Category Archives: Management

How to Do Due Diligence on Investors

Management

This is main my Quora answer to “How do I perform due diligence on investors?”

Choose an Investor Like You Would a Spouse

Check out InvestorsI’m so glad you asked this question, because it’s really important and vastly underemphasized. You should choose an investor like you choose a spouse. Due diligence is essential.

First, tell this person you want to do this. Don’t be shy. Don’t be embarrassed. It’s what you are supposed to be doing. Good investors will be glad you’re doing it and help you with links and people to talk to. If an investor pushes back, that’s a danger sign. Anybody who doesn’t want this to happen is trying to hide something. Be scared.

No web footprint is a warning sign

Second, look at their online footprint. A legitimate investor will have multiple websites, bio available on LinkedIn, a Facebook persona, a Twitter persona, etc. Websites ought to include a company site, a firm site, a personal ego site. Often there are blog posts too. Take some time to see who this person is, in the public persona.

Talk to other startups

Third, talk to people running the companies that that person invested in. A legitimate investor will give you a way to find out what those companies are, and from there you can talk to them. To deal with any doubts, you should tell the investor you want to do this and ask for contact info from the investor directly. But don’t limit yourself to just those contacts.

Take all three of these steps.

Should People Design Their Own Jobs

Management, ,

hands and puzzle iStock_000049265406_websizeI just ran across Should Employees Design Their Own Jobs? on one of the Stanford Business School sites. It reminded me of what I saw quite often while running my business – employees design their own jobs, whether you like it or not. Maybe, if you do it right, you can guide, control, or prevent it happening. But, all things being equal, it will.

The Stanford article is about job crafting, which is…

… a set of techniques for helping you reconfigure the elements of your job to spark greater engagement and meaning.

The article talks about three kinds of job crafting:

Task crafting is about retooling the activities included in your job, relational crafting is about revamping your interactions with others, and cognitive crafting is about reframing how you view your tasks and relationships.

Experts like the idea. The article says …

Participating in a job crafting workshop led employees to be significantly happier and more effective in their jobs six weeks later, based on ratings from their peers and managers. Although some job crafting may be good for the employee but not his or her company, our research suggests that, on average, it’s good for both. … Job crafting may also help facilitate creativity and innovation. It’s very difficult for a company to stay innovative if everyone’s job stays the same. We are creatures of habit, and organizations tend to be bureaucracies that impose order and consistency. The default will always be for people to get stuck in the day-to-day and have a lot of trouble taking a step back and seeing opportunities for reshaping their jobs. To quote Karl Weick, creative ideas come from ‘putting new things in old combinations and old things in new combinations.’

What I found in starting, running, and growing a software company was that employees tended to mold their jobs to match what they wanted to do.

The best tech support rep I ever had was a natural talker, extremely empathetic, who really liked people. He was just plain happy to be on the phone, one-on-one with somebody he’d never met, helping that person solve problems. Eventually he took that likability into sales and business development.

Then there was a woman who worked for me whose job started as bookkeeping. She liked organization, she liked arranging tasks, and she liked knowing the details of whatever was going on. She became bookkeeper, controller, and personal assistant.

I had somebody managing tech support who loved databases and programming databases. Not surprisingly, his leadership in tech support led to lots of customer programmed databases that were precursors to some of the support group tools that software companies now buy.

And look at small business owners and entrepreneurs. Some of them are personal leaders who loved meetings and motivating people. Others love marketing and strategy. Some love product. Most of them turn their job into what they like doing. And, as they do it, they believe step by step that is the right thing to do. Furthermore, given human nature, and strengths and weaknesses, usually they are right.

5 Questions About Power, Control, and Results

Management

Decisions and Decision PointsHave you ever looked at the difference between power and control in leadership and management? Here’s what I’m guessing. Power and control are quite different and sometimes in conflict. The more control you have, the less power. Does that make sense? I’m just guessing here, not studying the literature.

The powerful leader creates and empowers powerful teams and lieutenants, inspires them with values, collaborates with them on goals, and then sets them loose to operate within general ranges and directions.

The controlling leader, in contrast, keeps teams and lieutenants on a tight leash. They check back constantly. They move much more slowly because they can’t make a significant decision without their leader.

The powerful leader sets goals and metrics. The controlling leader reviews to-do lists, tasks, and details.

Which brings me to some follow-on questions:

  1. Are you a leader? Do you set your teams loose or keep them under control?
  2. What happens when the would-be powerful leader fails to inspire and set goals and ranges and directions?
  3. What happens when the would-be powerful leader doesn’t have the right teams and lieutenants?
  4. How much of this power vs. control range is a matter of the leader either trusting the teams and lieutenants’ ability and judgment, or fearing their incompetence?
  5. Which style is more likely to get good results? Which is more likely to defend against bad results?

I’m just asking. I don’t know.

The Only Startup Metrics that Matter

Business Planning, Management, Planning Fundamentals, , ,

Data AnalysisI like this a lot. In The only startup metrics that matter — Medium, Josh Elman, who has had upper echelon stints with Facebook, Twitter, and LinkedIn, writes:

“One of the things that I felt working on each of these is that we never looked at numbers or metrics in the abstract — total page views, logged in accounts, etc, but we always talked about users. More specifically, what they were doing and why they were doing it.”

That strikes me as very good advice. Get past the startup metrics for their own sake, and back into why. He continues:

How many people are really using your product? You need a metric that specifically answers this. It can be “x people did 3 searches in the past week”. Or “y people visited my site 9 times in the past month”. Or “z people made at least one purchase in the last 90 days.” But whatever it is, it should be a signal that they are using their product in the way you expected and that they use it enough so that you believe they will come back to use it more and more.

I confess that as I was growing Palo Alto Software I would occasionally, for some presentation or other, browse through available metrics as if reading a menu, and choose the one that made us look best. I liked steep curves in line charts, and inflection charts. And if page views didn’t show it, I’d look at users, or downloads, or conversions, or hits … until I found one that showed a curve I wanted to show.

I bet I’m not the only one. Josh’s suggestion makes a lot more sense.

10 Benefits of Business Planning for All Businesses

Management, , ,

(Note: I posted this Wednesday on the Small Business Administration’s Industry Word blog, where I am a guest expert. I’m reposting it here because it seems appropriate. Click here for the original.)

SBA-10-benefits-smallerIt’s a shame that so many people think business plans are just for startups, or to back up loan applications, or for getting investors. The truth is that business planning offers serious benefits for everybody in business.

And I’d like to point out that none of these benefits require a big formal business plan document. A lean business plan (as in What Business Plan Type is Best for Me) is usually enough. It takes an hour or two to do the first plan, then just an hour or two to review and revise monthly.

Here are those top ten benefits.

  1. See the whole business. Business planning done right connects the dots in your business so you get a better picture of the whole. Strategy is supposed to relate to tactics with strategic alignment. Does that show up in your plan? Do your sales connect to your sales and marketing expenses? Are your products right for your target market? Are you covering costs including long-term fixed costs, product development, and working capital needs as well? Take a step back and look at the larger picture.
  2. Strategic Focus. Startups and small business need to focus on their special identities, their target markets, and their products or services tailored to match.
  3. Set priorities. You can’t do everything. Business planning helps you keep track of the right things, and the most important things. Allocate your time, effort, and resources strategically.
  4. Manage change. With good planning process you regularly review assumptions, track progress, and catch new developments so you can adjust. Plan vs. actual analysis is a dashboard, and adjusting the plan is steering.
  5. Develop accountability. Good planning process sets expectations and tracks results. It’s a tool for regular review of what’s expected and what happened. Good work shows up. Disappointments show up too. A well-run monthly plan review with plan vs. actual included becomes an impromptu review of tasks and accomplishments.
  6. Manage cash. Good business planning connects the dots in cash flow. Sometimes just watching profits is enough. But when sales on account, physical products, purchasing assets, or repaying debts are involved, cash flow takes planning and management. Profitable businesses suffer when slow-paying clients or too much inventory constipate cash flow. A plan helps you see the problem and adjust to it.
  7. Strategic alignment. Does your day-to-day work fit with your main business tactics? Do those tactics match your strategy? If so, you have strategic alignment. If not, the business planning will bring up the hidden mismatches. For example, if you run a gourmet restaurant that has a drive-through window, you’re out of alignment.
  8. Milestones. Good business planning sets milestones you can work towards. These are key goals you want to achieve, like reaching a defined sales level, hiring that sales manager, or opening the new location. We’re human. We work better when we have visible goals we can work towards.
  9. Metrics. Put your performance indicators and numbers to track into a business plan where you can see them monthly in the plan review meeting. Figure out the numbers that matter. Sales and expenses usually do, but there are also calls, trips, seminars, web traffic, conversion rates, returns, and so forth. Use your business planning to define and track the key metrics.
  10. Realistic regular reminders to keep on track. We all want to do everything for our customers, but sometimes we need to push back to maintain quality and strategic focus. It’s hard, during the heat of the everyday routine, to remember the priorities and focus. The business planning process becomes a regular reminder.

3 Things You Need to Remember About Profits

Management,

Are you a small business owner? Are you looking to start your own business? The politicians can misunderstand profits, and so can the general public, but you’d better not. Profits are good, not bad; but your business runs on cash, not just profits.

1. Profits are an accounting concept, not actual money.

Yes, they lead to money, in most cases. But profits are sales less direct costs less expenses, three concepts that are all subject to detailed accounting definitions and general principles. Timing can make a huge difference. I can book a sale today and not get paid for six months, so no money yet. And I might have paid the direct costs months ago. And I might pay the expenses months ago or in months to come.

2. Profits don’t guarantee cash.

Again, profits are likely to mean cash at some point, but not always. There are those timing issues built in. And businesses pay out money that doesn’t affect the profits at all, such as buying assets, repaying debts, and paying dividends. Lots of profitable companies go under for lack of cash flow.

3. Profits Aren’t Necessarily More is Better

There’s an inherent tradeoff between profits and growth. You as business owner decide whether to spend more on marketing to generate growth, or less on marketing to generate profits. I think real businesses need to find a point of balance. We need enough profits to sustain growth ( extra credit: “sustainable growth rate”) and keep ownership compensated for risk. But on the long term, growth is better than profits. And cash flow peace is better than growth.

Bonus Point: Most Newbies Overestimate Profits

The most common mistake in business plan financials from first-time entrepreneurs is overestimating profits. Occasionally there is a high-tech wonder business that yields extraordinary profitability, but that’s almost always just a short-term phenomenon. Real businesses make 5-10% profits on sales. When a business plan shows huge profitability, that’s a sign of not understanding the business, not of an exceptionally profitable business.

If you’re curious, try this link: NYU study on average profitability by industry.

And if you’re curious about why this fourth point is labeled bonus point, I wanted my title to list three, not four. Maybe I’m numbers obsessed. Go figure.

Lean Business Plan to Get What You Want From Your Business

Management, , , ,

Are you running your own business or looking to start a new business? The lean business plan is an easy way to set down your strategy, tactics, milestones, and essential business numbers. Just do it for yourself and your team, with a few streamlined bullet points for strategy and tactics; plus lists of key milestones, tasks, assumptions, and performance metrics; and essential business numbers. Then review and revise it regularly and you’ll have your progress towards goals, and accountability.

Lean Business Plan in Four Steps

One: Strategy

Strategy is focus. A lean business plan uses a few bullet points to remind yourself and your team of your focus on a well-defined target market, and how your business offering solves the problem your business solves for that target market, and how your unique business identity makes you different.  Keep it in bullets, reminders you’ll use yourself.

Two: Tactics

Strategy is useless without tactics. In a lean business plan, tactics define your choices related to pricing, channels, website, mobile app, launch dates, features, benefits, messaging, media, promotion, platforms, locations, signage, financing, recruitment, bundles, and so forth. There is no reason to define all this in detail, or defend it for outsiders. Just decide and set it down as a bullet points. These are the core thoughts of marketing plan, product plan, and financial plan — but just what you need to do it. You don’t need elaborate text. Keep what you say about your tactics simple.

Three: Concrete Specifics

A lean business plan includes milestones to make your planning real. Milestones include dates, deadlines, tasks, responsibilities, and plan your budget and goals to reach specific milestones. List your important assumptions. Set dates for review and revision, plan vs. actual analysis, at least once a month. Set performance metrics you can track. Match every key task with somebody who owns it and lives with its results.

Four: Plan for Cash Flow

A lean business plan includes a sales forecast, spending budget, and cash flow. Profits don’t guarantee cash in the bank. Allow for time to wait for clients to pay, and money to buy what you have to before you sell. The purpose of forecasting is management not accurately predicting the future. Connect the dots so sales depends on drivers of sales like traffic, conversions, leads, closes, and so forth. Match sales forecast to projected spending on sales and marketing expenses.

Review and Revise Often

Always track results and review and revise often. What’s happened with the plan? Were assumptions valid? Was it executed?

Management is tracking results and revising as needed. Leadership is knowing when to stay the course and when to pivot.

Lean startup? Yes. Borrow the concept of minimum viable product and apply it to minimum business plan. Borrow the concept of small steps and frequent reviews and apply it to planning and management.

Nothing lends credibility like milestones met. Nothing says planning better than a revised fresh plan. Be a line, not a dot.

The Lean Business Plan is to Get Stuff Done

Times have changed. Don’t do a big traditional business plan but don’t throw out planning either. Do it right. Do a lean business plan. Your business deserves it. Focus, set priorities, highlight execution and specifics, manage cash. Get what you want from your business, whether that’s high-tech growth and funding or independence and peace of mind. It’s not about a plan; it’s about optimizing your life.

For more on this, I have a whole site dedicated to it at leanplan.com.

New Research on How to Motivate Employees

Management
Motivating employees is case by case
Motivating employees is case by case

How to motivate employees? According to new research, messages from on high need to be more abstract and less details. And messages from immediate supervisors need to be more concrete. Here’s the summary:

In particular, they found that the right message from the right person — a concrete call to action from a leader close to a follower and an abstract message from a leader hierarchically distant from a follower — elicited a stronger commitment and willingness to take action. Their studies also proved the opposite was true, that when distant leaders formulated concrete, overly detailed messages or when direct managers delivered abstract messages, their employees were far less engaged, committed, and motivated.

That’s from How Do You Motivate Your Employees? on one of the Stanford business school sites. It reports on research by Stanford Business School Professor  Nir Halevy and Bar-Ilan University in Israel professor Yair Berson, examined the way in which leaders — “whether they are country presidents, chief executives or midlevel managers” — communicate with their followers.

The two researchers looked specifically at something known as construal level theory, which states that the psychological distance between a leader and his or her followers influences the concreteness or abstractness of that leader’s communication in the eyes of followers.

What I like about this research is it quietly acknowledges the importance of making case-by-case conclusions. This appeals to me much more than research that looks at a single case and extrapolates that to the whole world.

And I also liked, in the summary I liked to above, some simple advice anybody can use:

With the results of these studies in mind, Halevy says business leaders can take practical steps to more effectively motivate, communicate, and manage their reports, whether they are direct or indirect. “Think about the omnipresence of micromanaging,” says Halevy. “A lot of people think it’s ideal to be a hands-on manager, that even though I’m the CEO, I’m very ‘hands-on.’ What we’re saying with this paper is that sometimes that might actually backfire. Maybe it’s not such a good idea.” Halevy says managers will get their subordinates to do more of what they want them to do if there is construal fit. “You want your subordinates to internalize what you’re asking them to do, and with construal fit, it’s easier for people to process your message,” he says. “The less effort to process, the faster the action.”

 

10 Mistakes Big Businesses Make with Small Business Owners

Business Mistakes, Management, , ,

crowd-question-mark-shutterstock_191948960

For several decades now I’ve been back and forth between working on and building my own business, helping others build theirs, helping people manage small business, and, occasionally, helping larger businesses understand and presumably sell to smaller businesses.

So I watch and listen. And I see how big businesses try to reach the solopreneur, home office, and small businesses. And the mistakes they make. So here’s my list of 10 mistakes big businesses make with small business.

  1. We’re not a market segment. Sorry, that would be nice, but no. Go back to your fundamentals and consider what makes a market segment useful for your marketing. Some factors in common, right? Same gender, same economic level, same town, same activities, same something. And what business owners have in common is only that we own a business; which probably means we’re more likely to be different than the same. Treating us as a group is like trying to organize anarchists. We’re solopreneurs, entrepreneurs, accidental or pushed entrepreneurs, and millions of us don’t even think of themselves as entrepreneurs; they’re just self employed.
  2. We’re short on time and patience. We have a business to run. We don’t have time to research and study, much less to listen to you. Get to the point fast.
  3. We care about quick and easy. Convenience really matters. See point #2.
  4. We’re unpredictable about reading, media, and political preferences. Somebody told me once, in pontificating mode, that “to reach small business you have to advertise in the Wall Street Journal.” That’s not what I see. I think only a few of us read about business. Our politics is as diverse (and polarized) as the rest of the country.
  5. We hate red tape except when we love it. Give us a chance and we’ll complain like hell about government red tape and restrictions. There are large lobbying groups that supposedly represent us that constantly whine about red tape and regulations (I think they actually represent various political interests mostly, and use small business as a platform). But give us a chance to jump onto red tape to prevent competition, and we will. And give us easy ways to deal with red tape (like payroll services, for example) and we’ll love you.
  6. We don’t sweat tax rates, but we really care what’s deductible. The whole tax rate thing is politics, lobbyists, and whining. Tax rates affect profits only, and profits are what’s left over after the deductions. So well love deductible expenses. If you want to unite us, put in more red tape on deductions, like they did with meal expenses a few years ago. Or crack down on travel expenses and conferences and cars. We’ll hate you.
  7. We’re unpredictable about technology. Some of us love computers, smart phones, tablets, and office equipment. Some of us haven’t discovered social media and barely email. We’re about as diverse on that point as any random group of adults.
  8. We don’t divide by generations. You can’t effectively divide us into millennials vs. generation x vs. baby boomers. I’m a baby boomer and I know some millennials who think more like I do about business than some baby boomers.
  9. We like variable costs way better than fixed. Charge us more later after we’ve made the sale and have the money and we’ll pay it. Charge us fixed costs up front, whether we sell or not, and we’ll hate it.
  10. We’re online. Point #7 notwithstanding, business owners want more revenue and that’s mostly online. Some of us love it, some of us hate it, but business owners who aren’t online are endangered species.

Do you want to go to the research and check out my data, to see if it’s valid. Don’t bother. I’m a business owner. I don’t need to show you no stink’n data.