GROWING THROUGH RANTS AND RAVES
GROWING THROUGH RANTS AND RAVES
VOLUME 1
BARRY J. MOLTZ JANUARY 2004
Copyright Barry J. Moltz 2004
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SECTION 1: START UP WHAT NOT TO SAY IN A BUSINESS PLAN A GUIDE TO TERMS USED IN BUSINESS PLANS WHAT'S IN A COMPANY NAME? ARE YOU YOUR BUSINESS CARD? SHOULD A PARTNER ALLAY YOUR EXECUTIVE LONELINESS? BACK TO 'BOOTSTRAPPING'! (OR BUDDY, CAN YOU SPARE SOME CASH?) STARTING A BUSINESS MEANS YOU HAVE LESS-NOT MORE-CONTROL MAKING THE TRANSITION FROM INTRAPRENEUR TO ENTREPRENEUR HOW TO ATTRACT MEDIA EXPOSURE FOR YOUR BUSINESS HOCUS AND FOCUS: DON'T HONE YOUR BUSINESS TOO EARLY SHOW ME THE MONEY: CREATIVE SOURCES OF CAPITAL FOR TODAY'S EMERGING COMPANY SECTION II: USING ANGEL FUNDING IS YOUR BUSINESS INVESTOR-READY? FINDING ANGELS IN YOUR OUTFIELD TEN TIPS ON FINDING FUNDING COMMON ENTREPRENEURIAL MISTAKES WHAT IS MY START UP WORTH? SECTION III: ENTREPRENEURIAL SCARS THE TOP 10 MUSTS THAT SHOULD BE IN YOUR BUSINESS SURVIVAL KIT THE ONE PAGE BUSINESS AUDIT DETECTING YOUR COMPANY'S EARLY TROUBLE SIGNS THE ‘SCHOOL OF HARD KNOCKS’: JUST AS CRITICAL AS BUSINESS SCHOOL BUILDING CUSTOMER RELATIONSHIPS ONE T-SHIRT AT A TIME A ‘DONE DEAL’ CAN SUDDENLY BECOME A DEAD DEAL AN OVERNIGHT BUSINESS SUCCESS TAKES 20 YEARS THE DANGERS, BENEFITS OF FRANCHISING THE AMERICAN DREAM THE ONLY REAL SECRET SAUCE IS PAYING CUSTOMERS KEEP YOUR BUSINESS FRIENDS CLOSE AND YOUR BUSINESS ENEMIES CLOSER IT'S TIME AGAIN TO RESPECT OUR BUSINESS ELDERS SUMMER BOOKS ON BUSINESS LOVE, BIOTECH AND SECRET SOCIETIES WALKING THE THICK GRAY LINE OF BUSINESS ETHICS STUCK IN THE MIDDLE OF THE BUSINESS LIFECYCLE MOLTZ'S HIERARCHY OF BUSINESS NEEDS FOR BETTER OR FOR WORSE: BEING THE SPOUSE OF AN ENTREPRENEUR LEADERS KNOW HOW TO FOLLOW THE LEADER FINDING A MENTOR TO REPLACE YOUR TORMENTOR THERE'S HOPE FOR CHICAGO BUSINESSES
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NEW YEAR’S RESOLUTIONS: AU REVOIR 2003, HELLO 2004 SECTION IV: BUSINESS RANTS LET'S OUTLAW FLUFFY BUSINESS CLICHÉS TEN MORE BUSINESS PHRASES YOU HATE GIVE ME GOOD SERVICE AND NO ONE GETS HURT THIS IS BARRY MOLTZ RETURNING YOUR PHONE CALL SO SUE ME! COMIC BOOK SUPER HEROES TEACH US ABOUT BUSINESS IT'S CASH FLOW, STUPID! BUSINESS IDEAS ARE MEANINGLESS WE MUST BELIEVE IN BUSINESS LUCK WINNERS KNOW WHEN TO QUIT DO GOOD GUYS FINISH LAST ? AVOID PLAYING THE BUSINESS BLAME GAME FOLLOWING THE LEADER HOW TO EAT E-MAIL SPAM FOR BREAKFAST LAUGHING YOUR WAY THROUGH BUSINESS BIOGRAPHY
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SECTION 1: START UP What Not To Say in a Business Plan Sometimes I find that the company’s founder is so far ‘outside the box’ that they ‘stretch the envelope.’ As an angel investor, I review more than 500 business plans each year. Unfortunately, many are so riddled with economy lingo, business jargon and clichés, that they do not communicate any real business value. In my opinion, terminology, such as disintermediation, sweet spot, ASP, best of breed, and win-win should be outlawed for the next 100 years. For building a real business, these terms are meaningless. Another challenge when reviewing business plans is that the introductory sentences sometimes stretch for an entire paragraph as the entrepreneur looks for that all-encompassing way to describe their business. Forget it! There isn’t one. Many times I want to strangle the writer to simply tell me what they do in five words or less. Poor choice of words: This business makes mechanical gasoline fueled devices used for transportation more efficient by periodically sending them through an applied for patent machine to loosen the terra firma from these vehicles to make them more conducive at performing their task. Solid choice of words: We run a car wash. Another frequently used practice is to create a business plan using template software or by working from an existing plan. I do not recommend this practice and like to refer to William Sahlman in his Harvard Business case study "Some Thoughts on Business Plans." This case study has continuously inspired me to see beyond clichés and catch-phrases and better interpret misleading statements within business plans. If the plan says: “Our numbers are conservative.” I read: "I know I better show a growing profitable company. This is my best case scenario. Is it good enough?" Since all numbers are based on assumptions, projections in business plans are by their very nature a guess and are not conservative. If the plan says: “We’ll give you a 100 percent internal rate of return on your money.” I read: "If everything goes perfectly right, the planets align, and we get lucky, you might get your money back. Actually, we have no idea if this idea will even work." No one can predict what an investor’s return will be. Let them decide. If the plan says: “We project a 10 percent margin.” I read: "We kept the same assumptions that the business plan software template came with and did not change a thing. Should we make any changes?" Ensure you have developed your financial projections from the ground up.
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If the plan says: “We only need a 5 percent market share to make our conservative projections.” I read: "We were too lazy to figure out exactly how our business will ramp up." Know what it will cost to acquire customers. Gaining 5 percent market share is not an easy task in a large market. If the plan says: “Customers really need our product.” I read: " We haven't yet asked anyone to pay for it.” or "All our current customers are our relatives" or “We paid for an expensive survey and the people we interviewed said they needed our product”. The definition of a business is when people pay you money to solve their problems. This is the only way to prove people “need it”. If the plan says: “We have no competition”. I read: Actually... I stop reading the plan. Always beware of entrepreneurs that claim they have no competitors. If they are right, it's a problem and if they are wrong, it is also a problem. Every business has competitors or else there is a current solution to this customer need. If there are no competitors for what the entrepreneur wants to do, there is a good chance there also is no business. So what should an entrepreneur do? Write the plan in plain and proper English. Please understand that the reader comes to the plan with no knowledge of your business. No fancy words, clichés or graphs will make them want to invest. Understand every part of your plan and be able to defend it. Use your own passion to describe your plan. Make your plan your own. The 11 things that matter in a business plan: What problem exists that your business is trying to solve. Where is the pain? What does it cost to solve that problem now? How deep and compelling is the pain? What solutions does your business have that solve this problem? What will the customer pay you to solve this problem? How solving this problem will make the company a lot of money. What alliances can you leverage with other companies to help your company? How big can this business get if given the right capital? How much cash do you need to find a path to profitability? How the skills of your management team, their domain knowledge, and track record of execution will make this happen. What is the investors' exit strategy? Please remember, the business plan is basically an "argument" where you need to state the problem and pain, then provide your solution with supporting data and analogies.
Copyright Barry J. Moltz 2004
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A Guide to Terms used in Business Plans I read a lot of business plans and I see the same things. If the entrepreneurial writer is saying one thing, this is what I typically think it means: If the plan says: “Our numbers are conservative.” I read: "I know investors want us to get to $50 million in 5 years. I backed into the numbers years 1 through 4 to make it look right." If the plan says: “We'll give you a 100% internal rate of return on your money.” I read: "If everything goes perfectly right, the planets align in a regular formation and we get lucky, you might get your money back." If the plan says: “We project a 10% margin.” I read: "We kept the same assumptions that the business plan software template came with and did not change a thing. Should we?" If the plan says: “We only need a 5% market share to make our conservative projections.” I read: "So do all the other 100 competitors that will be entering your area." If the plan says: “Customers really need our product.” I read: "We haven't yet asked anyone to pay for it yet" or "All our current customers are our relatives". If the plan says: “We are the low cost producer” I read: "We haven't exactly produced anything yet, but we think we can do it cheaper than anyone else." If the plan says: “We have no competition” I read: Actually... I stop reading the plan. Always beware of companies that have no competitors. If your are right, it's a problem and if your wrong, it is also a problem. If the plan says: “Our management team has a lot of domain experience.” I read: " They are consumers in the product area and would love to have a chance to work in this industry". If the plan says: “A group of selected angels are interested in funding our startup.” I read: "We have e-mailed everyone we found mentioned in the local media and no one has responded to us yet." If the plan says: “We want smart money” I read: "We are desperate, we'll take any money we can get."
Copyright Barry J. Moltz 2004
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So what is one to do? Understand every part of your plan and be able to defend it. Use your own passion to describe your plan. Don't use new economy speak that came out of a book. Don't say stuff just because everyone else is. Make your plan your own. Do you have others? Thanks to William Sahlman in his Harvard Business case study "Some Thoughts on Business Plans" for inspiring this one.
Copyright Barry J. Moltz 2004
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What's In A Company Name? (Originally Published at Eprairie.com on 12/9/03) CHICAGO - You have decided to strike out on your own to start a company. One of the first important decisions you need to make is: “What should I call this business?” We have all struggled to find the perfect name for our companies that will project just the right image of our business. In some ways, finding a name for a company is a lot harder than naming your child since you can buy a book on children’s names. Where on Amazon.com (http://www.amazon.com) can you find a book of company names? If you are Jewish like me, you just need to pick the name of a dead relative that means something to you. That makes it very simple. Dogs and cats can have quirky names since you’re really the only one who will be calling your pet most of the time. Almost any name will do. If you have trouble, there are the most popular dog names to choose from that any kid would love like Rocky, Buddy, Buster, Lady, Princess and Ginger. Many years ago, it was just as easy to name your company. The business owner just used his or her last name. If the entrepreneur had a partner, both names were used. Look at C.R. Walgreen’s. I bet he had an easy time finding a name for his store. Hughes Aircraft, Hewlett- Packard (http://www.hp.com>, Ford (http://www.ford.com) and Woolworth’s (http://www.woolworths.com.au) are other examples. These people spent little time thinking of a name because your company was simply an extension of you. You branded your business with your name. You were the business. End of company image. Then we got into the machine age where all the names were initials or acronyms. Companies were simply called IBM (http://www.ibm.com) or GM (http://www.gm.com). My favorite company in the 1980s that took this naming convention to an extreme was called NBI (“Nothing But Initials”). Sun Microsystems (actually “SUN”) (http://www.sun.com) got its name not from the star but from “Stanford University Network”. Yahoo! (actually “YAHOO”) (http://www.yahoo.com) is an acronym that stands for "Yet Another Hierarchical Officious Oracle”. The founders insist that they liked the name because “yahoo” means "rude,” “unsophisticated” and “uncouth".
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In the technology age, names had to begin with “X” or “Z”. In the Internet era, a company name ended in “.com” or began with an “I” or an “E” in order to jump on the bandwagon. In 2001, we returned those letters to the alphabet and all those companies dropped the “.com” part of their name as they tried to disassociate themselves from the Internet bubble burst. For example, Chicago-based Participate.com changed its name to Participate Systems (http://www.participate.com) and went from building online communities to delivering enterprise systems for customer service. Today, the choice of a company name is made more difficult. Aside from a service mark search, we also need to choose names by the availability of their Web address. This selection process proliferated Web sites like NameBoy (http://www.nameboy.com), which “brainstorms” with the user on possible URL selections. When Mike Flynn and Tracy Thirion decided to launch a consumer brand-building firm called Bamboo Worldwide (http://www.bambooexperience.com), they chose their name in an unusual manner. Thirion says she was reading an article about “a think-tank company in Atlanta that compares how ideas develop to how bamboo grows. They take six months to let their ideas stew before they present them to the client.” Thirion and Flynn learned that during bamboo's first years of life, it only grows a few inches a year and develops a strong, integrated root system that runs deep beneath the surface. Around the fourth year, it breaks out of the soil hundreds of yards from its base and quickly sends stalks to the sky at a rate of more than 80 feet per year. They believed that their consumer brand-building process is best served by looking to the example of bamboo. Developing a strong root system can result in exponential growth and a consumer relationship with the strength to last a lifetime. Bamboo’s underground root network (that results in shoots popping up in the neighbor's yard) heavily supporting their company’s "word-of-mouth" strategy. Alternately, most law firms and accounting firms these days still bear the names of their founders or the abbreviation of their names like PricewaterhouseCoopers (http://www.pwcglobal.com), Ernst & Young (http://www.ey.com) and KPMG (http://www.kpmgconsulting.com).
Copyright Barry J. Moltz 2004
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When Art Mertes of the Synergy Law Group (http://www.synergylawgroup.com) considered the goals of his new firm and weighed them against the norms for naming a law firm, though, he came up with a different result. The usual practice is to take the names of the founding partners and place them in alphabetical order. Mertes, though, wanted to “brand and establish name recognition more effectively, [have] the ability to obtain service mark protection for the name on a national basis and eliminate the egocentric dynamics typically arising in association with firm naming rights in boutique and mid-size firms.” Julie Scott did a similar thing when naming her consulting firm Bluepoint Advisors. She wanted to emphasize her team and not just her founder’s role in the company (although I had recommended she call her firm “Great Scott, Inc.”). Scott says the term “bluepoint” comes from bluepoint oysters, which produce pearls. “This parallels the 'pearls of wisdom' garnered from our firm's highly experienced professionals and industry-based approach (which, like a pearl, require years to fully develop),” she said. “Since our team members have an average of 15 years of operational experience, this as a clear advantage compared to the traditional model of recent college graduates who lack significant 'in-the-trenches' experience.” Scott also believes that blue is a warm, refreshing and soothing tone that conveys the firm’s practical, softer approach. She says it reflects the professionalism and integrity of her team. The term “point” demonstrates her firm's hands-on, “to-the-point” approach. Again, she’s conveying her commitment to “doing the work and not just talking about it.” I suggest that you keep the naming of your company simple. Don’t use your last name in your company unless you want the business to be about you as the brand. It is much harder to extract yourself from it or sell your company if it bears your name. Keep it easy to spell, remember and recognize. Don’t spend a lot of money finding a name. Set a low budget and stick with it. You never know if your company will succeed, and in a year, you’ll have to spend money to find another name. Finally, remember that you will find customers and keep them not because you have a memorable name. Customers will buy from you when you have products or services that solve their problems. They will continue to buy from you when you provide excellent customer service. Above everything else, these two things will make them remember your company name.
Copyright Barry J. Moltz 2004
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Are You Your Business Card? (Originally published at Eprairie.com on 11/25/03) CHICAGO - When I meet a businessperson, one of the first rituals after shaking hands is to take my other hand and reach out for his or her card. In the business world, it is a reflex reaction. In Japan, the practice is even more ritualistic. When I visited Japan about years ago, I had to understand that the proper handling of the business card was so important to the Japanese that it actually has a name: meishi (pronounced "may-shee”). I learned to take a card carefully with both my hands and bow. I also needed to hold the card for a moment and examine it carefully. I would then make a favorable comment about the card and his or her title. Finally, unlike in the U.S., I would never write on the front or back of the card. Since the card is a tangible representation of the person offering it, writing on a card would be like taking a magic marker and writing on the person. If I failed in this initial ritual with a new Japanese business partner, it would affect my relationship with that person forever. It is much different in the U.S. You shake hands firmly and thrust out your business card to the other person. When I do this, I am continually amazed about what people put in my hand. I have received cards of all shapes, colors, textures and sizes. I also have received miniature CDs, slabs of metal and micro booklets. Sometimes, these variations are interesting and appropriate, but many times, they are patently absurd. Unlike in Japan, I wonder whether the American business card really matters and if it profoundly affects the beginning of a relationship. So many of us these days are “free agents” (working for ourselves or are between job opportunities) that we face the choice of having to print our own cards instead of having them magically appear on our desks when we start at a new job. Many of us have even printed multiple cards to fit the many businesses and roles we may be pursuing at a particular point in time.
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Laura Allen of 15 Second Pitch believes that she has come up with the perfect solution. Her company prints cards that present not only your name and contact information but also your picture and a concise paragraph about what you do. It is not fancy, but according to Allen, this makes it a lot easier for the person who has your card to remember what you actually do so he or she can make an appropriate follow up with you. John Waupsh at AdSalon thinks business cards are a very important marketing tool when you are starting out. He believes an important rule is that they should not look like they came off your home printer with 50-pound Office Depot perforated templates. This is cheesy. He suggests for you to get them printed professionally. Unlike the Japanese example, he recommends that one side has a matte finish so people can take notes on your card. What information should be on your card? The Japanese usually list the company name first, the person’s title and then the person’s name. Americans do it differently. The name and title are usually first with the company name further down the card. I once received a card at a networking event where the person’s title was misspelled as “principle” instead of “principal”. This is a fatal mistake especially since this person’s company was business consulting. Waupsh adds that he never likes to see CEO or president on a card especially if you are a one-man band. “If you’re Charles Jandy and your company is Jandy Industries, I would expect you to be the CEO,” he said. “Putting CEO on your card makes you look ridiculously like a start-up. Of course, if you are Charles Koch of Koch Industries [the largest privately held energy company in the world], I’d reckon you can put CEO on your card.” What about other details? Slogans Yes, add a slogan if you have something unique. I need to assume that a company is committed to excellence. You need to think harder or leave it off the card. E-mail addresses These are mandatory. Make sure to get a good one. It’s fine to use a free service like Yahoo! as a back-end mail server but spend some money to get an account that looks more professional. While dan1995@yahoo.com may be functional, it is very amateurish. Get an address with your name and your company’s name and forward it to your Yahoo! address. That’s what I do.
Copyright Barry J. Moltz 2004
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Home numbers I am against the practice of including your home phone number especially with cell phones and e-mail these days. It begins a bad 24/7 precedent. If you are starting out, use your cell number as your office number or install a second line. Pagers Unless you are a doctor or a bicycle messenger, I don’t need to have your pager number. Leave it off the card. It’s easier to call your cell phone. Finally, Waupsh reminds us that a business card is not an art installation: “It is a means to getting a call back, which is a means to getting business. The key here is not to reinvent the wheel.” He suggests grabbing 10 of your favorite business cards that you've gathered over the years. Study them by noticing their font choices including type size and color combinations. You'll soon discover that although the logos and paper stocks vary, good business cards are very simple. My advice is to forget the gimmicks. Simple usually works. Remember, you are selling a product or service. You are not selling a business card. Put your creative energy there. It typically works.
Copyright Barry J. Moltz 2004
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Should a Partner Allay Your Executive Loneliness? (Originally Published at Eprairie.com on 3/11/03) CHICAGO - In 1988, I dreamed of owning my own computer software business mostly because I wanted to sit in the leather chair of my boss. After starting three businesses with a great degree of success and failure, I now believe the saying “it’s lonely at the top” to be true. I have been there and it can get cold and lonely. However, it can be much more rewarding if you have the right partner to travel with you. Still, the question of whether you should form a business with a partner or have a partner join you in an existing business is a tricky question. As with most questions, the answer unequivocally is: "It depends." A partner gives you a shared responsibility for the company so you don’t have to bear the entire weight yourself. Sometimes, two people together are greater than the sum of the whole (if they have a synergy of skills). Just as often, two people together are less than the sum of the whole. Unfortunately, you may not always agree with your partner. Disagreements (if not settled) can kill your company. If partners don’t equally work as hard, conflicts arise. It is far easier to go into business with someone than get out of one alone. The first thing you need to look for in a partner is skills that complement your own. If you are good at sales and marketing, team up with someone who is good at technology and operations. This will also provide an easy way to split up the company’s responsibilities once you're both working there. Partners also need to have excellent communication skills and should be able to talk honestly about any issue. I had a rule with my last partner that we would never to be angry with each other for more than 24 hours. It is your responsibility never to divulge your differences with your partner to your other employees. Never use employees against your partner. Think about a few critical questions before you get started: How well do you two argue together? How does the other person react when the chips are down? How has your prospective partner handled success and failure? What is his or her attitude toward money? What are your visions for how the company should grow?
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Take my advice and talk to your attorney. Take the necessary legal steps when bringing on board a partner to help you run your business. Partnerships are basically marriages without child bearing. Figure out how you will get divorced at the same time you get married. The rules for how married people should get divorced are defined rather clearly in our society. Still, the mechanism for splitting up businesses isn’t often well thought out. There needs to be an agreement in place if somewhere in the life of your business the interests of the partners head down different roads. Make a shareholder’s agreement that states all these things. With a single partner and a 50-50 split in voting rights, there needs to be tie breakers. Talk to your attorney about a “Texas draw” provision. This is where one partner offers to buy out the other partner. This partner then has the choice of either taking the buyout offer from you or buying you out for the same price. This ensures fair offers by both partners. Without a way for partners to resolve their differences, principals can get locked in a death spiral that can result in the demise of your entire company. In terms of other things that should be included in your agreement, what happens to your business if one partner dies, becomes disabled or gets divorced? Do you want to be partners with the spouse of your partner? This may seem silly at the beginning (especially when you and your partner are “just married and in the honeymoon phase”) but I guarantee all this will matter if someone offers you millions of dollars to buy your company one day. Decisions are a lot easier to make when your company is starting out and it’s worth nothing. When my partner and I sold our business, we read through every word of the shareholder’s agreement many times. It guided us in our decision-making process. There are other financial steps you should take prior to forming a business partnership. For starters, decide who will keep track of your company’s money and select an outside firm to provide oversight. Pick an accountant with which neither of you have personal ties. Put a good bookkeeping system in place and stick with its reporting. Understand cash-flow statements.
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Also, be sure to find answers to these questions: What is each partner’s spending limitations? How is your company's money spent? In terms of personal finances, what are the limitations for each partner’s investment now and in the future? How do you account for if the partners put in different amounts of money? What are the family economic needs of each partner? How much does each partner need to get paid? How long can each partner go without compensation? With all this to consider, if you can find the right partner, do it. Since business is basically about people, go into business with people you know, trust and respect. The rule “don’t talk to strangers” applies here. Ultimately, who you are in business with is much more important than the actual type of business you run.
Copyright Barry J. Moltz 2004
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Back to 'Bootstrapping'! (or Buddy, Can You Spare Some Cash?) The New Economy isn't so new any more... the paradigm has shifted for starting businesses from "here's my business plan, where is my money? (Pre- April 2000) to "here is my product and my customers, can you help me with some money to expand my business?" (January 2001) These days, in order to get any funding outside of your family, friends and other angels you have a personal relationship with, you need to show results first, ask for money later. If you have grown up in the Internet Economy, you may ask how you do this? The answer is use a little bootstrapping....in other words, get creative and do more with less money and resources. A few things that will help to remember: Cash is not only King...its Queen, Jack and all the other face cards in the deck. Prepare a cash flow statement and update it monthly. This is the only way to know your burn rate. If you run out of cash, your business is gone. This is probably the best business skill you can learn. If you don't know how to produce a cash flow statement, find a software program that will. (www.businessplanpro.com) How do you conserve cash? Hire no employees before their time. Focus on only hiring people that can produce revenue or directly support customers. If you have inventory, keep it low (high turns). Do as much business as possible on credit cards with your customers. Collect your receivables on time. Negotiate extended terms with your vendors, but then pay on time. Besides less receivables and inventory, consider the following less tapped sources of cash. Unfortunately, in my business experience I have used all of these: Don't pay yourself a salary. It doesn't make sense to put more money that you have already been taxed on into the business if it needs it. Just cut your salary and you save yourself and the business taxes. Borrow from your IRS account. You can pay it back in 60 days at no penalty. Borrow from the cash value of your life insurance policy. You pay the interest to yourself. Take out a home equity loan. Take a cash advance on your credit cards. Ask your employees to loan the company at a premium rate plus a few options. Learn to do it yourself. Don't hire anyone for a task you have the skill do yourself. If you don't have the skill, learn it or hire a person who will do an excellent job so you can leverage your time on the tasks at the business you do extremely well.
Copyright Barry J. Moltz 2004
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Form strategic alliances. Find other business that can you can work with that can help bring you customers or can perform some of the functions your company needs that can be performed by them. Companies that have billions in sales do not typically buy from start-ups. Find the right size company that will. Products and customers. Get any part of your product built and then find your first customers to use and pay for it. This will not only prove out your concept to future investors, it brings much needed cash in the door. Remember, there are three kinds of risk: Technical, Marketing and Execution. Prove to Angels you can conquer all three by showing results. No one can argue with a product that is bought by customers! Customers are your best offense!
Copyright Barry J. Moltz 2004
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Starting a Business Means You Have Less-Not More-Control (Originally Published at Eprairie.com on 9/30/2003) CHICAGO - When I ask colleagues why they are starting a business, many say they want to have more control over their business life. They say they are sick of a boss telling them what to do and “controlling their life”. They say they would be happier if they could be on their own and make their own decisions. As they say, "destiny would be in their hands". Wrong. These people have never run their own business. When you run your own company, you have a lot less control than you ever had working for someone else. You may even long for the days when you only had to worry about your boss! You have no control over all the things that influence your business success (namely your team, customers, vendors, systems and market timing). Business life as an entrepreneur is like driving a car alone on a mountainous road and constantly bumping into the guard rails. Bill Cusick at Oak Park, Ill.-based Vox (http://www.voxinc.com) says he constantly has to compromise the vision of his company to guarantee a certain revenue level. He compares his journey to surfing: “You can ride a wave in many different ways aggressively, slashing back and forth and taking risks - or you can be more careful. “Still, you can't change the wave itself. You can't control when the wave might swell or when it will break and crash down. It's the people who can read the wave (i.e. see how the world is changing and understand the outside forces at work) and react accordingly who will succeed. “ Matt Hartzman at the Chicago-based Catalyst Consulting Group (http://www.catconsult.com) discusses when he was the CEO of a Web development business. He laments that no matter how hard you try to control things, there is always a pain point somewhere in the business. He added: “When a customer wants it now, sometimes you just need to drop everything. Leading a small business is not like being a part of a large one. You need to wear a lot of different hats and not all of them fit that well.”
Copyright Barry J. Moltz 2004
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Sean Lapp at LTW LLC tells the story of a large contract he won in 1995 and how he lost control in the process. “I won a much-coveted contract with Pearson Publishing (the publisher of The Economist, EIU and CFO) to build their online venture. This was pre-Internet. Much to everyone’s surprise, the deal was structured as a pure partnership. Revenues were split equally. They provided content and advertising. I provided the application development and hosting.” “After 14 months of development, it was go time. The first full-page ad layouts that I saw (to run in The Economist and CFO) gave me goose bumps. The agreement stipulated that I had to approve all ads. This was due to the need to ensure that any technical references made in the ads were correct. The modem set-up instructions were wrong. I made the corrections and forwarded the revisions to their vice president of marketing.” “Two days later, the person called and said that 2.6 million impressions of the ad had ‘flown’. ‘What do mean flown? I didn’t sign off on final copy.’ He responded: ‘I thought you’d be thrilled. You’re the one who has been pushing so hard for release. I got your revisions and forwarded onto creative. We’re done. CFO is live. Now let’s just watch the accounts sign up.’ I asked if I could see a copy of the final ad. ‘No problem. I’ll fax it over now.” “My stomach fell through the chair. It was wrong. The modem and connection instructions would result in a ‘fail message’. I read and read again. I went to the machine and configured per their instructions. More failures. I raced to my technical team and asked if there was any way to get the ports to respond to these set-up instructions. First order of business was to alert Pearson as they’re my partners and they need to know. So I called the vice president.” “You’re kidding, right? Anyone trying to subscribe will be unable. They’ll get a failure message. We at Pearson don’t have failure messages. Do you know how valuable our image is? We publish The Economist, the most…’ ‘I know but I can’t fix it. That’s why I needed to approve final copy. When exactly did the magazines get mailed? When will they be hitting the deck?’ ‘Typically in about four days, so in about two days, the first subscribers will be receiving this edition. This is bad.”
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“He hung up. Meanwhile, the techs had nothing. Carolyn buzzed me and said it’s so and so from Pearson for you. I didn’t recognize the name but it sounded sort of familiar. ‘Sean.’ ‘Sean Lapp, this is Edward Hightower (name changed), CEO of Pearson. I understand you have a problem.’ Cutting it short, he stated that I had a problem and if the problem wasn’t fixed and if just one Economist subscriber saw that message then my problems would be ‘biblical’ in scope.” “We stayed up for almost two days straight. We went through every possible configuration. Literally 43 hours into the abyss, we had an idea. It worked. We created a net shell to make the hand shake and send the ‘new’ configuration instructions. It wasn’t pretty but it worked and all the ugliness was behind the curtain. Pearson, when informed, was curt. That’s good. Let’s hope you don’t make that mistake again or we will have to reevaluate this venture.” In running a small business, you need to ask yourself whether you can handle the lack of control. Do you like traveling the roller coaster up and down? If not, don’t even get on the ride. No matter how hard you work, can you accept business outcomes even though they are well beyond your control? If you don’t want to put your destiny at least partially in the hands of luck and fate, maybe it’s time to move on to another adventure.
Copyright Barry J. Moltz 2004
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Making the Transition from Intrapreneur to Entrepreneur (Originally Published at Eprairie.com on 6/17/03) CHICAGO - When I left IBM (http://www.ibm.com) in 1990, I thought it would be a relatively easy transition to work for a more entrepreneurial company like WhittmanHart. It wasn’t. I thought that many of my IBM customers would do business with me again at Whittman-Hart. They didn’t. I found out that many of them were doing business with IBM (the company) rather than with me (the person). This was a rude awakening. Back then, a favorite expression in the industry was that "no one gets fired for choosing IBM". For some people, doing business with a smaller company like Whittman-Hart was just too risky. The transition from intrepreneur at a corporation to entrepreneur on your own is a common yet difficult transformation. Many business people who have operated as leaders within large corporations spin off into their own start-up at some point. “Intrepreneurs are people who are success driven and who measure their success by any number of metrics - whether it’s money, job title or performance relative to peers,” said Bob Okabe of Illinois Partners (http://www.illinoispartners.com). “Those people may still have that drive later on in their lives but their career has in fact slowed down because the pyramid gets more narrow. These are success-oriented people who believe that an entrepreneurial adventure is the best way to make their own personal metrics of success.” What often propels intrepreneurs into starting their own businesses is they want to do more things they are passionate about. What intrepreneurs find in the transition to a start-up or a small business is that they are doing a lot more of not what they know but what they don’t know. As an entrepreneur, everything becomes included in your job description. “The biggest challenge for somebody stepping out of a large business is that they now have to do all those things they took for granted. These can include an HR function, a health plan, a payroll system, unjamming the copier and selecting a telephone provider,” Okabe said. “You probably didn’t realize the cost of all those little things.”
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An important characteristic of an entrepreneur is to know what many people do not know. You need to have a grasp on what you’re good at and what you’re not. You can ask me to sell or market anything but don’t ask me to run the warehouse. Nothing would ever get shipped! It is particularly challenging for many of us to realize and let go of the things at which we aren’t proficient. At some point, entrepreneurs need to hire others who complement what they do not know. How entrepreneurs hire has a profound impact on whether or not they will succeed. Okabe believes that most people hire for skills first, personality second and culture last. He added: “The boat moves as fast as the slowest rower. If somebody isn’t motivated and isn’t interested, I don’t care how physically able he is. He’s not going to row well.” It doesn’t always work out for the person who comes from a large corporation and starts a new company. Many people who exited in the Internet frenzy are now seeking to go back to an established corporation. A good example of this is Jim Lichtenstein. He was a managing editor at CBS 2 Chicago (http://www.cbs2chicago.com) who left his position in October 2000 to launch and run AssignmentEditor.com (http://www.assignmenteditor.com) full time. Two years later, he sold it when the business value of his company didn’t grow the way he had hoped. Once an entrepreneur, he is now looking to return to the newsroom. “It is hard. At some point, I’ll go back and work for somebody again," Lichtenstein said. “[Starting the business] was getting it out of [my] system, too. “Years ago, I wanted to be a movie producer. I went and did that. Then I wanted to work in entertainment television. I did that. Then I thought it would be cool to start a business. I did that. Now, well, is there anything else I really want to do or do I just want to go some place and have good health insurance and a stock plan and all that stuff? That doesn’t look so bad any more.”
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How to Attract Media Exposure for Your Business (Originally Published at Eprairie.com on 5/27/03) CHICAGO - You have built a good business, you have a story to tell and you want to attract more customers. Unfortunately, not enough people have heard of your company. Getting news coverage in the press is an important part of any sales and marketing strategy. For better or worse, opinions are formed by what people see and hear in print, radio and television. Good press can help the selling of your products and services. After you do get coverage, the reprinted piece can be used in your marketing material for added credibility. How do you start to get the media to notice your company (without breaking the law)? Most local publications actively look for content about businesses in the community they serve. After all, they do need to write about something. “The best way to improve a company’s chances of garnering press coverage is by being able to supply media with something more than an elevator pitch about your product or services,” said Christine Attalla, president of Downers Grove, Ill.-based PR Results (http://www.prresults.org). The last thing a reporter wants to report on is a thinly disguised promotion for your product. Instead, they will often refer you to their advertising department where this type of promotion belongs. “Reporters are often searching for comments, opinions and analysis on industry topics to help them write articles,” Attalla said. She added: “By positioning a top-level executive within your company as an authoritative expert who is able to provide the media with bigger-picture content (such as trends in your industry, colorful commentary on timely and newsworthy subjects or even forecasting how a specific industry will evolve to meet customer demands), companies can expose themselves to another level and a range of publicity apart from the purely promotional.” Keep your message simple and relevant. Think before you answer. The printed word is forever. If you don’t know the answer to something, say you don’t have the slightest idea but of course you’ll get back to the reporter with someone that does.
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Most PR people agree that if you can help the journalist as a resource, you will eventually get publicity and simultaneously establish your company as a leading industry expert and authority in the field. This will typically lead to profitable things for your company. But how do you establish yourself as an expert? Early on in the process, Dvora Ivankowski of the Chicago-based 4SIGHT Consortium (http://www.4sightconsortium.com) recommends that you just “give away your knowledge by writing articles for online publications and offer to help readers and participants in forums.” I suggest that you build up to writing an extended white paper about an area of expertise and distribute it to whoever is interested. Susan Caplan of SC Associates describes other activities that have been successful in getting media attention: Join your local chamber of commerce and ask if they can write a short item about your business in their newsletter. This will also force your company to articulate what you are the best at in your field. Conduct classes or workshops on an area of company expertise. To get started, team up with other individuals who complement your business and perform these speaking engagements together to drive attendance. Sponsor a contest or survey that is relevant to your business and announce the winners. Support your industry by making a significant charitable contribution to an area that will move things in a new direction. Finally, don’t forget the human side of your business. Companies are ultimately about people. Reporters are always interested in reporting on the path that other entrepreneurs have taken. This is why the “My Biggest Mistake” feature at the Chicago Tribune has become popular over the past few months. According to Rob Kaiser at the Tribune, the feature allows business owners to open up about a significant mistake they made in their careers and reveal the lessons that were learned. He says reading the feature is like “telling a friend a story”. It takes a long time to establish a network of relationships among local publications and trade journals. Be consistent and put forth a sustained effort. Getting media attention for your company is not a one-shot time but rather an all-the-time thing. Be patient. It takes time.
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Finally, Dave Lundy of Aileron Communications (http://www.aileroninc.com), who is also a Chicago Sun-Times columnist, sums up dealing with the press in this way: “Keep it real. No reporter wants to hear about what you think you can do. They want to know about what you have done.”
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Hocus and Focus: Don't Hone Your Business Too Early (Originally Published at Eprairie.com on 5/20/03) CHICAGO - When I started my first business, I thought the hard part was going to be focusing my energy on what I was doing in order to build what I envisioned. I wanted to offer so much to our prospective customers and be good at handling each one of them that where to start became a hard decision. Though a singular focus can be a critical element in the initial stages of any company, it can also be premature. In this early stage, Matt McCall of Northfield, Ill.-based Portage Venture Partners (http://www.portageventures.com) says there must be a balance between “experimentation with business models and focusing on specific market segments and customer needs.” Early on, he believes most firms “throw spaghetti up on the wall" to define what customers and products have the most potential. “Focusing too early can lead to ill-chosen or missed opportunities. Companies need to experiment and fail flawed business models and product offerings quickly,” McCall said. “The sooner a firm can define its value proposition in the appropriate market segments with an effective go-to-market strategy, the sooner it can begin scaling its business and moving beyond the inflection point.” Until these elements align, he says, it is nearly impossible to focus and drive a business because a clear target doesn't exist. McCall sees a typical Catch-22 since “until you begin to focus on a clear set of customer needs with an appropriate offering, you do not have a viable business.” For many entrepreneurs, the most difficult time to focus is after your company has had a lot of success. After you have been profitable building your business at an early stage, you start to feel like you can do anything. You may even want to change your name to King Midas because you may feel you have that magical business touch. At this point, you think you can do anything. As a result, you expand your business aggressively and can even “grow yourself broke” at this stage by investing too much money in expanding your company. I believe this is what we did in the early 1990s when I was at Whittman-Hart and we added too many branches around the country prematurely. Although the company had a lot of success in Chicago and Indianapolis, opening up offices in California, Virginia and Alabama proved to be challenging. We found establishing these new offices very tough in those years despite our success in the Midwest.
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I made the same mistake of thinking I had the magic business touch in all three of my own businesses. With my first business, we expanded too rapidly outside our geography. In the second and third, we sold additional products we knew nothing about but thought the customer “ought to have”. In all cases, it proved to be a disaster. “As a rule of thumb, most firms live or die based on their first product that’s targeted at their core market segment,” McCall said. “Few have the management attention span or resources to do more than this. By focusing repeatedly on a given segment, you begin to gain critical mass in terms of referenceable accounts, institutional learnings and reputation within a segment.” He added: “You are also able to continually refine your product or service specifically for the needs of that market and to more effectively meet customer needs. In this business, you do not want to be a jack of all trades and master of none.” While the businessperson needs to be focused, he or she also needs to be flexible enough to listen to new ideas inside and outside a company. "As your business grows, ‘focus’ becomes related to ‘flexibility’ and ‘scaling the business’," observes Frank Ballantine, corporate group head of Chicago law firm Sachnoff & Weaver (http://www.lawyerstoinnovators.com). "If you have successfully focused on meeting a serious need of a substantial number of customers, choices have to be made such as ‘what’s next’ with your product or services and ‘where next’ in your market coverage.” Every great business is always ready to evolve itself within the ever-changing marketplace. You need to be able to listen to your customers to see what they want in new products or services. At the same time, you can’t take every customer suggestion unless you have such dire cash flow problems that require you to do whatever you have to do to stay alive. In my last business, 25 percent of our revenue came from a source we had not contemplated until customers asked us if they could pay for a particular service. Thus, a new service line was born. How do you decide which new ideas to turn down and which to pursue? First, make sure you focus on your bread-and-butter line of business (the one that's feeding your business cash flow). If you can sell a new service or product to the same customer base, this may be a good match.
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Bob Okabe of Illinois Partners (http://www.illinoispartners.com) suggests that the successful entrepreneur needs to be a combination of dedication, experience, ambition and fear. He added: “Practically and focus is maintenance of a balance whether of work and life, the advice of insiders (employees) and outsiders (consultants, advisors and customers) and when to keep the pressure on and when to back off.”
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Show Me The Money: Creative Sources of Capital for Today's Emerging Company New York Empire Magazine Ah, the good ‘ol days. The “Roaring 90’s”, a time when an entrepreneur only needed a unique idea and a business plan to secure millions of dollars in venture funding. The entrepreneur then spent the next year getting great office space, wonderful furniture, a foosball table and people with fancy titles. Many even found time to work on creating a product. And why bother finding customers when it was easier to find money. But the year 2000 put an end to that kind of fun, leaving many of us, including myself, wondering, what was in the Kool-Aid we were all drinking? In 2003, we find ourselves back in the world of business fundamentals. Historically, the best sources of capital have been from one of the three “Fs” (founders, families and friends). Although these sources still remain a solid method for financing a new business, more than ever - you, as the founder will be your own financer. Businesses have traditionally been “customer financed”. Throughout history, the would-be entrepreneur was asked by someone to solve a problem for them and was offered money to accomplish this task. The new “customer” was satisfied and asked the entrepreneur to do it again. The business then spread its services to new customers and was subsequently born. This method of capitalization works well in a service oriented business, but may not be successful in one that needs more money for product development. Alternatives sources of capital I have listed some of the alternative sources of capital that I have personally used to develop businesses over the last 15 years. Each of the sources below may differ based upon how you have formed your company (sole proprietor, partnership, S Corp, etc.) so make sure to check with a financial advisor for more detailed information. Borrow from your retirement Many 401K and IRA plans allow you to borrow from your retirement savings for a limited time without penalty. Just be sure you can pay it back on time or there are big penalties!
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The cash value of your life insurance Many life insurance policies enable you to borrow part of the cash value of the policy and pay yourself interest on the borrowed money. Although it may not be popular in your household, don’t forget to look at your spouse’s policy too! Home equity loans With interest rates being low and tax deductible, this a good place to look for capital to start your business. Please ensure that you can pay the additional payment even if your business fails or you may lose your house, which will not be a popular outcome with your spouse, especially if you have already borrowed from your life insurance policies! Employees Ask your employees to loan money to the company at a favorable rate and add a stock option sweetener. When employees invest in the company, they feel an added interest in its success. Credit cards This is the fabled first line of capital for many entrepreneurs and arguably the most dangerous. Rates can be high and minimum payments low. But if you are unable to pay back the credit extended in a timely manner, it can lead to a financial death spiral for you and your business. Cash flow as a source of cash Keeping cash flow current is vital to the success of the company and decreases the need to use credit cards or loans to stay current. There are several tricks for making this happen: Collect monies people owe you on time. Be merciless. Try to get deposits for products or services in advance. Negotiate extended terms on money that you owe your vendors. You may be able to even pay a bill with a credit card after 45 days and with that, extend your payment another 30 days. If you have inventory, keep it low and “turn” it as frequently as possible. Keep your monthly fixed costs low. Hire only employees that can produce revenue or collect cash for you. Don’t sign any long term rental leases. Real estate is currently a buyer’s market so look for attractive subleases for 6-12 months. Finally, learn to read a cash flow statement. Remember that cash is not only king, but it is also the face card in your business deck.
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To borrow from a popular political phrase, the rallying cry of any startup business should be “It’s the Cash Flow, Stupid!” By paying attention to the sources of capital available to an entrepreneur you can grow your business so you can reach milestones that will qualify you for angel or venture capital.
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SECTION II: USING ANGEL FUNDING Is Your Business Investor-Ready? The first start in funding your business is with the three F's of source capital for the seed round: FOUNDER, FAMILY, and FRIENDS. As the founder, you need to put most of your money and time toward making this venture a success. Any outside investor will insist on this. You should next go to family and friends. There isn't anyone that will value your business plan more than they will. Just remember that you can make money for them or lose it all! Ask yourself if you could face these people if your venture failed. What does it take to get professional investment in 2003? You need one of two things: A management team with a track record of having done other successful start-ups or similar adventures. A prototype or "proven concept" that has shown revenue that can be scaled with additional funds. Investors favor providing expansion capital not capital to prove out something an entrepreneur thinks. Beyond that, this is what investors look at when rating whether your business plan may be a good investment (1 Low to 10 High): The management team How experienced are you in the domain where you are working? Have you run or grown a successful business before? How much passion and vision do you have? At the same time, how much flexibility do you have to change direction and heed others' advice? Who do you have as an outside board of advisors or a board of directors? What are the holes in your management team and how will you fill them? (Rate yourself a "1" if this is your first business venture on your own, have only done consulting work or you are still at your current job. Give yourself a "10" if this is the 4th business you have started where you sold two of them and went public with the other two.) The market place How big is the market for your product or service you plan to sell and the potential customers? How will you specific address that particular market?
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(Rate your plan a "1" if it's less than $500 million. Rate your plan a "10" if it is over $100 billion. If reasonably you can capture 5% of the market, it has to be big.) Your product Does your product or solution solve a problem that people will pay money to fix? If you build your solution, who will care? (Rate your plan a "1" if you are unable to find the cost to the problem you are solving or your solution would be "nice to have". Rate your plan a "10" if you know exactly how much potential customers already spend on solving this problem with fragmented or poorly executed solutions.) Prototype or proven concept Is this just a theoretical business idea that you think will work? Or have you already built a product, have web traffic and customers with a revenue stream? (Rate yourself a "1" if your business only exists on paper. Rate yourself a "10" if you have a working product with customers that pay money for to use it. Give yourself bonus points if these customers are not a cousin or family member.) Strategic alliances Who else has bought into your vision? What companies have you signed significant agreements to partner with either technologically or from as a marketing strategy? What will your sales and marketing strategy be? (Rate your plan a "1" if the answer to this question is "no one". Rate your plan a "10" if Microsoft , Yahoo, Google or EBay has given you an "exclusive" relationship.) Sustainable competitive advantage If someone came into your market after launch with a heck of a lot more money than both you and I have, would your business revenue model survive? Do you have a technology, key alliances or community that are not easily duplicated? (Rate your plan a "1" if your only response is that "you had the idea first" and besides "you have no competition". Rate your plan a "10" if you have obtained a patent for your secret technology and have wrapped up all of the key players in the industry in exclusive strategic relationships.) Pro forma cash flow model How much cash will you need to attract the first institutional investors? When will you be cash flow positive? What do the future round requirements look like? What does your gross margin look like? Do you have a repeatable revenue stream?
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(Rate your plan a "1" if you need to attract $5 million from angels and you won't be cash flow positive until the Chicago Cubs win the World Series. Rate your self a "10" if you need less than $1 million and you'll be cash flow positive within a year of launch.) Exit strategy Forget the IPO, who will you sell your business to? Every investor wants to know the shortest path to realizing a gain from their investment. Who are the likely candidates that can afford to buy your business at probably 10 to 20 times your valuation today? (Rate your plan a "1" if your response to the question is, "I don't care about the market, we are going to IPO this thing in 6 months from launch". Rate yourself a "10" if you have already have had bona fide offers to buy your company even before angel investments.) Pre-money valuation The average pre money valuation for seed round investing is less than $2 million. All investors will want an appropriate step up in value at every capital raising round. (Rate your plan based on the reasonableness of your valuation method and the justification you have built based on the factors mentioned here. Rate your plan a "1" if you valued you are a "1" in every section of the criteria established here and gave your plan a $20 million valuation. Rate your plan a "10" if you are a "10" in every section listed here and have valued your business at $2 million.) No business opportunity is perfect. There is a lot of risk and unknowns in every venture. The key is to know where your strengths are and to begin to build the areas where you are weak.
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Finding Angels in Your Outfield American Venture Magazine We are all looking for help funding our business. A popular trend of the 1990Õs was to find an "angel" to help you get your business "off the ground". At the time, it was a lot easier to find angels than customers. The word "angel" conjures up all sorts of images of a good force saving and lifting your business toward success. It turns out to be a lot less romantic than this. I sold my third business in 1999 during the Internet bubble. I was burned out from having succeeded and failed at three businesses over the previous 10 years. As an entrepreneur-holic, I knew that I would probably want to start another business right away, even though I also knew that I needed to take a break from this cycle. In order to scratch my entrepreneurial itch without having the pressure or risk of starting another business, I became interested in angel investing. "Angel Investors" are not a 1990’s phenomenon. There have been angels for as long as there have been start up businesses. In years past, we called them benefactors. These were wealthy people that loaned or invested money to get a Crazy business venture started. A few famous "angels" are like J.P. Morgan and Spencer Trask that backed Thomas Edison in 1978 1878 at the Paris Exhibition. At the time, not many people were interested in the future of electric light since. Light from gas was "working fine". More recently, Ian McGlinn backed Ann Roddick in 1976 for The Body Shop. Twelve 12 angels helped get Jeff Bezos unknown company, Amazon.com off the ground in 1994. The Internet bubble brought a lot more amateur investors into making angel investments. These individuals’ investments were no longer private, and as angels became more visible in an attempt to try to attract the high quality, fast moving deals. Who are business angels in 2003? Broadly speaking by law SEC regulation, they must be wealthy individuals that make earn over $200,000 or have a net worth of $1 Million. Our government reasons that if someone is rich then they are smart! (or at least they can afford to lose the money they have invested). This protects people that are unable to take a risk and lose their money from investing your venture. This is good protection for the investor and the company. Generally, these angels are people like myself that have been entrepreneurs before and want to stay involved with start up businesses. They want to give back as a mentor and simultaneously, make a return on their investment! Angels invest close to home. Many act as either passive investors or an active advisor.
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As we all know, the market in the "roaring 90’s" is a lot different then it is in the "snoring 2000’s". Few deals are getting done at lower dollar amounts and valuations. Companies need to depend on traditional sources of capital like friends, and family and early customers. Start-ups needs are expected to get a lot farther on less capital. Cash is king! According to Jeffrey Sohl, of a 2002 study by The Center for Venture Research at the University of New Hampshire, there are 350,000 angels in the US that invest approximately $30 billion a year in over 40,000 ventures. His 2002 study stated that says that about 7% of deals presented to angel groups get funded. This has dropped from an all time high in 2000 of 23%. Most angels invest between $50,000 and $150,000 per deal of their own money. In early rounds, angels typically received 30% equity in the company. It takes about four months from introduction to funding. Angel groups have actually increased in popularity since the Internet bubble burst. This chain of events produced the perfect setting for the formation of a formal angel group; people now wanted to pool their money together and share risk. Since it was an investor’s market, they were no longer competing with each other for the best deals. Most investors also wanted to tap into group industry expertise to make better investments; with more people looking at the deal, there would be safety in numbers. A person could invest less per deal but in more deals to manage risk. According to the Center for Venture Research, angel groups have grown from 50 in 1997 to over 170 formal and informal groups in the US and Canada. What do angel groups seek in making investments? Mark Achler, principal at Kettle Partners in Chicago always says, "In real estate, the three most important criterion things are "location, location and location". In making an investment, the key criteria are "management, management, management". Most investors would rather invest in a "B" idea with an "A" leader than an "A" idea and a "B" player. People executing well, not the idea, is the difference for a successful investment.
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Other important considerations are: How deep is the pain your solution solves? People buy painkillers these days not vitamins. Do you have a proven revenue model that is scalable? You may build a nice business, but it needs to scale grow to $50M for it to a good investment for an angel. Do you have strategic alliances with the "big gorillas" in your space? If you are in the insurance market, what does State Farm think? Do you have a sustainable competitive advantage? Or if you are successful, competition does not have to buy you. They can just crush you like a bug if you are successful? Do you understand your cash flow needs? What is your exit strategy? Cash is not only king, it’s every other face card in the deck. Run out of cash and your business is dead. What are your sales and marketing strategies? Guess what? You are not selling your product in "A Field of Dreams", if you build it, it does not mean they will come! Where can you find angels? As with most things in business building, referrals are the key. Start with the service professionals that you work with like your attorney and accountant. Ask them to introduce you to three people. Then, get referrals from those people. Attend seminars and events. Submit your plan to competitions. Don’t forget to look for "customer capital" by selling things! Keep your network up to date on your progress. Finally, if you are an experienced entrepreneur, there is almost always an angel for every deal. Just keep networking until you find one that is interested in you and your venture. Sources of research Jeffrey Sohl, Center for Venture Research at the University of New Hampshire. (http://www.unh.edu/cvr) Kauffman Foundation (http://www.emkf.org//t_parent) EntreWorld (http://www.entreworld.org//t_parent>) Angel Organization Summit Papers (http://www.angelsummit.org//t_parent) National Angel Organization (http://www.angelinvestor.ca//t_parent) MANA (http://www.midwestangelnetworks.org/)
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Ten Tips on Finding Funding Special to: Empire NY Despite the current economic downturn that seems to be lasting longer than expected, angel funding and venture capital dollars are still available to companies that can prove they have revenue generating potential, have a strong management team, etc. Venture capital and angels investing received a lot of attention in the 1990’s as new economy entrepreneurs were building "designer" companies that were built to be sold. But throughout business history, real companies have been built from funds found in many places: Look in your own bank account As in the past, entrepreneurs will expect to fund part of their new business from their own wallet. It is the only way to truly get started. It does not matter how much it is, only that it is significant to you. It also enables you to respect other peoples’ money too when you take theirs. Talk to your friends and family This is the all time favorite place for funding of start up businesses. The good news is that they will invest because they love and care about you. The bad news is that it’s not a lot of fun to lose their money and may change your relationship with them forever. On a bad business day, you will never be able to truly answer their question "How is the company doing?". Find a customer that believes in your product and you Traditionally, businesses have started because someone asked someone another person to do something and was willing to pay for it. Find that person who will pay you to solve their problem. You will have an instant business. And put you in business. Talk to your accountant or attorney They will be able to give you excellent referrals since they deal with "money" people all of the time. They should be your first referral source. Ask those referrals to give you three more names and so on. Find a mentor Find someone that will help you spread the word about your business. They should share your passion and vision and be your evangelist to the world.
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Network Attend seminars, go to events, and talk to anyone that will talk to you. A strong referral is the best way to get in front of the right people. Also, keep these people up to date on your progress even if you do not need resources from them at this time. Submit your business plan to business competitions There are many groups that allow you to post your business plan on their Web site, utilize their webs site for review by allowing potential investors. They can give feedback on the business plan and/or learn about your company for investment consideration. Contact angel groups and other area resources There are several excellent groups that are national and regional. There are an endless number of resources online to help you learn more about attracting capital and funding such as TannedFeet.com (http://www.tannedfeet.com/financial.htm), StartUpBiz.com (http://www.startupbiz.com), and BarryMoltz.com (http://www.barrymoltz.com) (my personal favorite!). A national list of angel groups can be seen at a Kauffman foundation sponsored web site, (www.angelsummit.org). Achieve business milestones Nothing gets money like business success. Investors want to put their money in businesses that have achieved their targeted milestones and show a promising future. Attract an excellent management team Investors put their money in people not a business. The better team you have, the more money you will be able to attract. Get people on your team that have industry expertise and that have been there before. Investors want track records.
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Common Entrepreneurial Mistakes Depending on building a viable business through funding from an Angel or VC Your chances are actually .5% to 4% depending on whom you talk to. It is rare that someone will come in and "save you". Learn to bootstrap your business the first year so you can get customers, revenue and prove your model. Establish a proven track record. Projected revenues are based on market size You need to show how you can build your revenues from the ground up with the appropriate sales and marketing strategy. To say that you will capture .5% of the market is not a good answer. Don't compare yourself to other publicly traded companies in the market place. Remember, most of them have more capital than you ever will to support their business. Competitive advantage based on "quality" of product or "first to market" You need to assume that someone can always build a better mousetrap than you. Don't bank on the fact that you are the best game in town for a long-term competitive advantage...remember a thing called "reverse engineering"? All of the time... Talking to any investor about your plan Talk to only those who are truly interested and are able to fund your plan. Don't over shop your plan. Don't be afraid to ask for the order (will you invest in my business?). Waiting until you are out of money until you start to raise capital Remember that if you run out of cash, you are out of business. Many call this a "near death " experience. It is best to always have 6 months of working capital in the bank to cover any contingency. This will prevent you from having to negotiate investment terms when you are desperate and the investor feels "pushed" or has an extreme advantage. Remember how banks love to lend people money that does not need it? The risk is perceived to be lower. Not focusing on the investors return Be able to answer simple questions like: How much money is required to make a profit? What is my return on investment? What is the exit strategy? Be able to appreciate that the investor has alternative places to put their cash. My thanks to Lori King from Seraph Capital (http://www.seraphcapital.com) for her help on this page!
What is My Start Up Worth?
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People estimate that there are 3,000 to 4,000 start-ups in Chicago a year. Your business is worth what anyone will pay for it. Typically, at the good business plan with a good management team and a proven track record (and a product and sales) usually has a pre-money valuation of $1M to $1.5M these days. Any added value needs to be built from here typically in terms of excellent management, the market and the progress on your solution. Remember every investor will want a step up in their investment during each subsequent round. The angel investor typically wants a 3X return. The VC wants a 6X to 10X return. If you price it too high to begin with, then it will be difficult to attract future professional investment. It is important to understand how each investor will perceive their risk and reward ratio. As elements of risk are eliminated, the value of the business goes up. The first money you raise will be your most expensive. You need to use this money wisely to eliminate elements of risk in the business. Final Thoughts: Remember it's still the Golden Rule "He who has the gold, rules"! Forget the Valuation- Get the Money. If you are successful, the money will matter more than if the valuation.
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SECTION III: ENTREPRENEURIAL SCARS The Top 10 Musts That Should Be in Your Business Survival Kit (Originally Published at Eprairie.com on 10/7/2003) CHICAGO - In the bubble days of the 1990s, it used to be that every company “needed” great office space, fancy furniture and the best foosball money could buy to launch their business. It was more important to “look like” a real company than to be one so you could attract great employees and lots of interest from investors. This became very profitable for companies like Herman Miller, landlords, recruiters and many Web development companies. Obviously, this has changed. Companies are now subletting space and buying furniture for pennies on the dollar. It’s a very different market. In order to be financially successful in 2003, what should be in your business survival kit? Here is my top 10 in no particular order: A team that is effective together. Businesses are about people - not ideas. People make the difference in successful execution. Find lunatics like you. Accurate monthly financial reports. This needs to include a cash flow statement and a cash flow model that works. It’s the only way to base your financial decisions on something. If you don’t have one, get one. A sales culture that finds revenue. Everyone sells. If you’re not out looking for new or more existing business, go work somewhere else. A sales prospect system. Any software (such as Salesforce.com, ACT or Goldmine) will work as long as you use it and keep it updated. Over time, this is a huge asset for your company over time. Customers who pay on time. Customers who don’t pay are not customers. They are collection problems. You can’t pay your own bills with your company’s account receivables. Excellent service that ensures repeat customers. It’s a heck of a lot less costly to acquire more business from old customers than to find new ones. If you have to run your company only on new business, you will have a hard time succeeding. Large gross margins. It’s much easier to make money if you have 80 percent gross margins than 20 percent gross margins. Even I understand this math. Low fixed costs. This will keep your business flexible regardless of how much business you are able to bring into it.
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Enough cash on hand for when things go badly. If you can, save for when sales go down or a large customer fails to pay you on time. A sense of humor for when things go badly. You need this one. Try to laugh after you are done crying. Rich Heise, an experienced entrepreneur and investor, started Innerworkings a few years ago. He suggests a few things you should avoid: High rent or excessive office space Fancy furniture Marketing M.B.A.s Company credit cards Software development not paid for by your customer Negative margin customers More than one person in charge Debt Under capitalization Mark Achler, a well-known venture capitalist at Kettle Partners in Chicago and now CEO of Rightfield Solutions, also believes in “the very brightest and most experienced advisors/board members. I also think that it's critical to have the complete support of your family and loved ones. “Being an entrepreneur is such a deeply personal and all-absorbing experience that it completely consumes any free time and availability. Being an entrepreneur affects your family as much as yourself. If your family doesn't buy in, you'll be asking for trouble.” Emily Carter at Southern Tech believes that our fascination with the latest gadgets can be a huge burden on us. “If you put an hourly rate on your time and apply that to the time it takes to learn to use the latest gadget, it can be a shocking figure,” she said. “I think one of the best tools is to keep a handwritten task list in front of you. It forces you to constantly face what you should be doing.” Carter also believes that everyone needs an advisor or mentor with no vested interest to provide objective feedback about his or her business. She added: “This dialogue, which I prefer to have informally over a good cup of espresso, can foster new ideas and identify innovative solutions to problems.” Jason Felger at the Chicagoland Entrepreneurial Center recommends that business owners have a strong network of people.
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“This should at the very least consist of a lawyer, banker and an outside advisor,” he said. “I'm a big believer in engaging your lawyer and banker in your business because they can be so much more of an asset to a business then their defined titles.” He also counsels businesses to have a sales kit that includes a Web site (nothing fancy but informative), a company/product backgrounder, customer testimonials and case studies. Felger reminds us in closing: “Foosball tables are a blast but I've never heard of one closing a sale.”
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The One Page Business Audit Do you smell trouble in your existing business? Make time to think about these fundamental issues: How does your business generate income? Look at your balance sheet and income statement Do you understand every number on these statements? Can you tell where the money is coming from? Do understand where the money is going? Which parts of the business are profitable? Which are not? Prices What are they based on? Do they compare to what competitors charge for the same value? Or are they only based on what “you think” customers will pay? Do a sensitivity analysis by raising prices to see if you retain all your business. Customers may pay more for the same value. What are the margins on different products and services you sell? Business Elements : Niche What problems does your business solve? What is your unique selling proposition (Remember USP?)? Why should customers buy your solution instead of someone else’s? Principals Where do the “principals” spend their time? Do they work on revenue generating activities or have they become administrative overhead? What to the other nonincome generating people do with their time? What productivity can you leverage? Feedback and improvement How do you judge quality and client service? Are you retaining current customers or are you losing customers as fast as you bring them in? How does your business generate cash flow? Cash Do you look at a cash flow statement every month? Do you understand what each number means? Do you know what items increase your cash and which ones deplete it? Do you forecast future cash flows so you have enough to run your business?
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Collections and payments Are you behind in collecting your account receivable? Who are the biggest offenders? Why do you still do business with them? Are there other assets or investments that generate income? Are you behind on your accounts payable? With everything you just looked at, how does your business become more profitable? Major goal choices: Should you add more clients or just more products with the same clients? Should you stop selling unprofitable products or servicing unprofitable customers? Do you have the financial resources to grow?
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Detecting Your Company's Early Trouble Signs (Originally Published at Eprairie.com on 4/15/03) CHICAGO - Growing up, "life turns on a dime" was one of my mother's favorite expressions. She always told me that life could change in the blink of an eye. Personally, this happened to me in May 1995 when I woke up and had blurry vision. A few days later, I was diagnosed with diabetes. That day changed my life forever. Business also turns on a dime. It's a constant roller coaster of ups and downs. One day, you're on top of the world. Customers will buy anything, people are paying their bills on time and everyone wants to work for your company. The next day, you can’t give your product away to prospects, your computer systems crash and your best employee leaves. Like people, healthy businesses can become "sick" very fast. This is why the stock market places so much emphasis on quarterly earnings reports. Things can change in a matter of months. In its first-quarter 2002 earnings, Tellabs (http://www.tellabs.com) reported a gain of 1 cent per share. In the second quarter, the company reported a loss of 35 cents per share. More of this is likely to happen in the current economic climate. Vital statistics can change drastically month to month. So how can you detect early signs of trouble at your business? First, you need to understand how your business generates income. Read your balance sheet and income statement. Ask yourself these questions: Can you tell where your company’s profit is coming from? There is no doubt that some lines of business will probably be more profitable than others. Can they be divided into primary and supporting revenue streams? Some sources of sales may be dependent on others. Companies like SPSS (http://www.spss.com) often find that their software sales support their maintenance and service revenues. Know the relationships between your company’s different revenue components. What are the margins on your products and services? It is certainly easier to make money with an 80 percent gross profit than a 20 percent gross profit. Software sales may have a higher gross margin than support revenues.
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Are your product prices based on their value to the customer, competitive pressures or historical trends? You can do a sensitivity analysis to find out how much flexibility there is to charge more for the same products or services. Most companies charge too little for their products rather than too much. This is exactly what happens when meter parking, off-street parking and taxi fares increase in Chicago. I am convinced that Yellow Cab (http://www.yellowcabchicago.com) and Standard Parking (http://www.standardparking.com) look at each other’s pricing trends. Read and understand your cash flow statement. You need to know exactly where cash comes from every month and what the money you spend goes toward. Know how much of the monthly profit reported on your income statement actually ends up as retained cash on your cash flow statement. Are you behind in collecting your accounts receivable from your customers? Find out your company's biggest offenders. Remember that customer credit is a privilege - not a right - and it’s available only to those who earn it. A customer is only a customer when he or she pays. At least quarterly, examine the niche your business serves. Ask yourself these questions: Is the problem you started out solving still relevant to your customers? If the nature of the pain for these customers is beginning to change or be substituted by other solutions, you may have a problem. For example, pay phones were needed when people wanted to make phone calls outside their homes. With the popularity of cell phones, SBC’s (http://www.sbc.com) pay phones are becoming extinct. Does your business still have a unique selling proposition? Chicago-based Expand Beyond (http://www.xb.com) states that with its mobile software, organizations can control business-critical databases, networks and systems from a wireless device. Everyone in your organization needs to be able to repeat the elevator pitch on why your company is different than others competing with you. Make sure you understand how this gets articulated internally and externally. On what do the “principals” in your business spend their time? They need to focus most of their energies on generating revenue for your company rather than on administrative duties. Mike Duda, a principal at Chicago-based Pennant (http://www.pennant.com), spends most of his time selling solutions to current and new clients. Look at what the people who aren’t generating income do with their time and continually justify it to yourself.
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How do you judge the quality of your products and your client service? Poor execution of either one of these eventually leads to a decrease in revenue. SGS Net (http://www.sgsnet.com), which provides online marketing solutions, surveys its clients after every engagement to help improve its processes. If you are confident in the financial and competitive health of your company, think about how you would grow your business. Will you emphasize securing more clients, more projects from the same clients or larger projects? Though the tempting answer is “all of the above,” each one requires different sales and marketing tactics that take resources to execute. In this difficult business climate, I suggest targeting larger projects with current clients. This will accomplish two things. First of all, this focus will protect your largest corporate asset: your client base. Secondly, the project acquisition cost for existing clients is much lower than winning the same thing from new clients. Cold calling new clients is a very difficult and expensive business art even during the best times. In addition, you should always be looking at the marketplace to your left and right (horizontal growth) and up and down (vertical growth). So your business can grow, you need to take a quarterly look in both directions for competitors and opportunities. If you embark on any new opportunities, make sure you have the financial resources to expand. Also, be sure your growth won’t weaken your current market niche. Events that turn your business on a dime definitely make life more interesting and force all of us on a daily basis to keep our skills sharp.
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The ‘School of Hard Knocks’: Just as Critical as Business School (Originally published at Eprairie.com on 12/16/03) CHICAGO - In the 1990s, people were coming out of colleges and business schools thinking of themselves as ordained leaders for new businesses. They were convinced that their education had given them all the necessary tools and the right to run a successful company. Their education would guarantee them financial success. This was untrue. We learned that education could only be one piece of the skill puzzle. I was recently asked an interesting question when speaking before a business class at the University of Illinois (http://www.uiuc.edu). As an angel investor, which did I value more: an M.B.A. from the University of Illinois or Harvard (http://www.harvard.edu)? I said neither. I wanted to look at a manager’s successes and failures rather than just his or her educational degree. No one earns a pedigree at school that guarantees a success on the business roller coaster. What is the challenge for those business people who don’t even have the skill base of advanced education and business mentoring? What path can they follow to succeed? One of the best parts for me of traveling the country and talking about entrepreneurship is the amazing people I meet. I have talked to many people who didn’t go to college or business school. Some have even come from broken homes and have not had personal or business role models. What drives these people is the same thing that drives many of us: a passion to see their own ideas succeed or fail. They have a natural curiosity of wanting more out of the business world than just going to a boring job every day. Their “I never had much and now I have nothing to lose” attitude makes them close their eyes and jump into a new venture. They are people who want to make a difference in the world. This past summer, I read Po Bronson’s most recent book “What Should I Do With My Life?” In the book, there is a great chapter on a woman in Chicago named Nicole Heinrich. I contacted her to hear more about her amazing story. She had received her bachelor’s from the University of Chicago (http://www.uchicago.edu) in sociology but was unable to find a suitable position after graduation. She went to Japan on a whim and landed a job as an Englishspeaking hostess at a Japanese business club. Her job was to engage men at the club in conversation while they were negotiating their business. “I was paid to look nice and talk to people,” she said.
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Heinrich came back to the U.S. and took a job placing ex-cons at companies. From there, she escaped to France to learn to speak French like her grandparents. She took a job in a bar and eventually ran a youth hostel. Years later, she wandered back to the U.S. and met her future partner at Elek-Tek. They opened a company that sold toner for printers. Bronson then describes Heinrich in his book as the “toner queen”. Heinrich says what drove her all over the world was a search to run her own business. She felt stifled in an ordinary work environment and unable to express her own ideas. She wanted to create something. In fact, she now is establishing another company called Full Circle, which helps women realize their own business dreams. In my book, I profile Stephanie Covall-Pinnix. She has that same drive. She has come a long way from her roots in Yakima, Wash. to launching her own business in Chicago. She left home early in life when her parents divorced. With only a high-school diploma, she took whatever work she could find. She has worked at a Sizzler’s restaurant and has done surveys in malls for a market research company. For a short time when her life fell apart, she lived in a car. She was 21 when she became pregnant and went to live in the public housing projects of Yakima. When her baby daughter was born, Covall-Pinnix finally had an anchor of passion in her life that could propel her forward. Covall-Pinnix found increasingly more responsibility at jobs for the State of Washington and JP Morgan (http://www.jpmorgan.com). She found that she was good at training people. Before too long, Covall-Pinnix was no longer the secretary and was instead hiring her own assistant. Her active networking was bringing in leads for business. It was during this time that her career in technology sales took off, which led to senior positions with RCN (http://www.rcn.com), Triton-Tek (http://www.tritontek.com) and SGS Net (http://www.sgsnet.com). It was after these years of selling and business development that Covall-Pinnix became determined to become an entrepreneur. This past year, she started Evolution Partners, which creates customized programs for universities, corporations and not-for-profits. People can accomplish great things without a formal education or specific business training. Many people need only follow their instincts and their deep-rooted passion to create something unique that they can call their own. While college and business schools teach very important skills, they are not a guarantee or prerequisite for success. While academic theories and business simulations are fine, the real world often acts differently than we predict. Nothing can take the place of experience. Until you have attended the "school of hard knocks," your education will be incomplete.
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Building Customer Relationships One T-Shirt at a Time (Originally published at Eprairie.com on 11/18/03) CHICAGO - It's getting to be that time of year. You just received a nicely wrapped package at your office. You look at the return address and it’s from a vendor with which you have done a lot of business. A smile comes over your face. You open it up and find a package of fruit and nuts with a note that came from a computer or maybe in that package is a baseball cap or T-shirt with the company’s logo on it. If you are really “lucky,” you just received a mouse pad. This is exactly what happened to Ken Kornbluh of Chicago-based MarketingPilot (http://www.marketingpilot.com) when he got a box of pork sausages from a vendor where he did $500,000 of business every year. Did the vendor even consider that not everyone eats pork or meat? Kornbluh also remembers when he received a pale-blue “100-percent polyester” fuzzy blanket for the birth of his second daughter with the vendor’s logo emblazoned across in six-inch-high letters. This may be a good reminder of the vendor for a client like him but Kornbluh didn’t really want to think about the company when he was putting his child to bed. The business of giving promotional items with logos is huge in the U.S. The National Business Association (http://www.nationalbusiness.org) has approximately 3,500 different manufacturers that offer approximately 500,000 different items that can be promoted to clients. According to a Baylor University (http://www.baylor.edu) study, businesses typically use these specialty advertising items to win goodwill, create awareness of new products, generate interest at trade shows, reward employees, get business appointments and retain customers. Do these types of business promotional gifts help in establishing or maintaining relationships? How many T-shirts does one person need? Don’t we all have enough sleep or workout wear? My dad jokes that his entire wardrobe from caps to jackets is “sponsored” by some company. Are we just wasting our marketing money?
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John Fox at Downers Grove, Ill.-based Venture Marketing (http://www.venturemarketing.com) suggests three guidelines when considering sending promotional items to your clients: Items should reinforce a message or theme from your company. Have a reason for sending a particular item that ties back to your business. Don’t cause confusion in the value of your service by giving cheap items. For example, if you sell high-end consulting services, you may not want to send a box of nuts. Use an item that has longevity. What will the client use and see for a long time to constantly remind them of you? In this case, popular fruit baskets may not be the ideal gift. We also need to ensure that these kinds of gifts do not go so far in influencing customer decisions. Can sending mouse pads and T-shirts lead to giving tickets to baseball games and then all-expense-paid vacation packages? When do they reinforce your relationship and when do they “bribe” people to do more business with you? I have seen this happen. The gifts become “enforcers” instead of “reinforcers”. This can be a dangerous business line we may be forced to walk. What are some examples of the best items for maintaining and building a relationship? Anjali Gurnani of Lisle, Ill.-based Lisle Technology Partners (http://www.lisletech.com) suggests gifts such as books that can demonstrate “your insight, shared point of view or express your ability to understand a particular business issue.” My personal favorite is a keyboard calendar for your computer that can be placed right above the function keys. I have had these calendar rulers for almost a year reminding me of the company every single time I sit down at my computer. Overall, remember that these types of promotional items can only be part of the equation. As Kornbluh says: “Don’t fool yourself. A fruit basket doesn’t equal a relationship.” If you want to build real relationships that last over time, do it the old-fashioned way. Find out what problem your client has and do a good job solving it consistently. This shows that you care about them as a customer. When you’re done, send them a “nice to be doing business with you” note. Of course, it may not hurt to stuff in the envelope a sleeve of golf balls with your company logo on it, too.
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A ‘Done Deal’ Can Suddenly Become a Dead Deal (Originally published at Eprairie.com on 11/11/03) CHICAGO - You just got off the phone with your top prospect for a large deal. You got the verbal go ahead that you can start next week. High fives all around the office. Done deal. Deal closed. You run to tell everyone. You call your spouse and say that everyone’s going out to dinner tonight to celebrate. You are ecstatic! Not so fast. You call the customer the following week so you can get the final contract signed and start on the project. No returned phone calls. This seems like a strange way for a “new client” to act. In subsequent attempts, you have trouble reaching your contact. When you do connect by phone, your contact says “not to worry” and you can get started “soon”. You wait. You call. Weeks. Months. “Soon” never seems to come. The contract remains unsigned. You never start the project. Uh oh. Deal undone. Deal not closed. I remember a project I worked on a few years back for a merger between two companies. I represented the seller. We had negotiated the deal with the CEO and his outside business advisor. We thought the transaction was done and the companies had set a close date for the transaction. The CEO even visited the company he was buying to welcome all the employees into his company. Done deal, right? A few weeks later, the deal was called off. Stephanie Covall-Pinnix, who is now the president of Evolution Partners, says sales can even come undone from your best existing customers. At a previous company, she discusses how they got a verbal "go" from the vice president of marketing and the brand manager. “The project kick-off meeting was scheduled, the down-payment checks for the project were being cut by the client and our project team was assembled,” she said, adding that she was walking around the office on a cushion of air because the deal was set to blow out their quarterly sales objectives. However, things changed. When she went out to the client site to begin the project and walked in the conference room, the “vice president of marketing was nowhere to be found and the brand manager let us know there was an organizational change a few days before our meeting.
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“A dark pall suddenly filled the room. There was now a new executive vice president for the brand manager who wanted to make some ‘changes’ to our proposal. This meant we could not kick off the projects or sign the contracts and those [downpayment] checks were not coming back to the office with us” However, the brand manager still gave Covall-Pinnix her word that they would begin the following week and set up another meeting at their offices. Still, the morning the next meeting was to take place, the brand manager sent her an e-mail to reschedule. After another four months of calling and being promised that they were going to start any day now, Covall-Pinnix finally took the company out of the “win column”. She describes it as a “very painful” loss for her company. What happened here? Why did the client have a change of heart? How do you ensure the deal closes? First of all, there are no sure things. It ain’t over until it is over. Talk to the Cubs who were five painful outs from the World Series. Many people say the deal isn't done until the customer pays you. Zane Smith, a Chicago attorney, goes further and says the deal isn't done until the customer's check clears. Ensure you are talking to the decision maker who has the money for the project. Make sure they have control over the budget and they are the final decision maker. No more signoffs needed. Make sure they alone authorize the cutting of the check. Also, make sure you have commitment from any other “influencers” in the decision-making process. Additionally, when a prospect says you have the deal, it’s time to go into high gear. Just like in sports, momentum is big here. It’s not just enough to get the football in the red zone near the goal line. Redouble your efforts. Get the contract signed right away and get started. Follow up all the way to the end. Assume nothing. You can get cut out at any stage of a deal. There are many times some other “trusted agent” interferes between you and your customer. You can be left sitting at the kid’s table while this other person steals the decision-maker’s ear and gets the project. Finally, don’t think a deal is closed when the customer verbally says “yes”. Lisa Pollina of Bordeaux Capital says: “Money signals commitment far more than words or even a signed ‘services agreement’ ever will.” As Zane says: “Don’t celebrate until the check clears.”
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An Overnight Business Success Takes 20 Years (Originally published at Eprairie.com on 11/4/03) CHICAGO - One of the American dreams has always been to build a business from scratch and sell it for a not-so-small fortune. We had this same dream in the 1990s but we wanted to speed it up so the entire thing from start-up to sale could happen in a year or two. In a few rare cases, that’s exactly what happened for these “designer” businesses. The battle cry from entrepreneurs then was exactly what my father had told me for years: “Patience is a virtue shared by fools and jackasses.” As so many advertising campaigns reminded us: “Speed was not the only thing; it was everything.” The Internet bubble boosted that part of the American dream where we all want to get rich quick. This is the part where we look for every shortcut there is to avoid putting in the required time or effort to get there. As much as an ethic of hard work and building something slowly over time is part of this American tradition, others have different ideas. We want to somehow “leverage” Lady Luck and strike it rich by taking any shortcut we can find. Sometimes, as we have seen with Enron (http://www.enron.com) and Tyco (http://www.tyco.com), this leads to some people committing crimes. Mostly, though, it leads to a model of unrealistic expectations about how to get there and over what period of time it takes to build a profitable business that can make you wealthy. “There is a tendency to think that great businesses are built overnight,” said Jonathan Kalman, president and CEO of Katalyst (http://www.katalyst.com), a Midwest venture capital firm. “The reality is that ‘overnight’ often means 10, 15 or 20 years.” We have many well known “overnight success stories” in the Midwest. In 1956, Jack Miller started an office supply business in his dad’s chicken store. Overnight (42 years later), he and his brothers (Harvey and Arnold) sold their company Quill (http://www.quillcorp.com) to Staples (http://www.staples.com) for what became worth about $1 billion.
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In 1974, Mike Blair founded Cyborg Systems (http://www.cyborg.com), which developed and sold human resources software. The company’s first product was a payroll software package named VERS 80 Batch for mainframe computers. It was successfully installed in August 1974 at Reflector Hardware Corporation in Melrose Park, Ill. Today, Cyborg’s integrated workforce management software is used at more than 6,000 locations around the world. Overnight (30 years later), Blair sold the company to Hewitt (http://www.hewitt.com) in June 2003 for $43 million in cash plus other performance payments. Other local entrepreneurs have been growing their businesses for a long time without a liquidity event. Jay Goltz has been building Artists’ Frame Service (http://www.artistsframeservice.com) for 25 years. Dave Ormesher at Closerlook (http://www.closerlook.com) has been building for 16 years. Steve Shadrick at SGS Net (http://www.sgsnet.com) has been at it for almost 10 years. Building a real and sustainable business takes a long time. If you want to get rich quicker, you should get a job. You will make more money over the first five years working for someone else than working for yourself. This is the basic change we need to make in our thinking while we build our businesses. Think in terms of decades rather than years. This is hard for a society like ours that is built on immediate and short-term gratification through e-mail, cell phones and instant messaging. So what does it take to build a business over a long time? Kalman characterizes it as resiliency. He added: “It takes time for a business to establish itself and to build the internal systems and processes. [It takes time] to determine the right personnel to make the business perform [and] to really understand the customer." This resiliency is for you to be able to weather the good and bad times. You need to be able to ride the roller coaster up and down. You need to be able to celebrate and remember the good times. You need to weather the bad times. You need not wallow in that hopeless feeling for too long but look for changes to make to improve the situation. Mohnish Pabrai reminds us “when things go very well, you learn nothing.” During bad times, you need to remember that you have been there before. You have survived and things will get better. Finally, during the good times, we need to be humble and remember that every businessperson meets the same people on the way up as we do on the way down. Guaranteed.
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The Dangers, Benefits of Franchising the American Dream (Originally published at Eprairie.com on 10/28/03) CHICAGO - Some entrepreneurs want to run their businesses in the worst way. This is part of their lifelong dream and passion. Many of them want to go into a business to pursue a hobby they love because it’s what they think they know. Very few people, though, can make a living from their hobby or a favorite interest. I cringe sometimes when I ask people why they started a particular business and they say: “Well, I love to eat out and I always wanted to own a restaurant.” I tell them that they can have a lot of fun (and keep more of their money) by staying with their day job and eating at restaurants instead of starting one. This is one reason why so many retail stores close within a year of opening. Liking an area of business and knowing how to run a business in that area are two different things. This is why franchises aren’t a bad alternative for some people since they give you a road map and other tools to run that business. There are more than 2,000 companies that franchise in the U.S., according to the International Franchise Association (http://www.franchise.org). People invest between $11,000 and $2 million to get started. We all know about franchises like Subway (http://www.subway.com) (No. 1), Curves for Women (http://www.curvesforwomen.com) (No. 2), McDonald’s (http://www.mcdonalds.com) (No. 4), Jani-King (http://www.janiking.com) (No. 5) and Super 8 Motels (http://www.super8.com) (No. 8). Are there technical businesses you can get started by buying a franchise? Sure. WSI Internet (http://www.wsicorporate.com> owners “assess their clients’ business needs using WSI Internet’s patent-pending Lifecycle system,” according to their Web site. They then take your client's Internet solution and build it at one of “WSI Internet’s many global production centers, which are strategically located in low-cost, high-tech regions such as India and Australia.” All you need is $39,700 to get started. Expetec Technology Services (http://www.expetec.biz) “offers on-site, high-level technology services to commercial and consumer customers.” Their field technicians have the “latest testing and diagnostic equipment available.” You need $75,000 to get going. I’m unsure whether the fancy van on their Web site with the Expectec logo is included.
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Why not buy a Geeks-on-Call (http://www.geeksoncall.com) franchise? For $45,000, they will train you at Geek University in the computer services industry. They handle all the customer inquiries. All you have to do is generate the customers and do the work. Franchises do have their advantages. You can skip the writing of the business plan. Franchisers give that to you. You can skip the product development and branding, too. They give you an operations manual. Michael Waller is the president of The Entrepreneur’s Source (http://www.franchisesearch.com), which helps entrepreneurs identify sound franchise opportunities. He believes that “franchising offers an attractive alternative for an individual to become his or her own boss while at the same time significantly reducing the risk and ultimately the fear factor. Statistically, better than 90 percent of franchise points are still operating at the 10-year mark.” He added: “Franchising provides a brand that’s backed up by a proven system, training, support and all of the benefits of being in business for yourself but not by yourself.” While buying a franchise does minimize some of the risk components, it doesn’t totally mitigate the biggest one: customers. As I have repeatedly said: “Just because you build it does not mean they will come.” This is the same with a franchise. Just because you run a geeks-on-call or the newest WSI Internet Company does not mean that customers will call you and buy your product. While the larger franchises do help the credibility gap inherent with new businesses, franchisees do go out of business like any other. There is no sure thing. Waller doesn’t believe that buying a franchise is for every person looking to start a business. “Although you may have some flexibility in tactical execution of the day-today activities of the business, the risk is reduced when you follow the system,” he said. “The business processes, procedures and tools that the franchiser provides are part of the value add that they bring to the table. For someone who prides him or herself in being a ‘maverick,’ they may have significant difficulty conforming to the standards of their franchise agreement.”
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This is why the best advice you can follow is what Michael Grove proposes. He was a senior consultant with Francorp (http://www.francorp.com), the world’s largest franchise consulting firm. Grove now works with franchise companies at MarketingPilot Software (http://www.marketingpilot.com). He believes that before making any decision to buy a franchise, you should experience the work first hand by spending a few days on site with a franchisee. Working at a Kinko’s (http://www.kinkos.com) or Dunkin’ Donuts (http://www.dunkindonuts.com) is a lot different than being a customer at their location. Working the long hours of a manager by getting your hands dirty as a clerk will be an eye opener. Grove also suggests that despite a proven model and maybe some slick brochures, review “earnings claims” closely and discuss the details of several franchisee financial statements. Grove has seen many franchises get off to slow starts. Also, as with any other business adventure, do your homework. Do not assume that just because you have a proven business model and a brand that you will automatically be successful. Grove also says that you need to understand the type of support that you will receive from the franchiser. “Support is not cheap,” he said. “You often pay as a percent of gross sales. It could also include a percentage of supplies and other materials. You are likely going to pay a percentage of sales for ‘system’ marketing, too. How will you benefit from paying that amount?” Finally, Grove says you will need a good lawyer. “Become familiar with the legal documents that establish franchises,” he said. “There are the two main documents: the franchise agreement and the offering circular. Obtain both and read them closely. Ask other franchisees if there have been any suits or in-depth discussions regarding problems toward them. An area often cited as problematic is the franchiser’s right to locate another franchisee down the street from you.” Besides, how many Starbucks (http://www.starbucks.com) do we really need? The north side of Chicago boasts 30 locations. I guess there’s no limit to our demand for half-double decaffeinated coffees with a twist of lemon.
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The Only Real Secret Sauce is Paying Customers (Originally Published at Eprairie.com on 9/23/03) CHICAGO - This is not the 1990s. It's no longer easier to get capital from investors than revenue from customers. Unfortunately, we may have forgotten how to find revenue for our businesses. In 2003, all business people will have to actually go out and sell things to prospective customers. In case you haven’t noticed, the phones stopped ringing at the end of 2000. Look no further for your business magic. Customers and the revenue they produce are the only real secret sauce. If you have paying customers, you have the business world by the string. Revenue gives your business choices. If I were creating a “Ten Commandments” of business, the first one would be “go forth and sell”. Adam Hecktman at Microsoft (http://www.eprairie.com) in Chicago believes that the word "selling" has a negative connotation. He added: “It has been so dysfunctional in the past that the term just doesn't do justice to the right way to establish business relationships in this environment.” He defines selling as “helping customers achieve their business objectives. It’s not just for reps and account managers any more. In my own organization, which is a mixture of technical and business development folks, everyone is focused on vision alignment with their customers. The days of this being relegated to ‘sales staff’ is a thing of the past.” In a small business, one thing can be counted on: everyone needs to sell. Only sales will build your business. Nothing else. Forget all the fancy marketing positioning of your company or the design of great logos and stationary. Think of your business as you in a lifeboat and the economy as a rough sea. Your only choice is for everyone to row in the same direction. Jackie Huba, co-author of “Creating Customer Evangelists,” goes further. “Everyone in a business is really in sales and marketing whether they are in these departments or not,” she said. “Anyone in the company who has direct contact with customers and prospects has a chance of influencing the buying decision of prospects.
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“The receptionist, the accounting manager and the technical support person all have the ability to develop a rapport with future customers. [Managers] should counsel all employees that their ultimate goal is to develop relationships with customers [rather than] just sitting in a cubicle ‘doing their job’." Bruce Freud at Chicago-based LiquidGeneration (http://www.liquidgeneration.com) said: “All our employees interact with clients. Our creative team currently does its own account management because they are intimately involved with the brand management.” If we forgot how to sell in the 1990s, how do we regain this skill and learn again what we forgot? First, we need to remember what Chuck Gitles of National City Bank (http://www.nationalcity.com) tells us. He agrees with Huba and believes that a business needs “to look at every point a customer touches an employee. The employee needs to be ready to sell the business at every such opportunity. In banking, touch points go much further than the account officer. “Included are secretaries, documentation officers, tellers, customer service reps and so on. Each person in the chain has to make the most of each contact and enhance the brand. Our product is the same as the next bank: green money. We differentiate ourselves in creativity and customer service. The people who provide the customer service must sell that message at each and every opportunity.” Secondly, we need to simply go out there and sell. You can try to take a selling class if it helps you learn these skills, but keep your expectations low since it’s typically not easy to apply techniques that you have learned in a “live” situation. With the help of a partner or mentor, find a new prospect and go along on the sales call. Listen and learn until it’s your turn next time. When you fail, ask the prospect why he or she didn’t buy your product and move on to the next one. The best door-to-door salesmen of the last century used this tried and true method of improving their sales skills. When one door closed in their faces, they went next door and knocked on the next one. It certainly gives you the practice you need. Selling is a scary process. I know. I have sat many times in a room by myself staring at the phone hoping it would make the cold calls by itself. We often think that a “no” from a customer reflects who we are. Many times we think it’s a rejection of us. It’s not. It’s a reflection only that this particular prospect doesn’t need your particular product now.
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It doesn’t mean that he or she won’t need it in the future. It doesn’t mean that the person doesn’t like or respect you or think your product stinks. If you get a no, decide if it makes sense to keep in touch with the prospect for a future sale. If not, forget the person and move on to someone else who may want to do business with you. Finally, we need to ensure that each team member is contributing to the bottom line of the company on a daily basis. Every employee should ask himself or herself this question every day: “Did I make money for the company today?” In any entrepreneurial venture, there is simply no room to put people in the “overhead” category. You are unable to have anyone on the team who isn’t vital to obtaining or retaining customers. Huba is emphatic when she states this old adage: “People like to buy from people they like. People are loyal to people. When all employees are evangelists for their own company, customers are more likely to buy.”
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Keep Your Business Friends Close and Your Business Enemies Closer (Originally Published at Eprairie.com on 9/2/03) CHICAGO - It’s not too often that Sun Tzu and Al Pacino in “The Godfather” give the same advice. I have long believed this adage is a wise business strategy: You should not only keep track of what your business partners are doing but what your competitors are doing as well. We also typically use losing and winning against our competitors as a way to keep score in business. Sometimes, though, you also need to work together with your competitor to achieve a business goal. Adam Brandenburger in his 1997 book of the same name called this “co-optition”. Bill Gates has purportedly referred to it as “sometimes the lambs have to lie down with the wolves.” In fact, most businesses practice some form of cooperation with their competitors. Your company winning doesn’t mean that your competitor always loses. Conversely, when you fail, it doesn’t mean that you totally lose. A few years back in the movie “A Beautiful Mind,” John Nash educated me on game theory where “rational decision makers” are involved in a mix of conflict and cooperation. The best version of co-optition is where an entire industry gets together to solve industry-level problems. Tom Colberg of the TechParGroup (http://www.techpargroup.com) gives the example of Covisint (http://www.covisint.com), the automotive exchange that was formed as a joint venture between GM (http://www.gm.com), Ford (http://www.ford.com) and DaimlerChrysler (http://www.daimlerchrysler.com). “The goal of these automakers in forming Covisint was to share the cost of creating an industry utility to Web enable procurement activities, support supply chain ecollaboration and facilitate interactive engineering and design functions via the Internet,” he said. “Each exchange member used the exchange to carry out its own reverse auctions, communicate with its own supply chain and connect its own engineering and design teams.” “For obvious reasons, the founders did not combine forces to make aggregate purchases of parts and materials. The availability of this utility made each user more efficient but they continued to compete head to head in the area of design, operations, distribution and sales.”
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“They cooperated to create an e-procurement capability but continued to beat each other’s brains out on the showroom floor. The motive for cooperation was to share cost and the area of cooperation was non-competitive. The result is a persistent and successful venture. Covisint is still in operation three years later because it meets important shared needs of its founders.” Colberg points out that the competition between Microsoft (http://www.microsoft.com) and the Liberty Alliance (http://www.projectliberty.org) (led by Sun (http://www.sun.com)) in the area of identity management and authentication is another example of co-opetition. “In this category,” he said, “competitors believed it was to their advantage to cooperate in the Liberty Alliance against the larger enemy in their eyes (Microsoft and its Passport product). In order to create a critical mass of resources and users that would have a better chance to compete with what they perceived as the Microsoft juggernaut, vendors who might never have teamed up otherwise got together to develop open standards.” Bill Best at A.T. Kearney (http://www.atkearney.com) warns “co-optition is very much like alliances rehashed.” He has spent a large amount of time in Japan unwinding alliances and joint ventures that did not work. He added: “Essentially, the objectives of the partners tend to diverge over time. The rationale for the alliance tends to fall apart as the objectives diverge. Failure rates are in excess of 50 percent.” Ralph Harrington at AFFICIENT (http://www.afficient.com) is skeptical that cooperation between competitors ever really works. He added: “Even in the best of circumstances, a business partnership is a marriage without love. It is very, very difficult to get to the alter and more difficult to hold it together. Consequently, for most companies, the math doesn't work.” Lynne Baker at the Illinois Coalition (http://www.ilcoalition.org) thinks co-optition in Chicago is especially important but she also sees warning signs: “Maybe it’s just the lawyer in me but whenever anyone mentions competitors cooperating in the marketplace, the word ‘antitrust’ comes to mind. You are likely not talking about an entire industry of competitors cooperating. The antitrust laws can reach just one or two competitors who decide to cooperate on pricing.” John Banta at IllinoisVENTURES (http://www.illinoisventures.org) thinks entrepreneurs are in general too concerned about the perceived "risks" of working with their competition.
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“Virtually all competitor interaction is worthwhile even if nothing commercially tangible comes of it,” he said. Banta concludes that this is particularly true in software and IT where “change occurs so swiftly that today's competitor is tomorrow's distribution partner or acquisition candidate.”
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It's Time Again to Respect Our Business Elders (Originally Published at Eprairie.com on 8/27/03) CHICAGO - As I traveled to Europe this summer, I was struck by the enduring history and the respect the countries have for remembering it so well. This resonated in me because it wasn’t too long ago in the go-go 1990s that Americans discarded the way we had been doing things in business for hundreds of years to leverage the new economy. Youth, energy and passion were in vogue and traditional ways of doing things were out. Unfortunately, this “new way” came along with fancy furniture, strange titles and foosball tables that didn’t boost company profits one bit. During this period of time, investors paid for potential or what the companies could be. This “value” was reflected in the run up in stock prices that reached an all-time high in 2000. What a difference a few years makes. Once again, we now value gray hair and experience. In fact, youth and radical new ideas seem to scare most people a bit these days. We now revere older people again. We fondly call them “gray beards” who magically have renewed wisdom to share with all of us. In Eastern cultures, this had never changed. Respecting your elders has always been a way of life with very rewarding results. In that culture, age means experience and nothing can replace that experience. Jack Kraft, a well-respected entrepreneur and investor in Chicago, reflects on what we have all learned over the past few years: “The problem with maturity is that it's based on experience rather than potential,” he said. “Experience only comes with time and sometimes costly lessons.” I remember a few years back when the Chicago Software Association (http://www.csa.org) sponsored a seminar on business valuation. The room was packed as people jammed to hear the collective wisdom of Bob Geras, Bill Weaver and Wally Cornett. At the time, some people respectfully referred to them as the three horsemen. This is the way it should be.
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Bill Weaver of Chicago-based Sachnoff & Weaver (http://www.sachnoff.com) recounts an experience he had during the Internet Bubble: “I sat on a panel of experts talking about funding,” he said. “One expert was a young dot-commer who had just raised $12 million for his start-up concept company and was already focused on his next round of $25 million to be raised six months later. “I was reasonably dumbfounded and made the mistake of voicing my doubts. I was thereafter viewed as the fossil on the panel and no future questions were directed to me. I have no idea what happened to the company but I think it’s highly likely that it’s long gone.” Tom Churchwell of Chicago-based ARCH Development Partners (http://www.archdevelopmentpartners.com) tells of a time when experienced investors “turned large amounts of cash over to smart, inexperienced kids because they get the new paradigm.” Churchwell believes that experience counts but it can also “blunt innovation”. He believes in balance: “The art of our game is to balance smart, younger, innovative minds with smart, older, battle-scarred veterans,” he said. “If the investors are smart enough and lucky enough and they all work hard enough, they might all get rich.” Weaver also believes in a balanced team for start-ups: “A young entrepreneur needs to surround himself or herself with experienced advisors and listen to what they have to say.” Shaye Mandle, formerly president of the Illinois Coalition (http://www.ilcoalition.org) and now at Science Application International Corporation (http://www.saic.com) (SAIC), is one of those young business leaders. He recalls the youthful energy of the 1990s when companies paid through the nose for potential and high-priced degrees. He quips: “As we used to say around my fraternity house, ‘potential means you ain't nothin' yet!’" Companies should be investing in their futures. That means promising young talent,” Mandle said. “The best way to accelerate the impact that young talent can have on an organization is to partner them up with an elder mentor. Can a young upstart create a successful business or have a substantial impact on an existing one? You bet they can. Will they make rookie mistakes? You bet.”
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Mandle believes that experience helps to hone your business instincts. “Real life happens and many times the scenarios that play out run contrary to what your training or brain would lead you to believe,” he said. “Experiencing these scenarios provides one with context. Context allows you to anticipate situations and deal with them effectively. A degree cannot fully do this. Training cannot fully do this. Experience is the holy grail of successfully negotiating life's pathways.” Mandle sees a silver lining to all the failed young leaders during the 1990s. “Look at all the immensely talented individuals who failed during the bursting of the Internet bubble. Many were young, promising business leaders,” he said. “Unfortunately, many of them failed to listen to their elders. But guess what? They now have experience. They have the opportunity to help the next wave of young potential because they've been there." He concludes: “Respecting one's elders is a reflection of respecting one's self. It demonstrates that you understand that the more you learn, the less you know.” For me, this seems truer every day. I have so much to learn but that’s what keeps business so interesting.
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Summer Books on Business Love, Biotech and Secret Societies (Originally Published at Eprairie.com on 8/12/03) CHICAGO - I had been a business book “celibate” for more than a year. This was intentional. During this time, I was writing my own book and didn’t want to read another author’s work for fear that I might “borrow” some of his or her ideas and claim them as my own. For better or worse, the ideas you will see in my book (“You Need To Be A Little Crazy”) next month are mine. Having handed in a manuscript to my publisher in June, my self-imposed exile was over. I chose two books to read on my summer vacation. The first one was “Love Is The Killer App” by Tim Sanders. Since e-mail came along, I have always been interested in the next killer application. We have tried everything else, so why not love? Besides, Sanders is the chief solutions officer at Yahoo! (http://www.yahoo.com) and has credibility. This book has large print and only 200 pages, so it was a good way to ease back into the business book world. In the book, Sanders doesn’t believe that you should look at business as war where you need to crush weak opponents. He thinks you need not “protect everything you know - and everyone you know - lest your weapons fall into enemy hands.” Sanders professes that you need to become a “lovecat” to have a successful business life. He believes that the business world needs more love than greed. Business prosperity means you “offer your wisdom freely. Give away your address book to everyone who wants it. And always be human.” He further says that you need to share knowledge, network and be compassionate. Sanders recounts Mark Cuban’s motto when he ran Broadcast.com (http://www.broadcast.com): “make love, not war.” Sanders is realistic in his advice: “Business love isn’t always smooth. Your defeats can sting. Sharing a network requires growing a network and then trusting it to others.” I agree with Sanders. Building a network of personal and business relationships is a critical process for all of us. Meeting new people and expanding your network takes effort and diligence. Still, networking as a verb should be eliminated from the English language.
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Building a personal network doesn’t mean shoving your business card into my hand and asking me what I can do for you. It happens much more slowly and evolves most effectively when you become a connector of people. Furthermore, you shouldn’t always try to extract value from making a connection. A prime motivator shouldn’t always be “what’s in it for me.” Many times, having your “hand out” can actually stifle a relationship before it even gets going. Even if you don’t gain personally, you have helped create a culture for business to develop. Think of it as your contribution to a new ecosystem. The second book I read was “What Should I Do With My Life?” by Po Bronson. Though this is always a good question for me, my wife had hoped that I would have figured it out by now at 43 years old. Bronson is the guy who wrote the Internet bubble classic “The Nudist on the Late Shift”. He spends part of this book apologizing for his last book, which romanticized life in Silicon Valley during the late 1990s. Bronson interviews some 50 people and asks the question: “What do you want to do with your life?” Most of us probably had that figured out when we left college, but if you are like me, you not only had to go to plan “B” but you are probably now on plan “C,” “D” and “E”. One of the people Bronson interviews is Noah. Noah has had 16 jobs in eight years and is currently (at the time of writing the book) unemployed. He asks whether the years before he finds his passion are a waste of time. In other words, he questions if “my real life won’t begin until I find my place”. Bronson thinks this is “bogus” and everything you learn in your professional life is a tool that leads to finding your passion. Then Bronson meets Heidi. The only reason she is not dead is that she was laid off from Cantor Fitzgerald (http://www.cantorusa.com) the April before the attack on the World Trade Center. As Olson states in the book: “I had issues with [getting laid off], but the people I had issues with are all dead.” On September 13, 2001, Howard Lutnick, CEO of Canter Fitzgerald, asked her to come back to the company as chief administrative officer for the equities group. She had found her passion. What books are other people reading this summer? Nancy Sullivan at the Illinois Coalition (http://www.ilcoalition.org) read “From Alchemy to IPO” by Cynthia Robbins-Roth again. This book covers biotechnology from research to start-up to publicly traded biotech companies. Sullivan says she uses this book as a refresher on biotech formation, growth and investment.
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She added: “The book helps me to bear in mind the 50,000-foot level of biotech without confusing non-scientific people with complicated details. This book is phenomenal for biotechnology enthusiasts [both] naïve and sophisticated.” Sullivan says the book helps her in her job, too. “Robbins-Roth does a great job of showing how the promise of science in business rarely progresses linearly and often encounters unexpected hurdles,” Sullivan said. “It helps me appreciate a founding scientist enthusiasm for their technology but arms me with important historical examples on unexpected hurdles encountered during the commercialization of known products.” Although Sullivan thinks the venture capital statistics are dated, she still believes that the principles discussed are sound. “Most of the companies I am working with are seeking to raise money,” she said. “Robins-Roth quantifies how the various steps of development impact valuation. It helps me manage the expectations of my clients by understanding what VCs and big pharma companies historically pay for technologies at various stages of development.” Sullivan uses the final part of the book to help her pick the right biotech stocks, which isn’t something she learned at Northwestern (http://www.northwestern.edu) when she got her master’s. She added: “I use some of Robbins-Roth’s stock theories for personal investing. While most of the information is common sense, she has done a great job of outlining what to look for when contemplating a biotech stock.” Dave Chicoine, vice president at University of Illinois (http://www.uic.edu), has been reading “Undaunted Courage” about the Lewis and Clark exploration. He said: “What I have [learned] from this book and my encounters this summer is there is no substitute for quality. It is all about quality of people, quality of ideas, the proposition, quality of organization and quality of execution.” By the way, what’s the best fiction book of the summer? In my opinion, it’s “The DaVinci Code,” which is a great who done it where you also learn a lot about secret societies and of course Leonardo DaVinci. Now here was a guy who was 500 years ahead of his time. There’s one month left to summer. Read any good books lately?
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Walking the Thick Gray Line of Business Ethics (Originally Published at Eprairie.com on 7/8/03) CHICAGO - Let me get one thing straight: I am no business saint. In hindsight, I am not proud of some of the ways I have accomplished business over the last 20 years. I have used certain means because I thought the ends justified it. In a strict ethical sense, it was not the right thing to do. Business ethics are a huge issue in our society today. Sure, September 11, 2001 and the bursting of the Internet bubble have hurt the economy over the past few years, but we also have to squarely point a finger at ourselves and our business leaders. We have lost faith from the stream of wrongdoing with companies like Enron (http://www.enron.com), WorldCom (http://www.worldcom.com) and Tyco (http://www.tyco.com) parading in the media. Oh no! Here comes Martha Stewart (http://www.marthastewart.com) to shatter us all. Deborah Gersh, a partner of the law firm of Piper Rudnick (http://www.piperrudnick.com), says, "Trust in corporations has waned and is at an all-time low." She states that one of the most difficult jobs surrounding business ethics is "advising clients about the need to balance being truthful and ethical with not losing the competitive and business edge." I have always faced ethical dilemmas in my companies. When my last business had just started, I remember that our first customer wanted to visit us to check us out. We had no employees and no furniture in our office. We thought this would hurt our chances of landing our first customer. A few days before our customer came to visit, we purchased a lot of furniture on a credit card with a 30-day return guarantee. We had our computers dial our phone system to make it seem like we were a busy company receiving a lot of calls. I also “hired” a few good friends for the day to make it seem like we had at least a few employees. It worked out since we landed them as a large customer. After we sent all the furniture back, we faced another problem. The customer wanted to come back a month later to visit us again. Ben Bradley, who runs a networking group called Growth Company (http://www.growingco.com), was recently faced with an ethical dilemma that many of us have struggled with during the Internet bubble of the 1990s. He said a potential investor wanted to seed a technology he had been working on for about a year.
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“I'm emotionally attached to it but now I'm starting to see that it may not have the upside we originally thought,” he said. “Though his money would pay a lot of bills and fund some development, I realized that if I wouldn't put any more of my money into it, how could I ask him to do the same?” Sometimes business ethics issues start very small. Andy Denenberg, president of Upright Software (http://www.uprightsoftware.com), reminded me of the vendors that give “gifts” to win your favor and business. It starts with dinners, then Cubs (http://www.cubs.com) tickets and then rounds of golf. It grows to complimentary business trips for you and your spouse. Following the “thick gray line,” when do all of these gifts amount to a vendor buying sales from your business instead of “just being friendly”? Should your business comply with a government regulation when there is virtually no chance of your company being penalized for violating it? Richard Buchanan describes his challenge when he recently applied for a city of Chicago business license for his online Web content company The Opinion Exchange (http://www.opinionist.com), which he will be launching later this summer. “After spending five hours fighting a fairly 'can't do' dictum of questions, forms and explanations, I did indeed obtain a business license,” he said. “The looks of incredulity by fellow entrepreneurs in the license applications queue as I walked through my business' Web screen shots, methodologies and mission statements with my City Hall 'associate' delivered to me the sense that 'business ethics' are easier said than done.” Red Clark, CEO of Cary, Ill.-based Metalforming Controls (http://www.metalformingcontrols.com) (where I am a board member and a Prairie Angels (http://www.prairieangels.org) investor) says: “When I started out, if anyone had asked me whether I was an ethical person, I would have answered yes without a moment’s hesitation. If you asked me today, I would probably give the same answer, but it would be given after some careful thought. “My responsibilities get a lot tougher when one area of responsibility conflicts with another. For example, health insurance costs for small companies are rapidly becoming unaffordable. It is not unusual to see health insurance costs outpace aggregate company profitability for a start-up. Cash management is a life or death issue for a small company but so is health care for your workers. “What is the right thing to do? When cash is short, do you abuse vendors or do you hold off paying some of your employees? Do you save a few bucks and cheat on environmental or workplace compliance or do you consistently try to comply even when compliance costs precious dollars with little apparent gain?”
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Clark retells a particular example: “An auto body shop owner struck gold when he found that a development company had purchased land across the street for a new mall. Within six months, he was offered $1 million for his business, which was enough for him to retire. The contract was signed and the purchaser had an environmental site investigation performed before the close. “Unfortunately, the body shop owner had been dumping small amounts of paint waste over the years into his septic system, which is in direct violation of state environmental regulations. It was just a quart or two every day when he painted a repaired car. The deal fell through and the clean up cost him his business. In this case, doing the ethical thing would have cost the shop owner about $1 per day.” It is important to remember that your business code of ethics gets built incrementally over time with everyday decisions. There are typically few big things that set a course for a lifetime. Each small decision you make as you go back and forth over this “thick gray line” builds the kind of businessperson you are and the kind of company you run. We need to realize that most of these decisions produce both good and bad results. As Clark says: “When I find myself off track, it is rarely because I made a conscious decision to do something dishonest or marginally honest. Rather, it has been caused by a series of snap decisions made on the spur of the moment that gradually move you in a wrong direction. Living ethically is an ongoing effort.” Although I am not proud of every decision I have made, I accept responsibility for making each one of them. I learn from what I did right and wrong in each situation. I hope that this will help every day when I struggle with my next one. Having your own personal struggle will help you, too.
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Stuck In the Middle of the Business Lifecycle (Originally Published at Eprairie.com on 6/10/2003) CHICAGO - The 1990s was the decade for starters. Most entrepreneurs got trapped into the following thought process: How can we come up with the threads of an idea that will get us funding from other people so we can start a business and exit quickly with a lot of money? Part of the Internet fantasy was to start a business and get out by selling it to someone else who would supposedly then build it into a “real” business. You know, the kind with revenue and cash flow that Internet-era businesses were exempt from? The job of the 1990’s entrepreneur was to start - not finish. That was someone else’s responsibility. This kind of talk exposes the kind of shell game we were all playing. The pyramid scheme was what the stock market taught us to play during this decade. During this time, selling the business you haven’t yet started to someone else was the popular strategy all by itself. We were building “designer” companies that were only started for one purpose: sell them quick! In “The Monk and the Riddle,” Randy Komisar narrates a parable of Lenny who wants to start Funerals.com only to make money by selling it. Things have changed in the 2000s. We have been forced to go back to the way successful business cycles have always worked. In the beginning You will start off with the passions, dreams and visions of what you want this business to be. In some ways, this is one of the best parts. There is nothing like starting a new business with fresh ideas and an exciting plan on what you want to do. It is similar to the sheer innocence and endless promise of a new baby coming into this world. You need this naiveté when starting your business or you may think twice and it may never get off the ground. David Ormesher, CEO of Chicago-based closerlook (http://www.closerlook.com), started his company 16 years ago because he had the passion to launch a creative marketing firm. As he tells the story, Dave went across the street to Brehon’s Pub with his partner and started making cold calls on pay phones.
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Stuck in the middle You will not control this part. One day, you will just find yourself where the innocence of running your business has been shattered. You may just try to survive the daily ups and downs. You will dig and hold onto your passion, trying to learn from your mistakes and valiantly steering the business in whatever direction makes sense to you. Entrepreneurs at this stage do very little choosing and more doing. They look around as broadly as possible at their situation and react. They do whatever comes next based on the results of their last decision. Every decision you will make will be based on incomplete information. No matter how many “facts” you collect, there is no right answer. The only wrong decision is not to make one. If the decision turns out to be a bad one, don’t kick yourself. Evaluate where you went wrong and go make another decision whether it’s right or wrong. One of the key skills at this stage is flexibility. Like a football runner, be prepared to run to your left or the right depending on where you see an opportunity to advance (for football fans, the lingo is that the runner is going for the hole). Listen carefully to what your clients tell you about your product through their acceptance or rejection of the parts of your business solution. Your next step is to evolve and change to meet their needs. Jeff Shuman calls this is the "rhythm of business" (http://www.rhythmofbusiness.com). In 2000, I remember listening to Alan Warms, CEO of Chicago-based Participate.com (http://www.participate.com), speak articulately about building and managing communities on the Web. The company was getting ready to go public in April 2000 when the market crashed. A few years later, Alan had to “morph” his company to what his clients wanted in order to build a successful business. He was able to evolve his company into Participate Systems, which now sells software that captures the knowledge of top sales professionals and puts it to work for the entire sales force.
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At the end Though you want to call this at your choosing, you typically won’t have a choice. This may be a profitable end of the story where you sell your business. It may be you calling it quit because the economics of the business make no sense or you have lost your drive. If you can recognize that you are at this end stage, you will have choices. Remember: winners know how and when to quit. If you work hard and are lucky enough, you’ll not only be able to start a business but you may be able to sell one, too. Jack Miller started Quill (http://www.quillcorp.com), an office supply business, in his dad’s chicken store in 1956. Forty-two years later, he and his brothers, Harvey and Arnold, sold the company to Staples (http://www.staples.com) for $690 million. Today, all entrepreneurs need to be prepared to go through all stages of business. This is what you’re signing up for. Be prepared for at least a five to 10-year journey. The prize now goes to those who compete long enough, survive and build something that has value. Congratulate the company owners that have been in business for 10 or 20 years. They are my heroes.
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Moltz's Hierarchy of Business Needs (Originally published at Eprairie.com on 6/3/03) CHICAGO - The big budgets we all dream about usually breed laziness. When your company has lots of money to spend on a single endeavor, most entrepreneurs look to fix a problem by throwing money at it instead of thinking through all the issues or finding exactly the right solution. To many of us, it seems “cheaper” and easier that way. This doesn’t mean your company should be undercapitalized because a lack of money to launch an initiative can prevent you from achieving your goal. Simply “applying money” instead of creatively coming up with the best solution isn’t always the answer. This type of business hunger will drive your company and will allow you to prioritize what you need to accomplish. It focuses you on the most important task ahead: get customers for your business. Do not confuse hunger for customers with desperation for business success. Desperation will cause you confusion rather than clarity. It will erode your confidence. You may be so frantic that you're unable to focus on the tasks at hand. Prospects can sense this a mile away and will have no confidence in your business. Stop holding your breath and breathe out. Lose the big picture for once and focus only on this sales call. Forget thinking that your entire business fate rides on you landing this sale. As many of us learned in school, Abraham Maslow in the 1960’s introduced a hierarchy of needs where he discusses people functioning on different levels and how people need to satisfy their body needs (food) before they think about security (safety). Likewise, they need to satisfy their security needs before they think of their social (love or belonging) needs. From low to high, the five needs Maslow described were: 5) Body needs 4) Security needs 3) Social needs 2) Ego needs 1) Self actualization
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Adapting them for business, companies need to go through a similar process. When your “body” (the business) needs food to eat or “security” (cash to pay bills), you don’t have a chance to think about larger “social” (marketing) issues. You are only able to spend a certain amount of time on “strategic issues” when you don’t have sufficient capital to run your business for the long term. At this stage, this is usually a good thing. With all due respect and apologies to Maslow, I think there can be “Moltz’s Hierarchy of Business Needs” (from low to high): 5) Paying customers Without paying customers, you really don’t have a business (only a very expensive hobby). It begins when a customer pays you to do something for them. Getting customers is the most basic need of a business. When Rita Bartolone became interested in creating a Web site like LittleItalyChicago.com (http://www.littleitalychicago.com) (which promotes Italian products and services), it did not become a business until Vespa Chicago (http://www.vespachicago.com) paid to be associated with her site. 4) Trusted people to work with you Without a team, you will always be a one-person band. You will also burn out very quickly doing everything yourself. Build your team after you have some customers and can afford to hire some other people. When Zach Kaplan and Keith Schacht started Chicago-based Inventables (http://www.inventables.com), they were able to get about 20 customers working together. In order to grow their business, they are now advertising for their first two employees. 3) Cash to pay for all of it Cash is king and every other face card in the deck. Without cash, your business literally suffocates. You can only survive on the generosity of your own personal savings account, friends, family and angel investors for so long. Eventually, customers need to pay your way. Furthermore, a customer isn't a real customer unless they actually pay. (Actually, some would say that the transaction isn't over until the check clears the bank.) While Nick Nafpliotis and Mike Duda used their own personal savings to launch Chicago-based Pennant (http://www.pennant.com), they weren’t able to optimally expand their business until they had enough cash (from profits) to buy another company. Now they have created a larger firm that can do Web hosting and the additional technology services their clients require.
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Alternately, when your back is against the wall, you will be surprised how your creativity at solving problems with as little cash as possible will be developed. For example, what if your company has no money to go to an industry seminar? Call and ask to attend a few days before for half price or free. You will be surprised at the response. No money to exhibit at a trade show? Why not just come and walk the show? Though it’s not optimal, you can probably accomplish 80 percent of your objectives. 2) Defendable competitive position When you become successful, what prevents another company that is smarter and has more money from squashing you like a bug? Your competitive advantage can be your products, your customers, your employees and your vendors. One of the competitive edges of Chicago-based duo (http://www.duo.com) is its expertise for legal Web sites. The company sees its value proposition as one where they have done a lot of them successfully, so why should a law firm look elsewhere? 1) Feeling happily successful After your company has transitioned from steps five to two, you have made it to the top of the pyramid. You will find yourself happily successful (for the moment) with a financially sustainable business that you enjoy. Remember that at any time as the environment changes, you can roll back down the steps and be forced to climb up again. I have repeated this "round trip" a number of times. The trick is to recognize where your business is on the hierarchy of needs and enjoy each phase as you climb to the next rung.
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For Better or For Worse: Being the Spouse of an Entrepreneur CHICAGO - We all realize that it’s hard to start and run your own business. The daily ups and downs challenge every entrepreneur's passion and dedication. This is what we all sign up for when we take the leap to run a company. Leading your own company, though, isn't just difficult for you. It also affects your whole family. Your business not only sleeps in your bed but it hogs most of the covers. For the last 15 years, I have run three different businesses with a great degree of failure and success. In each one of them, I would come home from work and my wife would kindly ask: "How was your day, honey?" I never could to tell her. I didn't want to relive all the ups and downs of that particular day. I always responded the same: "OK, I guess.” I learned later on to share the burden of the bad times and celebrate the victories with her as well. My wife, Sara, stuck with me during my most difficult times, which sometimes may have been against her better judgment. Manish Patel, CEO of Wheeling, Ill.-based Where2GetIt (http://www.w2gi.com), says he has caused his spouse, Dolly, plenty of mental anguish. He said: “The line between our business lives and personal lives was not just blurred. It was obliterated.” Manish credits his wife with a tremendous amount of support and understanding in staying the course during those tough periods. He added: “The entrepreneur's spouse is hidden in the shadows, toiling away and keeping things held together and never quite getting the credit or recognition she deserves.” In fact, Dolly put her own career aspirations on hold so Manish could focus on his business. To me, running a business is like driving a car on a winding, mountainous road that’s banging into the guardrails. While it may be tough for you, it is worse for your spouse. Your spouse is in the back seat of the same car, sitting backward and blindfolded. While you may be able to see what's coming shortly before it happens, your spouse is just along for the ride and never knows what hit her.
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Steve Shadrick, a managing partner at Chicago-based SGS Net (http://www.sgsnet.com), describes his wife, Jeri, as a saint. He said: “Given all the risks, the lack of control and the very narrow and unstable lens through which she has had to view the future of my business (and in many respects the future opportunities for our family), she still manages to muster the strength and patience to have faith and be supportive." Jeff Richmond is an engineer who became an entrepreneur when he started Northbrook, Ill.-based PumpBiz (http://www.pumpbiz.com). Mary Beth, a local physician and his spouse, says she always envisioned a successful businessman talking about his wife at their 25th wedding anniversary proudly boasting: "...and how can I ever thank my wife who has been at my side every step of the way and has never for one minute doubted me or lost faith in me or failed to support me during all the ups and downs.” She hits the "fast-forward" button to her future 25th wedding anniversary and confesses: “Jeff can never say that about me ... because I have had my doubts, I have lost my faith at times (not in him but in his endeavor) and I have failed to show unfailing support many times. There have been oh too many times when I've showed him all my doubts, insecurities and yes even gotten plenty upset with him for taking this road.” Mike Duda, one of the founder’s of Chicago-based Pennant (http://www.pennant.com), just got married to his spouse, Johanna, late last year. She describes his schedule as unpredictable and questions: “After work? Is there such a thing?” She thinks any business is like a baby that needs to be watched over all the time. Natalie Tessler started Chicago-based SpaSpace (http://www.spaspace.com) a few years ago after she quit being an attorney at Katten Muchin Zavis Rosenman (http://www.kmzr.com). She also thinks of her business as a baby but one with a lot of colic. Natalie describes the business owner as one who loves his or her baby “because it's an extension of her and it becomes the center of her life, though it can also make her crazy. For her husband, it's like being a stepparent. “He has to live with the child and share his spouse's time and attention with the child and must be careful when giving advice or trying to help even though he may be tempted to jump right in. The ‘child’ is so important to his spouse that she is likely to be very sensitive to criticism about how she is raising the child. She needs his help and support and he needs to develop intuition about when to get involved, when to stay out of it, when to talk about it and when to drop the subject.”
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Dean Rutter, the founder of Chicago-based Apartments.com (http://www.apartments.com), has literally given birth to another company called The Make Baby Laugh! Company (http://www.makebabylaugh.com), which is based in Evanston, Ill. After selling his first company, he says the experience of starting his second is very different than when he launched Apartments.com. “The first time ‘round while we were married, we didn't own a house or have children,” he said. “Under that set of conditions, I was far more apt to let my business interfere with my family. This time 'round, two things have changed: I have the children and a mortgage and I can't work at the same level of sustained focus that I did previously. It's still a bear for my wife but I'm doing far better striking the desired balance.” Building your own business is truly a family affair. Share the setbacks and victories with your family when you can. They will provide support for you during the good and bad times. Remind them that it really is for better or worse.
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Leaders Know How to Follow the Leader (Originally Published at Eprairie.com on 5/6/03) CHICAGO - As far back as I can remember, I always wanted to be the leader. Even though I was one of the smallest kids in my grade school, I managed to convince other kids to be my lieutenant so I could be the general. This worked for a while until the teacher forced us to “take turns”. I never liked that. As I grew up at any organized activity, I had to be at the front of the line. In Boy Scouts, I was the senior patrol leader. In my regional youth group, I was the president. I declined to participate in anything I didn’t excel at enough to become the leader. Unfortunately back then, I had to be the leader or nothing at all. Maybe that is why I left a large corporation like IBM (http://www.ibm.com) and started my own businesses. I reasoned that as the founder and first employee of my own business, I always got to be the leader by default. We all know that strong leaders are essential to business success. We have great ones in the Chicago business and tech community including J.B. Pritzker of New World Ventures (http://www.newworldvc.com), Linda Darragh at the Women’s Business Center (http://www.onlinewbc.gov) and Andy McKenna at Schwarz (http://www.schwarzhr.com). Whenever there is a group of people, it does take leadership for a team to work together. Someone has to lead while others need to follow. Without a leader, there is only chaos. Do not mistake the leader only for the person barking orders to team members or the only one working 100 hours per week. The leader isn’t always the person out front leading the charge and taking all the credit. Leadership can take many forms (especially during the ambiguity and rapid change that abounds in business). A leader’s skills need to drive innovation and manage conflict at the same time. Leadership is about risk taking in your business, but a different kind than we may have heard of before. It is easy for traditional managers to lead by doing everything themselves or ordering other people to do tasks and cleaning up after them. However, you are a leader at your business when you can successfully let go and trust other members of your team to do the roles that you have defined for them. It is about successfully negotiating with your team the different roles they will take and monitoring how they interact and work with each other. I admire many of the great entrepreneurial leaders in Chicago - Mike Krasny at CDW (http://www.cdw.com) and Michael Birck at Tellabs (http://www.tellabs.com) come
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to mind - for what they have achieved. One of the reasons they were successful in growing their businesses is they were able to build great teams. I learned a lot about what it takes to be an effective leader through trial and error. Still, I discovered the best lessons when I learned to be a follower, too. A few years ago, my two sons became involved in a karate school and I was asked to join their board of directors. As a director, I participated in making many important decisions that affected the strategic direction of the school. I assumed the role of one of the leaders of this organization. Last year, I decided to start taking karate lessons at the same school. Showing up for the first lesson as a student was the hardest part. As with most traditional martial arts, karate has a very well defined pecking order. Practicing karate as a white belt, I was now at the bottom of the pile. I was a beginner and the ultimate follower. This was unique to me because I never had the opportunity to be a follower and a leader in the same organization at the same time. As a beginner in karate, I learned to rest my mind and stop taking responsibility for leading anything. I was taught to just watch and do but not think. I was taught to be a good follower and focus on my own progress rather than the progress of others. Besides, it turned out to be a lot of fun and a break from the daily business grind. Learning to be a follower is a great way to develop leadership skills because it teaches you to be open to learning something new. It gets you comfortable with not being an expert and not having to know the answer. In his writings, Shunryu Suzuki called this “beginner’s mind,” which allows for both doubt and possibility. He stated that approaching things constantly as a beginner keeps you humble. It also keeps you open to learning new things. This is especially important for the business leader who must constantly watch how he or she must change an approach to a particular situation as the environment changes. Finally, you can also appreciate what it feels like for others to follow you. If you are like me, this is as much a pleasant thought, as it is horrifying.
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Finding a Mentor to Replace Your Tormentor (Originally Published at Eprairie.com on 4/29/03) CHICAGO - You have just had a business day you want to forget. No one will buy anything. Your best prospect won’t return your phone calls. One of your top managers has just told you he’s moving to Australia. Your computer just crashed. Who you gonna call? We all need help as we make our ways through the daily business world. We need people to help us when we're at the bottom of our games and people to celebrate our victories with us when we want to change our names to King Midas. Ever since the days of Plato and Socrates, this is why there have always been mentors. Apprenticeships are based on this exact concept. In business, there exists a great oral tradition among entrepreneurs of the trials and tribulations that get passed down from person to person. As entrepreneurs, we learn from others who have been there before. We traditionally think of mentors as people who are older and wiser than we are. To the contrary, I think many effective mentors can be your peers. Your mentor only needs to have three qualities to be effective for you: Be able to listen After many years of personal and group therapy, I realized that what I was mostly paying for was the right to have someone listen to me. It was worth it. The process of articulating thoughts from your head to your mouth for others to hear can help a lot. This is often all you need. There are many well-known peer-mentoring groups in the Midwest. These include the Young Presidents’ Organization (http://www.ypo.org) (YPO), the Young Entrepreneurs’ Organization (http://www.yeo.org) (YEO) and the Technology Executives Club (http://www.technologyexecutivesclub.com). These organizations get people together in small groups to discuss issues and listen to solutions from peers. This is where angels actually got their start to investing in businesses. Besides capital, angels help companies by giving their advice to the entrepreneurs and making connections for them. This faded in the 1990s as the rush of capital funding took priority and there wasn’t time for advice and mentoring. We all now see how far that got us!
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Other great mentoring organizations include the Women’s Business Development Center (http://www.wbdc.org), SCORE (http://www.score.org) and the Chicagoland Entrepreneurial Center (http://www.wehaveanswers.org). SCORE even illuminates how to find a business mentor here (http://www.score.org/60_guide_business_mentor.html). Don’t be judgmental No matter what you say, you need someone who won’t ever make you feel stupid. The environment surrounding any conversation with a mentor needs to feel safe. You should be able to say anything in confidence and know it goes no further than the two of you. If you are the lone business owner or leader at your business, this can be even more helpful since there typically are no peers for you to confide in. It truly is lonely at the top (http://www.eprairie.com/news/viewnews.asp?newsletterID=4496). Mutual respect Forget about older and wiser. Do you respect your mentor’s point of view? Is he or she truly interested in your definition of personal and business success? Though you may not agree with your mentor’s point of view, do you trust it? Mentors need not be familiar with your industry to give you straightforward advice. Although it may be beneficial, business is business and that typically is enough. There are many mentors who have been very helpful in my career. In 1989, Tom at IBM (http://www.ibm.com) said I would be a much better entrepreneur when I learned two things: how to fail and to be humble. Losing jobs and going out of business over the next five years taught me the lessons Tom wanted me to learn. Another more recent mentor of mine has been Rick Mazursky. He was the CEO of VTech (http://www.vtech.com). He grew that company from tens of millions to hundreds of millions in sales. I can always count on him to be my “business ethics meter” and for helping me do the right thing when I get off course. Should you compensate a business mentor who is helping you and your company? It depends. This should be discussed with your mentor and depends on whether your relationship is more one sided or formalized. Compensation can be as simple as “can I buy lunch while I pick your brain?” and can extend to cash or company stock options. You can even barter with mentors. What remains effective is whatever enables your mentor to carve out time and focus on you when you need him or her most. Just remember that mentor relationships between people are not forever. People change and grow. A mentor can turn into a tormentor and can become a surrogate parent. This is not a healthy relationship. Terminate it and move on.
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While a mentor can be a trusted guide, do not look to them as your business savior. Stick to the sound principles of business. Ask questions and look for help when necessary. The only thing that saves an entrepreneur is solid progress and hard work every day toward building a company one customer at a time. Find a mentor and be a mentor. The great oral tradition of being an entrepreneur needs to be passed on. We all have something to offer.
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There's Hope for Chicago Businesses (Originally Published at Eprairie.com on 4/22/03) “It’s Sunday morning and I’m scanning the classifieds. There are two types of jobs in here: jobs I’m not qualified for and jobs I don’t want. I am considering both. There are pages and pages of jobs I will never get. Must be experienced in this for at least six years and be fluent in Chinese and must be able to fly a jet through anti-aircraft fire and have six years of experience in open heart surgery. Starting salary is $32,000.” ~ From “A Working Stiff's Manifesto” by Iain Levison CHICAGO - This is the way the world seems these days. Who could have predicted that three years after the peak of the Nasdaq (http://www.nasdaq.com) we would be muddled in a jobless recovery with our troops battling in two different countries and the nation on high terrorism alert? By any measure, these are difficult times for American businesses. What I wouldn't give right now for Alan Greenspan's "irrational exuberance"! These last few years have brought the first real failures for many people under age 30 after some very financially successful post-college years. The bottom fell out just as we were starting to take prosperity for granted. Ira Glass at WBEZ Chicago Public Radio (http://www.wbez.org) says that while many of us had a plan "A" and a plan "B" when we left college, we are now forced to look for plan "C," "D" and "E". In the tech sector, employee pay seems to be down 35 percent and we are all being forced to "right size" our expectations. People no longer have great job titles like “chief development officer” (we now just call them "sales reps"). My stock portfolio and 401K have shrunk so much these past two years that I am often afraid to open up the statements when they arrive in the mail. Still, as I look at Chicago businesses, I see many signs of hope and the seeds of prosperity. At the ages of 23, I see hope in Zach Kaplan and Keith Schacht. Their second company, Inventables (http://www.inventables.com), helps product designers constantly innovate and learn about new materials and technologies. I see hope in AccelChip (http://www.accelchip.com), which spun out from Northwestern University (http://www.northwestern.edu) and now has been funded by Prairie Angels (http://www.prairieangels.org) and other local investors.
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I see hope in the 15 women who already run successful companies presenting at Springboard (http://www.springboardenterprises.org) this week to the Midwest's top venture capitalists. I see hope in the vibrant organizations that the Chicago Software Association (http://www.csa.org) and the Technology Executives Club (http://www.technologyexecutivesclub.com) continue to build. During tough times, it is important to celebrate even the smallest victories that happen around you. I see it every day in some of the companies I touch. SGS Net (http://www.sgsnet.com) launched a new client site last month called Wilton Industries (http://www.wilton.com). Pennant (http://www.pennant.com) is thriving and now hosts many Fortune 500 clients. Where2getit (http://www.w2gi.com)’s growing customer list has made it one of the more highly visited sites on the Web. Vickilew (http://www.vickilew.com) children’s product was one of the best-selling videos at Wal-Mart (http://www.walmart.com) this past month. What can we all do to survive and thrive during these difficult times? Is there any good that can come from going through bad economic times? Tough times balance the businessperson. These are also good times to start thinking about being an entrepreneur (if the lifestyle is part of your passion). With opportunity costs so low and many people in your same boat, you can easily find others to share your madness. Since hardly anyone has the resources to do it alone any more, you are forced to form new partnerships if you want to achieve results. People do pull together during bad times. This is one of the reasons Chicago will host 50 angel groups at the National Angel Alliance summit next week and share best practices for early stage investing. The arrogance of the 1990s is gone. These last few years, we all learned the business lesson of humility. From talking with other people, you will realize that your experience does have value. Generously offer your time to help with whatever skills or contacts you have. Barter your services with others. We all have something to trade. I have traded for everything from computer hardware to cooking lessons! You will be amazed how many people are willing to help you. Network at local events. Make contact with everyone who will take your card. Be a connector and introduce people to one other even if there is no immediate gain for you. With demand low and people having so many products and services to choose from, the old adage of "who you know" is critically important. Tough times demand that you build your relationship capital.
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Finally, these are good times to reconnect with your family and friends. They are the force that ground you in everyday life. When times get better - and they will - we will all appreciate the prosperous times even more. Laissez les bon temps rouler! (Let the good times roll!)
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New Year’s Resolutions: Au Revoir 2003, Hello 2004 (Originally Published at Eprairie.com on 12/30/03) For my last column of 2003, I wanted to write about what I have learned being an entrepreneur and meeting other great business people across the U.S. and Canada. Many people question if they have what it takes to be successful in business. This way of making a living has fit well into my life for the last 15 years. It may be the right path for you, but you will not know until you close your eyes and take the leap to start your own journey. But before you take that jump, please ask yourself if you can be happy doing something else besides starting your own business. If you can be energized by excelling at a job working for a company, please go enjoy doing it. If not, stop pretending and go follow your passion. Can you handle traveling the business roller coaster up and down with your family and friends in tow? If the answer is no, then don’t even get on the ride. Finally, no matter how hard you work, can you accept business outcomes even though they may be well beyond your control? If you don’t want to keep company with luck and fate, then don’t start on this adventure. If you have never run a business before, don’t expect honest answers from yourself. Without actually doing it, the answers are academic. But if you do take the leap, you can recognize valuable experiences and know the right questions to ask your advisors and mentors along the way. If you think that starting and growing a business is hard, you are right. It is suppose to be hard! My father always told me that anything that is worth doing takes a lot of effort. Except for maybe a few years in the late 1990’s, this has always been the case in building businesses. If you think that it will take a long time, you are right. Forget the 1990’s. Most "overnight successes" take 20 years. Businesses are built customer-by-customer and year-by-year. Be willing to sign up for 7 to 10 years when you get started. Be patient. Building business value takes years to grow. If you think that you can fail, you are right. It is not a matter of if you will fail as you grow your business, only when. How you handle those bumps in the road will be critical to your success. Don’t be afraid. Learn humility. Realize that you will meet the same people on your climb up the growth curve as you do on the way down.
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If you think that you can fulfill your passion by starting and growing a company, you are right. What drives me in my business life is to see my ideas succeed or fail. As I have always said, unless there is a passion driving you in your business, go get a job. If you think that you can build something you can be proud of, you are right. Unfortunately, I am not a soup kitchen volunteer. I wish I were. The way I contribute to this society is to start businesses that offer good and services that help others and create jobs. Above all, remember that you are not alone on this journey. Being an entrepreneur, sitting in your small office alone, making cold calls can be very isolating. Although the market economy does not care about you, plenty of people will be there to help. Ask your family, friends, mentors, team, customers and vendors to help. You will be surprised at how they will come to your aid. Through perseverance and resilience, you will pave your own way and achieve your own definition of success.
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SECTION IV: BUSINESS RANTS Let's Outlaw Fluffy Business Clichés (Originally published at Eprairie.com on 4/12/03) The thing I despise most in business is when people use sophisticated clichés instead of real words to make their actions seem more important or have extended meanings. I have listed words I believe need to be outlawed for use in business (that is, until the Cubs (http://www.cubs.com) win the World Series (http://www.worldseries.com). I have dug into the ePrairie archives to show how these words have been used in the past. “Sweet spot” “The sweet spot will be those situations where not only do we inject cash into the company but we may provide service to the company to help them,” said Joel Friedman, a managing partner at Accenture Technology Ventures (http://www.accenture.com) (3/15/01). In the 1990s, it seemed like we were all so good at so many things and we had to boast to people about where we were the best. Three years later, unless you are chewing a jelly doughnut in a meeting, this phrase has no place in business. Why can't people say "this is what we are good at" and then let their successful work with other clients speak for itself? “Clicks and mortars” (updated from “bricks and clicks”) Stop! These words no longer have meaning. It is no longer interesting to talk about how Chicagoland companies like Grainger (http://www.grainger.com) and Sears (http://www.sears.com) are using the Web. Every company that has a retail operation and wants to sell on the Web now does. The Web represents an important complementary part of a company’s business. Period. I hope I never have to see another business story on this again. “Domain expertise” “Neogration will initially focus our direct sales efforts with its domain expertise at financial institutions and rely on system integrators and other software providers as partners into additional industries,” said Michael Qualley, president of Neogration (http://www.neogration.com) (1/21/02).
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Since there are few jobs at many Web-only companies, can we just talk about people's experience? Domains were a fancy word we used to extend our experience to other “kingdoms” or “dominions”. Today, we need to be very focused and do it well in order to be successful. “Let’s take that offline” This was the first business lingo I learned when I was at IBM (http://www.ibm.com) more than 20 years ago. I suggest we just “talk about it later”. I can’t think of the last time my cell phone or computer was turned off and I was offline when I wasn’t sleeping. We are always online. “Win-win” “The seminars are a win-win for us and the technology community,” said Charlie Green of digitalEquation (http://www.digital-equation.com) (12/15/02). Let's face it: This is just a myth. Typically, no situation yields a solution in which both sides win equally. This is just a way for the winner to make the loser feel better. Usually, one side wins and one side loses. This is OK in business. Let’s just hope you can win the ones that count the most for your business. “Full pipeline” This term was used when companies were flooded with lots of sales prospects. Remember when you could just sit by your phone and prospects would call? I can’t find many people talking about this these days. By the way, what do we call it when there are few sales prospects? An “empty aqueduct”? “Best of breed” In the 1990s, people were always combining different ways to do things for coming up with the best solution to a customer’s problem. Unfortunately, this strategy didn't serve Chicago companies like Epigraph (http://www.eprairie.com/news/viewnews.asp?newsletterID=4441) well because these solutions were so expensive. As you know, times are tight. I don’t think companies are currently willing to pay for the best. Companies want what is “good enough for now”. We should find a way that works and stick with it until the economy improves.
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“The big picture” I am tired of seeing the big picture! Let’s find a solution that solves a customer’s problem and have him or her pay for it so we can meet payroll. By the way, I think we should all try to “think inside the box” (if we can make a profit doing it). “Push the envelope” “I believe broadband telecommunications has demonstrated that it can push the envelope by addressing technology development on all three fronts at once,” said Gregg Kamper, senior vice president and general manager at Glen Allen, Va.-based Dominion Telecom (http://www.dominiontel.com) (8/2/02). Newfangled ways of doing things are expensive. So are paradigm shifts. I suggest we spend less time pushing envelopes and more time licking stamps for contacting prospective customers. “Smart money” Entrepreneurs used to say they only wanted money from people who would help their business. Things are so tight right now that I would take “dumb as rock money” for my business. There is a great Web lingo generator at Dack.com (http://www.dack.com). The next time you need to “strategize enterprise initiatives” so you can “empower frictionless communities” and “envisioneer out-of-the-box e-markets” to “facilitate extensible users,” this tool will come in handy for you.
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Ten More Business Phrases You Hate (Originally Published at Eprairie.com on 6/24/03) CHICAGO - Can you believe we left some out last time (/articles/published/pub_cliches.html?newsletterID=4536)? Here are more business terms that other people thought should be outlawed, too. “Will the dogs eat the dog food?” Business translation: Will customers actually buy what we are selling? According to Fast Company, Guy Kawasaki's "Rules for Revolutionaries" (HarperBusiness, 2000) actually popularized this phrase. To his credit, he also told his readers "eat like a bird," "poop like an elephant," "flow with the go" and "eat your own dog food". Unless your company actually sells dog food to pet owners, this comment insults the exact people you want to impress. You should hold your clients in high regard. This is just plain disrespectful. It isolates us from our customers. In 1999, we could all get by with a little arrogance. Kiss those days goodbye. Humility is in. Furthermore, what does it say about how valuable we feel our products are if we refer to them as dog food? “How much money will it take to do it right?” Business translation: How much funding will it take to launch this product or do a marketing campaign in the optimal way? Three years after the funding crash, I still hear this today. The “right way” simply involves whatever will maximize sales and profits with the minimum amount of money invested. The 1990s proved that too much money breeds laziness and dulls our creative thinking. Where did big budget $4 million Super Bowl ads for companies like OurBeginning.com (http://www.ourbeginning.com) really lead start-up companies? Nowhere. Their Web address is now occupied by Ashton Wedding Invitations (http://www.ashtonweddinginvitations.com) of Las Vegas.
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“Bells and whistles” Business translation: Products with fancy options. This is not the “bells and whistles” decade in business. Those things are too expensive. Most buyers want to purchase the basic model that will get the job done. People won’t frequently pay for fancy add-ons. If the basic solution solves their pain, they’ll buy it. Leave upgrades for when you have enough miles to fly first class. “Blame storming” Business translation: A group of people that sits around and figures out whom to blame because something in their business failed. The goal is to point fingers at others before they point it at you. Now here is a productive way to spend people’s time! This sounds like a congressional inquiry. Don’t waste more time. Figure out what went wrong and how not to repeat the error. One of the best ways to work as a team is to focus on fixing the problem rather than finding the person. “If I tell you, I will have to kill you” Business translation: I know something you don’t know and I can’t tell you. This is something that passes as business humor. When someone says this to me, I want to say: “If you say that one more time, I’ll have to kill you.” Either tell me what you think I need to know or keep quiet about it. “If you build it, they will come” Business translation: Build a better product and people will buy it. Guess what? They don’t. If we learned anything in 1999, it’s that this does not happen. The business world is not a Kevin Costner movie and your company is not “A Field of Dreams”. Iridium (http://www.iridium.com), led by Motorola (http://www.motorola.com), launched a lot of satellites into space years ago and built a great big mobile network. Unfortunately, cell phone users satisfied with their local service did not sign up to use Iridium. They went bankrupt.
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“Information superhighway” Business translation: The Internet. Can you just call it the Web like the rest of us? Besides, many times, it doesn’t move that fast. When I am on my computer with my RCN (http://www.rcn.com) cable modem, it seems more like the Kennedy expressway at rush hour than the German Autobahn. Ergo Creative (http://www.ergocreative.com)’s Jay McDonald referred to this as “information superhighway road rage”. I have had this a few times! “Plug and play” Business translation: When you plug most devices into a Microsoft Windows (http://www.microsoft.com/windows) computer, it is suppose to recognize the device and configure the appropriate driver. Guess what? Many times it does not. When I recently checked into a Hyatt Regency (http://www.hyatt.com) hotel that had a “plug-and-play” modem in my room, I tried to use my laptop. Thirty minutes later, I was not playing. I was just trying to plug. I wish they would call it “plug it in and sometimes it plays”. I have also heard this refer to a new employee who has a lot of experience and can be productive right away. “Open your kimono” Business translation: Once you sign a non-disclosure agreement (NDA), I will be able to tell you secret things. This was an IBM (http://www.ibm.com) favorite. The only thing I liked about this expression is that it had a certain visual appeal to it for some people. Forget the international imagery and let’s just sign the documents. However, this is exactly what companies that recently filed an IPO need to get used to since they have to disclose everything. With the new Sarbanes-Oxley Act (http://www.aicpa.org/sarbanes/index.asp), a company’s CEO and CFO must now certify their financials. This gives a high-profile company like Google (http://www.google.com) (which is considering going public) a lot more to think about since public companies need to “open the kimono” wide.
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“Low-hanging fruit” Business translation: Easy clients to sell your product to. Forget it. There is no low-hanging fruit any more. The 1990s ate it all. It seems like most of us these days are climbing long ladders to get to customers we want. Finally, forget about any fictional word that begins with “e” or “i” to make it sound more “new economy”. Can we finally return these letters to their proper place in the alphabet?
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Give Me Good Service and No One Gets Hurt (Originally Published at Eprairie.com on 7/1/03) CHICAGO - I just woke up from a bad customer dream. I am sitting in a restaurant and I can’t get the food I ordered before I have to leave for another meeting. I wake up screaming and yelling from my sleep. While I’m not sure what it says when a 43-year-old man dreams of bad customer service rather than more interesting subjects, it did get me thinking about how important excellent customer service is in business during these difficult times. Additionally, it also made me realize how rare it is. Bad service so permeates American business that I do not realize how poor it is until I go into the rare place that treats its customers like kings. I did not realize the lousy service I received at Treasure Island until Trader Joe’s (http://www.traderjoes.com) moved into town. Getting ice cream at Baskin-Robbins (http://www.baskinrobbins.com) didn’t seem like such drudgery until a local store, Scooters, opened up across the street and made it fun again. It took me two years to resolve a customer billing issue with ComEd (http://www.exeloncorp.com) since I couldn’t get anyone on the phone to help me. The only way the issue was finally resolved was a call to an executive I knew there. I only called him when I finally became so frustrated and they shut off my power. When I do get good service (especially from large companies), I am overwhelmed. For example, I visited Bank One (http://www.bankone.com) last month because an account I had long since abandoned had accrued $200 in bank fees from overdrafts when there was no money in it to pay the annual bank service fees. The overdrawn fees had accrued at a rate of $10 a day. After a few weeks, I went in there prepared to cut my losses and pay the $200 overdraft. The manager of the department took the time to analyze the account and saw that their bank fees had caused the overdraft. She then waived all the fees, apologized and told me she hoped that my children’s accounts would remain with the bank. I used to wear a button that read, “just give me good service and no one gets hurt”. I am sure it struck fear into every business establishment I entered. Like most people, I will pay for value and I am extremely loyal to those companies where I receive excellent service. I love the idea of tipping in restaurants since I get to give the server immediate feedback on how they did. Besides giving them a big tip, I sometimes even write glowing notes on the check back to them.
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Most of us get so caught up in landing new business that we forget about the customers we already have. Our existing customers leave out the back door while we bring new ones into the front door. Overall, the company loses in this revolving door strategy. Unfortunately, most customers suffer in silence and you will never know they are dissatisfied until they leave your business. By this time, it is too late. Manish Patel, president of Wheeling, Ill.-based where2getit (http://www.where2getit.com), prevents this by personally calls accounts to which he thinks his company has given poor service. He calls them and states: “I think we have given you lousy service. What do you think?” Many times, the customer agrees and then proceeds to open up to him about all the ways his company can help them. He helps a dissatisfied customer and usually gains more business from them at the same time. Patel says his actions have resulted in a 95 percent customer retention rate. In another example, SGS Net (http://www.sgsnet.com) has retained Gatorade (http://www.gatorade.com) as a client for the last seven years even though they are a fraction of the size of Quaker Oats (http://www.quakeroats.com). Surveys have shown that if you turn around a dissatisfied client, they will become more loyal than if they had never been dissatisfied in the first place. People will retell these good and bad customer service stories over and over again. Unless you have a monopoly like SBC (http://www.sbc.com), excellent customer service is one of the keys to keeping your customers and growing the products they will buy from you. This is important since it is always more expensive to acquire a customer than to retain a customer. Pennant (http://www.pennant.com), a Chicago-based managed hosting company, has provided its clients with additional maintenance services. By providing more services to your clients, it also makes it difficult for them to switch to a competitor that doesn’t do everything your company does. Additionally, companies don’t want to switch. They would rather stay with what they’ve depended on and with what they know. Finally, good customer service doesn’t mean that the customer is always right. However, in the beginning, you should assume that they are and try to resolve the situation. If they become unreasonable and it is unprofitable for the company to retain this client, you should point them in the direction of your favorite competitor. Firing some of your customers so you can provide great customer service to the ones you truly want to keep is the way to sustain your business.
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This is Barry Moltz Returning Your Phone Call (Originally Published at Eprairie.com on 9/9/03) CHICAGO - One thing I pride myself on is that I return every phone call I get. It’s not that I'm polite. I think it’s a result of years of not having my calls returned that has humbled me. It makes me realize the effect an unreturned call has on someone I know. Why doesn’t everyone in business return your phone calls? I don’t mean the cold call you get from someone you don't know. Those are optional in my mind. You don't owe those people anything and you may be too busy for that. I mean returning calls from people you have talked to many times before on the phone. I mean calls from people you have met with or maybe even done work for. I mean people know you. It never ceases to amaze me when someone I have a business relationship with stops returning my phone calls. It simply baffles me. I know after a few weeks of unreturned phone calls that the answer is “no” to whatever it is I want to talk about or the person no longer values our relationship. I yearn for them to call me on my voice mail in the middle of the night when my cell phone is off and yell: “Barry, you screwed it up. Don’t ever call me again you moron." That message I get, understand and respect. Why don’t people just call or e-mail and bluntly tell you that? Why don’t people have this common courtesy? With all the electronic (and increasingly impersonal) ways to communicate, why has this task not become easier for people? Are people just plain lazy? “People are just way too busy and overbooked these days to allow for the very basics of human courtesy," said Diane Kastiel of Small Planet Consulting (http://www.smallplanetconsulting.com). "In so many areas, manners take a back seat to expediency.” “A reason people don't respond to e-mail or calls from people they have met before may be because they think they know what the topic will be and they'll get into an extended dialog about something in which they don't wish to engage. This may range from having to say no to a request to not wanting to help with something they know they'll be asked,” said Bruce Hanson at PricewaterhouseCoopers (http://www.pwc.com). Both Kastiel and Hanson are on the right track. I think the real reason is because it takes courage to face a “confrontation” and say no.
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Most people don’t want to deal with it. They would rather avoid the subject and ignore it. A no, though, is as important as a yes because it allows a caller to move on and close the door on you. A quick no is the second best answer to yes. I have a lot of respect for a good no. Other times, people have no news to the question you are calling about so they think a call back isn't needed at this time. Wrong! Why not call back and say: “Sorry. I have no news. Call me in a week." Maybe technology has created too many contact points for all of us. Maybe our expectations are too high with all the possible instant communication methods. Amy Heber, CEO of Third Coast Networks (http://www.thirdcoastnetworkds.com), says it's sometimes difficult to return all phone calls. She added: “If your call isn't on the top of their priority list or if it's not extremely urgent, they will triage it and take care of it later, which may be never or may be in a few weeks. Also, people have different standards of etiquette. It used to be when somebody called you that you called him or her back. I now find myself barraged with voice mails from three different phones and e-mail demands [keep me busy all day long].” I remember when I was at IBM (http://www.ibm.com) in the 1980s and everyone returned my phone call. Being my first job out of college, I thought this was the way it worked in business. You called someone and they called you back. When I left IBM in 1990 to go to work for Whittman-Hart (http://www.whittmanhart.com) (then a small company of consultants), I was disappointed to learn that few people returned my calls. I then understood that people weren't returning my call; they were returning a call to IBM. They respected the logo on my card more than me. Why should you return every phone call or e-mail you get from people with whom you have a relationship? Besides it being a “basic human courtesy,” it’s also very pragmatic. All of our careers rise and fall with the economic times. You meet the same people on the way up as you meet on the way down. In other words, today you need something from me and tomorrow I need something from you. If I never returned your phone call when you needed me, what do you think will happen when the roles are reversed? Communicating in a respectful way will build the relationship capital with other people that you need for your business success.
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So Sue Me! (Originally Published at Eprairie.com on 8/5/03) CHICAGO - I always get a chuckle when a person gets a little frustrated with a business relationship and immediately they yell out, “Forget it, I’ll just sue them”. I know this is almost never the best solution. We are too quick in American business to throw our hands up and call our attorney. From a practical point of view, not every situation can or should be resolved through the law. It just isn’t efficient or cost effective. Most business issues need to be negotiated directly between the two companies involved. While lawyers are sometimes needed, it doesn’t usually get us to a quick and optimal resolution of our problem. When not to sue Many business people get their lawyers involved because they no longer want to deal with a difficult situation. Don’t use a lawyer as your “mouthpiece” just because you are sick and tired of dealing with the other business party. It is just too expensive and many times it escalates a situation to a point that is beyond your control. Have the discipline and the courage to negotiate the business issues directly for as long as you can. In the end, the business people need to reach the decision anyway and, if necessary, the lawyers should just document it. After having been through business litigation a few times, I know how long and expensive it is. Somehow, when people realize the cost, it makes both parties more reasonable. The best advice I have ever received is that it is always better to negotiate then litigate. But what if you have tried everything above and nothing works? Should you then dial your lawyer’s number? It is an economic fact that suing someone is expensive. It is suppose to be that way. In my experience, to take something to trial, it will cost upwards of $20,000. Think of the financial flexibility you can have in negotiation with the other company if you don’t have to spend money on lawyers. As Zane Smith, of Zane Smith and Associates reminds me “when you sue, the only ones who really wins are the lawyers".
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When contemplating a lawsuit, Seth Weinberger of Mayer Brown Rowe and Maw, says, “Clients should think twice -- and then twice again -- before considering a lawsuit. It's like building a house: invariably it is going to (1) go over budget, (2) take longer than you planned and (3) give you tons of grief you didn't anticipate. And the grief is the worst part”. The countless hours you will spend thinking and dreaming of a lawsuit will divert your attention from what you are really trying to do: run the business! Doug Newkirk at Sachnoff and Weaver says that, “In addition to the costs of the litigation, the client should focus on the costs to the business of diverting management attention and energies to prosecuting the case, and also whether a reputation for picking fights will hurt the company's standing among its trading partners. Obviously, if the overall relationship with a particular party is important to the business, you should be very reluctant to sue over a small issue with that party." When to sue Art Mertes of Synergy Law Group tells me that you can resort to litigation when you think that you have the law and facts on your side and you have tried very hard to resolve the situation. But remember that “there are usually twists and turns in litigated disputes and so something that looks like a 'winning case' may face more complications later.” Most people settle before a judge or jury decides the case. So try to come to an agreement before you pay for a litigator to help you. If you must litigate, Weinberger suggest that you make “a worst-case analysis of the total costs of the lawsuit … and if the costs calculated in that manner justify the most realistic litigation award, then get the best litigator you can. But keep making that kind of cost-benefit analysis as the litigation proceeds through its stages: oftentimes the calculation changes dramatically as the case develops, and it's time to settle” One place I always think it makes sense to sue or threaten litigation is to collect debts from customers that have not paid you. Mertes agrees and says, “ This sends a message both internally and to your customers that you expect to be paid, and don't be afraid to include a provision in your agreements with customers that they will be responsible for your attorneys fees involved in collection of amounts due if they do not pay!” Besides, as I have stated many times before, all businesses need the cash. A real customer is one that pays. Make sure they do. How do you find the right attorney to help you if you need one? Get referred to the best attorney who knows how to negotiate to a win-win scenario and whose ego isn’t tied up in crushing their opponent. Mertes suggests that “you want somebody who is aggressive, but not at the expense of killing your deal.”
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Comic Book Super Heroes Teach Us About Business (Originally Published at Eprairie.com on 7/15/03) CHICAGO - Though I’m a huge movie fan, I haven’t been much of a comic book reader since I was 12. The stream of 40-year-old Marvel (http://www.marvel.com) comic book heroes who have been brought to life on the movie screen over the past year made me realize what each of them has to teach us about business. Spider-Man My son’s favorite super hero, Spider-Man, has become one of the top-grossing films of all time ($800 million). Peter Parker’s alter ego constantly reminds us “with great power comes great responsibility”. He even gives up the girl for it! This is true if we run a company where we are responsible for our employees every day but we have an equal obligation to fellow co-workers. Every newspaper or online publication that reports on our community has a duty to understand the effect of the power of the press. They need to wield the big stick that society gives them with great care. Crain’s, the Chicago Tribune, the Chicago Sun-Times and ePrairie are influencers in the Chicago community. Government organizations and other associations that influence and participate in the local technology segment include the Illinois Coalition (http://www.ilcoalition.org), DCEO (http://www.illinoisbiz.biz), the Chicagoland Entrepreneurial Center (http://www.wehaveanswers.org), the Chicagoland Chamber of Commerce (http://www.chicagolandchamber.org), the Chicago Software Association (http://www.csa.org), the Women’s Business Development Center (http://www.wbdc.org) and World Business Chicago (http://www.worldbusinesschicago.com). With whatever power we have with our peers, our vendors and customers, we have a responsibility to do our best to support them and have a positive influence on them. The only way good things get built is if we all carry the piece we’re charged to manage.
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X-Men In this story, there are men and women born with strange powers. As mutants use their awesome abilities to protect a world that sometimes hates or fears them, we love them because the first movie grossed $350 million. Some of the mutants want to take over the world while others want to live in peace with fellow mankind. This reminded me that in business, whenever people are different, it is difficult to get along. It always gets in the way of building a strong company. When I started to run companies 15 years ago, I began to understand why we all work together. In any group, people look for reasons to band together for support. This usually takes the form of singling people out. Unfortunately, these actions enable people in the accusing group to raise themselves up and feel better by making others feel worse. I always marveled at the fact that when I had 30 people in a single office, they would find the silliest ways to separate themselves. It wasn’t always the traditional company divisions: things like the salespeople disliking the marketing people or the finance group at odds with the operations team. It took a different twist. The people in the back of the office didn’t like the people in the front of the office because they liked the heat on too high or played their music too loud or kept their desks messy. The strangest arguments arouse that I could never predict or prevent. If people are to work together as a team and be effective, they must accept these differences. You don’t have to like everyone at work. You just need to be able to respect what they contribute to the organization. This is one reason why many mergers of two corporations never work. According to a 2001 study by A.T. Kearney (http://www.atkearney.com), 34,000 mergers and acquisitions took place from 1997 to 2000. Some famous ones include AOL (http://www.aol.com) and Time Warner (http://www.aoltimewarner.org); RCN (http://www.rcn.com) and 21st Century; marchFIRST (http://www.marchfirst.com) and USWeb/CKS; and Deutsche Telekom (http://www.telekom.de) and VoiceStream (http://www.voicestream.com). According to A.T. Kearney, 58 percent of all mergers and acquisitions fail to reach their goal of increased stock prices and profitability. In many cases, it actually decreases the value of the two companies. Believe it or not, Northwestern University (http://www.northwestern.edu) and the University of Chicago (http://www.uchicago.edu) almost merged in 1933. Imagine what that could have been like.
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A.T. Kearney says one of the major reasons that mergers fail is that they can’t overcome major differences in corporate culture because there are a series of “unspoken social contracts” in any organization. “The larger or acquiring partner simply tries to impose its own corporate culture on the other partner,” the study cites. “While this approach can be valid in some cases, it can destroy the value the merger was supposed to create.” The study suggests that companies need to be thoughtful about an appropriate corporate culture for the merged companies. They should not simply impose one. The Hulk Bruce Banner finds himself transformed into the Hulk, a powerful green beast. This happens only during times of stress and anger when his repressed rage comes out. Do you feel a little green when you get mad sometimes? This is reminiscent of how people act when their emotions get the best of them in a business situation. How do they react under stress? It is easy to be in a business when all is going well. Your skills are truly tested when things are going poorly. When Jodi Turek co-founded WomensForum.com (http://www.womensforum.com) in 1996, her business partner also happened to be her fiancé. The stress of merging business with a personal relationship proved too much for either one of them and they called off the marriage. Still, they were able to forge ahead. The company currently is the No. 2 community for women online and is visited by 8 million women and girls each month. The company now develops revenue opportunities for its partner Web sites by offering marketing strategies to the world's leading brands that seek out female consumers. Daredevil Matt Murdock was blinded by radioactive waste from a vehicle’s payload when it splashed onto his eyes. Though he was devastated at first by his handicap, he soon realized that his handicap had heightened his other senses to a super human degree. Using sound, he now tracks down criminals with these new powers to avenge his father’s death. All companies we are a part of have handicaps. We are good at some things and bad at others. It is our responsibility to figure out the business skills we can use to beat our competition.
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ConferenceSeek (http://www.conferenceseek.com) is one of many companies that offer online continuing education. In order to compete in this area, CEO Amy Ravi has aimed her company at the health care industry. ConferenceSeek converts conference content into continuing education courses as interactive audio presentation archives on the Web. Let me know what you think Captain America and the Fantastic Four can teach us. Marvel Comics has more than 4,700 proprietary super heroes in its collection. We all have a lot to learn.
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It's Cash Flow, Stupid! It was reported in the presidential election of 1992, that James Carville, Bill Clinton’s campaign manager had a sign posted in their Little Rock Office that simple stated, "It’s the economy, stupid". This was a reminder to everyone that worked at the campaign that the only thing that the race was about was the economy. The campaign should focus on this one point. That year, I started my third business after failing in two others. This time, I scrawled my own sign and tacked it up in my office so it read "It’s cash flow, stupid". It became my daily mantra. Starting out in my first business in 1980's, I thought that the only thing that mattered was to sell your product. I reasoned that if you make sales, you make money. This worked great until customers didn’t pay me on time or at the same rate as my business expenses grew. Even if my customers did not pay their bills when they were due, my employees and vendors still wanted to get paid on time. My employees were not very interested in taking my accounts receivables in trade for their salaries or promises that I would pay them in a few weeks. What I realized is that sales do not pay bills. What your income statement says about profits in your small business can be meaningless. We have all read this past year how Enron and WorldCom misstated their income statements and balance sheets to make their companies seem profitable. Only collecting the cash from sales in a business means something. Cash is the gasoline that makes your business engine work. Without cash, your business literally suffocates. Cash is not only king, but it is every other face card in the deck. Most businesses fail because they run out of cash leaked through losses or other poor management practices. Cash shortages have driven Divine and United Airlines into bankruptcy. There are many things to do to improve your cash flow in your own business. First, have your accountant or your bookkeeper construct a cash flow statement for you monthly. Most basic accounting software packages have a standard report that will produce it in its most basic form. Learn what every positive and negative number on the statement means. Unfortunately like me, most business owners utilize this tool only after they run into cash flow problems. In financial terms, cash flow is defined as cash receipts minus cash payments received over a given period of time. It's really the flow of money in and out of your business. It is this rate of cash inflows and cash outflows that essentially determine your business' health.
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There are many knobs you can turn to improve your cash flow. Collecting your receivables faster or getting extended credit from your vendors will boost your cash. Selling inventory faster and keeping your inventory levels lower will also accomplish the same thing. Buying inventory only to sit for months on your shelf waiting for customer orders can take a lot of cash out of the business. Other ideas to bring more cash in your business are: Get your customers to pay with credit cards. This way, you get money you can use in your checking account the next day. Give customers discounts for paying their bills sooner. With interest rates low, you may offer a half percent discount for paying within 10 days. Ask customers to pay a deposit or an advance for services before you perform it. This is industry practice in consulting companies. If practical, bill your customers as soon as you perform the service or deliver the product. Don't wait until the end of the month to send them a statement. Be diligent about collecting your accounts receivables. State a specific date that the payment is due. Call soon after the bill is sent out to make sure they received it and ask when it will be paid. Follow up early and often. You have a right to be paid within terms, so don't be timid about asking for your money. Alternately, try to get 60 or 90 day terms in which to pay your bills. If your vendors allow it, pay your own bills after 30 days with credit cards. This gives you 30 more days to pay until your credit card bill comes due. Track your inventory carefully. Know what sells quickly and what never moves off the shelf. Know how long your customer will wait for a product and still be satisfied. Finally, remember that a real customer is only one that pays their bill in the agreed timeframe. Don't extend credit to a customer that has not proven they can pay in a timely fashion. My good friend always reminds me that a business transaction isn't really complete "until the check clears the bank!". In the long run, it only makes business sense to sell something to a customer that you know will pay you. Doing work for a customer where you question if you’ll ever get paid is not a sustainable business model. It is much better not to have done that work at all and instead, spend your time finding real paying customers.
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Business Ideas Are Meaningless (Originally Published at Eprairie.com on 3/4/2003) CHICAGO - It happens all the time. People ask me if I think they have a good business idea. I don’t even wait to hear the idea any more. My answer is always the same: “I have absolutely no idea.” I say this because just an idea for a business is meaningless. Anyone can have a great idea (or a terrible one) that on its own seems like bad business. Many people want me to sign a confidentiality agreement before they will share their business plan with me. Investors never do. I always tell them that 10 people in this country are probably thinking their exact idea at this very moment. I agree with Bill Reichert (http://www.garage.com/about/bios.shtml), managing director of Garage Venture Technologies (http://www.garage.com). When entrepreneurs express to him that they are afraid someone will steal their idea, he says: “Someone else has already stole this idea and your next one.” After two failed businesses, I remember in the early 1990s when my father begged me not to start another business. With my wife pregnant with my first child, he told me what a horrible idea my new business was. He told me that customers would never buy our products. Luckily, he was wrong this time. What I learned from my previous failed business attempts is the idea for this business was no worse than the idea from the previous two. The difference was through experience and a great partner, I was able to execute this time. Anyone can have a great idea. Having that idea and executing that idea successfully are two different things. Execution is probably one of the biggest competitive advantages that businesses typically overlook. Investors would always rather have an “A” driver with a “B” idea than a “B” driver with an “A” idea. This is why investors always rate the management team as the key criteria they use to decide where to invest their funds. Ideas don’t make profitable businesses. Management teams that successfully execute their ideas make the money.
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A great example in American business of not having a unique business product but having superior execution is Microsoft Windows (http://www.microsoft.com/windows/default.asp). Many of the ideas of the mouse and graphical interface did not originate with Bill Gates (http://www.microsoft.com/billgates) and Microsoft (http://www.microsoft.com). Many would argue that Gates got these ideas from his competitors. What he did better than anyone else was execute a superior marketing and distribution strategy. More than 10 years ago, Gates went to major computer manufacturers and negotiated a deal that would put the Windows operating system on every computer they shipped. This perfectly executed strategy made Windows the de facto operating system on the personal computer in the world. As a result, Gates’ superior execution strategy is responsible for his dominant market share (not his product line). Outside the technology world, the concept of a discount airline has been around for a long time. It is a current topic of conversation in a struggling industry. Major airlines such as United (http://www.united.com) and American (http://www.aa.com) have tried to execute such a notion many times. Only Herb Kelleher (http://www.iflyswa.com/about_swa/airborne.html) at Southwest Airlines (http://www.southwest.com) has figured out how to make a low-cost, point-to-point airline profitable. While the idea is not unique, the successful execution is rare. This is also why I don’t think “first-mover advantage” is much of an advantage at all. In any of my businesses, I always wanted competition. Examining the successes and failures other people made with the same idea will always help you execute better. I prefer to learn from the mistakes of others rather than my own. To paraphrase Matt McCall from Portage Venture Partners (http://www.portageventures.com), starting a business is about “making as many mistakes as possible as quickly as possible with as little money as possible.” Finally, a business idea is just an idea. They are just words on a page. It’s only the beginning of something. It’s far too theoretical for me and doesn’t represent a real business. You and I can sit safely and discuss the merits of a business idea all day. It’s academic. Only when you go out there and execute and ask a customer to buy your product do you have a real business. Only through execution will your business be born, evolve and grow. Execution of your idea forces you as the manager to learn what the customer likes and dislikes. Execution enables the market to determine whether your idea in action is a success or a failure.
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If at first you don’t succeed, “morph” or change your business into something that can give you another chance of success. I always urge people to “do something, do anything.” So you have an idea for a new business or an idea for your existing business. Will it be successful? Admit that you really have no idea. Go out and try it. Your customers will buy it not because it is a good idea but because you executed well. That’s what really counts.
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We Must Believe in Business Luck (Originally Published at Eprairie.com on 3/18/03) CHICAGO - The question is always asked as a choice: Would you rather be lucky or good? I always give the same answer: I’d rather be lucky. In the business world, luck makes you good. If I am unlucky, it’s very hard to be successful no matter what I do. Fate and luck play a big role in business. As much as working hard and slowly building financial security is part of the American dream, another part of that dream for all of us is to capture luck, cheat fate and strike it rich by taking shortcuts to the top. My father in law always said: “Someone had to win the lotto. Why not me?” Over the years, I have searched for the perfect formula for business success. Like most of us, I wanted to know the common elements among all the financially successful people. I’ve read books that promised to give me the answer in 10 easy steps. For example: “10 Secrets for Success and Inner Peace” by Wayne W. Dyer “10 Essential Skills for Getting the Success You Want” by Susan Ford Collins “10 Critical Elements for Success in Volatile Times” by Emmitt C. and Mark A. Murphy “10 Entrepreneurial Success Strategies” by Jim H. Houtz and Kathy Heasley “10 Surefire Strategies for Reaching Your Career Goals” by Susan L. Abrams “10 Powerful Keys to Unlocking Your Potential” by Tim Lavender “10 Rules for Getting to the Top and Staying There” by D. A. Benton “10 Steps to Health, Wealth, and Success” by Napoleon Hill and Michael J. Ritt “10 Steps to Financial Success” by W. Patrick Naylor “10 Traits of Great Leadership in Business and Life” by Rick Pitino and Bill Reynolds Though Amazon.com actually lists 116 books like this, I got impatient after reading them and wanted to achieve success in just seven steps. Therefore, I read: “7 Steps to Achieving Success in the Business of Life” by Jeffrey J. Mayer “Seven Habits Of Highly Effective People” by Stephen R. Covey “7 Powerful Skills” by Helen Hall Clinard “7 Principles of Combat to Achieve Your Goals” by Richard J. Machowicz “7-Part Program That Shows You How to Succeed” by Rich Fettke and Richard Carlson
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“7 Laws of Highest Prosperity” by Cecil O. Kemp Jr. and Kathryn Knight “7 Secrets to Success” by Richard Webster Amazon.com actually lists 100 books like this. By next year, I should be able to succeed in five steps! After this exhaustive search, I found that all financially successful people have two things in common: luck and timing. There was a lot of that going on during the 1990s Internet bubble. You can put yourself in a place to find luck through hard work and perseverance, but if the ball doesn’t bounce your way, it’s hard to catch up with that kind of disadvantage. Since there are few things that bind financially successful people together, this also means that there are many paths to get there. Regardless of what popular books say, there is no one way to achieve the success you seek. This is good news for all of us. You can approach your goal from many different angles and still get there successfully. Many people start businesses to be in control of their own destinies. In retrospect, they realize that is very far from the truth and their lives become filled with even more variables. This is a difficult concept for most entrepreneurs to grasp. Personally, I am not a traveler. Waves make me sick when I sail. I hate turbulence when I fly. Maybe it’s because like most entrepreneurs, I like being in control. I have had to learn to ride the business roller coaster up and down and some days just accept the cards that are dealt to me. For example, you get a call from a prospect that says his or her current Web development firm just went out of business. The prospect asks you to take over the $100,000 project the now-defunct company just started. Were you lucky or good? Probably both since you stayed in touch with the prospect so he or she called you when the need was there. You put yourself in the right place at the right time. On the other hand, another example is you closing a $250,000 software development contract with a client. It’s the largest sale of your career. A month later, the client is indicted by the SEC (http://www.sec.gov). The customer cancels the project. Were you unlucky? Absolutely.
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We all need to learn to accept business outcomes outside our control. So what is a businessperson to do? Sit by the phone while fate and luck takes its course? No. Work hard to achieve your personal success. Celebrate the victories and transition through the disappointments. Just in case, carry your lucky rabbit’s foot wherever you go.
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Winners Know When to Quit (Originally Published at Eprairie.com on 4/8/03) CHICAGO - Growing up, I heard my dad repeat Vince Lombardi's mantra many times in an effort to motivate me to accomplish my goals. It’s only after being in the business world for more than 20 years that I realize it's simply not true. It's not that winners never quit. Rather, winners know when and how to quit. Vince Lombardi also said: “The harder you work, the harder it is to surrender.” I agree that it’s more difficult to quit than to sustain an adventure. Change is always tougher than the status quo. We have some great winners who know when to quit in Chicago. Mohnish Pabrai, a veteran of three other start-ups, decided to close Digital Disrupters in August 2000. He started the company to incubate start-ups that would develop disruptive technologies. Pabrai wanted to emulate the philosophy of Harvard (http://www.harvard.edu) professor Clayton Christensen (author of The Innovator’s Dilemma. As Brad Spirrison wrote on ePrairie then: “The Digital Disruptors model is simple: co-invest $1 million with an established domain leader and watch 50 percent of nothing grow into 30 percent to 35 percent of $10 million, which is the anticipated valuation of its portfolio companies after round one of financing.” The company failed to raise the initial $10 million it was seeking for launching the incubator. Instead of trying to accomplish the same goal with only half the money that was committed to the business, Pabrai decided to call it quits. He opted not to take the money from his investors. Rather, he tried to find jobs for his employees. It was reported that he invested almost $2 million of his own money in his first three portfolio companies. Successful failure Rich Melman runs Lettuce Entertain You Enterprises (http://www.leye.com), one of the best groups of restaurants in the country. The chain is well known for its frequency of failures. Typically, four restaurants fold for every one that remains open. I dine at Melman’s many successful restaurants. I also have eaten at ones that he has shuttered. He did not hesitate to close Lawrence of Oregano and Jonathan Livingston Seafood when they weren't doing well. If the concept failed, he licked his wounds and moved on.
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I admire these kinds of people. Melman, for example, had a vision for doing something different with his business, but when he couldn’t make it work, he called it quits and moved on to something else. This is much easier on paper and harder in practice. In business, you always think that next prospect, customer or consultant will make the difference and propel your business. It rarely happens this way. Most of the time, we spend too long going down the same path, doing the same thing and hoping for it to change. While hope is an important component of the entrepreneurial spirit, it alone is not a marketing or sales strategy. In 1997, I was riding my bike to work when things were going particularly bad in my business. I remember wanting to call it quits. I felt I had an impossible task and it was just too hard to make it work. The realization that day that I could close it down and walk away was freeing. It gave me a choice. We eventually did stick it out and was able to turn the business around. In my first business in 1988, we decided something different. We stopped and closed the business to pay back the $10,000 we owed. This was freeing too because a few years later, I started my next business. So how do you know when to stay the course or when to close? If you and the business continue to fall deeper into debt on a monthly basis, shut down. It is similar to a famous expression that is a favorite of Bob Geras: “If you find yourself in a hole, the first thing to do is stop digging.” Secondly, if you have lost the passion for your business or if you no longer like who you are working with at your company, it’s time to close the doors. You are not alone. There is no shame in surrender. In fact, surrender can open you up to new possibilities and a fresh start. For many entrepreneurs, closing one business opens up the ability to start another one and begin that ride all over again. As Vince Lombardi said: "It's not whether you get knocked down. It’s whether you get up.”
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Do Good Guys Finish Last ? (Originally Published at Eprairie.com on 8/19/03) CHICAGO - Unfortunately in this world, the bad guys win a lot. In fact, mean and dishonest people sometimes can find easier financial success in business than those who play it straight. If making money is one of our goals, why do good at all and why play “fair” in business? Why show compassion to others when sometimes it may seem like it’s easier and quicker to cheat? I have pondered this question over the years as I done business with all types of people and with every outcome. Jennifer Flaitz of KPMG (http://www.kpmg.com) questions the definition of a “good guy”. She wonders: “Is it just being nice to people [and] treating them with compassion or is being a nice guy [something] in addition to providing a business solution that consumers need?” Flaitz uses Starbucks (http://www.starbucks.com) as an example. “While many didn't think Starbucks’ early business growth strategy of setting up shop across the street from their competition was fair, the truth is they provided a consistent, quality product, were open at the most convenient times and provided friendly service. That was and continues to be the key to their success.” She concludes: “Those who finish creating positive karma, are compassionate and passionate while providing a service, solution or product that fills a need will always be successful - maybe even more successful than their evil competitors.” Dave Dailey at Silicon Valley Bank (http://www.svb.com) believes that it all starts with the leadership of a company that sets the standards. “Strong leaders are people who can attract other talented and smart individuals around them,” he said. “Like-minded people with similar morals and ethics are generally attracted to each other. Successful companies are the companies that have strong leadership. Smart people are not going to follow ruthless leaders. [There are exceptions,] but by some arcane application of logic, nice guys should finish first or at least not last.” Lori Erickson at public relations firm Ruder Finn (http://www.ruderfinn.com) examines the issue in her own profession.
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“The reputation of PR people has had its ups and downs over the years,” she said. “Overall, I think the profession has good practitioners who can make a real impact for the companies they represent as well as poor practitioners who sell well and do not deliver. Unfortunately, a few bad apples can make the efforts of the well-intentioned practitioner much more of an uphill battle. “The efforts of the well-intentioned pay off eventually but those focused on the ends over the means are simply weights around our necks who slow the process of meeting that inevitable outcome,” she added. “It takes tremendous endurance and some degree of faith to pursue the higher path because it is a long process with small and infrequent gratifications. “There are temptations along the way to conform to the ways of those focused solely on personal gain because it is the easier path. For me personally, that would mean compromising principles that I'm not willing to compromise and being a person I am not willing to be.” Another PR professional, Karen Andre of K Andre Consulting (http://www.kandreconsulting.com), sums up her philosophy by saying: “I do not believe there are shortcuts in business or in life. If you follow what you know to be true, you will discover there is a unique set of opportunities for your business. It takes a leap of faith and consistently treating others the way you wish to be treated.” Clay Garner, president of Growth Resources, believes that the tough guys and the good guys can achieve success. He added: “The real question is: What kind of a person do you want to be once you get there?" After more than 20 years of business, my conclusion is that the question of where “good guys finish” is irrelevant. It doesn’t matter if good guys finish last, first or don’t even enter the race. As business people, we should strive to be as fair as possible simply because it is the right thing to do. We should treat people the way we want to be treated. It is the way we need to try to live our lives regardless of what others do. All religions have preached this as the famous “golden rule”. One of my favorite versions is by Judaism’s Rabbi Hillel. When asked to explain all of Jewish law, he simply responds: “What is hateful to you do not do your fellow man. That is the entire law. All the rest is commentary.” As I reflect on my business life in relation to this golden rule, I have not always been successful in acting in this way. Still, it is a goal I strive for every day. So do good guys finish last? It depends on where you sit and how you keep score. Mostly, it doesn’t really matter. Just do good.
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Avoid Playing the Business Blame Game (Originally Published at Eprairie.com on 10/21/03) CHICAGO - It has been almost a week. As a Chicago Cubs (http://www.cubs.com) fan, I still want so badly to blame something else for their loss. It has to be Steve “Foul Ball” Bartman who is responsible or Alex Gonzalez’s fielding error. Maybe it’s the Billy Goat curse or the red ivy is haunted. How do I explain it to my young sons? It couldn’t possibly be that for those seven games the Marlins were a better baseball team. Similarly, when things go bad in business, we want to blame someone else. We reason to ourselves that it has to be someone else’s fault besides our own. We say to ourselves: “If not for this thing or that thing, it would not have happened. We shouldn’t be here except for this one small thing.” Not true. Unfortunately, we have all from time to time pulled ourselves up from despair by pushing the blame on someone else. Simply put, this is bad for your business. Looking to place blame on others doesn’t accomplish anything or move your business forward one bit. You are at a particular point in your business because you just are. For better or worse, you can’t be any place else. The key to getting past difficult business situations is not to go on a witch-hunt and find someone to “tar and feather” (although I would like to have seen a few Marlins like this). As a Chicagoan and a 22-year Cubs fan, I’m ashamed how people placed blame on Bartman for the team’s loss. This may make you immediately feel better, but soon after, you realize you have accomplished nothing. After two failed partnerships, I finally learned this lesson. My partner and I never played the blame game in my last business. We would never be mad at each other for more than 24 hours. We would figure out what went wrong and try to learn from it if we could. Bad things don’t always happen to teach us something. Sometimes, they just happen and it stinks. We never pointed fingers at each other or other people in the company. That is a waste of time and energy. If you find yourself in this situation, find out what went wrong and fix the problem. If you can’t, feel sorry for a week, wallow well in it and move on.
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In the end, it may be about taking personal responsibility. Steve Miller of Origin Ventures (http://www.originventures.com) says “people need to take responsibility for their own actions. Not enough people do that in our society.” In small business, the buck stops with you and that’s OK. It’s important to remember and retain this especially if you have other people working for you. Don’t shift blame. Ultimately, it’s about you. Accept it. Brian Gallagher at Preon Power (http://www.preon.com) takes it one step further. He says people need to proactively accept responsibility if they did something wrong. One of his employees told him that the “lesson isn’t over until it is learned.” He believes that the quicker someone accepts their part, the faster they can move on. Still, Gallagher doesn’t like to focus on blame. He would rather look at what his company could do differently and the lessons learned. Eric Rodriguez of Ribstone Systems (http://www.rbsys.com) believes that blame is useless for another reason. He said: “There is never one turning moment that dictates the future that changes everything. Though there could be a setback, you can always recover. If it is a lost customer, let’s move on and find another one.” Playing the blame game is also a good way to test your company. Poor team dynamics aren’t always easy to spot (especially in a start-up or small company where there’s already a lot of chaos). Screaming and yelling aren’t always telltale signs. It can be difficult to tell the helpful players from the bad ones. Look at how people get along. Do they try to fill in and compensate for each other or do they look to place blame instead of accepting failure and looking for solutions? Who is willing to be flexible in their role in the company and do whatever must be done to get the job done? If you find team members or relationships that don’t work, don’t hesitate to immediately change out the people or their roles. People don’t typically change much. I always regretted not making changes sooner rather than waiting. You will, too. If you aren’t able to recover from a business loss this year, we can always wait for next year!
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Following the Leader "I'm not a natural leader. I'm too intellectual; I'm too abstract; I think too much."Newt Gingrich As far back as I can remember I always wanted to be the leader. Even though I was one of the smallest kids in my grade school, I managed to convince other kids to be my lieutenant so I could be the general. This worked for a while until the teacher forced us to "take turns". I never liked that. As I grew up at any organized activity, I had to be at the front of the line. In Boy Scouts, I was Senior Patrol Leader. In my regional youth group, I was the President. In anything I did not excel at enough so I could be the leader, I declined to participate in that activity. Unfortunately back then, I had to be the leader or nothing. Maybe that is why I left a large corporation like IBM and started my own businesses. I reasoned that as the founder and the first employee, I always got to be the leader by default. We all know that strong leaders are essential to business success. We have great ones in Chicago business and tech community including JB Pritzker of New World, Linda Darragh at the Women’s Business Development Center and Andy McKenna at Schwarz. Whenever there is a group of people, it does take leadership for a team to work together. Someone has to lead while others need to follow. Without a leader, there is only chaos. Do not mistake the leader only for the person shouting orders to their team members or the only one working 100 hours a week. The leader isn’t always the person out front leading the charge and taking all the credit. But, leadership can take many forms especially during the ambiguity and rapid change, which abounds in business. A leader’s skills need to drive innovation but at the same time manage conflict. Leadership is about risk taking in your business, but a different kind than we may have heard of before. It is easy for the traditional manager to lead by doing everything themselves or ordering other people to do tasks and cleaning up after them. However, you are a leader in your business when you can successfully let go and trust other members of your team to do the roles that you have defined for them. Furthermore, it is about successfully negotiating with your team the different roles they will take and monitoring how they interact and work with each other.
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I admire many of the great entrepreneurial leaders in our town such as Mike Krasny from CDW and Michael Birck from Tellabs for what they have achieved. One of the reasons they were successful in growing their businesses were that they were able to build great teams. I learned a lot about what it takes to be an effective leader through trial and error. But the best lessons I was taught was when I learned to be a follower too. A few years ago, my two sons became involved in a karate school and I was asked to join their board of directors. As a director, I participated in making many important decisions that effected the strategic direction of the school. I assumed the role of one of the leaders of this organization. Last year, I decided to start taking karate lessons at the same school. Showing up for the first lesson as a student was the hardest part. As with most traditional martial arts, karate has a very well defined pecking order. Practicing karate as a white belt, I was now at the bottom of the pile. I was a beginner and the ultimate follower. This was unique to me because I never had the opportunity to be a follower and a leader in the same organization at the same time. As a beginner in karate, I learned to rest my mind and stop taking responsibility for leading anything for an hour. I was taught to just watch and do but not think. I was taught to be a good follower and focus on my own progress not others. Besides, it turned out to be a lot of fun and a break from the daily business grind. Finally, you can also appreciate what it feels like for others to follow you. If you are like me, this is as much a pleasant thought as much as it is a horrifying one.
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How to Eat E-Mail Spam For Breakfast (Originally Published at Eprairie.com on 10/23/03) CHICAGO - I’m not bothered by just any old spam. I don't mind getting an offer to buy a product or service just once or twice. Maybe I wasn’t truly listening the first time. It’s a free market economy and the American way at work. After I get 100 spam offers for the same product or service, though, what can I do? Where can I go to put my name on a list of people who have already seen the Paris Hilton video? What if I already use Xanax and I don't yet need Viagra? I have refinanced my house at a very low rate, so I don't need another mortgage. What if I’m not interested in having any of my body parts made longer? Send any new offers for products my way but can I get off the list for these specific spam e-mails? Maybe they could check me off a list so I am never asked to use any of these products again. This would cut my e-mails by 200 a day. The subject lines of e-mails amaze me. While it may be tempting to look at some more provocatively titled e-mails like "your Valium is ready," I question why I would open an e-mail addressed as "good news for your colon." My grade school son wants to know why he receives e-mails titled "meet singles in your area." He knows plenty of “singles” at school and doesn’t need help finding new ones. Maybe the newest bill passed by Congress, which goes into effect Jan. 1, 2004, will help. It will eliminate the myriad spam laws that are scattered through 37 states. The new law gives criminal penalties for sending business e-mail with deceptive subject lines and sending e-mail not including "a functioning return" address. It also has become illegal to link to a Web form that can’t accept unsubscribe requests. It prohibits collecting e-mail addresses by programs that surf the Web. The bill also promises to sentence violators to up to five years in prison. This hardly seems enough considering I have probably spent months of my life deleting the stuff they send me. We all rely on e-mail heavily for business. With all this spam clogging our business mailboxes, how do you cut through all the noise? This was the challenge that has faced business direct mail marketers for years. The competition for the end user’s mailbox is fierce these days. What tips work for business e-mail marketing so you can cut through the spam?
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E-mail subject lines Forget “hi” or “how are you?” These will probably be deleted by spam filters. Sonny Cohen at Chicago-based duo (http://www.duodesign.com) says, “your e-mail subject line is the key to gaining e-mail acceptance. Give as much thought to your subject line as you do to the entire e-mail content. Each word and character is precious. You have about 35 to 40 characters. You have four to six words to gain the trust and interest of your recipient.” I believe that the single best subject line is “referred by…” (the name being someone that the person who you are trying to get in touch with recognizes). Return addresses Cohen also advises that you need to think of e-mail as “a very personal medium. Therefore, to have an effective business e-mail relationship, your communication should be from a real person and should be addressed to your specific recipient. Info@mybusiness.com or simply ‘YYY Firm Newsletter’ is ineffective while sonny@duodesign.com or ‘Sonny Cohen’ is very effective.” Language The words “free” or “special offer” continue to be the most successful marketing words. Still, Cohen warns that it is almost guaranteed to be captured by a spam filter. He recommends that we know what the spam filters trap. Carefully choose the words in your subject line and the e-mail copy itself to avoid having your e-mail trapped. Attachments Attachments are a big no-no especially for business people who have had their computers sabotaged by many innocent-looking files. When I see an attachment from someone I don’t know, I delete it. When I see an attachment from someone I do know, I examine its relevancy and type before I decide to open it. Content Tim Bay at SGS Net (http://www.sgsnet.com) still believes that the best way to “stand out in the clutter of someone's inbox is to make sure you are providing something of value in your e-mail. For consumers, this can be a tip on how to better use your product, a special offer for more or complimentary products or recommended products based on whatever information you have about your client.” For business owners, general information on how your customers can improve their business or news on product updates work well. Bay states that if you continue to demonstrate the value of your e-mail communications, you should be able to gain trust from your customers. That increases the likelihood that they will read your e-mail message and their desire to act on it. E-mail timing
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Bay believes that timing is very important in business. He added: “If you send an email Friday afternoon, the recipient may not retrieve messages until Monday morning and your e-mail will be behind 100 others. Instead, for example, if you send it Tuesday morning at 10 a.m., you are likely to have much less competition.” Incidentally, while I was writing this column, I received another 89 spam emails. Forty-three asked me if I want to see Paris Hilton again, 14 were about making my body parts longer, 19 were about the purchase of Viagra, 17 were about “hot” new adult Web sites and nine were mortgage offers. The final one was called “nuke those hated advertisers.” Sure, this is a novel penalty, but it’s a bit rash. Luckily, the delete key is my friend.
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Laughing Your Way Through Business (Originally Published at Eprairie.com on 12/2/03) CHICAGO - Many people (except my wife, of course, who I dismiss as an exception) think I can be a funny guy. We have been married for so long and she has suffered through all my jokes multiple times that I actually sympathize with her. In fact, she has even given a number to each one of my jokes. I have a very strong belief that humor and laughter do play an important part in business. I use humor a lot in my columns and my book to make a point. When things go well in business, it’s easy to joke and laugh. When things go badly, I am a big proponent that the more we laugh, the easier we can handle a particularly difficult situation. There are so many absurd business situations that I found myself in over the years where I could not help laugh for fear I would never stop crying. We also all need to be able to laugh at ourselves and not take everything that happens in business so seriously. By viewing business this way, we can gain more resiliency to ride through both the good and bad times. What roles can humor play in business? I use it a lot to “break the ice” when I meet people for the first time or make a speech at a conference. However, I have never been much of a fan of someone who starts off a meeting or a presentation with a joke that is unrelated to his or her topic or industry. To me, this is trying too hard and not many of us are as good as Jerry Seinfeld at stand-up comedy. Todd Hunt, a Chicago-based “business humorist” says: “Humor is more than ‘a guy walks into a bar’ joke. It’s everywhere in the workplace if we only keep our eyes open.” He has used humor often to diffuse hostility. “After being introduced, I often say: ‘I asked Joe what your time limit was for speakers today.’ He said: ‘You can talk as long as you want but we all leave at 1:30.’ So I promise I will not go past 1:30 no matter what,” Hunt said. “You can beg and you can plead but I’m not going one minute beyond 1:30!” Showing respect for time makes an audience receptive to Hunt’s message. At my last company, I would travel around the country with other team members giving the same presentation over and over again. To make it interesting for us, we played a game where we added imaginary words to our presentation that were not actually English.
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For example, one word we once used was “referenceability,” which is not a word. Whichever presenter could use that word the most during the presentation without the customer asking what the word actually meant would win the game. The presenter could get extra points if they got the customer to use the word in a sentence. Dean Rutter, the former founder of Apartments.com (http://www.apartments.com) and now founder of the Evanston, Ill.-based Make Baby Laugh! Company (http://www.makebabylaugh.com), told me of a situation that was so absurd it made him laugh. He hired a rental agent who, in her very first month, rented 14 apartments (the best anyone had ever done). As of the middle of her second month, she had already rented 10 apartments and was well on her way to setting the single-month record. All of a sudden, though, she up and disappeared. This was not too unusual since turnover among agents was large. Rutter tried calling and calling, until one day, her boyfriend answered and said she had gone back to her old job and to stop calling. About four or five months later, someone was looking in the yellow pages and came across their former rental agent’s picture - in the escort section! Rutter said: “That was funny enough, but then all of sudden, the entire office made this into a career path [for men and women].” The agents joked about the number of months it would take to go from agent to escort. Rutter said this absurd situation was a good way to keep fun in a sales job that was difficult for most people to achieve their goals. Although male and female agents enjoyed this ruse, any sort of humor tied to sex can offend some people. Like with any joke, it is important to know your audience. If you have any doubt that someone may be offended, it’s much better to skip it. Mary Lee Montague at Chicago-based DHR International (http://www.dhrintl.net) believes that humor is a good way to test whether you can work with someone. She added: “If it hits your funny bone, laugh and be real. If the other person doesn't find the same thing funny, move on because the two of you wouldn't make good business mates. Life is too short not to laugh along the way.”
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Can humor go overboard and become biting sarcasm at the expense of another person? This is a big danger when trying so hard to make people laugh. I have stepped into this trap and ended up trying to pull both feet out of my mouth so I can apologize. While profanity can also be funny to many of us, it is easy to go overboard. While it can be amusing for its shock value, it can just as easily show a lack of respect for others since they may be offended. Again, when in doubt, leave it out. Scientists say that adults laugh 10 to 15 times per day. Our children laugh 300 to 400 times a day. We have a lot to learn from our kids. Laughing in our businesses is a good way to start to catch up.
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BIOGRAPHY Barry J. Moltz has been running small businesses with a great deal of success and failure for 15 years. He co-founded Prairie Angels Capital Fund (www.prairieangels.org) that invests in local seed stage companies. Barry also helps entrepreneurs face the challenges of running a small business. His first book, "You Need to Be A Little Crazy: The Truth about Starting and Growing Your Business" is available wherever books are sold. He also writes a column called "The Business Bunker" at (www.eprairie.com). His musings can found at his own hacker web site at (www.barrymoltz.com) He can be contacted at (barry@moltz.com)
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