The E-Myth Revisited: Why Most Small Businesses Don’t Work and What to Do About It
Blue Ocean Strategy: How to Create Uncontested Market Space and Make Competition Irrelevant
The Know-It-All: One Man’s Humble Quest to Become the Smartest Person in the World
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 Al Herbach  Tuesday, December 22nd, 2009 In time for the holiday season (well, actually too late for Hanukkah) I give to each of you the following links:
- Seth Godin provides a free e-version of his latest book, What Matters Now, a compilation of short essays on single topics by a raft of 70 big thinkers. People like Chris Anderson, Jason Fried, Arianna Huffington, Kevin Kelly, Dan Ariely, Gina Trapani and Tim Sanders. Absolutely worth every penny
- Amazing story about how the IRS terrorizes audits a young mother who makes $10 per hour because they can’t believe that she can support herself on that income.
- Mark Cuban has an interesting idea on how to fund some of our most pressing problems. I think he is on to something. This type of tax has the benefit of being a very small amount on a huge number of transactions and will be almost invisible.
- Customer service and large companies. Go hand and hand like a horse and carriage? Not so much at American Airlines. See what happens when an employee reaches out to a customer who has some issues with their web site.
- If you ever have to give a big presentation and you want to add video clips of famous sayings from movies, you have to catch this site. There are over 12,000 clips and they are approved for use by the studios.
Al Herbach Friday, December 18th, 2009 A few weeks back, Jeff and I had this discussion about entrepreneurs. Jeff posits that there are two kinds of entrepreneurs out there. Now there are lots of ways to slice and dice entrepreneurs, but the way that he talked about it was interesting, so I wanted to pass it along.
The theory is that entrepreneurs are either scientists or engineers. Scientists are people who are always searching for something new. Think Alexander Fleming or Watson and Crick. Their batting average is very low, but when they get a hit, it is almost always a major deal. Think today of all of those scientists working to solve the mysteries of cancer or AIDS or the Higgs Boson. Most of them will work their entire lives on these difficult problems and achieve little success. But those that do succeed, will do so in a big way.
In business, probably the most famous scientist is Steve Jobs. He has created new technologies almost single handedly. But there are others; think of Phil Knight of Nike or Howard Schultz of Starbucks, who have fundamentally changed the way that we look at their market spaces. It takes someone who is willing to put all of their chips (and those of their investors) on the line on that single effort. Today, we look at the success that Steve Jobs is and declare that there is no way that he could lose, but in fact, if the iPod had failed, the future of Apple as a going concern would not be guaranteed,
On the other side of the coin are the engineers. These are folks who look to optimize the existing market space through tweaks. Most entrepreneurs fall into this category. They look at the current offerings and say I could do a better job, if only I changed something. They build upon the work of the scientists. Perhaps it is going after a different geographic segment, using a different distribution model or maybe changing the design of the product to better fit a perceived hole in the market. Here think of Avis vs. Hertz or Vizio vs. Sony. In any case, the engineer probably has a different success curve. This one would look more like the typical bell curve, where a majority see some success and some fail and a few hit a home run. This is not the place where you typically see a grand slam, but there are a lot of .250 hitting shortstops in the history of the Major Leagues who have earned a decent living.
The good news is that either option can work. But as with most things in life, risk tolerance will play into your strategy. If you are the kind of person to put it all on the line, you must still have a great new idea and execute well. If so, you can reap the huge rewards. On the other hand, slow and steady can also win the race. Sergey Brin and Larry Page are engineers (in both senses of the word) who through Google, developed a better way to search the web. They certainly did well for themselves.
Understand who you are and your preferred mode of operation. Once you can understand this, it will help guide your growth as an entrepreneur.
Al Herbach Monday, November 30th, 2009 I was reminded recently that I haven’t done a links column is a while, so here goes for a few good reads:
- Seth Godin writes about funding for a business. The typical methods are debt (loan) or equity (stock). He proposes a third way that might make some funding sources happy. I am intrigued.
- Dustin Curtis writes about the science of entrepreneurship. This article was fun to read, but take a look at the rest of the articles on his blogazine. He is a talented User Experience designer and each article is beautiful and thoughtful. Also to be read are the two articles about American Airlines and their user experience. By the way, American Airlines fired the AA designer who wrote to Dustin.
- Fun logic test here: Are you a cognitive miser?
- For entrepreneurs out there who are having problems with marketing, here are over 100 marketing questions that will help you get started thinking about how to market your company (or yourself).
Al Herbach Tuesday, November 24th, 2009 A number of the technology companies that I have been advising have been working towards building whatever they have to build to get a product into the marketplace. They have lists of features and are using some sort of project management system to track their progress. The feature lists are long and sometimes include esoteric features that the founders believe will immediately make them more newsworthy and consequently, more able to be funded.
My advice to my entrepreneur friends is simple. The biggest thing that makes a difference in getting funding is having paying customers. The faster that you can get a paying customer, the faster you can show to the world that you have a product or service that people want. The difference between pre-revenue and post-revenue is huge. Of course, post-revenue has a volume to it. One paying customer means something; 200 paying customers means something much more. But as the old Chinese proverb says, a journey of a thousand miles began with a single step. Take that step early.
Take the time up front to identify the minimum that you need to do to give your potential customers value and give them a glimpse of the future. Once you have decided what the initial feature set is, develop with all your heart and soul. Work fast and resist the temptation to add features. Keep a list, off to the side, of the neat features that you might want to consider in release 1.1 or 1.2. Go through the entire development cycle. Do not forget to quality check and validate your user interface. But release that code and sell that product. Most likely, your initial customers will not be shy about asking for additional features. Add them to your list and keep track of how many times each item is requested and by whom.
Only when you have gotten some paying customers to utilize your system can you determine which features are most critical to your success. That gives you the understanding to wisely choose the small set of features that will be in the next release. The unanticipated advantage of this is that you get another chance to tell your customers and prospects about a new release with new features that were suggested by them. You can’t get better PR than telling your customers that you are listening to them.
The best software firms out there do this… Look at Google with Google Reader or Google Docs. They push out new features almost every other week. Look at 37 Signals. Backpack today is much different from when it started out and the founders had no idea of the direction it should take, but their customers did.
You can’t get customers until you have a product out there. Release early and often.
Al Herbach Wednesday, November 4th, 2009 Short post today.
Ryan Avent today talks about a topic that I have wondered about for a while. In his piece, he talks about the funding for infrastructure, but it could just as easily be talking about improving our health care system. He rightly points out that the media (both left and right sides) don’t talk about this issue at all. Now, I don’t recommend that we scrap our entire defense network, but it certainly seems like this budgetary area is ripe for the picking.
On the Avent article, one commenter left the following, which made my day:
Maybe if we described that bridge collapsing in Minnesota as our infrastructure “suicide bombing” us, than we’d get that much money
Al Herbach Tuesday, October 27th, 2009 Last week, I was so bold as to call out the entire airline industry. Not enough innovation, too much nickle and diming, poor customer service. You have heard it all before, but my mistake was to assume (you know how that ends) that the airline industry was acting as a unified block. In most cases, they are. If American raises prices, Continental and United follow along the next day. If United adds a new “cost option”, the rest act like sheep or more likely, lemmings to offer the new selection.
But then I read this story about three guys who came up with a new way to skip a lot of the nonsense that is associated with flying. This is an entrepreneurial story that makes my heart sing, because these three non-aviation experts were able to think outside the box and come up with an entirely new aviation model in SeaPort Airlines.
The idea of getting around the FAA’s rules about security screenings by using planes that are under the legally mandated size is genius. They have started small, flying between two heavily trafficked cities, Portland and Seattle in business turboprops outfitted for commuter use. They fly into in-city airports, saving commute times on both ends. There are 10 scheduled round trip flights each weekday, so customers have plenty of options. Recently they have added some additional destinations both in the Northwest and in MidSouth as part of the FAA’s Essential Air Service Program.
From this we can learn a couple of key lessons. The first is that the entrepreneurial spirit does not limit itself to technology companies. Second, even the most moribund industry with the tightest controls can be attacked by a nimble competitor who is focused on serving a niche. Don’t lo0k at the Facebooks and YouTubes of the world as the only example of exemplary entrepreneurship — that is the lottery, a one in several million chance. Rather, find a place where people are unhappy with their options and give them something better. Be the best in your niche and you will reap the rewards.
Al Herbach Friday, October 23rd, 2009 Before you go any further in reading this, watch this video.
Have you watched it? OK, then let’s proceed.
I have been reading Every Patient Tells a Story by Lisa Sanders, a technical advisor to the television show House. Lisa is an internist at Yale and an expert in the diagnosis process. The book provides an excellent description of how our medical system is predisposed to have difficulties in finding the causes to the unusual diseases. She talks about doctors focusing on the common solutions to a complicated combination of symptoms, not understanding the problem in depth before providing a diagnosis and relying too much on technology to make decisions that should have a human component.
This led me to thinking about how in business we also make these same kinds of errors. Normally, these errors don’t have a human life or death hanging in the balance, but the viability of the business sure might. The video that I pointed to at the beginning of this post shows that sometimes we don’t have the right attention to detail.
Extrapolate that finding into your business life and you will find all kinds of ways to increase your vigilance and gather more information to make informed decisions. Now, I am not advocating analysis paralysis here. Just as in the medical field, if you wait until you have every piece of evidence, the patient could likely be dead. But you should be thinking about how to gather the right information and how to be aware of changes from your expectations. In general, if everything is at status quo, you are missing something. Perhaps it is the marketplace asking for something new. Perhaps it is your competition who is planning a different strategy. Perhaps it is the legal or regulatory environment. Perhaps it is just your own employees who are tired of the same old thing and are letting up on quality. Any of these can have a huge impact on your business. Your job is to watch out for the color changes, while the cards are being dealt.
Al Herbach Tuesday, October 20th, 2009 When I think of all of the businesses that I might want to be involved with, the airline industry is down near the bottom of my list. Massive government intervention, public ownership, reliance on a wildly fluctuating fuel cost, overcrowded marketplace, customer service nightmares, unionized unhappy employees throughout the organization. Wow! But it still amazes me that the executives in charge of the majors take their eye off the ball so often.
Doug Parker, president of US Airways, crowed that the carrier was making $400 million per year on ancillary fees. Never mind that the industry continues to lose money. Never mind that US Airways lost $100 million in a recent quarter and saw its revenue drop over 13%. United Airlines makes $14 per passenger in ancillary charges, but lost $382 million in Q1 2009.
Never mind that the average consumer is tired of being nickled and dimed – window seat, head set, cut in front of the line, extra 5 inches of legroom, snack, soda, more miles, checked bag, overweight bag, travel on a busy day, talk to a ticket agent, redeem a frequent flyer award – all of these cost extra on at least one major airline (excepting Southwest). The whole travel experience is now so convoluted that some people have decided that the hassle of air travel is just not worth it. I have had 4 opportunities this year to travel that in years past I would have chosen to fly. Not this year… my rule has become only fly if necessary.
From a customer service perspective it is a disaster. Every time you need to talk to the company, they want your credit card. Their eagle eyed bean counters (and remember that I usually love bean counters) are crowing about the new revenue, but aren’t looking at how many people have stopped flying. That seems to be to be a bigger issue.
I mentioned earlier that Southwest has not moved to a la carte pricing. They haven’t had a losing quarter this year. Maybe that should tell the bean counters something.
Even in areas outside of the airlines, we see the same “logic”. I tried to buy college football tickets online last week. The website gave me two options for delivery. Print them out at home for $6 or pick them up at Will Call for $3. In neither case, did the college incur any significant additional cost, but there was that ancillary charge. Guess what, I didn’t purchase the tickets over the internet. Oh well.
For those of you out there looking to break down your pricing to provide a more a la carte menu solution, I would recommend really investigating whether you will achieve the goals that you hoped by doing so. You may be much better off by playing the Southwest to the majors.
Al Herbach Thursday, October 8th, 2009 Recently, as part of some non-profit work I have been doing, I have been to two banks. The purpose was to redeem CD’s that have matured. These are not small accounts. One was for low 5 digits and the other low 6 digits. Small community bank and mega-bank. From the outside, not a whole lot of similarity here.
What was amazing to me was that no one at either bank asked if they could do anything to keep our account? Can I tell you about our new CD rates? I would be happy to match the rate for any local bank. Nothing. Just typed up the cashier’s check and handed it to us. I know that the banking business is in such a difficult place these days that I was floored that no one tried to keep an existing customer from leaving.
But hey, what do I know, I am not making the huge bucks running a bank. I am sure that they know way better than me.
So, if you don’t run a bank, take my advice. Ask people who are leaving “Is there anything that I can do to keep you as a customer?”. Fix the problem or make a better offer. It has to be cheaper than signing up a new customer and you have the possibility of someone like me writing a very different blog post about you.
Al Herbach Tuesday, October 6th, 2009 The biggest issue in the health care debate is the effect of the insurance companies on delivering health care to the American public. The challenge is that the insurance companies are not interested in facilitating the delivery of quality health care. They are interested in delivering profits to their stockholders and high compensation to their leaders.
I am a capitalist. I believe that companies should make profits and distribute the earnings to their shareholders. However, most companies have the requirement of competing in the marketplace. If customers don’t like their product, sales will decline and so will profits. There will always be a small upstart to provide the nudge to make products better, cost efficient or more universal. Even in the supposedly “too difficult to break into” automobile manufacturing industry, we see upstarts like Hyundai and Tesla pushing the big guys to do better. Currently the insurance companies average around 30% of their sales in administrative, marketing and lobbying, commissions and profit. With a clear competitor in this space we would see that 30% decrease pretty quickly.
Now, when is the last time you heard of a new insurance company? The insurance business is all about aggregating the risks of many people to lower the overall risk to an individual. It is impossible to start a new insurance company, because you need a sufficient base to spread the risk. So, we have a situation where there is no real competition in the insurance marketplace. This has led to insurance companies taking advantage of their customers. In fact, in some ways, it would be irresponsible for them to do otherwise. By not allowing customers with pre-existing conditions, they are increasing profitability for their shareholders.
So what is high-risk? I’m sure that you would consider cancer, insulin dependent diabetes and severe heart disease high-risk and subject to increased premiums or denial under our current system. But what about bunions or being an expectant father or a firefighter? These are all reasons taken from underwriting standards to deny coverage. Doesn’t make a whole lot of sense to me.
How about this situation? Person signs up for health insurance. Insurance company accepts insured. Insurance company takes premiums. Person gets diagnosed with aggressive breast cancer in June. Insurance company is called and authorizes double mastectomy and hospital stay. Then the insurance company starts to review her original application. Oops. She has a notation on an old medical record that talks about an acne issue that wasn’t mentioned on her insurance application. Three days before surgery insurance company calls back and rescinds authorization. Hospital needs $30,000 deposit to do surgery. Person doesn’t have $30,000. She requests review by insurance company. Denied. She then went to her congressman who intervened with the president of the insurance company (talk about government intervention into health care) and in October, finally the company relented and approved the surgery. The tumor had grown from 2-3 centimeters to 7 centimeters and moved into the lymph nodes. Yikes.
It doesn’t matter if you are penniless or a venture capitalist or a doctor. You can still get slammed by the insurance companies.
The real question is “Is this the type of policy that we want our country to support?” There are those on the right who believe that what we have right now is the best that we can do. (Sarcastic Videos) There are those on the left who are looking for a solution that will help cover the uninsurable. I am with those that believe that health care (not health insurance) is a basic human right. But I also believe that we as a nation have to stand up and take control of our health care needs. Health insurance needs to be used as as insurance against large claims, just as we look at car insurance. It should not be used for small things like checkups or doctor visits. I favor a high deductible plan that is incorporated with a health care savings program that is tax advantaged. These products are out there today. I favor the abolishment of pre-existing conditions clauses and recission (the cancelling of policies after a serious illness). I favor the moving of health insurance from the employer to the citizen to make it entirely portable. I favor the creation of a list of conditions, drugs and procedures that will be covered as a mandatory part of the contract, so that the consumer is clear as to their coverage. And I favor the creation of an entity that will provide competition to the existing health insurance industry to lower costs and to provide accountability. It would have to be non-profit as to not be caught under the same standards as the for-profit companies, but it doesn’t have to be government run.
Look, we don’t have to reinvent the wheel here. Most other industrialized nations have faced this problem and developed systems that work. They provide universal coverage and have better medical outcomes than we in the US do. It is time to solve this mess.
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