And it’s particularly bad to fudge the facts regarding your personal history, your business history, or those of your team members. Don’t cross the lines of accuracy related to degrees, job positions, and past jobs. You need to protect your integrity. And if you blur the truth on purpose, such as saying you studied business at Harvard or Stanford when you were just there for a few weeks in a special course, or when you failed to graduate, that can kill a deal.

All Ideas are Brilliant Before They Are Executed.

Advice, Business Ideas,

“No battle plan ever survives first contact with the enemy.” – Helmuth von Moltke.

Playground Obstacle CourseSimilarly, all business ideas are brilliant before they are executed.  Ideas have to run through an obstacle course of hard realities before they are really opportunities. Few ideas make it.

Everybody has ideas, Millions of business ideas are floating around everywhere. Every problem anybody encounters is a solution waiting to be unwrapped. Every time somebody follows the comment “there should be a better way” by suggesting a better way, that’s a business idea.

An opportunity is way more important than an idea.The difference between idea and opportunity is huge. An opportunity is an idea somebody can execute,  An opportunity is an idea you can execute on because the technology and product development will succeed, people want to pay for it, there is a team with the capability to execute, the needed resources are available, and the economics will work. Ideas have no value because nobody owns them and there are billions floating around every day. Opportunities are the beginning of something that can gain value.

That idea you have, the one you think will make millions? If it’s any good at all, you’re not the only one to have it. You’re right now in a race with somebody else to execute on it. What’s more likely, however, is that it won’t make it through the gauntlet of execution. It’s really hard to get from idea to opportunity.

  • Most ideas have huge fatal flaws that would be obvious to somebody with the right experience, but aren’t obvious to somebody who hasn’t tried to build on them.
  • As you get into the reality of developing a prototype, fleshing it out, making a minimum viable product out of it, you’ll discover why it won’t work. Trying to design and code a software or web product quite often leads to the discovery of why it won’t work as conceived.
  • As you get into the reality of user testing, initial marketing, you’ll discover that nobody wanted it. Or they wanted something different. Trying to get early users, customers, distributors, allies, or channels often leads to discovery of the hidden flaws.

Why am I sharing this discouraging word?

  • First, because I see so much noise and distraction related to ideas, sadly unrealistic suggestions, people asking experts how they can sell an idea.. People want to know where to sell their ideas. That’s all wasted effort.
  • Second, because an idea somebody has about how to improve an existing product owned by somebody else (such as ideas to improve Facebook, or autos, etc.) is even more likely to have a fatal flaw in it. The companies who own that product probably know why your idea won’t work, even if you don’t.

So what do you do with an idea?

You gather a team, you develop early versions or minimum viable versions, prototypes, get on kickstarter, get traction, and so forth. You execute on the idea. And if you can’t find people who want to join you, get a clue.

(Image: courtesy of archiexpo.com)