Friday, January 25, 2008
There was a great article in the Jan 7, '08 issue of Business Week by Vivek Wadhwa. Mr. Wadhwa is a tech startup guy and is executive in residence at Duke University and is a Fellow at Harvard Law.
From things I've learned in my own experience with startups and from helping entrepreneurs as students and clients, I will agree with his opening paragraph.
"Before I launched my last startup, I prepared a business plan exactly as I had been taught in business school. I was determined to lure professional investors, and I thought the key lay in creating lofty financial projections and carefully documenting the details. If all went according to my 40-page plan, my software company would be worth billions in five years by capturing just 1% of the market. My CEO friends told me this was one of the most professional business plans they had seen. Yet it didn't take me long to realize that it wasn't worth the paper it was printed on. It bore no resemblance to the company I finally built. I don't think that any of the 100 people I sent in to read more than the executive summary."
Mr. Wadhwa finds some merit in his research, but concludes, "But the two to three months I spent creating the plan would have been better spent if I had instead focused on building my product and speaking to potential customers to understand their needs."
There is much truth here, my startup friends.
It's my experience that the enterprise world is awash in people with ideas looking for money. The world is also awash in money looking for great ideas.
So what's the problem? The muddy middle.
For most of us the money can't see ideas. The money needs to see results and customers and buzz.
The money isn't going to pay you to do that. That's your job as a startup.
Mr. Wadhwa is exactly 100% dead on right. He encourages building prototypes and letting potential customers break them. Based on that knowledge he then offers up the 7 key points your biz plan should address with your newfound, reality-based knowledge: (summarized)
1. How are you going to find customers?
2. How are you going to set yourself apart?
3. What can you charge that's profitable for you and valuable for your customer?
4. How do you close your sales?
5. What are your sales channels to sell and service your customers?
6. How do you support customers with problems and product/service failures?
7. How do you be so good that your customers sell for you?
Yikes. If you answer those questions after you've skinned your knees on your beta tests, you've got yourself a business plan that will be the easiest pitch you'll ever make.
I personally gave the absolute worst presentation of my life to a room full of bankers. Technically the thing was a disaster. On the social stuff, I was worse than inept. I cringe as I type this.
But I was coming in from the field with a battle report. All I wanted to do was deliver that report, resupply, and get back out into the fight. It didn't matter to those good folks that I acted a bit shell shocked.
I addressed the points that Mr. Wadhwa so clearly identifies and the group signed the check.
If I'd been in there talking about what I was going to do, I am 100% certain that not a single person in the room would have approved that deal. However, I would never have been able to talk to them with just an idea in my pocket, so it's a moot point.
Here’s how Mr. Wadhwa closes, "The good news is that once you've perfected your business model, professional investors are likely to be much more interested in you. And you will have all the information you need to create a credible business plan they will take seriously."
Yep. Don't think your ideas will get you money. Lightening strikes but it's a risky bet. And if you're selling off an idea just to get money, you're not selling it for what it's worth. You'll be sorry about that later.
Do it the smarter, harder way. Get in the game. Get muddy. Get smart. Get going.
Business Week article by Vivek Wadhwa
Thanks to the Wisconsin Entrepreneur's Network, WEN, for pointing out this article.
Friday, January 18, 2008
I had a chance to do a private seminar this week at a CPA firm in the Madison area I really like. The topic was 'How to control your enterprise life'.
It was for new and small business owners and the goal was to get some 'rubber meets the road' tools into their hands.
In listening to their stories, and concerns, it's just painfully obvious that many of them are frozen out of the help systems because they are too small.
Don't get me wrong. There are many wonderful, dedicated people working the system of helping entrepreneurs. In my home state of Wisconsin, I would specifically point to the county economic development directors I've worked with. These folks strike me as tireless advocates for entrepreneurs at all levels of development.
But then you step back and you look at the environment they work in. Funding for all government programs is tight and there is a great deal of competition for those resources. The higher up the food chain you go, the more decision makers have to focus on what keeps headline writers happy.
That's code for government and investor funded companies.
If you are a new or existing independent entrepreneur, my recommendation is that you look for help as close to your operation as you can. There is plenty of support at the local and regional level, but unless you seek it out, in many cases you probably won't know about it.
Don't expect state and federal programs to help you directly. Sure, lightening can strike, but their benefit to independent entrepreneurs is indirect through larger policy actions.
The wider world sees your plight much the same way Joseph Stalin saw his world. It's a brutal, dangerous, and frightening world out there. We wish you well with your enterprise, and good luck against those odds.
Sure there will be individual tragedies, but those are the odds you picked.
Uncle Joe said it this way, "One death is a tragedy. A million deaths is a statistic."
The folks at the seminar this week were a diverse group of small businesses, all independent entrepreneurs. Their stories are just amazing. The potential to grow many of these stories into great enterprises is obvious to me.
But where are they looking? Too often to the feds, or at the state level.
I counsel them to skip all that and look for tools and resources close to home that they can have some control over, that they can have ready access to, that can maximize their chances for survival and growth.
Certainly helping introduce entrepreneurs to professional accounting and financial managers is as valuable as anything I can do to keep them alive and growing. I insist my advisor clients use CPA firms, and it's in every course I teach. I've done accounting every way you can imagine and I will never do it again without using a CPA firm. When my kids were very little, we worked from home. The first two 'outsider' names they learned were those of our CPA and our UPS driver.
Another great joy I get from doing these talks and seminars is being able to convey the idea that an inverse of Stalin's approach is not just possible. It's happening all around us.
One sustainable enterprise is of great value. A million sustainable enterprises is a culture.
And from me, good luck with those odds.
Friday, January 11, 2008
Sir Edmund died last night, in his 88th year of a life filled with adventure. NPR did a story on his passing this morning that included a quote which just snapped my head back.
"I believe that if you set out for an adventure, and you're absolutely convinced you're going to be successful, why bother starting?"
Well, that's contrary. But I suppose the same could be said about being the first team to climb Mt. Everest, without knowing if you would live to talk about it.
I interpret Hillary to mean that any adventure worth starting needs to be worthy of you.
We're taught these days to visualize success. Like great athletes, we're told to picture our successes and they will surely happen.
I don't believe this is true for startups and emerging enterprises. Is enterprise formation the same as setting out on an adventure? Done right, you bet.
I believe you visualize outcomes, and look carefully for routes to get there.
Like mountain climbers in unknown situations, you sometimes need to change directions to stay alive.
That's why I keep circling back to what I call the "slow startup movement". It can be scary out there. Statistics come from someplace and outcomes aren't certain, no matter how hard you visualize them. Assume mistakes and danger are in your path and approach them with wisdom and care, not money and speed.
Instead, think about not being successful. How does that change your plan? Hopefully it focuses you on what works best and what actions REALLY get you closer to the outcome you've visualized.
Start early and start carefully. Get yourself launched and start exploring paths to your outcome.
If you want to start a new organization, and you have some doubts and fears about the adventure, good! You're human. Take those first steps slowly and wisely. If the outcome is worth it, there should be uncertainty in getting there.
You bother starting because of the adventure in the journey.
You're worth it. Your outcomes are worth it. Take a measured chance.
Good luck out there.
Photo above is from one of my favorite farms in beautiful Rock County, WI.
Rock County Development Alliance
No web site needed: One of my favorite restaurants and Thrive points is Ks Outback in Orfordville, Rock County, WI. I recently took two friends from China there. They made friends with everyone in the dining room before our breakfasts had arrived. Yep, that's a Thrive point.
Friday, January 04, 2008
I've carried an idea around with me for most of 30 years, that I first read in an interview with Ken Hendricks of Beloit.
Ken's business was large and rapidly growing back then. It still is. But Ken himself was well grounded and a straight talker. The point I remember from his interview is that he said he could walk into any hardware store in the country, take one single thing off a shelf, and make a national business out of it.
Ken made billions of dollars with the formula.
I believe that idea is especially true for startups and emerging enterprises, though the kind of scale that Mr. Hendricks worked at is not my focus.
My focus is on the idea that you can create sustainable new enterprises within very small niches by becoming the most knowledgeable about one specific thing in that niche.
Then, network and market nationally from the earliest stages, even pre-launch. In an economy this big, you can usually aggregate a big enough audience to turn the lights on and catch some tailwind.
This is now called, 'Long Tail' stuff after a great book by Chris Anderson. Ken Hendricks, pointed me there 30 years ago, and it still works by whatever name you call it.
When Ken was named Inc. Magazine's Entrepreneur of the Year for 2006, there was a great story along with the honor. Ken was a high school dropout who became a billionaire. He has done countless wonderful things for his home-town area of Beloit, Wisconsin.
For those of us who live in Beloit, or pass through often, we know how beautiful that city has become thanks to Ken. The photo above is of one the murals Ken was instrumental in creating for Beloit's waterfront along the Rock River.
Someone said in a newspaper interview, "He didn't build new buildings, he took old buildings and made them into something beautiful."
Ken changed a national industry, working from the region I live in. He did it by focusing. Taking one step at a time. Not taking himself too seriously. Marketing his highly focused ideas nationally from the outset of his enterprises.
Ken died recently from a fall at a construction site at his home.
It is a sad tragedy for his family and friends. Ken's passing is a great loss to all of us in the region.
However, for entrepreneurs everywhere, Ken leaves a legacy that you can take to the bank. In your enterprise life, focus on being great at one specific thing and then do your best every day.
Newspaper article about Ken's life and times. Wisconsin State Journal
"Create Jobs, Eliminate Waste, Preserve Value." Inc. Magazine article about Ken, after naming him Entrepreneur of the Year for 2006
"10 Questions for Ken Hendricks", from an Inc. sidebar story. My favorite is this:
(Inc.) "What is the most overrated skill for an entrepreneur?"
(Ken) "The most overrated skill is skill. Luck is more important. The entrepreneur gets credit for being this genius, when really he was just at the right place at the right time."