Lessons I Learned Today 5/25/09 – If Pavlov was an executive coach…

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 Key To Keeping A Family Business Alive by Steven Berglas

“Scads of studies indicate that family-owned companies (which account, by some estimates, for 50% to 70% of global GDP) have a competitive edge over the rest. But those bonds can unravel at a frightening pace too–and plenty of families don’t see it coming.”

The article recounts the efforts of Dr. Steven Berglas, coaching a business run by two brothers and a “Machiavellian” operations manager. The brothers worked well together when facing a common threat to their business, but childhood “ghosts” and friction returned when they opened another location.

Dr. Berglas spent 25 years on the faculty of Harvard Medical School’s Department of Psychiatry and now coaches entrepreneurs, executives and other high-achievers. He got the brothers to end each work week with a “decompression meeting,” where they hash out any raw feelings. The rule of thumb for these sessions is that no issue is too trivial, and no one leaves the meeting harboring a grudge.

 

*If You Want To Raise Cash, Get Brash by Brett Nelson

Raising money is difficult and distracting, and most small businesses fail because they run out of cash. Raising additional funds in smaller chunks at higher “implied” valuations might let you keep more equity along the way; then again, if you cut it too close, you could end up begging for money at far less favorable terms.

Brash chose to cut out financing risk and focus instead on execution. Its niche: videogames based on other media properties such as movies, television shows and music. Brash Entertainment, the 4-month-old brainchild of Mitch Davis and Nicholas Longano–co-founders of gaming company Massive, which was later bought by Microsoft, scared up a whopping $400 million from a group of private equity firms led by ABRY Partners, which invests in media and communications companies.

“Having an interesting business model isn’t enough when looking for money. You also need to show some proof that it will work. In Brash’s case, the company first had to land a few licensing deals. It had to prove it could strike deals with talented programmers, and it had to assemble a capable team.”

There was still another step in the financing process. Before investors write checks, they like to know how their money will be spent. “We had a detailed plan of attack,” says Longano.

Bottom line: Money in hand today is better than a dream dashed tomorrow. So when it comes to raising early-stage financing, get brash.

 

*How To Get Uncle Sam To Fund Your Start-Up by Maureen Farrell

“In 2006, Matt Silver, an engineering student in the Ph.D. program at the Massachusetts Institute of Technology, dreamed up a new method for converting organic waste into power. All he needed was some capital to prove the concept.”

“Our strategy is to maximize the extent [to which] we can get public funding before going to private investment,” says Silver, 29. “The more that we can prove our technology before going to venture capitalists, [the better position we’ll be in, with respect to] how much of the company we’ll be giving up for the funding.”

The article outlines the process of obtaining SBIR and SBTT grants.

A final warning about the great grant chase: “This money can be very seductive,” says Fleming. “You get to work with really smart people and they pay your bills, but that sometimes distracts you from [building] a stand-alone company.”

 

*How We Started a Liquor Brand edited by Stacy Perman

Six years ago, Courtney, 29, and his brother, Carter, 28, then both Goldman Sachs (GS) investment bankers, took a surfing trip to Brazil. While there, the Chicago natives drank smoothies made with the açaí berry, known locally as “purple gold” because of its health properties. Four years later, Reum, who was working in Goldman’s consumer-products division, decided it was time to stop observing businesses from the outside and start his own liquor company.

Reum launched VeeV, an açaí-infused wheat based grain alcohol liquor, positioning it as an alternative to vodka. It was initially sold in high-end bars and clubs in Los Angeles.

While at Goldman Sachs, “I met people who didn’t seem that much older than I was who had good ideas and had just decided to take the leap. I decided if they can do it—I don’t know if I can—but I’m sure going to give it a try. ”

“Having worked on one large alcohol merger in the spring of 2005 between Allied Domecq (ALYZF.PK) and Pernod Ricard, I was really struck by the lack of innovation in the alcohol space. When you really get down to it, there aren’t many industries that have evolved less in the last 100 years than alcohol.”

We began the business the way every business book tells you not to: by using a tagline, essentially ‘back-solving’ our way into creating a product. We came up with the line: “A Better Way to Drink” because that was the goal, both in terms of the product and the company as a whole. We wanted to produce a beverage that had an interesting taste and was better quality than existing alternatives.

“I put up the initial $250,000 in seed capital to get the first bottle on the shelf. I was confident I had a good idea and plenty of business experience. But I soon found that my time at Goldman was little help when it came to starting a brand from scratch.”

There were plenty more ups and downs. We learned that it’s tough to be first to market with something unique.

“My biggest takeaway from all this: Don’t try to do everything at once. It’s admirable but often not feasible. After initially being overwhelmed by everything we wanted to be as a brand, we took a step back and realized that you don’t have to be everything from Day One. Consumers tend to give you credit for “progress” as long as your efforts are genuine. So will investors—we’ve now raised a total of more than $5 million from angels.”

 

*Turning a Failing Restaurant Around

After a 10-year run operating the Michelin-starred, critically acclaimed New York City restaurant Etats-Unis with his father, Jonathan Rapp, 41, moved to the small village of Chester (Conn.) seven years ago to strike out on his own.

River Tavern is a 55-seat restaurant serving a menu that changes daily, sourced with local ingredients. From the outset, Rapp hoped to create a neighborhood spot that was good enough to draw customers from across the whole state.

Two years later, with business shrinking the restaurant was essentially bankrupt, kept alive for the moment with loans from friends and family. “It was time to take a hard, unforgiving look at my assumptions, my approach, and our execution.”

“I realized that I had had the equation backwards. I was making decisions based on what I wanted. I hadn’t been willing to make the compromises (as I saw it) sometimes necessary to create a broad coalition of customers—something absolutely crucial in a town with fewer people than the number that walked by Etats-Unis in a day.” The fact was, we weren’t connecting with our customers.

“While our fundamentals remained unchanged, I redirected much of the focus, work, and imagination that I had given to cooking to the task of growing a truly successful, sustainable business—one based on a real concern and strategy for making our customers happy.”

Once various changes were implemented, “we started thinking about how to extend our reach and capture new customers for the future. We began publishing a seasonal calendar of special events: monthly wine lunches, town-wide holiday events, and art openings with local artists. Our collaborations with local artists, restaurants, and businesses draws on and reinforces our image as a member of an unique, thriving village. Our customers love the sense that we are working creatively together to make Chester vibrant.”

“While you can’t be all things to all people, you can be a lot of things to many.”

 

 *Custom-Building a Life

Jeff Weinstein’s burger joint has taken off, but he has struggled to balance life and the job. Then he hit on a work-in-progress solution. Weinstein, 32, opened an inexpensive build-your-own hamburger eatery in 2003. The company earned $3.5 million in 2007 and estimates it will bring in $9 million in 2008.

“When I first started The Counter, I was going to own a small neighborhood restaurant that served burgers. It was going to be a place where I could have dinner with my wife, earn a nice income, and please people with great food at a fair price. That was my plan.”

I now have seven of those little restaurants open, five more under construction, and over 125 committed to open in the coming years.

“At the restaurant, we custom-build burgers. I realized that if we can do that successfully, I should be able to custom-build my life. There should be no boundaries or restrictions on when or how I get things done. I figured out that my work life doesn’t just happen from 9 am to 5 pm, and my personal life doesn’t happen in the remaining time. The reality is that they both happen 24 hours a day. Traditional work-life balance doesn’t work for me. The trick is being fluid.”

 

*Dogfish Head: Brewing Up Relationships

In 1995, Sam Calagione, 38, opened Delaware’s first brew pub, Dogfish Head Brewings & Eats, in Rehoboth Beach. The plan was to introduce a public house with original beer, food, and music to the town. Dogfish Head Craft Brewery fashioned itself as the flavorful indie alternative to the beer conglomerates and expanded its offerings beyond beer to include spirits (rum, vodka, gin, and tequila), T-shirts, music, and licensed alehouses in Gaithersburg, Md., and Falls Church, Va.

In 2006, Dogfish earned $14.4 million, and the company estimates it will bring in $18.5 million in 2007. “When I opened Dogfish Head Craft Brewery in 1995, we were the smallest commercial brewery in the country out of over 1,200 breweries. Today we are among the fastest-growing breweries in America.” Since day one, our motto has been “off-centered ales for off-centered people.”

“Our strategy was to focus on expanding our brewery using highly skilled, similarly ‘off-centered’ people to become co-workers and fellow beer evangelists. Now they travel to events throughout the country convincing people to try our beer.”

“We take full advantage of the opportunity to talk with the folks who care enough to join us on our commercial and artistic journey. Big companies have to talk to everyone with one booming voice. Small companies have the advantage of customizing our marketing to talk with the people who want to trade up to the small.”

 

*Sammy Hagar’s Tequila Supergroup

In 1992, Sammy Hagar opened his Cabo Wabo Cantina in Cabo San Lucas, Mexico, and four years later launched his own brand of premium tequila, also called Cabo Wabo. Hagar, 59, is a Rock ‘n’ Roll Hall of Fame inductee and former front man of rock bands Van Halen and Montrose.

Cabo Wabo Enterprises, based in Novato, Calif., earned about $60 million in sales in 2007. In May, 2007, Hagar announced a deal to sell an 80% stake in Cabo Wabo Enterprises to Campari/Skyy for $80 million.

“My original vision for this company started out with the Cabo Wabo Cantina in Cabo San Lucas, Mexico. I wanted to build a little tequila bar, where I could go and play acoustically with my friends, hang out, and, of course, drink tequila. And to have a great tequila bar, I needed a great tequila.”

“My first intention was just to have this little tequila brand for my friends at the cantina and then bring it to America. I thought it’d be awesome if we did 10,000 cases a year. Our first year, we sold 37,000 cases. Then it exploded and it really started getting away from me, because I’m not a good day-to-day business guy. You know, my feet are in the sand day to day. Cell phones on the beach—I don’t like it. I feel like an idiot. People look at me funny. I get one white ear out of it, you know what I mean?”

“Long story short: I realized how important it was for it to be a global brand and not just a little thing in my backyard or just in America. If it’s the best tequila in the world, then why isn’t it worldwide? The fact of the matter is that the brand outgrew my ability to take it to the next level. So, when Campari/Skyy Spirits approached me late last year with an offer to go global, I agreed.”

“I have turned down many big groups of investors that have offered me a lot of money. So if you say, well it’s about the money, bull crap. The money part of it is just a fringe benefit—it was about finding the right partner and that’s what I’m excited about.”

 

*Making the Most of a Second Act

Doug Ducey, 44, made his name in ice cream. As the CEO of Cold Stone Creamery (KAHL), he helped its founder, Don Sutherland, expand the brand from a single shop in Arizona to more than 1,400 stores worldwide, with annual sales of nearly $500 million. In May, 2007, Ducey and Sutherland merged the outfit with Kahala, a privately held franchising powerhouse, in a multimillion-dollar deal. Not long after the deal, however, Ducey left the newly combined company.

Ducey’s next act was to join iMemories, a Scottsdale (Ariz.) company started in 2006 that converts home movies, photos, and slides into digitally remastered DVDs. In 2008, Ducey helped launch iMemories Online, the company’s Internet-based technology that allows customers to store, customize, and share their home movies online.

“When one door closes, another opens. Given my experience, many people thought my next step would be in the food or franchise category. Yet I sought something that would make me jump of bed in the morning. I believe strongly that you must always have an open mind to see the possibilities. For me, I was searching for another brand I could help take from relative obscurity to household name. As an entrepreneur, you’re constantly navigating your way through a proverbial hallway of new opportunities. Identifying and capitalizing on the right open door defines your success.”

 

*Fun Money by Nichole L. Torres

Spending your free time gardening, restoring classic cars or collecting antique jewelry can be a joy, right? It’s the thing that renews your passion, the thing that makes you feel that all is right with the world. Wouldn’t it be great to find a way to make money doing what you love? Turning your treasured hobby into a business will take hard work and a truckload of creativity, but the rewards are endless. You’ll be doing what you love–and getting paid for it.

The benefits of starting a business based on your hobby are many, according to Rachna D. Jain, founder of business coaching firm Excel With Ease Coaching in Columbia, Maryland. “Many times you’ll have a lot of knowledge about [your hobby] already,” she says. “And the most successful entrepreneurs are the ones who have a passion for the work they do.”

Experts and entrepreneurs stress the importance of researching any business idea before jumping in. Denise O’Berry, president of business consulting firm Small Business Edge Corp. in Tampa, Florida, notes that research is one of the most important first steps: “You need a full plan of how you’re going to address your objectives. It’s all that stuff everybody hates to do.”

Think like a business owner by conducting a market analysis and a competitive analysis to see if existing businesses are similar to your idea. Is there a similar business in your area or nationally?

Find out if selling your hobby wares will sustain you. Jain echoes that sentiment: “Once you have a market identified, canvas Internet neighborhoods and invite people to meet with you [for focus groups].” You may even consider contacting a mentor who can point you in the right direction while you’re researching your business plan.

Before you make the leap, you should think long and hard about whether doing your hobby as a business will ultimately drain your enthusiasm for it.

“A passion for a hobby can help you start a business. But ultimately, hard work and a willingness to handle the not-so-fun aspects of running a business are what spell success. Done right, your hobby business can provide you with a great living–and an even greater source of joy.”

The article also has links to books and organizations “to get the heads up on your hobby business.”

 

*Not Just for Kids by April Y. Pennington

Bigbadtoystore Inc.

Description: Online toy retailer specializing in collectible action figures

Founder: Joel Boblit, 29

Location: Somerset, Wisconsin

Projected 2005 Sales: Over $4 million

Serious collectors prize mint-condition toy packaging, so Boblit guarantees his toys by using a grading system to distinguish “standard grade” (mint or near-mint condition) from “substandard grade” packages. He also offers a premium packing service that ensures an item is in tiptop condition and handled with extra care when it’s shipped. Another big draw is the “Pile of Loot” function, which allows customers to stockpile items they’ve already paid for in a virtual storage bin. Upon the customer’s choosing, the company will ship out all the items at once, reducing shipping costs. Future plans include distribution to approved retailers, who can view volume pricing online. Boblit says, “We’ve got the competitive edge for convenience.”

 

*Spelunking Brought Them a Goldmine by Geoff Williams

For a decade, Steve, an avid spelunker, had been trying to persuade a mountain man to sell him some land with some millennia-old caves on it. In 1999, the man finally relented, and Steve and Jeanne quit their jobs.

They immediately started a small cave-touring business, driving people up the mountain in a van and guiding them through the caverns. But it wasn’t until April 2003 that Steve and Jeanne transformed their independent operation into something quite different: an evolving, growing theme park that revolves around their cave tours.

 

*Karate Kids by Sara Wilson

Former ballerina and stunt woman, Dawn Barnes, 40s, has turned her love of martial arts into an empire. She is the founder of Dawn Barnes Karate Kids Inc., in Santa Monica, California, a children’s karate school that focuses on inspiring self-esteem in every child.

Startup Costs: $15,000 in 1995

Projected 2005 sales: $2.5 million for four studios

“In 1984, Dawn Barnes enrolled herself and her two young sons in a karate class with no idea of the adventures that awaited. By signing up, this former ballerina and stuntwoman started down the path to becoming a third-degree black belt, successful entrepreneur and well-known leader in the martial arts industry. Fascinated by the physical/spiritual balance of martial arts, Barnes trained diligently and, about 10 years later, opened the doors to her own school.”

“She has written instructors manuals and produced DVDs used by teachers worldwide, she spreads her teachings by speaking at national conventions, and she has written a new children’s book series–soon to be turned into a feature film–titled The Black Belt Club.”

 

*Amy Bielawski – Founder, Hare-Brained Productions by Susie Lacey

“In a slow economy, enjoying the arts is a luxury that is often the first thing people cut from their budgets. But performers provide joy and fulfillment so if the spotlight is your passion, don’t give up. If you’re persistent enough, people will find you.”

“I hired independent entertainers to round out my act and realized that I was basically running a business, so I started one.”

“I have no trouble living below my means so I never considered getting financing. I just scraped by. But boy was that first year tough. Luckily I’m not fazed by the things that normally scare people about business. Cold calling? No problem. I’m an actress! I get a big charge out of making a sale. I will say though, and no pun intended, that I took a real risk launching an entertainment business without a safety net. Luckily I’m part of a tight theatrical community. We’re all close. We help each other out.”

 

*How To: Find and Work With a Mentor by Amy Swift

Many people who think they need a partner or vendor would actually be better served by a mentor.

A mentor is generally someone who has a personal investment or interest in you. You can find a mentor through SCORE or StepUp Women’s Network, but the best kind of mentor is going to be someone who already knows you (or loves you!) and wants you to come out on top.

Don’t rely on them too heavily for day-to-day advice. A mentor is meant to be a bigger-picture thinker and strategist for you. They help you keep your head above water, and give you perspective and a sense of longevity with your business.

Set the agenda. Make a list of what you want to discuss and what problems you hope to solve in each session with your mentor.

Choose a mentor who has a history in your specific business.

 

What I Think

I think if Pavlov was an executive coach, many entrepreneurs would not be doing what they are today. You remember Pavlov from your high school biology classes, don’t you? He was the Russian scientist given credit for establishing the theory of “conditional reflexes.”  He noticed that dogs tend to salivate before food actually arrives, when conditioned to expect it, based upon set stimulus, and they prepare for it by salivating.

This led to further study by Pavlov and others of “transmarginal inhibition” (TMI), the body’s natural response of shutting down when exposed to overwhelming stress or pain. Pavlov proved that organisms have different levels of tolerance and all temperament types respond to the stimuli (such as conditioned responses to both pleasure and pain) in the same way, but different temperaments move through the responses at different times.

If Pavlov was an executive coach, I suspect the article by Steven Berglas, The Key To Keeping A Family Business Alive, might have been written up in a psychology journal. The brothers’ story is all too familiar to those of us who counsel family businesses on a regular basis. Childhood “ghosts” and prejudices have a way of lingering on and invading reason in many such situations. Instead of ringing a bell to make a dog salivate, I’ve had clients whose blood pressure I could raise by putting them in a board room with their siblings, parents, or children.

Just how long an entrepreneur will stay in a painful business relationship might likewise make a good research project for a modern day Pavlov. Some would quickly react to the pain and move to relieve it. Some would hesitate, while others might overreact, or even react negatively to positive stimulus. Surely, some entrepreneurs, “trapped” in a family business, might feel akin to Pavlov’s subjects, leading a “dog’s life.”

In case you hadn’t noticed, however, last weekend’s Memorial Day special was largely a selection of articles about entrepreneurs having fun. As Nichole L. Torres points out in the article, Fun Money:

Wouldn’t it be great to find a way to make money doing what you love? Turning your treasured hobby into a business will take hard work and a truckload of creativity, but the rewards are endless. You’ll be doing what you love–and getting paid for it.

Passion can give you a great head start on running a business, since loving the business is often a condition precedent to success in that business. This series of articles, aside from being a holiday weekend diversion, points out the common thread that hard work and perseverance are required, in addition to passion.

Many of these case studies point out that you can have a really great time, make a lot of money, love what you do every day, and have a balanced life, all by picking the right business opportunity. Sammy Hagar learned that there can come a time when your business exceeds your ability to manage it to the greatest potential. Finding the right partner, or mentor, can then make all the difference.

What is stopping you from custom-building your own life?

 

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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.

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Posted in Applied Entrepreneurship, business, Business interruption, crisis, etc., Business life cycle, Buying a business, entrepreneur, Family business issues, Financial security, Financing a business, Growing a business, Innovation, Intellectual property, Perseverance, Personal happiness, Planning for a business, Recession strategies, Running a business, Selling a business, Starting a business, Succession Planning, Thinking about a new business, Women Business Enterprise

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