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
Management: I was catching up a back issue of Fast Company magazine. In the December/January issue, there were a couple of very interesting articles. The first was a report on how John Chambers is changing the corporate culture at Cisco, a $26B company. By developing a decentralized decisionmaking structure, Cisco has been able to generate significant new business in a fraction of the time that it used to. The second article talked about the future of solar energy, both thin-film and photovoltaic technologies. The future for these technologies is very (excuse the pun) bright.
Management: I am continually amazed by the lack of leadership in the big corporate executive suites. From Wall Street to Detroit to San Jose, it seems the only lesson they know is “Where’s Mine?”. These titans of industry are now regarded by the average American as being slightly less honest and ethical than the average attorney.
Why is it that no corporate leader has said “We will not lay anyone off this year.”? “We may have to reduce our profit levels from what Wall Street expects, but we are willing to take that hit for our employees and our nation. We’re all in this together.” Wouldn’t this have enormous strategic value?
Then, we have Larry Summers, by all accounts a smart guy. He was a former Treasury Secretary, then president of Harvard, now Director of the White House’s National Economic Council. He has made the determination that AIG must pay $165M in bonuses to the derivative traders that were at the heart of the Wall Street collapse. Sure seems like sticking it to the shareholders in AIG (that’s us, if you weren’t paying attention, the US government owns 80% of AIG).
Three different points of view on this topic: Aaron Zelinsky writes about a creative way that the government can classify these bonuses as to make it a little more palatable to the owners. Another idea has been floated by Matt Miller, who wrote about another idea to help the AIG traders and executives get a little backbone. Eliot Spitzer took a more skeptical view on Slate.
Motivation: The Freakonomics blog tells the story of why basketball teams that are behind by one point at halftime have a higher game winning percentage.
Yesterday, I invited 15 entrepreneurs to dinner. The purpose was to explore an experiment in community based around the idea of the keiretsu, the Japanese concept of building an interlocking groups of companies that can become stronger through the connections. Below, I will talk about my rationale for starting this and what I hope we will be able to accomplish. I plan to report back to you, my blog readers, about the progress of this experiment over time.
One of the things that interests me is the growth and development of entrepreneurial ventures. I have been involved in entrepreneurial activities for over 25 years now. For the past several years, I have been involved in mentoring entrepreneurs who are getting started. In some cases, I have invested time, others, contacts, in still others, money. In all, I hope that I have been useful to these individual business owners.
As I expand my thinking about my role in the entrepreneurial community, I have also started to expand my footprint. First it was just through DePaul, next it was outside companies, then teaching and this blog. I have come to appreciate the value of communities and wanted to try an experiment with a group of entrepreneurs that I feel comfortable with. Each of the entrepreneurs has specific strengths, weaknesses, contacts, products, services and issues. Some of them have not been in business before, others are pros. Some of them have a revenue generating product or service, others, not yet.
I believe that in this group, collectively there are a lot of assets. If we were to be able to utilize the group’s assets, it is my contention that all of the companies represented will have a better outcome than by going it alone.
What I am not proposing is another networking group. All of the entrepreneurs are or should be networking. But, if you ask me, networking will not really get you to where you want to be. You need to really understand and trust the companies that you deal with. In our current thinking, networking is more like speed dating. Get your business cards out and recite your elevator speech. 2 minutes and then find the next target. You are always looking for the next contact to give you what you need, whatever that is.
I am looking to turn networking on its head. In this group, I would like to see if we can bring to the table assets that we are good at or that we own or have access to. It could be anything — talents, relationships, resources. If anyone in the group can utilize the asset, we have the opportunity to try to find a way to work together to utilize the asset. Because we are a tight group, I don’t expect it to get much bigger and it could get smaller, each entrepreneur will have the opportunity to get to know the others and develop stronger relationships to engender the trust that will allow this to work.
This is not a new concept. The Japanese have long had business groups called Keiretsu – a set of companies with interlocking business relationships, and in Japan, interlocking ownership. I am not advocating overlapping ownership, but sort of a first stage keiretsu, where we share non-financial assets.
What does this collaboration look like? I know that everyone in this experiment is an entrepreneur and has an idea that they are trying to execute. I am interested in exploring a community dynamic where the companies involved will have access to the assets of everyone on the team. The hypothesis is that through the benefits imparted by the assets of the group, the collective revenue for this group of companies will rise.
So what is our goal? If I were to say that in this group, there is a combined 2009 revenue goal of $8 million dollars, then is it possible, through some focused effort through this community that we could see a 25% increase in revenues, that we would be able to recognize an overall $2 million raise? Would that be worthwhile? I think so and I think it is possible.
Let’s talk about three time frames.
Short term – Set up expectations to work together. I introduced everyone at the meeting to the group. After I gave my introduction, which included some key assets that I recognized that the person had, each person explained what their company did, where they felt their strong points were and how they would be willing to help the group. Everyone was able to take notes and ask questions.
Medium term – I will take on the responsibility of group moderator and will keep everyone current with what is going on and progress made. I expect that each of you will take the opportunity to meet with 3 other members of the group over the next 3 months to figure out ways that each can help the other. I will keep track of these meetings to make sure that we are maintaining our focus on creating strong connections.
Long term - By the next meeting we will have a much better idea of how this is working and can make adjustments based on the first quarter results. Again, the long term goal (over the next year) is an overall 25% increase in revenues.
How many people can you support here? This is a volunteer group. Anyone can drop out at any time, no questions asked, no hard feelings. We probably aren’t going to be adding people, unless there is a strong reason. Around 15 seems to be the right number for this group.
What does winning look like? Winning is simple – grow your business 25% through the relationships developed through this group.
Our meeting yesterday was successful. Originally scheduled for 3 hours, there were people talking at the 5 hour mark. There were people who engaged others that I never would have introduced. I am excited to see if this will engage people to figure out ways to utilize their asset base. Over the next year, it will be interesting to see if the original thesis statement can be proved through this experiment — 25% revenue growth.
Fun: If this isn’t a movie soon, I will be surprised. Joshua Davis tells the inside story of a diamond heist that although a bit long, is totally mesmerizing.
Economy: While still remaining on the topic of heists, Vanity Fair magazine has a long article on how Bernie Madoff was able to perpetuate his scam.
Technology: Ever wondered how Google prices their ads? Here is the scoop from the Chief Economist of Google.
Technology: I wrote about tools for the entrepreneur last week. I have found a few more that just might make the cut for you. Officezilla is a free tool that does much of what Basecamp does for project managment.
Economy: I am not sure that I can believe this, but the Boston Globe is reporting that the FDIC needs to borrow $500 Billion to potentially prop up bad banks. What is most interesting is that the FDIC did not collect premiums from most of their member banks from 1996 to 2006. Why didn’t they collect the insurance premiums? Well, Congress prevented the FDIC from collecting because they felt the FDIC was so solidly capitalized. Whoops!
Fun: What does a trillion dollars really look like? I had no idea, but half of that picture makes up what the FDIC is looking for. Ouch.
The Big Picture: For some reason, it seems that stories come in pairs; two totally different points of view on the same topic within 24 hours. It just happened to me. I had read a lengthy blog post and comments on MetaFilter about a woman who is confined to a wheelchair who is looking for love. Then along comes a New York Times article written by the husband of a woman with a spinal cord injury. The juxtaposition of these articles certainly makes you think.
By the way, if you ever have a half hour and want to learn something new, check out AskMeFi. There is always something interesting there. But beware, that half hour could turn into much more.
Economy: Richard Florida, an urban studies expert, wrote a very interesting article in The Atlantic about the future of the American urban centers as a result of the economic crisis. My favorite tidbit — Mesa, Arizona, a suburb of Phoenix, is now larger in population than Pittsburgh, Cleveland or Miami.
Now a question for you (Not in the article). How many state capitals have a smaller population than Naperville, IL? Answer below.
Entrepreneurship: Daniel Tenner writes about the rules about starting a business with a friend. I ran my first business with my wife, so these ideas were near and dear to me. We’re still together, so that says something about how we navigated these waters.
Ever Wonder Why?: Ever wonder why the Nissan.com website doesn’t belong to the Nissan Motor Company? Well, it is a long and convoluted story. It is a bit scary for a small business proponent.
Answers to above: Naperville had a population of 128,358 as of the 2000 census. There are 24 state capitals with a population below Naperville’s: Juneau, Dover, Hartford, Springfield, Topeka, Frankfort, Augusta, Annapolis, Lansing, Jefferson City, Helena, Carson City, Concord, Trenton, Santa Fe, Albany, Bismark, Harrisburg, Columbia, Pierre, Montpelier, Olympia, Charleston and Cheyenne.
The news on the economy is bad. Unemployment figures, credit woes and stock prices are all continuing to tell the tale of our national (and even worldwide) economy. I am not going to play the optimist here; times are tough. But within any tough time, there are still opportunities for those willing to put themselves out there.
One of the things that I have noticed lately is that companies are looking at the expense side of their business. In bad times, companies always look to the expense side. That is why we see massive layoffs at the big companies. That is also why product and service contracts are being rebid at a huge rate.
An entrepreneurial company should now be looking to increase revenue by developing clearly defined programs that will look to take advantage of this expense focus.
We know that when the big companies lay off staff, they always cut more than they should. The common thought is that they go beyond cutting fat to cutting muscle. Once some muscle is gone, in order to provide their products and services, they will need to go outside to get these tasks done. The big companies look at paying for subcontractors as an advantage — no payroll taxes, no insurance, only pay when I need them. Small companies can use this to their advantage. Find a way to network your way into these companies — LinkedIn, recommendations from service providers, friends and family. Demonstrate your expertise and get to work showing the big guys your stuff.
The big companies (and lots of smaller ones as well) are also looking at rebidding contracts. Long time relationships mean less today than the bottom line. I know of several cases where large suppliers that have a long history of working with customers are being told that the products are going out for rebid. This is an opportunity for a smaller company, who can deliver better, faster, cheaper and more flexibly, to get into companies that were previously seen as locked down by the major supplier.
For the entrepreneur, this is not the time to huddle in your office and play the woe is me game. This is the time to ratchet up your marketing — not necessarily in spending, but in execution. Make sure that your story is compelling and then:
- Take a contact out to coffee every day.
- Go to those networking events. Don’t be the card collector. Try to make a small number of meaningful contacts and be sure to follow-up in a timely manner with a personalized note or call.
- Join LinkedIn or other social networking sites. Again, not to just join and collect contacts, but to understand how your network can help you find new prospects.
- Ask someone to introduce you to their biggest client or supplier.
- Take every opportunity to tell your story. Find any speaking engagement you can.
I don’t know when this economy will turn around. But I do know that playing the victim will not get you where you want to be. And the opportunities are out there.
Innovation: When entrepreneurs get together in Chicago, a common topic of conversation is how the city fares in terms of new business. A lot of entrepreneurs look longingly to either coast and the greener fields (in many respects ) that beckon. McKinsey talks about innovation (not venture financing, alas), but Chicago fares pretty well in the diversity of companies that have been granted patents. We are third in the world, behind only Silicon Valley and Toyko in one measure of developing a diversified business base. I have always felt that this was a hidden gem in the Chicago economy, compared to the boom and bust cycles of mono-industry cities like Detroit, Houston, Denver or Hartford.
Leadership: A friend pointed me to this article on entrepreneurial leadership in this economy. (Hat Tip: BF)
Healthcare: Should America have universal healthcare? According to the experts, 50 million of us are not covered by health insurance. We pay significantly more for healthcare on a per capita basis, have less access to advanced technologies and actually have worse outcomes than most other countries. Joe Conason, writes about the issue in Salon today.
Entrepreneurship: Paul Graham‘s new rallying cry is “Be Relentlessly Resourceful“.
Economy: Wonder why the prices of groceries haven’t been going down, as raw materials prices have? So have the big grocery chains.
Most of my career has been in managing services businesses. You know, the kind where people actually work on some sort of problem for a client for a fee. I have been blessed to work with really great teams of folks who care about their clients, understand the products and environments and are willing to go the extra mile (actually lots of airline miles) for their project teams.
One of the difficult management issues that arise is how to evaluate these folks and provide an incentive compensation program that works. Sure, you can measure billable hours, profitability, utilization or professional growth. Those are relatively easy to track, but are not always under the consultant’s control. As my friend and incentive guru David Kelly says, there are lots of ways to demotivate your staff.
But, you say, the real measure of what your staff is doing is Customer Satisfaction, right? Just measure Customer Satisfaction and then reward people on that. Of course, why didn’t I think of that? Oh yes, it’s because there is really no good way to measure it in a service business. In a product business, you can look at returns, customer complaints, help desk issues etc. But in a pure services business, you need to look at project progress plans, client politics, change orders, working conditions, rework, team dynamics, systems —lots of interrelated pieces that can’t be readily quantified. Wait, I know… What if we were to give the client a survey that asked how we were doing? That would solve the problem, right?
Not so fast. Sure, you could give the client a survey. Now the consultant or project manager needs to get the client to fill it out. Many times the client will not fill it out — legal won’t let them, no time, not on the critical path. How do we rate the consultant then? Other times it is either all 1′s or all 5′s (it doesn’t matter for this discussion whether 1 is best or 5 is best). And much of that is related to the client’s demeanor and general angst at the time that the consultant does the asking. And that is not even bringing up the subject of the “you scratch my back and I’ll scratch yours” type of discussion between the project leader and the client.
I have recently been involved with two transactions that furthered my discomfort over the use of client surveys. Over the December holidays, my family took a cruise with Holland America. Our cruise was good in many areas, but not overwhelming. On the last day of the cruise we were handed Cruise Surveys and the Cruise Director explained how the surveys should be filled out. Everything on the form was ranked 1 to 9, where 9 was outstanding. Our instructions included: “The highest score is 9 because, of course, 10 is perfect and we don’t pretend to be perfect. However, if you enjoyed your cruise you should mark 9′s on the survey. The crew gets paid based upon your filling out 9′s. Feel free to add comments, but if you were happy, remember to give us all 9′s.” You get the picture.
If I was the COO of Holland America, that Cruise Director would have been history at the conclusion of his speech. What is the point of a customer survey if you embarrass or cajole your customers into giving you the scores you want? How can Holland America Corporate understand how satisfied their clients are with the service they receive? As you might guess, my survey was not all 9′s and had plenty of comments. I don’t know how the surveys were evaluated, but I never received a call from Holland America (the surveys were coded to indicate the cabin), so I can only assume that they were happy with the way that their crew performed according to my survey.
Lest you think that I am only taking aim at Holland America, it happens in other places too. Last time I brought my car in for service, the service manager delivered the fixed car to me and said that I should expect a call from “Corporate” asking about my service experience. If there was any reason that I could not give them a 5 down the board, to please call the service director at the dealership. Now this was a little more benign. Sure the service manager would have an opportunity to fix my problem, but he was predicating this on getting all 5′s on the survey.
There are too many ways that a Customer Survey that is used for incentive compensation can be misused. Remember that the behavior that you get is the behavior that you incent. If you want all 9′s on a survey, you will get them. Perhaps not the underlying business behaviors that cause 9′s, however. David expounds on this topic as well in Commission Plans – Let the Games Begin.
If you have some good ideas on how to incent Service Providers or how to measure Customer Service in a services environment, please let me know in the comments.
Talent: Stephen Dubner of the Freakonomics blog pointed to a poster that he found in his neighborhood in New York. He looked at it as an interesting example of the Talent discussion that has been discussed by Colvin in Talent is Overrated and Gladwell in Outliers. I look at it as an example of entrepreneurship starting early.
Wordplay: I love a pun more than the next guy, so I was tickled by this picture. On so many levels.
Entrepreneurship: Jason Calacanis, CEO of Mahalo.com, wrote a deeply personal and enlightening article in Business Week on What to do if Your Startup is Failing. No sugar coating here, but required reading for any entrepreneur in this economy. If you are still looking for that perfect business idea, check into this post on fear.
Strategy: The chatter around the The Cult of Done Manifesto is increasing. I agree with a lot of this, but what I really love are the posters.
In my last column on The Young Entrepreneur, I urged those of you with great ideas to adopt some habits that will further your enterprise. I have gotten some good feedback on that article. A couple of people asked if only Young Entrepreneurs were targeted in that post. Certainly not. I have been advising both young (twenty-somethings) and more traveled (forty and fifty-somethings) for some time now and the habits that I talked about were beneficial for all of us, even, gasp, those folks who are happily ensconced in Corporate America.
Today, I want to talk about tools. I review a lot of business plans and one thing that entrepreneurs tend to do is overspend on tools. Specifically computer tools. There can also be a tendency to not look at IT management things like computer security and backup strategies. In some cases, legalities are involved. Let’s take a look at some specific areas.
Understand Your Needs
The first thing that you should do is clarify exactly what your business does. Of course, you know what that is. But really what technology is critical to your success? For example, a printing business probably needs to purchase licenses to Photoshop. An accounting firm probably needs the most fully laden copy of Quickbooks. For these products, bite the bullet and buy the correct number of licenses. You don’t need the Business Software Alliance on your case (although my take their methods of enforcement should make another post). You will get support and know that you will be able to perform your role with your clients.
If these products are critical, look to potentially become a development partner with the software company. You may be able to get some very nice perks for joining as a partner, although it might stifle some of your creativity. Your mileage will vary.
If your company needs to utilize software to build your product or service, be sure to get qualified legal advice before choosing a platform to build upon. There are a lot of open-source products out there and as many different licensing agreements. If you choose products with the wrong open-source licenses, you may lose out on patent protection or have other intellectual property issues. This is an area that you need to spend the money to ensure that you are protected. When you go out for financing, intellectual property rights can be critical to the investment decision.
For all extraneous (non-critical) software, look for free alternatives. Do you really need to use Microsoft Office? At $250 a pop, this is a serious question. Sure, you could buy the Student and Teacher Edition, but remember the BSA… There are a lot of other alternatives. If you decide that your documents and spreadsheets should be kept locally, Open Office is a fine substitute. There is a no charge license, it will read and write Microsoft standard documents and it offers most of the functionality of the name brand.
I would think seriously about alternatives on the web. In this case, you may lose some functionality (much of which few people utilize), but have the advantage of easily sharing documents and collaboratively editing them. Two good free examples are Google Docs and Zoho Office. Google docs allows you to create (and import/export Microsoft formatted) documents, spreadsheets and presentations. Multiple people can edit the document concurrently. The spreadsheet has functionality that allows you to present a form for data entry and distribute it to others to allow them to build a spreadsheet — good for things like party invites or benefits signups. Zoho Office has many modules, including standards such as spreadsheets, documents and databases and stretching to Customer Relationship Managment (CRM) and Human Resources Management. The CRM solution is free for up to 3 users and rivals SalesForce.com for the functionality for the small business marketplace.
The benefit of web based alternatives go beyond the free price and collaboration. You will have the confidence that the files are backed up and available securely, anywhere there is a browser. If needed, you could update that contract from an Internet Cafe in Kauai. If you need help with this, please call me, I would love to help.
For managing your finances, lots of times people will start out with Microsoft Excel or another spreadsheet based product. I would recommend starting out with the smallest version of QuickBooks that you can. I have had experience with a number of other products. They all work fine, but QuickBooks is the standard and your accountant will be sure to be able to take downloads of your files and work on them. I have tried the QuickBooks online version and was very impressed with it. If you have less than 20 customers, the service is free. More fully functional versions are available. The one including time and expense tracking for services firms is priced at $34.95 per month and can be well worth it for a company with a significant billable work force.
For other tasks, there are open-source or free products that work as well as the boxed software you can get at Fry’s or TigerDirect.
- Diagramming software: Instead of Visio (MSRP $269) check out Dia or online using LovelyCharts
- Graphical software: Instead of Photoshop (MSRP $999) check out GIMP
- Programming Language: Instead of Microsoft Visual Studio (MSRP $799) check out Ruby On Rails or Java
- Operating systems: Instead of Microsoft Vista (MSRP $270) check out Linux
Do you have others that you use and can recommend? Let me know in the comments.
For your online identity, you will need to buy a domain. Look out for deals from GoDaddy and 1&1 and Dreamhost, all of whom also offer low cost hosting. If your product or service will require lots of access or usage will grow significantly over time, look for the ability to buy additional space or bandwidth, as needed. Potentially, you might want to look into dedicated server and facilities for managing multiple servers. Day one, try to find a vendor that you can grow with. And check out the service level agreements. These documents explain what the hosting company will agree to provide to you in terms of uptime and security. Comparing pricing and service level agreements will lead you to the right value proposition for you.
Google Apps for Business can be a great way to keep everyone in the company on a single platform that will allow for web access to authorized users from anywhere. This service will encompass email, calendaring, intranet, search, documents and spreadsheets and other Google based services. You will get to use your domain, such as www.yourbusiness.com, to allow you to utilize your corporate identity. Google updates their products regularly and will take care of backing up and managing your servers.
Another solution for web developers is Amazon S3 (Simple Storage Service). Amazon provides as much storage for objects as you need and charges you for just what you utilize.
IT Management is a key topic, even (or especially) in small companies. You need to have a planned backup strategy. It could be just copying your working files daily to a USB drive and keeping it at an alternative location. It could be to use a service like Mozy or Carbonite. Of course, the use of web based software could obviate the need for significant local backup capability.
In any case, make sure that you try out your data recovery. If you needed to recover a file that was deleted, could you do it easily? What would happen if your desktop computer broke on a Wednesday afternoon? How would you recover so that you could still conduct business? What if the problem was more widespread than just your desktop, say a natural disaster? Could you still run your business? All of these are key concerns and deserve a solid plan to support your business.
Security is also a concern. Be sure to develop your applications and access to your systems with strong security. If your business has to take broader precautions, for example if it takes credit cards or is obligated to follow the HIPAA laws, you will need to invest in stricter security systems. Work with a security expert to protect your systems and data. A lawsuit for a breach of security in any business is bad news.
Be sure to look at the costs of telecom systems. The costs for VOIP (voice over internet protocol) service have decreased and the features of phone systems to integrate with your office systems have increased. Get a free conference call number at The Basement Ventures. There is even an open source package for telephone management – Asterisk, where you can set up your own telephone system for your office, just like the big guys.
There are a lot of alternatives out there for reducing the costs and increasing the capabilities of your data tools. If you have questions or other products that work well for you, please let me know in the comments.