Lessons Learned – Finalizing the Short List of Initial Business Ideas

The title of Melanie Lindner’s article, Is Your Great Idea A Real Business?, asks what some might consider a fair question as we continue our journey to starting a new business.

“We were trying to find businesses that would want to buy our software, but it was hard to get new leads,” says Moodley, 36. He figured other sales organizations would be willing to pay $30 a month to drum up new business through his site, which would offer more targeted information than, say, mainly free sites hosted by Bloomberg and Schwab.

Good idea, terrible timing. About four months later, after plowing $2,500 and putting hundreds of hours into a prototype, Moodley watched in horror as Google launched its own finance site, called Google Finance. “It literally looked exactly like my site,” says Moodley. “I had a sinking feeling in my stomach as I clicked around and realized that their site was completely free, and I was planning to charge for the same information.”

Moodley’s mistake is all too common, says Toby Stuart, professor of entrepreneurial management at the Harvard Business School, who warns would-be small-business owners not to “overestimate their originality.” In other words: If you’ve thought of it, chances are someone else has too.

Fortunately for us, Lindner also gives us some help on how to answer this question, by asking two more:

The first question you should always ask yourself: Do I have a compelling value proposition? It might seem obvious, but it bears repeating: A great idea is only a great business idea if it has an obvious and compelling value proposition–meaning that enough people are willing to pay for your product or service at a price above your cost to deliver it.

Next question: Is there a viable market for your product or service? Even if your business is likely to turn a profit, professional investors won’t line up to fund an operation with limited growth potential. Also, don’t expect to create a new market–if one doesn’t already exist, there’s probably a reason

Have You Created an Impossible Business? by C.J. Hayden works through the efforts of a consultant to help entrepreneurs in two different scenarios. While these deal with existing businesses, rather than the determination of the basic concept or business idea in a pre-start up situation, there are relevant lessons for our journey. It sometimes helps to look a little further down the road when you’re studying a map (or GPS display). Here’s some wisdom from Hayden’s article.

It’s easy to think that any business can be successful if you work hard enough, but there are many situations where this just isn’t so. Consultants, coaches, and other service professionals often start a business believing that all they need to do is charge a “reasonable” fee and sell “enough” of their time. But unless you do the math to prove or disprove your assumptions, you may be creating a business that can never succeed.

New consultants, coaches, and other professionals almost always overestimate how much they can earn and underestimate the amount of time and money required to successfully market themselves. They also forget that they will have to cover not only their living costs and business expenses, but pay self-employment tax, buy their own health insurance, provide for their own retirement, and allow for unpaid vacation and sick time.

Another way to look at the process can be found in the article, A process to test a startup idea, by Brian S. Courtney.  In Courtney’s case, he had an existing business, but was interested in pursuing something different. Courtney said “[S]o what does this have to do with a startup? Well, I’m using this same process to help define my next move.”

We use five steps to align business users and software developers:

• Define the idea
• Determine the business case for doing it
• Create alignment around it
• Define an implementation plan to execute it
• Get executive buy-in to fund it

I love (perhaps too much) the phrase “low hanging fruit.” Common definitions include a simple problem or target; a target that is easy to achieve; or a problem that is easy to solve. Most of us love to find low hanging fruit, and in our search for the best business idea for us, we’re sure to find some. An article by Andrew Goldsmith, which I posted today on the Applied Entrepreneurship group site, Here’s an Idea That’s Not Quite Ripe, gives another view of this.

Goldsmith’s article seems to focus, literally, on orchards and consultants. He says:

How is a company like an orchard? In the minds of some consultants, we’re all field hands and they’re the Johnny Appleseeds of change. And the right way to work those trees? It’s advice we’ve all heard: pick the low-hanging fruit.

Plowing (no pun intended) through the article, discounting the general feeling of some that consultants may not be worth the fee, the article ends with the news that the consultants have figured out a better solution than the clients thought.

“In the past,” Faubion says, “we had larger trees that required ladders. The new trees are ‘pedestrian’ trees that don’t require ladders. So instead of picking the low-hanging fruit, the industry has lowered the tree.” Now that’s thinking outside the, uh, orchard.

The real lesson for us at this stage of our journey to start a new business is not how brilliant some consultants might be. Returning to the orchard, Goldsmith’s article mentions that “low hanging fruit” may not always be the best. It is the easiest to pick, but often the better fruit is higher on the tree and requires more work to reach. The lesson for us may be that we may come across many, easy to find “answers” on our quest. Just as there are often several equally plausible answers to a question, a common tendency is to harvest what seems acceptable, rather than working a little or a lot harder, going for the better answer and the real prize.

Paul Dowling, CEO at DreamStake Social Media, had an interesting post yesterday on the LinkedIn, Start-Up Phase Forum:

All too often I hear people say that they have had a brilliant idea and can’t understand why people will not buy into it. What they don’t realize is that the idea is only a small part of the equation. In some cases a good entrepreneur can even have success with an average idea so long as it is well implemented. An entrepreneur needs to tick a number of boxes. Firstly, potential investors and clients will need to buy into the person and their management team. A good management team will succeed with an average business idea, whereas a poor management team with a good idea will fail. Secondly, the team will need to be excellent at implementation. This involves writing a good business plan and executing on it. Thirdly, focus is essential. Very few entrepreneurs succeed without extreme focus at least in the early days. Finally, adaptability is a key point. The business idea will evolve on a monthly basis until the right model is discovered. A good entrepreneur can deal with ambiguity.

Wannabe entrepreneurs can spend their lives brainstorming the way to build a better mousetrap. If they do, they may never become a “real” entrepreneur. On the other hand, they can also dive in too quickly, perhaps having plucked some of the low hanging fruit we discussed earlier in this series, only to find it spoiled and worthless. That could leave the wannabe entrepreneur broke and exhausted from pursuing the “impossible dream.” Not a good scenario.

There must clearly be a balance in our efforts to discover the best business idea for our new venture. Just like the saddlebags on a mule, there must be balance between working hard and “working smart” on this stage of the process. At some point, however, we must also make one of our first business judgments and determine that we have exhausted our reasonable prospects of coming up with a “brilliant idea.” If we have not, we might want to start at the beginning and go through the basics again, recruit others in the process to give us different perspectives and skill sets, or simply find a mentor who can help us get back on the right path.

Once we find the first “brilliant idea,” our journey has just turned the first corner. In the next post, we’ll finish our quest for the perfect business idea and start the stage. We will embark on the process of initial research and testing of the idea we’ve come up with to give ourselves our first internal performance audit.

This is the fourth post in the business startup series. For others in the series, check the series index.

Join the Applied Entrepreneurship group on LinkedIn. Membership is free and I try to post about ten articles a day there. We have some great discussions going and if you are an entrepreneur, we hope you will join us.

Lessons I Learned Today 6/25/09 – The Yin Yang of Innovators and Cybersquatters

This is a digest and recap of highlights, quotes, and comments from articles and discussions posted on this date on the Applied Entrepreneurship, LinkedIn group site.

 

*Attraction Marketing Made Simple by Franco Gonzalez

“By personally branding yourself using web sites, blogs, videos and social networking such as Facebook, Twitter and email marketing – a home based entrepreneur can attract like minded people who resonate or relate with their story, their background, their hometown, their college or high school… anything really and it helps them build their list of contacts, share their business opportunity and the value they can bring to the new member.”

“By constantly learning and having a valuable set of skills to share or powerful information in the area of personal growth, business, internet marketing etc… and having access to tools, systems, teams and leadership that can help others, you are seen as being attractive to other aspiring entrepreneurs.”

“The more targeted you are in your marketing, the faster your sales cycle will be, however, it’s also valuable long term to send your message to some of the masses to attract new markets to learn about what you do. It’s a longer term sales cycle, but can be a profitable addition to your attraction marketing.”

 

*Mike Sheehan on Taking Over

“Mike Sheehan, recognized that to take the company to the next level of growth, he had to preserve the culture that founder Jack Connors had forged while being a true leader in his own right.”

“Part of the interest in coming back here was I liked working in that culture and I wanted to continue that. By the same token, I wanted it to change,” he says. “I thought that to grow it appropriately and to reach its full potential, the next generation had to be about a team of people who worked well together and could grow the agency.”

 

*The Ever Inventive Saul Griffith by Jessie Scanlon

“Saul Griffith first garnered attention as a graduate student at the Massachusetts Institute of Technology Media Lab in 2002, when he developed a machine that could mold prescription eyeglass lenses on demand for just a few dollars a pop. Since earning his PhD in 2004 the inventor and entrepreneur has launched or helped to launch no fewer than seven companies, has been inducted into the National Inventors Hall of Fame, and in 2007, at the age of 33, won a “genius grant” of $500,000 from the MacArthur Foundation.”

“While most scientists go deep but narrow, focusing on one subject or problem, Griffith is ecumenical, following his curiosity and his conscience wherever they take him, and then digging deep into the issues that grab him.” Griffith and partners started Squid Labs, a consulting company and business incubator, but “decided that the world didn’t like incubators” and closed it. They then spun off some of the better prospects, however, and “staffed the startups by tapping their network for technically skilled people and funded them with a mix of angel money, venture capital, and grants.”

Those companies include Howtoons, a popular series of comic books that teach kids about science; Instructables, an open-source Web site of do-it-yourself projects with almost 900,000 unique users; and Potenco, a startup developing ways to charge electronic devices using human power. “I need to be thinking about a few things at once,” Griffith confesses. “I think it actually helps because you’re cross-fertilizing yourself.”

“Last year, he co-developed WattzOn, a personal Web-based energy audit that people can use to calculate their energy consumption. And in 2006 he founded Makani Power, an innovative wind-power startup, also in Alameda.”

He and his engineers are now working on capturing high altitude winds “which contain more energy per square foot than any other renewable source.” Futurist Andrew Zolli, says of Griffith, “Give that man a lever long enough and he’ll change the world—or the lever.”

 

*Innovators in Social Media by Stephen Baker

“It started out with a question: who to profile as a Voice of Innovation for social media? The answer lay in four separate profiles. We divided social media into four categories and picked a representative of each.”

• 1) Toolmasters: Noah Brier, who works days in New York at Barbarian Group, an interactive marketing shop and by night pieces together new social-media apps, including Brand Tags
• 2) Eyes to the World: Beth Kanter  whi uses every avenue on the World Wide Web to raise funds for Cambodian children through her own charity, the Sharing Foundation.
• 3) Crowdstrappers: Eric Brown, who has turned his apartment business in Royal Oak, Mich., into a social media laboratory.
• 4) Hidden heroes: Scott Monty, who heads up social media at Ford Motor.

 

* Noah Brier’s Brand Laboratory by Stephen Baker

Noah Brier, who heads planning and strategy at digital marketers Barbarian Group in New York, “has this idea that the world is breaking down our lives and jobs into little pieces, and that the network is the tool we use to scoop it back up and create the world we want.”

“Toolmakers such as Brier … can go beyond words and PowerPoint demos and actually piece together their visions with code.”

“Brier learned how to build elementary Web pages as a 13-year-old middle school student in Connecticut. Later he taught himself PHP, the scripting language for building dynamic Web sites. He makes it clear that his level of expertise is, at best, basic. But the point is that when he gets an idea, he can try stuff.”

Brier “decided to create a tool to harvest the public’s insights on brands. The result is Brand Tags. It’s a Web page that flashes up logos, like so many Rorschach tests, and asks visitors to tag each one with a word or phrase. The more each one is repeated, the larger it appears in each brand’s word cloud. When he blogged about the new site last year, thousands of people flocked to it. Now the site has 1.5 million tags describing nearly 900 brands.”

 

* How to Start a Social Networking Website Part 2 – Business Models and Revenue Streams by Peg Corwin

“What are possible business models for social networking websites? How does the entrepreneur create revenue streams, or monetize the community? I’m no expert, but I’ve rounded up links to alternatives from pros and others. I’ve briefly listed the main revenue sources or summarized content of the links.”

“As a SCORE volunteer counselor, I look at the business plans of those starting or struggling to grow social networking websites. My impression is that there are many potential but few proven and profitable revenue streams.”

“Why do I think that many entrepreneurs create these sites in hot niches not necessarily to make them profitable but to sell them to a big player with deep pockets who can pour in marketing dollars and hold out for a long-term payoff?”

This article contains an extensive and very helpful group of links with commentary. Worth checking out.

 

* Domain-name wars: Rise of the cybersquatters by Robert L. Mitchell

“Trademark owners say cybersquatting on the Web has gone too far — and they’re pushing back.”

“The UDRP (Uniform Domain Name Dispute Resolution Policy, a procedure set up by the Internet Corporation for Assigned Names and Numbers) process, set up 10 years ago, saves time and money by getting offending sites down relatively quickly and without lengthy lawsuits. But it hasn’t deterred cybersquatters, who can come up with domain names that play on a virtually unlimited number of variations on well-known brand names, including common misspellings of those names, to drive traffic to their own sites.”

“Cybersquatting can damage a company’s brand reputation and result in substantial business losses. One company that has tried to defend itself is Verizon Communications Inc., which has aggressively pursued cybersquatters and reclaimed thousands of domain names related to its businesses. This year it activated many of those and set them up to redirect users back to its own Web site.”

“Malicious sites can create havoc with a brand’s reputation. In some cases, criminals have copied a brand’s entire Web site in order to collect usernames and passwords.”

“Eighty percent of the cybersquatting sites MarkMonitor tracked in early 2007 were still online one year later, Feldman says. Why aren’t brand owners pursuing them? Some businesses have had to prioritize which cybersquatters to pursue, while others have given up on the problem or have chosen to ignore it.”

“Trademark holders have responded to the problem by buying up “defensive” domain names so that cybersquatters can’t use them, hiring monitoring services, pursuing violators through the UDRP process, and, increasingly, taking cybersquatters to court.”

“Intellectual property owners can sue cybersquatters under the federal Anticybersquatting Consumer Protection Act, but that is expensive and limits damages to $100,000; they can try to shut down sites containing copyrighted content under provisions of the Digital Millennium Copyright Act; and in some cases they may be able to pursue violators for trademark abuse under statutes of the Lanham Act.”

“The cybersquatting pandemic shows no signs of abating. While ICANN has made strides in improving oversight through its audits of registrars, the potential financial gains from cybersquatting remain too high and penalties too small to stop the growth in domain-name brand abuse, let alone deter the practice.”

 

What I Think

I think the articles posted on this date offer the readers a little yin yang. On the one hand, we have prolific innovators like Saul Griffith, who has developed everything from “a machine that could mold prescription eyeglass lenses on demand for just a few dollars a pop,” to comic books that teach kids about science.

On the other hand, we have Robert L. Mitchell’s article about cybersquatters who make their living by acting like leeches, sucking the blood out of brands developed by serial entrepreneurs like Griffith. These pirates use their wits to find loopholes in the laws, typically staying at least a jump or two ahead of legislation designed to curb their impact on the marketplace.

In between, not totally unlike the Taoist trinity of divinities known as the Three Pure Ones, there resides a third element Taiji. Although yin and yang constantly interact, within the apparent void between them lies the ridgepole, constantly trying to reconcile the two apparently opposing forces.

In the case of the articles posted on this date, enter Mike Sheehan. Sheehan left a company, only to circle back and take over the reins from the founder. Unlike the seemingly destructive cycle of innovation and theft, Sheehan accomplished a smooth and successful transition from what worked well in the past to what was needed for the growth and development of the enterprise. He became the ridgepole around which the reconciliation of past and future took place.

As Sheehan said, “In taking over the company, I saw two paths. The first path—and I understood it and I appreciated it—was to continue the cultural platform that Jack (i.e. the founder) had built here.” Although continuing the core values and culture of the company, a factor which drew him back to it in the first place, he was able to transform it in a positive way, giving due respect to the founder. In similar yin yang fashion, the founder, Jack Connors, “knew for all the right reasons why it was time to move on.”

From everything destroyed, comes new life. From every recession comes new growth. Sometimes the destruction is painful, to the sane extent that new life can give us pleasure. Then we begin the cycle again. It is the energy in between which keeps the two forces moving in harmony.

  

If you enjoyed my impression of these articles, why don’t you read them for yourself and see what you and I missed or hit? Join the Applied Entrepreneurship group on LinkedIn. Membership is free and I try to post about ten articles a day there. We have some great discussions going and if you are an entrepreneur, we hope you will join us.

Lessons I Learned Today 6/11/09 – Leverage; Ben Franklin to Breast Milk

This is a digest and recap of highlights, quotes, and comments from articles and discussions posted on this date on the Applied Entrepreneurship, LinkedIn group site.

 

*Why Benjamin Franklin Was a Better Entrepreneur Than You by Matt D Walker

“As Benjamin Franklin said: Those who would give up essential liberty to purchase a little temporary safety, deserve neither liberty nor safety.”

This quote could probably be interpreted in many different ways, but the one way that I see most fit for this article is going to be with entrepreneurship versus being an employee.”

“The difference between employees and entrepreneurs is staggering. Everything from money management, shopping trends, to problem resolution and beyond. What really makes the difference between an employee and an entrepreneur is simple. It simply boils down to time management, and entrepreneurs know that in order to get something better than what they have, something else must be given. For some, it’s money, for others, it’s time. This is definitely the determining factor.”

“Many entrepreneurs start a traditional business and end up creating a job for themselves.”

“Leverage is essential to any business, and with leverage, you can gain time freedom and still earn income needed to support time freedom and retirement. One of the best business models for leverage is network marketing.”

 

*It Takes a Village to Run a Successful Business – Don’t Go it Alone by Lisa Montanaro

“Imagine a group of people that are available to bounce business ideas off of, to help you make pivotal business decisions, and to serve as a sounding board. Major corporations have a Board of Directors. Non-profits have a Board of Trustees. Why can’t the solopreneur or small business owner too? You can! How? By developing a Board of Advisors for your business.”

“Be careful not to include anyone on your Board of Advisors that pushes your buttons, saps your energy, or is competitive. In addition, try not to surround yourself only with “yes” men and women who nod approvingly at everything you do, and never challenge you or hold you accountable. You want members that challenge you to stretch your entrepreneurial muscles.”

“Do not confuse your Board of Advisors with your official team of advisors. Your team of advisors is usually made up of people that you retain to assist you with certain aspects of your business operations, such as a lawyer, accountant, graphic designer, webmaster, etc. These are paid professionals that you hire to provide services to your company, as opposed to an individual that is voluntarily providing assistance to you and your business.”

“A Board of Advisors can push you when you need a nudge, lift you up when you lose focus or faith, and help to keep you on track.”

 

*Overcoming the Fundamental Obstacle to Entrepreneurship by John Vespasian

“Starting anything new entails risks and demands dedication. Irrespective of the technical difficulties of your chosen endeavour, nothing can be compared to the level of commitment required to get a new business off the ground. The sheer number of different tasks that entrepreneurs must perform, from product development to marketing, is overwhelming.”

“On the other hand, entrepreneurship possesses three characteristics that render it uniquely inviting and reassuring. No other human activity offers these advantages to its practitioners. It is regrettable that many men and women graduate from their studies without knowledge of these facts:”

1.- UNLIMITED POSSIBILITIES:

2.- UNLIMITED SCOPE

3.- UNLIMITED LEARNING

“The fear of being unable to achieve enough sales is what blocks 99% of those who entertain the idea of becoming entrepreneurs. Other obstacles pale in comparison to this one. If you succeed in getting over this initial hurdle, chances are that your business will be able to face whatever problems might come your way.”

“Start small, try different things, see what works and what doesn’t. Learn from mistakes, don’t be discouraged, and ignore malevolent criticism. Take limited risks, follow market signals, be persistent, and you will eventually get it right.”

 

*Why 99% of Entrepreneurs Fail: Because they don’t do anything by Jessica Mah

“Many of you have had the pride and joy of thinking that you know the next billion dollar idea. For scholars, a similar feeling is found when you come to a philosophical epiphany. The high is so great, that it’s difficult to get your mind onto anything else.”

“There are three types of amateur entrepreneurs out there, and in my young life, I’ve been every single one of them. By coming to terms with my failures, I’m more prepared to classify which type of amateur entrepreneur I am, and thus preventing myself from failing in the same way again.”

Type 1 Amateur Entrepreneur: All ideas, no implementation.

• Type 2 Amateur Entrepreneur: Lots of ideas and half assed implementations.
• Type 3 Amateur Entrepreneur: Lots of ideas, lots of implementations, and absolutely no focus.

“Everyone is “working” on a project, but 99% of self-proclaimed entrepreneurs fit into one of the three profiles above. If you’ve thought of the next billion dollar idea, please refrain yourself from being an amateur entrepreneur. If you find yourself as being an amateur entrepreneur, it’s not too late to change. Pick one idea that you’re passionate about, and whole-heartedley follow through with your implementation.”

 

*Fair Trade importer Alter Eco cultivates growth by Lindsay Riddell

“Alter Eco Americas is bringing Fair Trade and organic goods from across the world to U.S. grocery stores while trying to make a dent in global poverty. The startup has more than quadrupled its revenue over three years to $1.5 million in 2008 by landing distribution for products such as quinoa and jasmine rice in major grocery chains. One grocer that carries its products is Whole Foods, which has increased its Fair Trade offerings to more than 1,000 products in the last two years, including Alter Eco’s organic extra virgin olive oil from Palestine.”

“Alter Eco imports 150 products, including coffee from Peru, Ethiopia and Mexico, cocoa from Ghana and Bolivia, unrefined sugar from the Philippines, rice from Thailand and other foods under its brand. Alter Eco Americas has introduced 26 of those to the United States. Most products carry the Fair Trade label, which certifies that companies pay their workers fair wages and provide decent working conditions, among other things.”

“Alter Eco Americas also offsets the carbon emissions for the life cycle of the products. Paying fair wages, offsetting the carbon emissions and requiring products to meet organic standards squeezes margins.”

“In the U.S., we’re competing against brands that don’t have the same standards,” said Senard. “We have to be competitively priced even though we pay our farmers more.”

 

*CD buys aimed at helping businesses by Renee McGaw

“I was thinking, well, people aren’t really thinking about Arapahoe County,” said Milliken, the county’s treasurer. “Crisis is always an opportunity and I thought this is a good time to bring something home to the county.”

“So he came up with his own local stimulus program. Arapahoe County has bought $5 million in one-year certificates of deposit (CDs) from three locally owned banks — Colorado Business Bank, Citywide Banks, and Guaranty Bank and Trust Co. The banks have agreed to use the cash to make loans to Arapahoe County businesses.”

 

*Branding is just not for Coca-Cola or McDonald’s anymore by Steve Beseke

“Personal branding is your 21st century key to promoting yourself in the workplace. Today, branding isn’t just for companies, Hollywood celebrities, or highly-paid athletes. People in all walks of life are starting to use personal or self branding to get ahead in the game of life.”

“The single factor that often explains the difference between a professional who is competent and doing okay and one who earns a significant income and generates lots of business is self branding.”

“Self branding is a strong personal identity based on a clear perception about what you stand for, what sets you apart from others, and the added value you bring to a job or situation.”

“Your self brand is the sum total of other people’s feelings about your attributes and capabilities, how you perform, even their perceptions about what you are worth.”

“It is important to set personal brand goals with a specific time frame and plan of action for achieving the goals. So just like a marketer would, you write down personal marketing activities to achieve your goals. And, of course, you execute the marketing plan. You can’t get to where you want to go unless you plan it and then do it.”

 

*Winds of change for baby business by Jane Meyer Brahm

“A childbirth educator, certified labor doula, mother of five and new grandmother, Wallace started Gracewinds in 2002 when she saw that expectant couples and new parents had to look all over town for services.”

“It was crazy,” she said. “I thought, why not put them all together?”

“She started with five contract practitioners operating out of a former tavern. She and her husband, Jeff Carson, self-financed the business with a few thousand dollars. Jeff did carpentry and remodeling in exchange for a few months’ rent on the building. Christine made use of her art background by painting murals.”

“A childbirth educator, certified labor doula, mother of five and new grandmother, Wallace started Gracewinds in 2002 when she saw that expectant couples and new parents had to look all over town for services.”

“It was crazy,” she said. “I thought, why not put them all together?”

“She started with five contract practitioners operating out of a former tavern. She and her husband, Jeff Carson, self-financed the business with a few thousand dollars. Jeff did carpentry and remodeling in exchange for a few months’ rent on the building. Christine made use of her art background by painting murals.”

“Her big dreams are still evolving. She’s working on a new-fathers program that will become the first of its type certified by the national Childbirth and Postpartum Professionals Association. She started her own publishing company, Braxton-Hicks, to publish her labor guide for doulas, which now has international distribution. She set up Gracewinds Global Breast Milk Initiative, a nonprofit focused on promoting and supporting breastfeeding in third-world countries. She holds monthly meetings for women business owners, focusing on entrepreneurship.”

“What we’re providing here is age-old and timeless – a community of support under one roof.”

 

What I Think

I think some may feel the title of this post is a stretch, but if you look at the articles posted on this date, many of them deal with leverage in one form or another. Matt D Walker’s article, Why Benjamin Franklin Was a Better Entrepreneur Than You, makes the point that entrepreneurs are different from those willing to simply be someone else’s employee all their lives. Entrepreneurs understand they must make a sacrifice to accomplish a quantum leap, but also understand that the rewards are worth that sacrifice. Entrepreneurs make their own “lever,” managing their time more efficiently than others, and failing to be deterred from reaching their vision.

Ben Franklin understood that the American enterprise desperately needed partners if it was to survive a hostile takeover on the heels of the initial launch of the new brand. The American start-up lacked sufficient credit, like many new organizations, and initially was rebuffed by the more established European power brokers. Franklin realized he had to turn his enterprise’s apparent weakness into strength. His innovative approach to European politics made his “wilderness” non-conformity a novelty with which to open doors and purses.

Franklin was a master of the personal branding techniques advocated by Steve Beseke’s article. He made himself so unique he became a celebrity. The barriers to entry facing our Founding Fathers would have seemed insurmountable to another team, but they divided and delegated the various tasks involved in building the foundation of the new enterprise and the bridges necessary to allow it to open trade relations with much more mature and sophisticated competitors in the world economy.

Franklin and the others on the start-up team certainly didn’t accomplish all this by themselves. They could easily have fallen prey to any of the three cardinal sins of entrepreneurs suggested by Jessica Mah’s article, but they were passionate about getting the new enterprise launched, and whole-heartedly followed through with implementation.

 They enlisted the help of an extensive advisory group, just as Lisa Montanaro’s article suggests. They put the talents of their start-up team together and the resulting foundation they gave the new American enterprise was so skillfully crafted that it has withstood the winds of change for over two hundred years. It has certainly changed and grown during that time, but it is obviously now much more diverse and powerful than perhaps anyone other than the Founders could have imagined.

  

If you enjoyed my impression of these articles, why don’t you read them for yourself and see what you and I missed or hit? Join the Applied Entrepreneurship group on LinkedIn. Membership is free and I try to post about ten articles a day there. We have some great discussions going and if you are an entrepreneur, we hope you will join us.

Lessons I Learned Today 6/9/09 – Innovation Playbook; Turning the Titanic in a Bathtub

This is a digest and recap of highlights, quotes, and comments from articles and discussions posted on this date on the Applied Entrepreneurship, LinkedIn group site.

 

*The Innovation Playbook by J.P. Donlon

“With almost $10 billion in annual revenue, Heinz has leading brands in some 200 countries. (Its top 15 brands account for 70 percent of sales.) In trying to build a platform for future growth, Johnson and his senior team had one major advantage. Heinz ketchup, according to a Harris poll, was identified along with Coca-Cola as the most familiar brand in the U.S. The company is also a brand leader in beans, soups and infant foods in the U.K. and Australia. But iconic brands are not enough in a competitive world food market dominated by numerous brands and tight margins. The challenge was to grow the core portfolio, accelerate growth in emerging markets, and leverage its brands on a larger global scale.”

“At this moment you have two choices. You either recognize the changed circumstances and deal with it and move forward, or you try to live in the past. I’m a forward-looking person. There was no point in going back and reliving that. The market had spoken to us.”

“You don’t turn the Titanic in a bathtub. You don’t make fundamental changes in two weeks.”

“Although we have wiped out the not-invented-here attitude, there are occasionally pockets where we want to do something, and somebody is resistant. There are two ways to convince those individuals. One is with facts and logic, and the other is to tell them to do it anyway. We’ve upgraded our capabilities dramatically, but we are nowhere near perfect. That’s what makes this job challenging.”

 

*My Boss Wants to Sell Me The Business by Tim Berry

“Where do I start? My boss said he would sell the business for $500,000. What would be the best way to go about getting this business; and what should I know?”

“Of course this might be the opportunity you’ve been waiting for, but let’s also understand that your question is even more open-ended and complex than if you’d been offered a house to buy. You start with the problem of what it’s worth, objectively, then add the problem of how you’re going to finance the purchase. And all of that rests on the problem of whether you want to run a business and know how to run it. Books have been written on this stuff. In fact, the amazon.com search for books on “buying a business” produces 18,623 results.”

This article provide links to resources on business valuation, and gives brief comments on issues such as leveraged buyouts and seeking professional advice when buying a business.

 

*Do You Have an Exit Plan? by John M. Leonetti

“As a CEO, and most likely owner or part-owner of your enterprise, you are responsible for grasping the big picture of how the company is performing; you make critical decisions in order to succeed and direct the future of the company. With that said, how well prepared for your company’s future do you think you are? Have you taken the time to outline your ultimate goal of how you plan to exit the business? If so, how confident are you that this move is the most profitable option, and, at the same time, the best strategic move for the company?”

“Creating an exit plan for your company should be considered standard practice, a regular component of your business planning. An exit plan does not, and should not, imply that you are currently considering selling the business or looking to retire in the near future. On the contrary, well thought out exit plans occur over many years and often times selling the business is only one of the many options considered in the plan.”

“What your exit plan should do is analyze the possibilities for the ultimate succession of the business’s ownership and control, the tax and business implications of each option, taking into account the wants and needs of the company’s ownership.  What then will creating an exit plan give you if you do not believe your company’s ownership is nearing an exit? The answer, it will give you confidence that the decisions you make today are supporting your ultimate exit plan as well as providing you with the maximum exit value when the time is right.”

The article discusses the various steps in creating an exit plan, including looking at the current ownership of the company to determine how prepared they are for an exit, understanding all the options, executing on the plan, and then protecting your wealth.

 

*Succession Planning Crucial For Corporate Image by Fayazuddin A. Shirazi

“For Ken Makovsky, succession planning is all about safeguarding a company’s image. According to him, if the succession issue goes unattended, it can seriously dent the reputation of the company. “One of the main responsibilities for a CEO and the company’s board is the development of a succession plan to insure the continuity of the company. The company’s reputation can be seriously tarnished if the succession issue is left unaddressed,” he says.”

” A survey of more than 2,500 senior HR executives by Boston, MA, based talent development consultancy Novations Group reported that despite having succession planning in place, more than a fifth of the survey respondents believed it was valueless because, more often than not, they ended up recruiting someone externally anyway.”

“The report which was released last year further revealed that barely half of US firms regularly update their management succession plans, meaning that when valued high-flyers depart for greener pastures, it is more than likely that their only option will be to throw money at the problem.”

 

*Succession in Practice by Beverly A.Behan, Jeff Kirschner and Susan M.Snyder

“To understand the perspectives of today’s CEOs on succession planning, we spoke with 18 sitting CEOs, one recently retired CEO and one sitting chairman, as listed in the sidebar on p. 30. To gain varied perspectives on this important topic, we spoke to CEOs from a variety of industries and different company sizes, with our sample group admittedly weighted towards larger public companies.”

“I think the days of the imperial CEO are long gone but while they lasted, succession planning was a subject that a CEO could defer,” noted James Cornelius, CEO of Bristol-Myers Squibb. “In today’s world of governance, it’s impossible to defer what is probably the most important decision, namely who will be the next CEO.”

Most describe an effective CEO succession process today as a partnership between the board and the CEO. While the ultimate decision rests with the board, the CEO nonetheless plays a critical role in the succession process. “The board is the ultimate decision maker about who the next CEO should be,” explains Don Shippar, CEO of Allete. “The CEO, however, needs to weigh in on issues about what’s important in the CEO job, and the criteria for someone to be successful in that job, and should help the board to come to agreement on these things.”

Formal executive assessments are increasingly becoming an important feature of the CEO succession planning process. “We do 360 [reviews] with all of the executives, including me,” reports Carlos Cardoso, CEO of Kennametal. “As a result of those 360s, there’s coaching and feedback.”

“While the role of the CEO in succession planning may have changed, today’s CEOs feel their role in succession is more important than ever – in partnering with the board on succession, developing a pool of candidates and mentoring candidates to the point that they can successfully step into the CEO’s shoes. They emphasize the importance of starting early, incorporating formal assessment tools into the succession process and avoiding public horse races along the path. They recognize the CEO’s role in giving the board meaningful exposure to succession candidates and in giving candidates experience in learning how to work with a board.”

 

*Small Biz Blogging 101-Getting Started by NicoleR

“Most startup blogs are small, but with time and regular updates your audience can grow. As a small business it is important to start your blog early because this can be one of the most cost effective ways to start marketing your business. As your business grows so will your number of followers and those who become faithful, will appreciate your information and possibly become future consumers.”

The article lays out a few tips to get you on your way:

• Use other people′s blogs to establish yourself as an expert
• Use your blog as a form of communication
• Define you topic and stick to it
• Stay current and up to date
• Don′t forget about spelling and grammar

“It′s not necessary to be a professional author or multi-million dollar company to have a blog.  All you need is opinions, information and insight in your area of expertise.  If you prove to be genuine and knowledgeable your readers will notice and your blog will become one of the most cost effective marketing tools your small business could invest in.”

 

*Lifecycle Quiz for CEOs by Robert M. Donnelly

“Company’s, (sic) like people, go through a natural evolution from their entrepreneurial beginnings or embryonic phase, through the growth phase into maturity, and if they are not careful they can age prematurely and eventually die. The individual products that make up the company sales have their own product lifecycles as well.”

“The problem is that many CEOs do not know where their company lies on the lifecycle curve. Nor do they seem to know where their products fit in the natural evolution of product lifecycles. As a result they are frequently surprised when they realize that it is often too late to reverse their situation.”

“Nobody plans to fail…they just fail to plan.”

“The lifecycle of a business mirrors the biological cycle of humans. The stages of the business/product lifecycle have been well documented and are played out in the marketplace every day. The question is – where is your business in this age old evolution? Do you know?”

“Every company generates immense amounts of data. However, all that data has to be converted into information and that information used to develop insights to determine where the company and its products are in their natural lifecycles.”

“Each stage of the lifecycle of a business has natural strategies that can be implemented successfully to continue the profitable evolution of the company.”

 

*Small Business Networking for your Bottom Line by NicoleR

“Traditional means of marketing are not dead; in fact, they are still very much alive and proving to be effective. Tactics such as face-to-face networking and word-of-mouth is proof of this. When deciding on what business networking methods you will use, it is important to first, understand how networking can work for you. Second, research what groups are right for you. Third, make a goal for what you want to accomplish.”

“Business networking in the form of joining and meeting with trade groups, industry associations, chambers of commerce and similar organizations in person can flat out increase your bottom line. By meeting other professionals in person, on common ground and at a place of mutual interest, you will begin to form relationships among your community. Once you start building relationships and regularity among these groups, members will begin to remember you, your abilities and your expertise. The next time a member needs something in your field; they will remember you and therefore will probably reach out to your small business. In essence, you will form a loyal network of followers who may at some point need your business, refer your business or want to collaborate on a joint goal.”

“Business networking in the form of joining and meeting with trade groups, industry associations, chambers of commerce and similar organizations in person can flat out increase your bottom line. By meeting other professionals in person, on common ground and at a place of mutual interest, you will begin to form relationships among your community. Once you start building relationships and regularity among these groups, members will begin to remember you, your abilities and your expertise. The next time a member needs something in your field; they will remember you and therefore will probably reach out to your small business. In essence, you will form a loyal network of followers who may at some point need your business, refer your business or want to collaborate on a joint goal.”

 

*BizEquity: What’s Your Business Worth? By Tim Berry

“If you own a business or want to start a business, then you care about valuation and how it works. Even if you don’t now, you will later.”

“Businesses that seek investment need to anticipate valuation as part of the exit strategy, which is how the investors make money. You get investment now, but only if investors believe they’ll make money when the business sells later. “

“For estate planning, you need to estimate valuation if you deal in shares of a business for your wife, partner, significant other or children. Tax code defines how much you can give in any given year, and that depends on valuation. “

“Lots of people who never thought of exit during years of running a business start thinking of selling as they get into their 60s and 70s. And that means selling the business. “

“Valuation is obviously critical for buying or selling a business.”

The article outlines a trial run of BizEquity.com where “you can search your ZIP code for estimated valuations by type of business. You can search for your specific business by name. Most interesting, and a new feature, you can sign up and run through a valuation based on your business numbers.”

 

*Do You Really Want to Find Investors? by Tim Berry

1. Are you really sure you want to go that way?

2. Do you have a business plan?

3. Do you need enough money to interest investors?

4. Can you grow your business a lot, in a few years?

5. Do you have a convincing team?

Investors are going to want track records, people on your team who can run the production, marketing, sales, and administration of your business. They want people who have done that kind of thing before, successfully. If you don’t have them on your team, then the investors won’t be interested.

If you can answer yes to all of those questions, then you’ll likely be able to get investment

 

What I Think

I think, as Donnelly’s article points out, “nobody plans to fail…they just fail to plan.” Many of the articles posted on this date demonstrate both sides of the planning equation. Those entrepreneurs who think up front about their businesses and their own mortality, should do better than those who don’t. Those who start their planning too late in the life cycle of their business or their own lives, have corresponding less chance of success. Those who plan on the basis of incorrect or insufficient data, as well as those who don’t understand the data, are as likely to succeed as they are to be able to “turn the Titanic in a bathtub.”

These all seem like pretty basic rules, but that is a matter of perspective. If you understand the rules, they become obvious to the point of being second nature. If you don’t know the rules, perhaps because you are in unfamiliar territory, you don’t know what you don’t know.

A perfect example comes with the employee whose boss and company owner offers him an opportunity to buy the business. With the economy in the shape it is currently, this is likely to be happening at a record rate. So, what are the rules in this situation? Perhaps they not so easy to tell.

Based upon some of the articles posted on this date, the issue of valuation arises. There are certainly many ways to value a business, each method having its own rules. Once again, in this economy, many of those rules are changing, but all according to a higher level of rules.

The stages in the life cycle of a business or product are sometimes so long and so subtle to the uninitiated, they are harder to see than the movement of the hour hand on a clock. Likewise, other than gray hair, the life cycle of a business owner can be deceptive for both the employees and the owner too. Following one rule from these articles, starting early in the process, whether it be working toward buying a business or finding a successor to run your business, may just allow you to turn the Titanic, but not to make fundamental changes overnight.

 

If you enjoyed my impression of these articles, why don’t you read them for yourself and see what you and I missed or hit? Join the Applied Entrepreneurship group on LinkedIn. Membership is free and I try to post about ten articles a day there. We have some great discussions going and if you are an entrepreneur, we hope you will join us.

Lessons I Learned Today 6/8/09 – Radical Innovation and Entrepreneurship

This is a digest and recap of highlights, quotes, and comments from articles and discussions posted on this date on the Applied Entrepreneurship, LinkedIn group site.

 

* 10 Lessons Learned in 22 Years of Bootstrapping by Tim Berry

“Last week a group of students interviewed me, as part of a class project, looking for secrets and keys to success. They were asking me because after 22 years of bootstrapping, my wife Vange and I own a business that has 45 employees now, multimillion dollar sales, market leadership in its segment, no outside investors, and no debt. And a second generation is running it now.”

Berry and his wife came up with these 10 lessons:

• We made lots of mistakes.
• We built it around ourselves.
• We offered something other people wanted.
• We planned.
• We spent our own money. We never spent money we didn’t have.
• We used service revenues to invest in products.
• We minded cash flow first, before growth.
• We put growth ahead of profits.
• We hired people slowly and carefully.
• We did for employees’ families as we did for ourselves.

“Bootstrapping is underrated. It took us longer than it might have, but after having reached critical mass, it’s really good to own your own business outright. It might have taken longer, and maybe it was harder — although who knows if we could have done it with investors as partners — but it seems like a good ending.”

“Family business is underrated. There are some special problems, but there are also special advantages too.”

 

* 7 Tips for Defining Your Business Goals by Keller Hawthorne 

“One of the best steps you can take to ensure success for your online business is to specify your goals. It’s amazing how many of my clients can’t tell me how much money they want to make in their first year of business, or how many subscribers they would like to have on their newsletter. If they don’t know what their goal is, how will they know if they’ve succeeded?”

Some of the thoughts on how to keep business goals in line are:

1. Keep them Specific!
2. Don’t go Overboard
3. Be Realistic
4. Keep them Dynamic
5. Create a Timeline
6. Be Good to Yourself!
7. Make Learning a Goal

 

* Four top entrepreneurs talk about business plans, loneliness and the passions that drive them

“What makes an entrepreneur an entrepreneur? Is it a lonely adventure? Are mentors important? These were some of the issues that four prominent entrepreneurs discussed in a panel discussion last year.”

The panelists were:

• Steve Demos, co-founder and chairman of Next Foods Inc., which sells a line of stomach-soothing probiotic juice products.
• Mark Kern, co-founder and chairman of Red 5 Studios Inc., an online-videogame maker. Before starting Red 5, Mr. Kern was the team leader on the popular multiplayer online game World of Warcraft.
• Marion Freijsen, co-founder and chief technology officer of E.Factor, which aids entrepreneurs by providing a virtual platform for the sharing of ideas and experiences.
• Tom Scott, chairman of Plum TV, which operates local television channels in historic, affluent markets such as Aspen, Nantucket, and Martha’s Vineyard. Mr. Scott was a co-founder and chief executive of Nantucket Nectars, which was sold to Cadbury Schweppes for about $100 million in 2002.

Here are some examples of the discussion.

“DEMOS: I think an entrepreneur’s responsibility is get you to the playing field and then listen very carefully to the consumer, because they’re really telling you what to do. I think, as an entrepreneur, I see trends but not specificity. And I look to the market to help me hone and fine-tune the specificity. Remember, I spent 20 years making the most hated food in the U.S., which is tofu, but we ended up on a rocket ship called Silk Soy Milk.”

“What you don’t know is in between those two products there were 200 other products. And we were basically dialing through products to determine where will the consumer show up to eat lower on the food chain.”

“KERN: I think it’s not just about adapting to your consumer and adapting to your marketplace. In my industry, you work with a lot of creative talent and they come on board, initially, for the vision that you hold out to them. But eventually they need to have contributions to that vision as well.”

“So you start out with your vision but it really has to morph and include everyone’s vision on the team, if you want to continue to [attract] the best talent to your company. And you do have to listen to them. You may be very stubborn because you started this thing and you think it’s got to be this way. But listen not just to your consumers, but to what your internal talent is telling you.”

“DEMOS: I think for me, personally, business is all about fulfillment, not achievement. I think achievement accompanies fulfillment, but not the reverse. So we really, honestly weren’t focused on the money because that was going to be the fait accompli if we fulfilled our mission. Meaningful purpose is probably the highest order of use of my consciousness that I can think of.”

“FREIJSEN: Right. Exactly. Being an entrepreneur is a lonely business. I had an entrepreneur turn up at an event. He was almost in tears. He said, this is so great. When I talk at home about my business, my wife only cares about what income I bring in and the rest of my family doesn’t understand. And here I can talk to people who are like me.”

 

* Sell More by Seeing Your Store Through Customers’ Eyes by Kare Anderson

“In a stressful economic time, coddle customers to keep them.  In fact, give them bragging rights about “my store” so they come back and tell others. “

“Next to value-priced quality products, a motivated staff is the most cost-effective way to stand out from the competition while avoiding costly price wars. So many no-cost and low-cost staff behaviors can make all the difference in how a customer feels about your store.  The devil is in the specifics because even the most well-intentioned staffer may unwittingly slight someone. “

“As customer service expert, Holly Stuhl is fond of saying, “You never get bitten by an elephant.  It’s the mosquitoes that eat you alive.”

Anderson’s article outlines ten strategies to improve customer relations for your business.

 

* Get Help Starting Your Home Based Business by Margie Zable Fisher

“Starting a home business sounds like a terrific idea, until you realize all that’s involved in getting it up and running. So getting some assistance really helps – especially if it doesn’t cost a lot of money.”

“Three successful business owners explain how they found the right opportunity, through a franchise or training program, and made it work for them.”

 

* High-Tech Start-Ups Put Down Roots in New Soil by Simona Covel

“High-tech start-ups are increasingly setting up shop in places previously not known for attracting high-tech firms.”

“A number of cities, such as Kalamazoo, Mich., and Toledo, Ohio, are offering grant money and tax breaks to high-tech start-ups, just as the usual venture-capital hot spots, such as Silicon Valley and Boston, continue to see a pullback in venture lending. Many of the nontraditional cities require that start-ups receiving grants invest in their area, leaving companies little choice but to locate — or relocate — their businesses.”

“Firms also are being lured by the lower cost of doing business in such cities. And, as the number of high-tech start-ups increases in these areas, existing companies find that as they grow, they no longer have to leave Ohio, Michigan and other states that traditionally have had less to offer in the way of high-tech communities and investors.”

 

*It’s Time to Reinvent Knowledge Work by John Sviokla

“Most leaders don’t realize that the entire world-wide personal computer revolution is based on thinking that is about as old as the fundamental engineering of the Space Shuttle — circa early 1960s. This thinking was not invented by the technology titans of the time, IBM and AT&T. Instead, it was invented by Xerox (which at the time was just a copier business), and the Rand Corporation, supported by academic and military work.”

“I think it is time to go back to some fundamental innovation around the way high-performance teams conduct complex, time pressured, knowledge work. Creating value and solving new problems in new ways is essential to competitiveness. But executives must be willing to invest in new ways of doing work — and to take some risks. The costs of these efforts are dwarfed by their potential value, but because it takes new, bold thinking to explore this territory, not the lazy mentality of benchmarking or optimization, it will need true leadership to make it happen.”

“As William Gibson, the famed Cyberpunk novelist said: the future is already here, it’s just not evenly distributed. I think the future of knowledge work is here. It’s about figuring out how to create new ways to gather vital information, and linking the experts physically and virtually into a much richer, faster data-world. It is only through this type of reinvention that we’ll get the breakthroughs we need.”

 

*Twitter’s Ten Rules For Radical Innovators by Umair Haque

“Is the hype justified? Yup: Twitter isn’t just changing how we communicate — it is changing how we innovate.”

“Here are Twitter’s ten rules for radical innovators (which have, just maybe, had a bit of influence when it comes to Twitter).”

1. Ideals beat strategies.
2. Open beats closed.
3. Connection beats transaction.
4. Simplicity beats complexity.
5. Neighborhoods beat networks.
6. Circuits beat channels.
7. Laziness beats business.
8. Public beats private.
9. Messy beats clean.

10.  Good beats evil.

 

*Unique Ways Entrepreneurs Are Raising Money by Diana Ransom

“When Brooklyn coffee shop owner, Debi Ryan, was faced with the possibility of shutting her doors, she appealed to her neighbors, asking them to become mini venture capitalists and invest in her business. As a result, she just hosted a grand re-opening. Instead of taking a loan or seeking venture capital funding, entrepreneur Paula Conway managed to pay for the launch of her travel web site with money she made selling — of all things — cupcakes.”

“Taking such unconventional routes to raise cash has become a necessity for many small-business owners as traditional sources of funding (i.e., venture capital and bank loans) have dried up.” This article describes how several entrepreneurs used such unique tactics to raise money to start their business or to re-start it after being hit with an unexpected financial crisis.

 

*Three out of Four Americans Believe New Entrepreneurs Are Key to Reviving Economy

“More than two out of every five Americans (42%) have considered starting a business since the economic downturn. Among those Americans, roughly a quarter (24%) have actually acted on the idea. Additionally, three out of four Americans believe new entrepreneurs will do the most to revive the economy and four of five say that at some point they have considered starting their own business. These findings, among others, were revealed today in a national survey from Alibaba.com, the world’s leading business-to-business e-commerce company.”

“Also according to the 2009 Alibaba.com Newpreneur Survey, more than four in ten (44 percent) of Americans who considered starting a business said not knowing “how to handle the logistics, such as where to make or get my products” was one of the top two reasons why they didn’t start their business. That’s greater than those who say that they were afraid of failure (37 percent).”

““The renewed confidence in entrepreneurs is evident across the country and proves that the American dream is still alive and well,” said David Wei, chief executive officer, Alibaba.com. “As the data shows, Americans strongly believe the down economy provides an opportunity for a new class of what we call ‘Newpreneurs’ – people who are using the recession as a catalyst to start a business or develop an idea. Alibaba.com can help Americans turn their dream into a reality by connecting them with business partners and helping them succeed in global trade.”

 

What I Think

I think many people feel the key to becoming a successful entrepreneur is radical innovation. To them this may mean inventing a new product or service, or providing a revolutionary way to combine existing elements. Undoubtedly, many entrepreneurs have found success in this way. Many, however, have taken a different path.

Looking at the articles posted on this date, there are entrepreneurs involved in everything from probiotic juice products to World of Warcraft. There are, as is often the case, similar threads running between many of the stories. Many started with the excitement of the initial “cool” idea, only to run into problem after problem. One entrepreneur recounted 200 iterations prior to finding a successful product consumers would accept. Stories about others referenced that they had found novel ways to raise enough money to re-open their business after being forced to close.

Certainly, some of the common threads in these articles are perseverance, failure to take no for an answer, and ability to find a work-around after hitting the wall. In the race to the goal, whatever that goal may be, the successful entrepreneur is often the one who can take the punches and get back up off the canvas. Once up, the successful entrepreneurs regroups, figures out what went wrong, and finds a way to make the customer happy.

Twitter may be the new phone system, but when an entrepreneur can raise enough money to start a business by selling cup cakes, innovation is at work.

 

If you enjoyed my impression of these articles, why don’t you read them for yourself and see what you and I missed or hit? Join the Applied Entrepreneurship group on LinkedIn. Membership is free and I try to post about ten articles a day there. We have some great discussions going and if you are an entrepreneur, we hope you will join us.

Lessons I Learned Today 6/3/09 – Hey, Can You Make Change?

This is a digest and recap of highlights, quotes, and comments from articles and discussions posted on this date on the Applied Entrepreneurship, LinkedIn group site.

  

*Board Stiff by James Surowiecki

“In the apportioning of blame for the financial crisis, corporate boards of directors have remained remarkably unscathed, even though they effectively approved the strategies that immolated so many companies.” 

Over the past couple of decades, a tremendous amount of attention has been devoted to improving corporate boards. New regulations, along with pressure from big investors, have forced companies to appoint more independent directors—people who have no direct connection to the company—and have tightened the definition of independence.

All these changes, though, have had a much smaller impact than expected. Academics have found no evidence that simply appointing more independent directors improves corporate performance. “Independent” directors are typically nominated not by shareholders but by the C.E.O. or by other board members, who, not surprisingly, tend to prefer directors who will be cheerleaders for the firm and won’t rock the boat. It also doesn’t help that independent directors are sometimes inexperienced, which makes it harder for them to take on management, or that they’re often chosen for name recognition.

Changing the way boards look matters less than changing the way they act. Directors are still part-time employees—the typical board meets just eight times a year—so it’s hard for them to devote enough time to make a meaningful difference.

Directors still rely heavily on the C.E.O. for information, and do little independent digging—one recent survey found that half of them wished they had more information about company strategy. Boards are more active than they were, and more willing to show underperforming C.E.O.s the door (as happened at both Merrill Lynch and Citigroup). But they often react too late, after the real damage has been done. And the fact that boards see their chief job as hiring and firing the C.E.O. is a problem: shareholders need boards to prevent messes, not just clean up afterward.

One proposal is that big institutional investors create a cadre of full-time directors, people whose only job would be to sit on corporate boards and look after shareholder value. Most board members, accomplished as they may be in their real jobs, are amateurs when it comes to being directors. So it shouldn’t surprise us when they get buffaloed or pushed around by C.E.O.s, who are professionals. Right now, boards are made up of moonlighters. And, if the last few years have shown anything, it’s that protecting shareholder interests is a full-time job.

 

*Hanging Tough by James Surowiecki

“In the late nineteen-twenties, two companies—Kellogg and Post—dominated the market for packaged cereal. It was still a relatively new market: ready-to-eat cereal had been around for decades, but Americans didn’t see it as a real alternative to oatmeal or cream of wheat until the twenties. So, when the Depression hit, no one knew what would happen to consumer demand. Post did the predictable thing: it reined in expenses and cut back on advertising. But Kellogg doubled its ad budget, moved aggressively into radio advertising, and heavily pushed its new cereal, Rice Krispies. (Snap, Crackle, and Pop first appeared in the thirties.) By 1933, even as the economy cratered, Kellogg’s profits had risen almost thirty per cent and it had become what it remains today: the industry’s dominant player.”

“You’d think that everyone would want to emulate Kellogg’s success, but, when hard times hit, most companies end up behaving more like Post. They hunker down, cut spending, and wait for good times to return. They make fewer acquisitions, even though prices are cheaper. They cut advertising budgets. And often they invest less in research and development. They do all this to preserve what they have. But there’s a trade-off: numerous studies have shown that companies that keep spending on acquisition, advertising, and R. & D. during recessions do significantly better than those which make big cuts.”

“In 1927, the economist Roland Vaile found that firms that kept ad spending stable or increased it during the recession of 1921-22 saw their sales hold up significantly better than those which didn’t. A study of advertising during the 1981-82 recession found that sales at firms that increased advertising or held steady grew precipitously in the next three years, compared with only slight increases at firms that had slashed their budgets. And a McKinsey study of the 1990-91 recession found that companies that remained market leaders or became serious challengers during the downturn had increased their acquisition, R. & D., and ad budgets, while companies at the bottom of the pile had reduced them.”

“Recessions make the strong stronger and the weak weaker, since the strong can afford to keep investing while the weak have to devote all their energies to staying afloat. But although deep pockets help in a downturn, recessions nonetheless create more opportunity for challengers, not less.”

“Risk describes a situation where you have a sense of the range and likelihood of possible outcomes. Uncertainty describes a situation where it’s not even clear what might happen, let alone how likely the possible outcomes are. Uncertainty is always a part of business, but in a recession it dominates everything else: no one’s sure how long the downturn will last, how shoppers will react, whether we’ll go back to the way things were before or see permanent changes in consumer behavior. So it’s natural to focus on what you can control: minimizing losses and improving short-term results.”

“The uncertainty of recessions creates an opportunity for serious profits, and the historical record is full of companies that made successful gambles in hard times.”

 

*Initiating Social Media for Business by Pete Hollier

“In some ways the business reaction to Social Media is similar to the early days of the Internet, businesses realized the Internet offered new opportunities but were unsure how to create and capitalize the new business model. Social Media has again put businesses in a position of seeing the potential, but being unsure of how this can or should be utilized.”

“The interaction and openness of Social Media is what many businesses are unprepared for and find difficult to comprehend and initiate.”

“Whether a particular strategy is relevant to your business often depends on the products and services provided, and the business’s target audience. Social Media however, has the potential to benefit a broad range of business types and customer demographics.

Reasons for a business to participate in Social Media include:

• Encourage interaction, dialogue and loyalty between business and consumer
• Develop sales leads and professional contacts
• Increase exposure and monitor public perception of brand
• Market research and product development
• Customer service and support

“Due to numerous elements of Social Media such as networked customers, instant and open communication and the interaction between business and consumer, Social Media requires businesses to consider Social Media not only as a Marketing Program, but a new way to do business which often requires establishing a new company culture.”

“The initiation of Social Media should be done with consideration to long term goals and business objectives. The following questions which must be answered by the business prior to becoming involved in Social Media include:

• What goals and objectives does the business wish to achieve through Social Media programs?
• Who will be responsible for the implementation and monitoring of the Social Media Program?
• Who is responsible for the development of content and approving the company’s Social Media communication and participation?
• Who within the company will be empowered to communicate the company’s message, how often, on company or personal time?
• Who will be responsible and how will the company’s online reputation be monitored and managed?
• What Social Media tools will be utilized in the Social Media Program?
• What criteria will be used to determine the effectiveness of the Social Media Program?”

 

*The New Entrepreneur: Before You Begin by Stephanie

“All new businesses begin with an idea. While many people toy with the idea of working for themselves and setting up a business, only those who take their idea and turn it into reality can call themselves entrepreneurs.”

“With any business, timing is crucial. That is not to say that a downturn is no time to start a business, but that there are certain times when it will be easier to get certain types of business off the ground.”

“Think about how current conditions would affect your business concept and weigh up the pros and cons of starting up straight away. You can always put your plans off until market conditions are more favorable. Delay is not failure.”

“There are universal questions for every business idea that need to be considered:

1. Who will buy the product or service that you will be offering?
2. Is there a market for what you are offering?
3. How much are buyers willing to pay for your product or service?
4. Who are your likely competitors?
5. How well they are doing?
6. What kind of business legal structure will you form?
7. How much money will you need for the first two years?
8. Where will your business be located?
9. What kind of staff will you need?
10. What are your strengths, weaknesses, opportunities and threats?
11. How can you build on your strengths, address any weaknesses, reduce any threats, and take advantage of any opportunities?”

“You can carry out this basic research by using business support organizations such as your local chamber of commerce, small business association or the relevant trade body. Alternatively, some government trade departments compile reports on different market sectors which may be available to the public from their offices or websites.”

 

*The New Entrepreneur: Market Research by Stephanie

“Before you can begin any market research you need to know what sort of information you hope to gain. Just as you would ask a market research company to get you certain details about your target markets, so you need to be clear in your head about you hope to learn. Regardless of the type of business you hope to start, there are certain things that you will always need to know:

• size of your target market, both in terms of number of firms and monetary value
• trend for the target market (i.e. is it expanding or contracting)
• main players in the target market and their respective market shares
• general profile of your target consumer and their buying behavior
• most profitable way to promote and sell your product or service to consumers”

“One form of research that can reap rewards for minimal effort is to talk to other businesses in the same field who are operating in different territories. If you’re not going to be a direct competitor, most business owners are more than happy to talk about how they themselves made a start and the challenges they’ve faced.”

“See what the competition is up to. There is nothing to prevent you visiting other businesses in the same field to see how they are set up and the processes they use. You can also, in a retail setting, get an idea of the prices that they are charging. Marry this with information you get from potential suppliers about the cost of goods sold, and you will not only know how profitable a particular product may be, but also whether you are able to undercut bigger players in the market.”

“Market research you undertake can be useful for highlighting opportunities in particular market niches that you may have overlooked, and can also be a good way for building up contacts (in the case of suppliers and business-to-business research) before you get started.”

 

*The New Entrepreneur: The Business Plan by Stephanie

There are certain sections that every well-written business plan will have:

• Executive Summary. This section generally tends to be written last and sums up all of the details of your business plan
• Concept. Here you describe your business idea and the business sector that you hope to enter, including the major players and the total value of the market
• Market conditions. In this section you need to demonstrate that there is indeed a market for what you are going to be selling, how much of the market you hope to gain, and what differentiates you from your competition
• Product or Service. Describe the product or service you will be offering, including the characteristic that distinguishes your product or service from those of your competitors. Include details about how you aim to take it forward in the future and what developments you hope to be able to make
• Strategy. Here you can identify how you are actually going to run your business, showing that you have thoroughly researched your market and applied that research to your business concept. This section should cover all areas, from potential suppliers and the number of staff you will be taking on, to the type of customer you will be targeting and the marketing campaigns you will initially be running
• Core Personnel. This is where you get to blow your own trumpet, and those of anyone you’re going into business. Think of it as a mini-CV, and describe what qualifies you to run this business, the qualities that you are going to bring to your role, and the skills you have to make the business a success. Do the same for any partners, collaborators, or anyone else who will have a hand in running the business
• Financial Forecasts. The maths part. But don’t worry, it really isn’t all bad. You will need to make predictions of how you are going to spend your money. Granted, certain assumptions will be made, but you can outline what they are in footnotes or in an appendix. The forecasts that are absolutely necessary are: profit and loss forecasts for your first three years of operation; cash flow forecasts, again for the first three years; capital expenditure plans for each year; proforma balance sheets for the beginning and end of each year

“Of all the financial forecasts you prepare, the most important is probably your cash flow forecast. Not only will this let potential investors see how you plan to spend their money, but it will also give them an indication as to when they can expect to recoup their investment.”

“The executive summary will be the last thing that you write but the first section that investors or lenders will read. Think of it as your business plan’s elevator pitch – get it right, and they will read on for more details; get it wrong, and expect to receive a form rejection letter or email. It may seem like a daunting prospect, but try to keep it down to two pages of as much detail as possible.”

 

*The New New Economy: More Startups, Fewer Giants, Infinite Opportunity by Chris Anderson

“This crisis is not just the trough of a cycle but the end of an era. We will come out not just wiser but different.”

“The next new economy, the one rising from the ashes of this latest meltdown, will favor the small.”

“To all the usual reasons why small companies have an advantage, from nimbleness to risk-taking, add these new ones: The rise of cloud computing means that young firms no longer have to buy their own IT equipment, which helps them avoid having to raise money or take on debt. Likewise, the webification of the supply chain in many industries, from electronics to apparel, means that even the tiniest companies can now order globally, just like the giants. In the same way a musician with just a laptop and some gumption can accomplish most of what a record label does, an ambitious engineer can invent and produce a gadget with little more than that same laptop.”

 

*The Secondary Social Media Tools by Pete Hollier

“Social Media like Search Engine Optimization is a holistic process where all factors are utilized to achieve the projects goals. In such a competitive market place as businesses face today, companies must use all the tools available to assist in obtaining the competitive edge.”

“The complete set of Social Media Tools available is close to limitless and daily, new Social Media Tools arrive. Social Media is still in a growth stage requiring experimentation and learning. “

“Selecting the correct Social Media tools for your business requirements will take investigative skills to determine what works best for your situation, but most of all making Social Media work for your business is about commitment and believing in the effectiveness and power of Social Media.”

 

*The Tools of Social Media by Pete Hollier

“Before beginning a project of any type it is a pre-requisite to know what tools are available, what tools are required, and a clear understanding of how to use the available tools.”

“Social Media offers numerous tools of varying types to businesses and consumers, knowing what is available, which Social Media tools you should be using to achieve your company objectives and how to use the tool for your business’s project can be confusing to even the saviest Social Marketer.”

 

What I Think

I think the common thread I see in the articles posted on this date is about trying something new and managing change. In the article about corporate governance, Board Stiff, one strategy to help prevent a recurrence of our current financial crisis is taking the form of a push for more independent directors in the board room. Some studies indicate this may actually have no impact or even be counter-productive because the independent directors have less experience and are not as well informed as the “good ole’ boys.” Coming at it from another direction, the theory of “professional directors” is getting some traction, presuming full time directors will have only one focus, even if they serve on multiple boards.

The Hanging Tough article also deals with being in a situation and not knowing what to do. In this case, the article studies how companies have done after a recession, when they pulled back, kept ad spending stable, or increased it during the recession. Looking at the various approaches to the same dilemma, those that “hunkered down” and tried to conserve what they had by reducing spending, seemed to do much worse than those who did not. The riskier strategy seemed to pay substantially higher dividends.

The articles dealing with social media clearly outline one strategy to “think outside the box” by trying new forms of media to get to the customer. This arena is nothing but multitudes of entrepreneurs in competition with each other, gambling on what the world will look like after Web 2.0 succumbs to Web 3.0.

This will be a long and interesting battle. We may not be able to declare a victor in this engagement for quite some time, because there are so many players trying to create a “new” business model out of slightly tweaking that of another player. The paradigm shift may seem radical, compared to where we were a few years ago, but contenders will probably rise and fall precipitously for quite some time with no clear winner, until the investors are able to count on a dividend and the check clears.

The series of  New Entrepreneur articles will hopefully provide a counter-balance to the seeming chaos of alternate strategies at work and in competition with each other, as the pre-eminent way to resolve an issue. These articles seek to provide a stable formula for testing options for a new business concept, business plan, and marketing program.

Most entrepreneurs must deal with change at one point or another. Using the multitude of tools available, such as the New Entrepreneur articles, can help you learn to watch how others have handled it, and to analyze why one succeeds and one fails. Eventually all entrepreneurs will have to make change. Fortunately, there are lots of ways to reduce the risk of making the wrong change. 

 

If you enjoyed my impression of these articles, why don’t you read them for yourself and see what you and I missed or hit? Join the Applied Entrepreneurship group on LinkedIn. Membership is free and I try to post about ten articles a day there. We have some great discussions going and if you are an entrepreneur, we hope you will join us.