Category Archives: True Stories

True Story: Why I Lied to You When You Called

Business Ethics, Business Stories, True Stories,

I’m a bit embarrassed about this story. It’s about lying. You’ll see if you read on that it wasn’t bad lying, not tricking anybody for any bad reason. But it’s a true story, so I’m posting it here because 1.) it might be useful to somebody; and 2.) I’m curious about how often it happens.

Did you ever see the television commercial where the one small business owner changes his voice on the phone to sound like different people? I did something like that for years. I answered the business phone as Evan Rocha, not Tim Berry. (If you know me well you’ll guess how I came up with that name; and if not, it doesn’t matter. )

It started when I was a one-man company. I’d done the software and the manual and the advertising, and I also took the calls. I didn’t answer the phone as me because I felt like that would be bad for business. Right or wrong, I thought there’d be an image problem, or a lack of confidence. So I became Evan.

Later, even after the company grew up, long past the early days when I had to take calls, I still took tech support and sales calls often. I did it sometimes for special case problems, sometimes to fill in when we were understaffed, and sometimes because the phone got past the fourth ring and I wanted it answered.

I like talking to customers. I always have. And it’s something every business owner should do, and especially software or web entrepreneurs. You should really talk to your customers regularly. But having the president answer the phone feels weird, so I kept using the name Evan.

It’s been several years since I was last on the phone as Evan, so I thought it would be okay to share that now. And if you happen to be one of the customers I talked to as Evan, I didn’t mean to be deceitful and I apologize for lying. It just reduced the awkwardness. But yes, that was me.

Are you an entrepreneur, or small business owner, who’s done that? I’m curious about how many others there are.

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)

Case Study: Vizme, Adaptation, and Living with Facebook

Angel investment, Business Stories, Starting a Business, True Stories,

I’ve been watching vizme.com since I first saw the demo about a year ago. It struck me as immediate coolness. Imagine being able to mix up a combination of online video and pictures that play when clicked, representing a topic, theme, idea, or brand; and putting that onto your blog or Facebook page as something like an icon (it’s actually bigger than an icon, but circular, as shown here) that plays when clicked.

To give you an idea, I went over to vizme.com and picked up a token for sharing. If you click the image here, a vizme token, it should take you to some person’s creative work patching together SuperBowl commercials from YouTube. In this case, it’s a lot like a YouTube playlist, but it’s a dark background and a much more direct, less cluttered, interface. I could share it on Facebook, Twitter, or, like here, on a website. And it’s free.

I’m interested in Vizme for several reasons: It’s in Eugene, OR, so it’s local to me. It entered the Willamette Angel Conference investment contest last year, and I’m a member there, so I got to watch the pitch. It didn’t win, but it did get my vote on the first ballot. I like Dan Mayhew, one of the three founders. I think it’s a cool idea, well implemented.

vizme logoPerhaps most important, though, is the principle of adaptation. While I’ve been watching, the vizme founders have gone up and down in sophistication of the interface as they went through early users and had to make changes. They’ve had to adapt to changes in the Facebook interface that (entirely by accident, without any bad intentions on Facebook’s part) changed the way the tokens work. And they’ve been scrambling for angel investment, testimonials, advisors, and interface adaptations to fit the changing face of social media. And their revenue model has been revised and adapted several times.

And, as a great example of what happens in the startup world, life goes on. Facebook changes, vizme adapts. Users work with it, suggest changes, and vizme adapts. Those changes affect the revenue model, and vizme adapts.

For a second opinion on that, you might read Will Vizme Revolutionize The Way We Share Content? over at FastGush.

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.

Entrepreneurs: You do Know You’re Unemployable, Right?

Advice, Entrepreneurship, True Stories

Are you an entrepreneur, starting a business? Or a  single-shingle intellectual gunslinger-type expert working as business consultant, planner, coach, or something similar? Are you making it on your own?

If so, you do know you’re unemployable now, right?

I don’t want to be the bearer of bad news, but I think you should know. I’m not saying it’s a big deal, or that you can or even should do anything about it. I’m just saying it’s true. If you survive on your own for too long, you become unemployable. Well, maybe you can jump into something else entrepreneurial, like somebody else’s startup. But normal employers won’t want you.

I had 12 years between my last real job and my own company getting stable enough to write regular paychecks. I survived with consulting and authorship.  In the beginning I’d get regular calls from headhunters, but after a while they stopped calling. The last real job offer I got came about halfway through that period.

I’m not entirely sure why. Maybe entrepreneurs are too independent. Maybe they’re not good at taking orders, or playing well with others. Maybe they suck at office politics. This isn’t my expertise. If you really want to know more about this, ask somebody in HR for a big company.

(image: my modification of an image by winston link/Shutterstock)

True Story: Dollars vs. Eyeballs in Business Valuation

Business Stories, True Stories, Venture Capital

It was a warm late-spring day in 1999. I sat in my office with a venture capitalist, my lawyer, and my son. The sun beamed in the patio outside my office. We talked about Palo Alto Software and its web subsidiary bplans.com. At one point the VC said:

You wouldn’t be an attractive investment for VCs. You’re too profitable.

I chuckled. I thought it was a joke. We’d grown sales in four years from less than $1 million to more than $5 million annual sales. We had to be profitable because we had no outside money.

He said:

That’s no joke. It’s like the Oklahoma gold rush, a land grab, and the assumption is that if you’re profitable, you’ve stopped too soon. You should be spending more to build traffic.

Those were strange times.

(Image: iDesign/Shutterstock)

Good News, Bad News, And True Story on Blogging and Editors

Blogs and blogging, True Stories, Weblogs, Writing,

The good news and bad news about blogging is editing and editors.

Good news: anybody can blog without going through an editor as a gatekeeper. Back in the old days we used to strive to “get published.” Now we just publish. Hooray, we’re free.

Bad news: nobody is so good that good professional editing doesn’t make them better. I consider myself a good writer and I’ve been doing it professionally for several decades. But everybody makes mistakes. Everybody who cares benefits from having somebody on their own side, reading, suggesting, commenting, and correcting. It’s just a fact of life. If you think you’re too good for editing, you’ve never had the pleasure of dealing with a good editor. Consider that an extra pair of watchful eyes.

True Story: By the time I was in my middle 20s I thought I was pretty hot stuff with journalism and writing. At that point I had honors degrees in Literature and Journalism. But I learned to write simple English (I hope) from the overnight editor at United Press International (“Berry, you write like a god-damned literature major“) named Norberto Swarzman. And I learned about structure (I hope) from a foreign editor at Business Week named Hugh Menzies, who rewrote every story into nine paragraphs with subheadings after the third and sixth paragraphs, and topic sentences for every paragraph.

And, while I’m on the subject, I have the luxury of editors for this blog, a team at Palo Alto Software, who catch errors and suggest changes.

Suggestion: If you’re out there on your own, with no editing whatsoever, maybe you could find a freelance editor as an ally. Think of innovative compensation, and maybe you can afford the help. I’m just suggesting, so don’t be offended.

Editing is a luxury, not a problem. Who wouldn’t like an extra pair of eyes?

Water: A Real Problem Getting Worse

Current Affairs, True Stories

This is from Guardian.co.uk, from just two months ago. Presumably it’s fact, not opinion:

When the 1948 universal declaration on human rights was written, no one could foresee a day when water would be a contested area. But in 2010, it is not an exaggeration to say that the lack of access to clean water is one of the greatest human rights violation in the world. Nearly 2 billion people live in water-stressed areas of the world and 3 billion have no running water within a kilometre of their homes. Every eight seconds a child dies of a waterborne disease, in every case preventable if their parents had money to pay for water. And it is getting worse as the world runs out of clean water. A new World Bank reports says that by 2030, global demand for water will exceed supply by more than 40%, a shocking prediction that foretells of terrible suffering.

(The rest of this post is a repost from 2007. I don’t mean to compare this in any way to the suffering so much of the world goes through for water. But it’s about water, and loss of water, and it’s something I know and experience. So I’m reposting.)

I have to admit that it’s a bit disheartening to think that we were talking about environmental issues back in 1964 when I was a sophomore in high school in suburban California. So much of what Al Gore has finally convinced a lot of people is true was already there. My family joined the Sierra Club in 1964, in part because of an annoying 15-year-old (me) who wouldn’t shut up.

I’m happy to see that the latest blog action day is focusing on water. Later is better than never.

So much has changed for the worse in so little time. Here’s one simple example. My wife and I used to take our kids, now grown, into the high Sierra mountains in California every summer. Backpacking88We rented a burro at the Tuolumne Meadows stables in Yosemite, and went up into the mountains where we would be two or three days hike from the nearest road. You see the stream in the background in the picture here? We drank out of it, used it to cook our food, without any worries about salmonella or parasites or anything. That picture was taken in 1988. We didn’t carry bottled water, we didn’t carry iodine pills, we didn’t boil the water, it was clean runoff from Sierra snowmelt. It tasted so good. It was deliciously cold, clear, and completely clean.

In fact, we used to carry aluminum Sierra Club cups on our belts. Instead of lugging water, the cup would bang Sierra_club_cuppleasantly along with the beat of our walking pace, keeping time to the hike, there in an instant. Streams came along at perfectly reasonable intervals, every half hour or so.

I just Googled the Sierra Club cup. They’re producing them again, but as a tribute to the past. They had been discontinued for at least 10 years. After all, what good is an aluminum cup for dipping in streams? Just get a plastic water bottle with a section top.

So that’s just a detail, I know, but details are the only way I can get a handle on this. Those days are gone now. It hasn’t been that long. Our grown-up children, the oldest of them now in their 30s, remember that well. Our younger children, now in their 20s, have no such memory. The idea of drinking water straight out of a stream sounds like some scratchy old black-and-white storyteller from the distant past.

When my kids are the age I am now, what else will they be telling their kids about? I guess polar bears and penguins are already doomed. “They used to live in the wild, dear, not just in zoos.” Will they be telling them that there were streams running down the mountainsides, fed by melting snow? Yosemite Falls? The San Francisco Bay?

True Story: Do Entrepreneurs Like Risk?

Bootstrapping, Entrepreneurship, Family Business, True Stories, , , ,

The answer to that question is: no. Not any more than the next person. They just like their business better. They took risks because they saw the goal. It was the dark side of building the company. They had to. But when it comes to savings and investment, no.

Well, actually, the most correct answer to that question is:

You can’t generalize. Some do, and some don’t. Entrepreneurs are a bunch of hard-to-categorize individuals, and who has good data, because all we really get are successful entrepreneurs.

True story: An investment advisor noted once that my wife and I have the most conservative portfolio he manages. He thought for just a second that might be odd for an entrepreneur. But then he thought about the risk we’ve taken over 30-some years of building our own business, financing it at times with multiple mortgages and credit card debt, signing owner guarantees all the time, raising children, paying colleges … walking around for years with the knowledge that something as beyond our control as one of the major software distributors going under, not to mention a software giant accidentally rolling over us,  could kill the business and leave us with a lot of debt and no house.

And it was suddenly clear to him. No wonder we don’t want to prospect now with what we’ve managed to save through the years. It was clear on his face, he understood. Capital preservation is what we want, now, not more risk. We’re safe now, at least to some degree, because of savings not dependent on the business. But we don’t want to lose those savings.

Yesterday, meanwhile, I read Are Business Owners Risk-Takers? Not When It Comes to Their Finances by Rieva Lesonsky on Small Business Trends.  It turns out, as Rieva points out while summarizing research, that the story above is a good example of exactly what she’s talking about in that post.

(Image credit: Ruslan Grechka/Shutterstock)

Is Your Business Either Growing or Dying?

Advice, Business Mistakes, Business Strategy, Planning Fundamentals, True Stories, ,

True story: there were six of us at lunch together on a beautiful late spring day in 1996. We sat on an outside table in the shade and discussed the next big growth spurt. Would we take this marketing-on-steroids proposal, at a high cost? Would it work? Could we afford not to?

I’m not sure any more which of us said it:

The status quo is great. This company is fun. The team works well together. Do we really have to grow?

I liked the idea, but didn’t fully buy it. My answer:

Yes. We’re a software company. We shrink or grow. There’s no alternative.

We did take the growth pill. Sales doubled in the following three years. Today, 14 years later, I still think that basic idea, growth or die, is true. Technologies change quickly. Trends and fashions change. Operating systems and the tools in software change. You don’t stop moving. Settle in, and you’re in trouble.

But is it that simple? I’m less certain than I used to be. And not just because of this recent piece, but still, I’m fascinated by Karen Klein’s Your Perception of Business Growth Is Wrong a few days ago on the businessweek.com site. She interviews Edward Hess, entrepreneur, author, and academic, who says, point blank:

What most business people think about growth, like “grow or die” or “growth is always good,” is not supported by research.

I do have to say that I am not as influenced by the “supported by research” phrase as I’m supposed to be. I’ve seen a lot of foolish notions supported by research. So I’m not that impressed by the results of a team of interviewers talking to CEOs of 54 companies, with average revenue of $60 million. Companies with revenues of $60 million are enormous to me. They have very little to do with the 95+% of businesses that have no employees, or just a few.

What does impress me, though, are the arguments Hess makes in the Business Week interview:

growth that’s not managed properly can lead to dilution of your customer value proposition and risks to your reputation and brand. I think you should approach growth not as an assumption but as a well-thought-out decision. Understand the difficulty involved and go into it with eyes wide open, knowing that you can stop at any time.

companies don’t necessarily have to grow or die, but they must improve or die, meaning they have to continuously improve their customer value proposition or risk going out of business.

if you take on too much growth, it can overwhelm your processes, people, and controls. What we recommend is managing the pace of growth with something like a gas-pedal approach.

Smaller, privately held companies usually don’t have the financial safety net to withstand quality control issues or negative publicity or a legal downside.

All of these arguments, taken from the interview, make sense to me. So I don’t know. What do you think: grow or die? Grow or shrink? Is it different in software, the web, and other high-tech businesses?

(Illustration: 3DProfi/Shutterstock)