Saturday, December 30, 2006
The most recent issue of Barron’s (12/25/06) ran an interesting cover story called 'Sizzle Inc.'.
The Barron's writer, Johnathan R. Laing, interviewed the principals of the international research firm GaveKal. I’ve ordered the book. More in future posts.
The subtitle of the article is “For the US, developing the sizzle is now just as important as selling the steak. Shedding risk and stabilizing the economy by making products abroad.”
While this outsourcing article is directed at large businesses, their ideas about creating value are useful for start ups and emerging enterprises.
The GaveKal research shows that the spreading of the economic risks, as represented by outsourcing, is slowing the total amount of volatility we all feel. The suggestion is that macro and micro economic systems become better balanced, less volatile and more valuable as they become increasingly integrated
Those of us in economically better developed countries need to plan our enterprises carefully so as to be able to make the most appropriate contributions.
The Barron's/GaveKal piece talks about platform companies. These are organizations that are highly focused on their core competencies. Core competencies are not static placeholders used to fight off change. Unique core competencies are platforms for growing new solutions for your markets.
Here's what the article says about platform companies, "Platform companies require far less capital because they concentrate on product development and sales, leaving to parties abroad the heavy financial lifting entailed by manufacturing."
As a side note, I agree that manufacturing is the heaviest lifting at big global scales, but for small and emerging firms, the ability to uniquely and innovatively manufacture products is entirely viable. I’m watching many examples of this in my day job. The art and efficiency creative enterprises are able build into manufacturing can be a great core competency in the emerging world of smaller, more specialized production runs.
I think of great short run manufacturing capability as the ‘D’ in R&D, research and development. Great short run manufacturing is always adapting, always getting smarter, often out in front.
That said, the platform model in the article focuses on the three legs of a sustainable economic structure: R&D, design and sales/distribution. Then, they recommend, outsource the rest.
Outsourcing is a controversial term, but remember, for start ups and emerging enterprises, outsourcing doesn't need to be across oceans. Outsourcing for start ups can also be the folks just out your back door, or your next UPS/FedX visit.
The solutions you provide to real problems are your platform. You plug in the rest of the world as needed.
I put up a post about how well this worked for us (Fri., May 13, 2005 'Remote Partnering'). We outsourced out our back door, literally, and it worked very well for many years. We outsourced an expensive manufacturing step we didn’t feel we needed to invest in. We bought into excess vendor capacity. The vendor added to their base load, and everyone benefited, especially our customers.
I watched this platform model work successfully for more than 25 years in our first enterprise, Banner Graphics.
I define a platform company as an enterprise with a unique core competency for solving problems in their carefully identified target markets. A platform company executes repeatable solutions to real problems. A platform company has their business processes in place, not on paper.
A platform enterprise is designed to get smarter and more valuable over time, not necessarily bigger as measured by many of the typical metrics.
For entrepreneurs of any kind, I believe value emerges at the intersection of problem solving, sales, and execution.
You need to deploy these most productive assets skillfully. You have to know enough about your market to be able to approach it with authority and at the least possible cost initially. The platform concept offers this path.
Do what you do best and plug in the rest. If your solutions are valuable, other organizations will knit their platforms into yours.
The Barron's article was heavily macro economics oriented, focusing on China and mega supply chains. However, I've lived the start up side of this and the GaveKal ideas about platform enterprises are just as valuable for emerging enterprises, probably more so.
As you work on your new enterprise, don’t let yourself get caught in the common trap of trying to control all the variables.
It’s more helpful to think of your enterprise as a platform; a platform for solving problems, a platform for helping your markets, and most of all, a platform for continuously creating sustainable growth for your enterprise.
If you plan and execute well, your organization will be able to continuously create sustainable, valuable launches.
That friends, is why we call them platforms.
The Barron's article posted at Silicon Investor
The GaveKal site
Saturday, December 23, 2006
I like Kevin Maney's tech columns in USA Today. He's a good writer and he keeps up a nice blog about tech news.
Kevin had a piece in the paper on Nov 22, 2006 that caught my eye. He was writing about Amazon.coms new vision for entrepreneurs. Amazon is beginning to unbundle their operations so that outside organizations can now pick from many Amazon in-house capabilities and apply them to their own enterprises.
This has been done with digital products in the past, but Amazon is gearing up to let us do this with 3D stuff, using their computers and providing physical distribution as well.
The businesses I’ve started have always sold things to other organizations. It didn’t matter what kind of organizations, just that there was a structure of some kind in place. For seed stage start ups, selling to other organizations has been a far more efficient way to start enterprises than selling things to civilians. The basis for this idea is that selling directly to the public has been far more expensive, and, most importantly, much more time consuming. Most start ups do not have the time available to waste dealing with anyone who can walk through the front door.
Obviously, that ground has been shifting daily as the internet emerges. The ability to sell directly at the retail level has been growing for the big guys as well as start ups.
The ability to keep enterprises small, fast and efficient has never been easier or cheaper. Now, the ability to sell to civilians seems to be emerging with the potential to take us far beyond eBay.
What I like about this Amazon development is that (hopefully) start ups and emerging enterprises can sell to civilians in ways they never could before, by opening different kinds of front doors.
Amazon won’t be the only portal you can do this with, but they are lighting the way. This trend will enrich the entrepreneurial community worldwide.
With the Amazon model, Kevin Maney says "You can rent space on Amazons computers to run a business, or to rent out its transaction capabilities to sell things and collect money, or rent pieces of its warehouses and distribution system to store and ship items - or all of the above."
Maney continues, "So with almost no start up costs, anyone anywhere could become a retailer. It's not just contracting with Amazon to sell your stuff, the way Target does. It's leasing pieces of Amazon to create something totally unrelated to Amazon."
Now, my seed stage friends, initially this is probably not set up for you. As Mr. Maney quotes Jeff Bezos, Amazon CEO, "We can take all the things that used to be fixed cost, and let people pay by the drink." That's code for ‘this service is going to be expensive’. At first, this is probably not for seed stagers, but it’s coming.
However, it looks to me like emerging organizations with the funding could jump right in. Storage space at Amazon distribution hubs seems to be about $0.45 per cubic foot per month. I have not used the electronic interface yet, but it's reported strength is it simplicity. The new access to Amazon's computing power is priced at a rate that looks cheap to me. This will be worth exploring. If you have a tech person on your team it would seem especially alluring.
Interesting side note. As this idea catches on, it will allow Amazon and others to offer increasingly lower costs for these services. According to Jeff Bezos, interviewed at this month's Web 2.0 conference, only 17% of the capacity of Amazon's servers are used. Mr. Bezos says it's like having a Boeing 747 and leaving it parked on the runway 83% of the time.
This move by Amazon is a clear, clarion shot across the bow of the emerging entrepreneurial culture announcing that the big guns get it. They are turning their ships to serve the needs of ever smaller enterprises with an increasing array of valuable resources. Good on 'em. Thank you Mr Bezos. I hope this idea evolves well.
Business Week did a very good cover story on the Amazon rollout in its Nov. 13, 2006 issue. I liked a quote there from an early adopter of the Amazon offering, Chris MacAskill, a former fierce competitor of Amazon. Chris is now president of an on line photo sharing firm, who says this about the Amazon approach, "Everything we can get Amazon to do, we will get Amazon to do. You're going to see all kinds of startups get a much better and faster start" by using Amazon services.
Is it for everybody? Of course not. Is it good news for all entrepreneurs? You bet.
As for Kevin Maney, I can't leave his column without applauding some great writing celebrating this evolving story.
"What's new about Amazon is the leap to physical products. This might be one of those evolutionary milestones, like when the first fish crawled up on land, or Jimi Hendrix discovered feedback on his guitar."
My start up friends, big new evolutionary benefits are raining down on our community at an increasing rate. Many will help you and your enterprise become more sustainable. Follow those like Jimi followed his feedback loops.
Developments like those at Amazon are leading to a lot more opportunities for a lot more people.
That includes you.
Kevin Maneys full article at USA Today
Amazon portal to learn more
Jeff Bezos interview at Web 2.0
ComputerWorld Magazine review of the Amazon project
Business Week story on Amazon
Kevin Maney's blog
Kevin Maneys home page
Saturday, December 16, 2006
I recognize the idea of a slow start up movement is not for everyone. But it can be a very appealing path for many entrepreneurs.
The world will still be moved and shaken by fast start ups that get faster and better. I love that approach also, but a slow start up movement for those not involved in official start up channels has great merit.
Before I leave this slow start up movement idea, I'd like to post a real world example that I've just advised a friend to follow.
She thinks she wants to start a new enterprise and have it up and running so that it could support some or all of her income in a year or two.
Good. We've got a start. We've got a goal. Now let's get it underway.
The first thing to do with a slow start up is hurry. There are two things you need to do ASAP.
Let's assume you've identified a field you can make a contribution to.
The very first thing you need is a domain name. The web is where you'll tell your story. Your domain name helps define your story.
Ideally your domain name should also be the name of your enterprise.
To get to a great name, focus on what your contribution will be to your market, what solutions you will deliver. Those words and ideas can be woven into a short, memorable name for your enterprise which in turn becomes your domain name.
Naming enterprises can be like magic. You're bringing something exciting to life unexpectedly. Take some time with this. Then hurry up and get that name.
You’ll need to register the name of your enterprise with your state and your domain name on the internet as fast as possible.
To do this you need to research both simultaneously.
Start by researching available domain names. You can be hugely creative in the combination of words and numbers to get a really great name. There are about a million new domain names registered daily according to domain name tracker DomainTools, so you should move quickly.
There are many sites that let you research domain names. I find it's usually best to register the domain name with the group you'll use to host your site. These sites have simple search engines that can quickly tell you if the name you're searching is available. I have used LunarPages.com for the most recent sites I've set up. Their support team is first rate and prices are great.
Let’s say you’ve found a name you love and one that will tell your story well. Next you need to make sure that name is available in the state where you live.
Most states let you search on line to see if the name is available. (More on this soon, but I believe that forming your enterprise as an member controlled LLC is wisest for seed stage start ups and sole proprietor type enterprises). In this case, you’d search your state's availability using your proposed name ‘Widgets, LLC’.
To locate the site for your state, search using your state name and the search terms "register LLC". You can also call any local office associated with economic development and they can help you find this information. My state of Wisconsin has a very simple on line form to create an LLC. It takes about 10 minutes to complete. Cost to register a Wisconsin LLC is $130.00 (12/16/06). Try to go direct to your state and do it yourself on line if you can. You don't need 3rd parties to do this for you.
If the name you’ve chosen is available on the internet and in your state, go get ‘em. Take a deep breath, enjoy the moment, and reserve the name in both spheres.
You don't need to launch your organization or put up a web site now. You're just preserving the domain name and the legal name where you live.
If you’re ready to take your first enterprise steps, lock down your name as fast as the muse allows. Done right, it can light your path and help you jump out of bed every day.
Then you can settle back and enjoy your slow start.
LunarPages domain search
Site for State of WI on line LLC registration
Current stats for active domains at DomainTools.com
You’ve heard of the slow foods movement? Perhaps the slow cities movement?
I’ve got an addition. The slow startup movement.
The common language of start ups these days is FAST. If you are not currently involved with the debate as an entrepreneur but would like to know more, listening in hurts.
The talk is all speed. Speed of the markets, speed of innovations, speed up new products. Kill or be killed. If you’re not in hyperdrive on this highway you’re road kill.
Here’s an idea. Don’t get on that highway if you can avoid it. Take the back roads. They’re more scenic. You’ll have time to think and to stop and talk to people. If you plan your journey right, you’ll understand many are smarter than you about things you need to learn.
Not all start ups fit this profile, but many could. I’m a 50 something boomer and it fits my demographic like a glove. Start now. Get the process in place on your schedule. Enjoy the learning curve. When you’re ready, jump in with both feet. I also think this can apply to young people, people in their middle years, single people, folks with families and seniors. I can’t think of anyone that wouldn’t benefit by creating a slow start up for themselves.
Think of the benefits of slowly starting your new enterprise, if you have the time and resources available…
If you can start slow you can start small. This means no big outlays of money while you organize it. Take small bites and little risks and see where it takes you.
If you can start slow you can start smart. This means taking the time to weave a wide mix of vendors, end users, accounting professionals, sales channels and many others, into business processes that work for you and your enterprise. You can take the time to make your enterprise sustainable on your terms.
If you can start slow you can manage your risks. This start up process is fraught with risk. Starting slow teaches you how to understand which risks are valuable and which are dangerous.
I've been through a number of different kinds of startups. Some are entirely appropriate to launch through public funding channels. When speed is necessary, it can be readily provided by traditional channels. Angels, venture firms, loans, convertible debt, development organizations, banks, governments, and all of the other usual suspects are great resources and should all be used where appropriate.
But not every new venture needs those resources. Not every new enterprise is an appropriate match for those tools. You don’t have to follow that path just because that’s all anyone is talking about. If you have the time available to start slow, do it. You don’t have throw yourself or your enterprise onto the fires of the official start up channels. It’s rough out there. Speed and deadlines rule in those markets, as they should. If you’re not ready for prime time, and most seed stage ventures are not, create sustainability ahead of speed.
The slow startup is one clear path to sustainable work.
Slow startups don’t mean less work. They mean more. You’ll need to capture and measure every result. You’ll need to sift all your data from many directions to find the patterns that will take your enterprise forward. You will need to quickly learn from every mistake. You will need to get smarter every day.
As you infuse your business processes with this information, your slow start up can provide you and your enterprise increasing successes, personal and professional nourishment, and the discipline required to keep flapping your wings.
Then, when you’re ready to take flight, you can do it successfully. At the time of your choosing. Into an environment of your choosing with the tools and resources you’ve developed
When the right time comes, you won’t be talking about a start up. You’ll be talking about a take off.
Enjoy your journey, slowly.
Saturday, December 09, 2006
I was turning wrenches with my partner Dave recently as we worked to get a recycler out the door. Normally I’m on the road peddling these devices, and it was nice to have the face time with my friend and fellow warrior.
In reminiscing about our start, Dave reminded me that 8 years ago we’d each invested a grand total of $3,000 to start our business. We now have customers on 6 continents, meaningful international awards, and a rocking business model.
The current big push for starting up enterprises typically begins with business models that require you to search for outside capital through formal business funding channels right out of the gate.
This isn't necessarily the only path to follow. Many great enterprises were created around business models that didn’t start with formal investment funding. They were started with savings or with small investments from family or friends.
My recommendation to friends starting enterprises is that it's smart to start small if you can. Start part time if you need to. There’s no shame in this at all (I put up a post about starting part time dated 5/10/05). Try to do it with your own money first. If you can’t cover all of it and if the sums are modest, you can consider small investments from people who know you. This is not the time for you and your enterprise to be courting strangers. Your seed investor(s) should only come from people who know and like you. Many start ups need more formal funding avenues. But many more do not.
If you follow this route, I’m going to suggest a method for creating sustainable investment transactions for early stagers. I call it commission venture investing. The start up model offered by commission venturing begins the repayments to your investors immediately in the form of commissions from every transaction. This creates wonderful built in feedback loops for all involved.
Diving headlong into the outside funding game is very time consuming, full of dead ends, and you can easily end up with people in your shorts you may not want there.
You’re not a bad entrepreneur if you think you can start without jumping right into the formal funding rounds. Don't accept the premise that you have to go after outside angel investors, venture capital, or state and federal grants to start an enterprise. Go try out your ideas. Test your solutions in the real world first. Learn your story. Learn to tell your story.
Get out there and make the many mistakes awaiting you. Celebrate the small victories. These will help craft the destiny of your new enterprise. Time and small scale failures are immeasurably wonderful gifts to give yourself and your start up. The creative serendipity arising from mistakes can be the most productive moments of your enterprise life. More valuable information can be learned from the gleanings of what went wrong than can ever come from happy-dancing around what went right.
However, it’s MUCH harder to work through these valuable mistakes and small victories after you’ve entered the formal business funding rounds.
If you don't have enough funds available to start, family and friends can be considered as seed funders, but only if you approach this process very carefully. The end result should be first and foremost, that after the transaction has run its course, you're still family and friends. Full transparency and full disclosure with your seed stage funders. If you can’t operate this way, stay away from your family and friends, because you don't deserve them.
Creating new enterprises with family or friends involved is an opportunity that requires strict discipline to work. Commission venture investing, with its built in immediate feedback loops, offers a scalable model that can benefit all involved.
Rather than promising repayment of the funding from profits to be earned at some future point (if your model pans out), start the payback from the first sale. By this I mean paying out an agreed upon percent of monthly revenue, not profit. Repay your funder(s) with a percent every month’s sales until everyone is made whole.
Your funder(s) see immediate results, even if small. It’s also good for your start up. Commission venture investing requires that you have a firm understanding of all your costs. If the investment payback requires that you charge more, good. At the start of your enterprise, you should be charging more anyway, I promise. Might as well include their repayment portion and get it over with. Even if your enterprise achieves toasthood, your funder(s) will have been repaid in some measure. If you make it through this investment round and everyone is paid back, you’ll be operating at a higher profitability level.
Your accounting responsibilities will require that you operate in full transparency with your funder(s). Your books will be managed by a Certified Public Accountant who is also your in house ethics committee and the core of your financial marketing program. Any intelligent investor will want the authentifications provided by a CPA.
There is also an important side benefit for the larger economy as well. Many people want to invest in entrepreneurship and innovation, but don’t feel they can for various reasons. Commission venturing allows all of us to participate down to the micro level. Funder side, enterprise side. All of it at the appropriate scale for everyone involved.
Nobel Laureate Mohammad Yunas of the Grameen Bank has shown that the micro loans his organization makes creates many wonderful sustainable enterprises. Most important, those loans are paid back at rates far better than typical bank loans.
One of the main reasons is the feedback loops Mr. Yunas and The Grameen Bank build into their loan process. Often the recipients have no experience with economics at any level, so peer involvement becomes important for all involved.
In commission venturing, I see a similar feedback loop, except appropriate for the scale of the economics involved. The funder(s) have full access to your transparent books. They get regular feedback (payments) on the progress of their investment. They want you to succeed, and you’ll be working hard and smart to do so. You will also come out of your seed stage rounds with a far less complicated ownership structure that traditional venture investment models would have created.
This is not a Luddite screed against the more formal venture capital routes. On the contrary. As your enterprise grows into the 21st century, you’ll most likely need the outside resources of angels, venture folks, development orgs, etc. When you get to that level you’ll need to have documented that you have the discipline and the track record needed to execute at the next tier. By demonstrating that you’ve ventured through the seed stage with documented, successful results, you’re earning your eBay stars, and are capable of taking the next steps.
The start up game is changing fundamentally, with over the top positive news for entrepreneurs and the economies we operate in. Many terrific new support programs are now available with more appearing daily it seems.
However, don’t consider that you are shut out of the game if you can’t muster the personal or professional resources needed to start your enterprise with institutional investors. That path is important but over-hyped for many of us.
Commission venture investing can offer a more valuable scale and a more manageable model for seed stage start ups. It creates trust, and it creates returns for your funder(s) from the first transactions. It’s exciting and helpful for all involved. It invigorates the process with a sense of ownership and pride in the enterprise that makes for a great feedback loop. It also requires good discipline from you and all your business processes, especially accounting. I think commission venture investing can evolve into a new form of early stage seed funding that will benefit everyone, from the smallest ventures and the smallest investors right up through global economies.
Don’t be intimidated by the jargon of professionals talking about entrepreneurship. Their approach can quickly intimidate anyone new to the game.
Fire up your dream. Find a problem to fix and build your enterprise around your solutions.
With good planning, you can start your enterprise your way. Kitchen tables, notebooks, pencils (with LOTS of erasers) and all the low tech, small money solutions you can muster are perfectly valid tools for launching your enterprise.
Commission venture investing can work for start ups and small investors alike, especially at the early seed stages.
Go get ‘em, friend.
Mohammed Yunas, 2006 Nobel Peace Prize winner and the wonderful Grameen Bank. You can check threir loan and payback info right from their home page. My kind of transparency. My kind of heroes.
Saturday, December 02, 2006
I'm a big fan of the writer Marcus Buckingham. He has a really great eye for important simplicities the rest of us overlook. His specialty is business writing and he gets to the big picture stuff very effectively.
His earlier book, First Break All The Rules, is excellent. So is his most recent book, The One Thing You Need To Know.
Seriously audacious title, and Mr. Buckingham delivers.
I would not think of summarizing this book because he does it best: Find out what you don’t like doing and stop doing it.
Don’t just take away that summary, however. The development of the arguments leading to the conclusions are as important as the conclusions. Read/listen to this book.
In the course of supporting his thoughts, I think Mr. Buckingham caught one really important idea poetically.
"Effective partnering is the quiet secret of the successful"
My wife and partner, Mary, and I ran a really fulfilling enterprise as partners for 25 years. Solved problems for customers, raised the kids, paid the bills. Mary has been the go-to knowledge worker of our current enterprise since its inception. However, she and my daughters have made it abundantly clear that if a third request is ever made, no jury would convict.
My current biz partner Dave hobbles on water. I think that Dave is the most creative industrial designer in the world, working in our field of expertise. Dave would likely not go to print ( I hope ) with what it’s really like working with me as a partner, but it’s indicative when he says that he’s like DC current to my AC.
Effective partnering. I really like that phrase.
Partners don’t necessarily have to share the business with you. As you consider paths for new or emerging enterprises, consider building your business model around a particularly great vendor (have backups B and C in place please). Perhaps you can partner with an especially great set of customers. Your enterprise can partner with anyone you think may move your model forward. In this part of your enterprise life there are no rules.
In one section of The One Thing You Need To Know, Mr. Buckingham discusses (without using the exact term here) the partnering that should emanate from great managers. Their highest task is to find what’s unique and great about each person reporting to them and build a partnering strategy to put those strengths into play for the common cause. I've always tried to do this.
Partners certainly don’t have to be in the same space with you in this day and age. I looked up an older post from May 13, 2005 that’s about remote partnering, and grabbed a piece from that:
"My current day job is based on the best remote partnering relationship I've ever been blessed to participate in. My friend and business partner Dave lives and supervises manufacturing of our equipment in the next state over, Illinois. We headquartered the biz in Wisconsin where I live and work. By planning our enterprise around this circumstance from the beginning, it feels as though we're just a cubicle away most of the time."
Can partners go bad? More likely than not. Doing enterprise with a partner is not dating. It’s raising kids together. Think through your choices very carefully.
Also be aware that creating great partnering relationships is best made up from slow motion, planned steps, including measurable metrics. This is the kind of stuff, done right, that can turn into the enterprise equivalent of love.
How do you find great partners? I met Mary at Shorty’s Bar in Winona, MN. Hell, I don’t know. Look for help. Trust your gut. Hedge your bets initially then let go as much as you can to the partnership. Great partnering is like making angels in the snow. The impression you make on each other can be art. There is just nothing better in the enterprise world as when great partnering works.
I'm deeply thankful to all the great partners that I've worked with over the decades. I also thank Marcus Buckingham for an elegant, important contribution to this subject that you should carry with you, friends:
“Effective partnering is the quiet secret of the successful.”
Visit Marcus Buckinghams site