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
Business is often compared to sports. You hear of someone hitting it out of the park or the slam-dunk opportunity. When you need to get back to the basics, it is often blocking and tackling. And who hasn’t had to develop a game plan for the upcoming budget year. But one thing that sports has that business doesn’t always is a clear opponent. Sports are all about the competition. Business, too, is about competition, but the opponents are often hidden.
Often, I have read business plans where the entrepreneur states that there is no competition for his particular venture’s product or service. If I am judging a business plan competition (there’s that word again), I automatically downgrade a couple of points. If, I am a mentor to said entrepreneur, that begins a longer conversation about the business.
My friend Jeff, the marketing strategist, likes companies to develop “Only” statements. As in, the widget is the only product that will wash your floors and leave your mouth minty fresh. I’m kidding, but Jeff is serious. In marketingland, it is critical to explain why your product is the only way to get things done. But from the other side of the fence, we understand that while we are the “only” X, our prospective customers also get to decide what is important to them and there are others out there who have something to say about their products.
Let’s face it, there is always competition. A few examples…
What about Microsoft, back when it was a tiny company? There is the oft told tale of how Gary Kildall, founder of Digital Research was a strong competitor to Bill Gates’ early efforts at Microsoft and lost out on the original IBM PC operating system contract because he wasn’t willing to sign the IBM non-disclosure documents. Had Gary Kildall signed the contracts, no one would have heard of Bill Gates or Microsoft. Instead of Windows, we might be using GEM.
But, really, when Henry Ford started making cars, he had no competition. Not so fast. Henry Ford had lots of competition. Besides the other automakers who were building cars on a custom basis, there was always the horse and buggy. People did not really need the automobile. Remember that “do nothing” is always a competitor in the minds of your potential customers. What Henry Ford did was change a manufacturing process for a product that had already been in the market.
OK, then, how about Segway. Dean Kaman built a product that no one had ever thought of. It was an entirely new product and how could there be any competition? Ah, but the competition was there, it was just disguised. Let’s see, people could walk (buy nothing), purchase a bike, hybrid car, roller blades, scooters. It depends on how they were looking at the problem. In actuality, the competition was what led to a less than successful introduction for the Segway and why they are still looked upon as curiosities, rather than a mainstream transportation choice for consumers.
I believe that you have to be honest with yourself when you look at your business. There is always competition and you have to be ready to confront it. Don’t forget about “Do Nothing” as a competitor. Look at alternative uses of other products and how your product may be viewed in the marketplace. In fact, if you can honestly say that there is no competition for your product, I would question the value that the marketplace has for your product.
So, if we can agree that in order for you to be successful, there will be competition, then how can we develop strategies that will further your business idea?
First, we need to realize that competition is good. In a way, competition validates the marketplace. If others are selling into the consumer base, then we know that the consumers are able to purchase to solve their needs. This gives you an idea that people may also buy your products, if they are marketed, produced and delivered with care.
Second, competition will force you to raise the level of your game. You have to understand the marketplace and react to it on a regular basis. This will hone your product offerings to be as good as they can be.
The one thing that I would emphasize to companies facing direct competition is, don’t play the other guy’s game. Change the game and make him play by a new set of rules, if at all possible. Going back to the Henry Ford story, this is his true genius. He was able to change his manufacturing process to lower the cost of the first mass produced automobile. The consumer really didn’t much care that it was mass produced, but suddenly the price for an automobile was not a stumbling block and Ford was able to literally change the world.
For you, look for ways to change the game as well. Maybe there is something that you can bring to the table that doesn’t cost you much, but the other guy hasn’t cottoned on to. Put your emphasis here. Go to your customers and let them know about that extra special feature and try to get it written into specs. Understand what is important to your purchasers. Is it value, couture, large portions, safety from lawsuits? Whatever it is, if you can provide it and your competitor cannot, you have a better than even chance of (sports metaphor coming…) landing the big one.
But, if you are successful, be aware that the circle has a way of coming back. Look at Microsoft and Google today. It’s all part of the game of business. Real entrepreneurs don’t shy away from the competition, they look for ways to compete on the playing field.
In the world of entrepreneurship, one of the most interesting questions that is debated is what really defines an entrepreneur. Much of the research and efforts in academic circles and Entrepreneurial Service Organizations are focused on getting people to start businesses. The curriculum covers everything from teaching the fundamentals of market research to building a business plan. The rationale is derived from studies that show that small businesses create much, if not all, of the growth in employment in the US. I believe that this type of education is important, but I truly believe that there is a more critical area that needs to be emphasized.
The usual definition of entrepreneurship usually has some connection with risk. That is, an entrepreneur is someone who is willing to assume the responsibility, risk and rewards of starting and operating a business.
Getting an idea is not difficult. In fact, most of the skills necessary to start a business are relatively easy to obtain. The difficult task is to finish. Let me explain. Many of the entrepreneurs that I have met have a reasonable business idea. They can put together some sort of business plan; some go with the mini 10 page report, others produce a tome of over 100 pages. They can put together a demo or a prototype. Then they lose their nerve. They review their research, they add just another modification to the web demo, they send out another survey. This is the point when they need to drive forward. As Steve Jobs says, Real artists ship.
I believe that real entrepreneurs ship. By shipping (or opening the website or performing the sales calls or signing the partnership agreements), the entrepreneur will gain knowledge about what the market really wants. She can make the changes to the offering to appeal to the customer. She can invite customers to be part of an inner circle and tie them closer to her company. And, possibly, even record some early revenue.
Lose the fear. There are few downsides to shipping earlier. Make sure that what you ship, you can be proud of, but don’t obsess over every aspect. Remember that Windows was unusable (but a good demonstration of future technologies) for the first several releases. It wasn’t until Windows 3.1 that Microsoft had a solid winner.
Yes, it is good to start businesses. But the risk inherent in an entrepreneurial company is multiplied if you don’t ship your product. You risk increased competition. You risk wasting critical capital by waiting. You risk your potential customers finding alternatives. You risk losing employees to other more exciting projects. The way to reduce the risk is to deliver a product to the marketplace and continue to respond to the market by reacting quickly to new information.
Shipping product is a virtue. Get it out there and find out whether you actually have something that the market demands.
I have been doing some thinking about mentoring. As I get more experience in providing business guidance to others I have found that there needs to be some more structure put around these relationships. Perhaps it is that old thing that it seems like you find articles in the news when you were thinking about them, but I found this article today about mentoring turning into a multi-player sport.
It makes a lot of sense. Clearly, mentors have a lot to give to their charges. Last week at the Launch Depaul new venture competition, all three of the for-profit teams have dedicated mentors through the Coleman Entrepreneurship Center Blueprint program. But not as clearly, mentors are usually really good at a couple of business topics and relatively weaker on others. As an entrepreneur who is looking to recruit a mentor, it is a good idea to perform a serious self evaluation to understand what your true needs are and what you hope to have the mentor accomplish. In many cases, it makes sense to work with several mentors to cover the spectrum of issues that the business owner has uncovered through the analysis. A good mentor will know his or her strengths and where they can provide the most support, but they will also know of other potential mentors who can cover other areas and be a good fit for the corporate culture.
Currently I am working on a project with another mentor, where a portion of the need is in my wheelhouse, finance and operations. But the other mentor that I am working with is a whiz with technology, planning, HR and legal. The entrepreneur understands sales and marketing, so we are fairly close to covering the ongoing needs of the company to enable serious growth.
As a business owner engaging a mentor or mentorship team, it is critical that you all agree on the structure for the support. In the cases where I was just a mentor on call when someone had an issue, the result was less satisfying for both parties than when the mentoring was clearly defined. That is not to say that you cannot deviate from the plan, however it is incumbent on all partners to understand what needs to be done and to adhere to a process to manage plan changes.
Both parties get so much out of a mentoring relationship, when it is managed as a true business relationship.
As some of you know, I am not the biggest fan of Social Networks. To me, it seems like a lot of the social networking that goes on is like New Year’s Eve, a time of forced frivolity. Now, I love New Year’s Eve, but only because it is my daughter’s birthday.
Yes, I know that social networking is a lot of things. Facebook and Twitter are certainly the types of things that I just don’t get. Why would I be posting all of my personal thoughts and what I am doing for the world to see and comment on? Perhaps it is just my age. With all of the social networks out there, how does one really benefit? I think I have been invited to 4 different Ning groups. Realistically how does one find the time to actively participate and get value from each? I have a profile on LinkedIn and have seen limited benefit from it. Lots of people have profiles (like me), but not a whole lot really gets accomplished using the tool.
Blogging seems to work for me. It gives me a chance to more fully flesh out the ideas that I have and put them down in writing. The very task of writing makes me provide a (sometimes ) coherent narrative that I hope is helpful to my loyal readers. But I understand that blogging is mostly a one way communication unless my readers choose to comment directly in the blog.
The most fun that I have is Real Social Networking, as compared with the garden variety social networking talked about above. Please note that I am not talking about the business networking events that in Chicago tends to be passing business cards around, lying about the success of your business, trolling for customers (or a new job) and drinking adult beverages. Real Social Networking involves the introducing of people in my network to each other to help solve a business (or personal) problem. In order to do this to the best effect, you must really understand what each person in your network is about. Where they went to school, what their politics are, what do they do better than anyone you know, what are their blind spots – you get the picture. You can’t do that when you are amassing “friends” in order to beat Ashton Kutcher’s record on Facebook. It is hard to do that when you converse with people 140 characters at a time.
My social network is not that large compared to a lot of folks on Facebook. No matter. I know that if I call on my friends in the network to help another, they will. If they ask me to help one of their friends because I have certain skills that are needed, I will do so in a heartbeat.
In the past several weeks, I have been involved with 5 or 6 projects that have involved my network. In some cases, friends have asked that I provide counsel on a project. In other cases, I have introduced friends to other friends who can help solve an issue. In another case, I convened a group of friends to brainstorm potential business models for a friend’s fledgling venture. I have introduced angel investors to companies. I have provided referrals to other friends. This is the value of real social networking.
If you haven’t tried it, I recommend that you start. Start small. Invite someone that you have been introduced to, but don’t know well to coffee. Ask them what they are most proud of. Ask them what they do better than most people. Ask them what they are scared of. Share your stories. And then ask them, How can I help? You may be able to help right away either directly or through your network. But even if you can’t, you will have started to build the network. That is a key asset that is much more than having 5000 friends on Facebook.
New Product: I am very excited by the Square credit card processor for the iPhone (and maybe other devices with an audio plug). This product will revolutionize the way that people can conduct commerce. Not just businesses, but even person to person. The device is a small square credit card reader that plugs into the audio jack on the iPhone. There is software for the iPhone that will process the credit card and transfer money directly to the recipient’s bank account. Now the founders of Square have done some things right. They priced the software at $1 and the device is free. This makes it almost irresistible for anyone who wants to accept credit cards. Think of craft fairs, your lawn mowing teen or a Craigslist seller. The cost per transaction is reasonable (2.9%) and Square will even donate a penny per transaction to a charity of your choice. More details and a video here.
Knowledge: Steve Schwartz wrote a post on the 3 types of knowledge. While the language is not always appropriate for elementary school, he does explain clearly how these 3 types contribute to our general sense of ourselves.
Advice: Micah writes about giving advice. This one is going to be hard for me to do (given the name of this blog) as I love to give advice almost as much as Micah does, but if he can find a better way, I can try.
I just finished reading Atul Gawande’s newest book, The Checklist Manifesto: How to Get Things Right. Dr. Gawande is a great thinker and I had enjoyed reading his prior two books about the medical community: Better: A Surgeon’s Notes on Performance
and Complications: A Surgeon’s Notes on an Imperfect Science. In this book, he talks about a simple way to reduce errors in the operating room, a checklist. He talks about how checklists can be developed and how they are used in aviation to reduce errors in the cockpit.
There were a couple of key takeaways for me from this book. Gawande reports on the research of the science of complexity. Professors Brenda Zimmerman of York University and Sholom Glouberman of the University of Toronto have developed a distinction between three types of problems in the world. The first type is simple – like following a recipe to bake a cake. You may have to learn some parts of it, but it should be repeatable if you follow the instructions. The second type is complicated – think of sending a rocket to the moon. In a complicated problem, you can usually break it down into many simple problems, but you will have multiple people or teams, multiple specialties and timing and communication become serious obstacles to be overcome. The third type is complex – the example given here is raising a child. Unlike sending a rocket to the moon, if you successfully raise a child, there is no guarantee that your second child will turn out the same. Experience is helpful, but by no means sufficient. It is possible to successfully raise a child (no matter how you define that), you just can’t predict how it will happen.
In each of these types of problems, a checklist can be helpful. In the simple case, a recipe is a simple checklist that ensures that all of the steps are completed in the correct order. In the complex case, a checklist can be used to schedule the work that needs to get done, coordinate the interactions between the different teams and even regulate the communication between teams that is required to iron out issues that arise during the project. Gawande spends some time in the book detailing a large building project and their use of checklists to ensure that all of the myriad details that must be accounted for during a skyscraper construction project are managed.
It is in the complicated cases that the uses of the checklist have really not been utilized. For many years, the complicated cases have seemed to be too random to be managed through checklists. In the surgery, complications are all too often a regular part of the job. This antibiotic doesn’t work for this patient. The patient suddenly develops an infection. The laboratory does not deliver the right type of sample collection device. But Gawande and a team at the World Health Organization worked on a trial project with 8 hospitals around the world to try checklists in the operating room. Their goal was not to address all of the potential complications. They created a list of 19 specific things to check before, during and after a surgery. Things like, did you check the patient’s name bracelet, did you give pre-surgery antibiotics, if there is a chance for blood loss, did you request blood supplies be available. In addition, the checklist required that the team all introduce themselves before surgery. This bit was introduced to help the surgical team function like a team, when the complications arose.
The results from the trial were unbelievable. Hospitals from the US, Canada, UK, Australia, India, the Phillipines, Jordan and Tanzania participated. Overall, the rate of major complications for surgical patients in all eight hospitals fell by 36% after the introduction of the checklist, while deaths fell 47%. Such a simple concept. But it forced everyone to concentrate on the issues that they had control over, while preparing them to work as a team on the unforeseen complications that inevitably arise.
Now, usually I write about entrepreneurship, so why is this so important?
Well, Dr. Gawande took his message of the value of checklists to experts in other industries to see if there was a correlation. One of the folks he talked to was Geoff Smart, who wrote a top selling book on hiring called Who: The A Method for Hiring. Smart did a project with Venture Capitalists where he evaluated the style that the VC used to make investment decisions. The VC’s that used a checklist approach had a 10% likelihood of replacing the senior management versus 50% for VC’s that didn’t use the checklist. They were also more financially successful. The checklist users had an 80% ROI versus 35% or less for the rest.
As you look to develop your businesses, it seems like a good idea to implement checklists throughout your businesses. Even though your outcomes may not result in life and death, like Dr. Gawande, the benefits of using checklists to cull out the simple and mundane errors and focus on the complicating factors will strengthen your business.
I haven’t done a recommended links post is a while and so here we go:
Seth: This week Seth Godin directed me to two very cool web resources that I urge you to take time to read and view.
The first is the video Lemonade. It deals directly with folks in the advertising agency business who have been laid off and how they found their next steps. Some people feel that it is talking about the need to start a new business, but my take is that it shows that you really can make Lemonade out of lemons if you pursue your dreams. The video is well made and totally engaging.
The second is a free e-book on pricing. How exciting can that be, you ask? Well, the author, Todd Sattersten who has developed the business book review site inbubblewrap, clearly explains the components of pricing, costing and especially margin. He also delves into the concept of free. All in all a very quick and information packed presentation. And the price is right!
The Brain: Harvard Business Review had a nice article on how the middle aged brain (of which I am the proud owner) has some inherent benefits as it relates to businesses. It is good to hear that while we sometimes can’t remember names, we have built other skills that can help us in the business world.
Microsoft: Microsoft’s perception in the marketplace has changed over the past 25 years. The New York Times has a nice article on what the company has done to put itself in their current market space. This is a good warning to Google as well as any other company that goes through significant growth.
Lately I have become fascinated with the sales process. Those of you who know me well, are not surprised, since sales has always been a Black Hole area for me. But my fascination is really directed at a certain type of sales process. Let me explain.
When you think of sales, you normally think of a company who has a product or service and has to find customers for that deliverable. There are a lot of folks writing articles about and perfecting their sales processes to get that prospect to sign on the dotted line. Everybody from Boeing to the local deli has their own process down and understands what they need to do to ensure that the income keeps rolling in.
In the past several weeks, I have had conversations with several businesses that have a dual sales process. That is, they have to sell someone on the idea to sell a product to the end user.
At DePaul University’s Coleman Entrepreneurship Center, I attended a Blueprint Connections networking event recently. These events give student entrepreneurs an opportunity to talk with and present their ideas to experienced business folks. I am always excited by the future of business after attending these sessions; there is just so much energy there.
At this event, I met a student named John. John had started a business of providing real estate services to college students. His goal was to match students to the perfect apartment. John had a good sense of his market, he understood the value of high quality service and he made a compelling case. His challenge, though, was that in order to make a sale, he actually had to make two sales. He had to develop relationships (and contracts) with landlords, so that he could show their properties and get paid for the successful lease process. Then he had to sell the students on the need for his services and the “inventory” of properties that he could show. It is a devilishly hard process to manage.
Another company that I have been working with sells a licensed commodity to a large retail chain. The owner needs to get legal authorization from each licensee (think over 15,000) to sell their licensed material. Then he has to work with the store manager (there are over 5,000 of those) at the retail chain to offer his products. Even though corporate has given the green light to selling the products, they want the store managers at the local level to make the final decision. It is a balancing problem. You want to go out to the licensee and get the authorization so that you have something to provide to the retail chain, but it certainly is helpful if you have the local retail store already on board to sell the products and can go to the licensee with a pre-order.
These opportunities are golden opportunities, because they have the benefit of a contractual relationship between the parties and that makes it more difficult for others to enter. When we talk about investors funding ventures, one area we normally talk about is barriers to entry. These dual-focused sales efforts do provide some level of barrier. The challenge is how to balance the sales efforts in a knowledgeable and responsible way to grow your business.
Recently I had the opportunity to see Tim Sanders speak. His book, Love Is the Killer App: How to Win Business and Influence Friends talks about how nice, smart people can do good by sharing. One of the things that he proposes is that people read more and share what they are reading. In that spirit, I wanted to share some of the great books that I have read recently.
Malcolm Gladwell’s newest book, What the Dog Saw: And Other Adventures, looks at topics as diverse as Cesar Milan, the dog whisperer to copyright law to the history of hair color ads and their effects on feminism. The book is an anthology of some of his favorite articles that he has written for The New Yorker. This medium gives him the ability to write long form articles that delve deeply into the subject matter. I highly recommend this book. Malcolm is a smart guy that follows his curiosity and writes well. It is a winning combination.
My favorite book last year was What Would Google Do?, by Jeff Jarvis. This book is not about how Google runs their business per se. In this book, Jeff looks at other industries and applies Google business practices to radically change the business model of that particular business. Jarvis is a journalist and he applies the Google model to newspapers, but also to restaurants, music and retailers among others. For anyone truly interested in business, this book will make you think about your business in new ways.
As an advisor to companies, I find that many of the issues that I encounter are rooted in organizational problems. One of the best books that I have read and recommend often is called The Five Dysfunctions of a Team: A Leadership Fable (J-B Lencioni Series), by Patrick Lencioni. Patrick writes a business fable about a Silicon Valley start-up and the travails of a new CEO with an executive team that just doesn’t get it. The book is a quick read and Patrick deftly gets the symptoms and cures woven into the storyline.
And for those of you who are looking for financing, a great book on what venture capitalists look for when evaluating companies is also told in fable form by Randy Komisar in The Monk and the Riddle: The Art of Creating a Life While Making a Living.
A. J. Jacobs is a writer with OCD. In prior books, he lived by the rules of the Old Testament for a year and read the entire Encyclopedia Brittannica and wrote about his favorite articles. In his latest book, The Guinea Pig Diaries: My Life as an Experiment, he becomes a human guinea pig and tells the story of each encounter. Included in this book are his experiences in Outsourcing his Life to an offshore firm in India and the Nakedness Experiments, where he and Mary Louise Parker pose naked for a photo in Esquire Magazine. A. J. has been compared to the George Plimpton of our age. In this he succeeds, with a bit more droll humor.
John Irving is a true American superstar storyteller, easily in the same class as Stephen King or Mark Twain. He develops quirky characters and builds complex storylines that keep the reader engaged. His latest – Last Night in Twisted River: A Novel – takes his readers on a ride through a life time of love, betrayal, vendettas, loss, Italian cooking and naked skydiving. Somehow it all works marvelously.
Audrey Niffenegger doesn’t write often, but her writing takes on a luminous quality that fully sucks you in to the very end. Her latest book, Her Fearful Symmetry: A Novel, explores the life of a set of twins.
Let me know in the comments if you have specific books that you have read recently and would like to recommend.
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.