I am often asked: “What are the keys to success?” I have developed some ideas on this over the years and, like any list in this area, mine is incomplete. Worse than this, many of these ideas for success are contradictory. Things that I learned from my Dad, Professor O. J. Firestone, like “Never take ‘No’ for an answer” tend to contradict things like “Know when to quit.”
You need great mental flexibility to be a successful entrepreneur or intrapreneur. When something isn’t working (we call this knowing when your own a Zombie Company), STOP DOING IT, PLEASE. Otherwise you can waste a huge amount of energy and a good part of your life.
I remember in the early 1980s, working on a cool project called the Starflyer. It was a heck of a product—a flying disc with a patented aerodynamic surface that flew incredibly well. It had a Superstar’s endorsement by Wayne Gretzky, the greatest hockey player of all time in my view. It had two teensy (as my daughter Jessica would say) LED lights and a tiny camera battery underneath. When turned on, the LEDs created (using the persistence of vision effect) a terrific looking red halo of light so that the one could play at night. We had a good crew working in our assembly plant here in Ottawa. We made 10,000s of these great toys.
The Starflyer: Great Product, Prof Bruce
There was only one problem—NO ONE WANTS TO PLAY FRISBEE* AT NIGHT. I had 10,000s of these things in my barn for a decade and a half before finally giving them away to charity.
(* ‘Frisbee’ is a Trademark of the Wham-O Corporation.)
The market is always right, even when it is wrong. If you get out in front of the market or you miss it as we did with the Starflyer—you’re done.
So, guess what? You need to be able to deal with ambiguity to be a successful entrepreneur or intrapreneur. You need to use ‘fuzzy’ logic to sort through all the conflicting advice and signals you are getting and you never have complete information, so get used to making decisions on the fly.
1. Cashflow is King
“To me, in order to run a business, you have to be profitable from day one. I never learned this business of, ‘Hey, here’s $10 million. Go and hire some people and lose money for three years’,” Omur Sezerman, Oz Optics.
Build a real business with real cashflow, profits, customers, clients with discipline and focus. Stick to the business model if it is working. If it isn’t, change it or dump it.
If you are profitable from Day One, you’ll never get bullied by the Golden Rule (He or She who has the Gold, Rules.)
Your startup cashflow plan should be: a) as accurate as you can make it, b) conservative (under promise and over deliver), c) once you’ve set it down, work very hard to deliver. Meet your cashflow goals every month- don’t expect to do it all in the last month of each quarter or the last quarter of each fiscal year. If you have cashflow, you will attract capital, not the other way around. If you’re looking for financing, demonstrating that your business model makes sense even on a micro scale helps a lot. Do you have any advance orders, made any sales?
Upon seeing his very first web page, Lou Gerstner, former CEO of IBM asked: “Where’s the ‘buy’ button?”
If you have cashflow, you’ll live to fight another day. Most startups take twice as long and three times as much money before they get to the point of take-off. Their revenue versus time curve looks a lot like a biological growth curve- negligible at first, slow through the early years, then, at some point, they take-off, practically a geometric progression for a while. Sales eventually plateau; this should be a period of consolidation- secure your ‘base camp’ for the next assault on the ‘peak’.
If you have a solid base, even if your next initiative fails, you’ll always have somewhere to retreat to.
Every startup should have a sales chart on the wall, on the door, on every desktop and on everybody’s computer which uses simple tools to prompt folks to be thinking sales, cashflow, clients and customers. Everywhere people look there should be a large graph of ‘N’, where N = the total number of clients, customers, deals, dollars, lots, downloads, whatever simply measures the business at its most fundamental: where the rubber meets the road- its DNA. Focus on ‘N’; make ‘N’ grow every day.
N = ?, today.
2. Keep your Overheads Down
No matter how successful you are as an entrepreneur (and that usually means that you spend most of your time on the revenue or technical side of your business), your costs always rise to exceed your revenues if you do not exercise restraint and have proper controls in place. (You will find the same thing is true on the personal income side even if you are the CEO of a Fortune 100 company, for example.) Startups that invest in luxuries like triple A office space, leather couches, great company cars, will not be around long.
3. ABC: ‘Always Be Closing’
This expression was used in the film, Boiler Room. Ben Affleck’s character uses it. It’s also often written as: ‘Always Be Selling’.
Sales are all about face time (face-to-face time). Emails, telephone calls, brochures, web sites, faxes, snail mail, yadda, yadda, nothing outsells interpersonal contact. (If you can’t do a F2F, then choose to sell by telephone next, then email, then fax, then snail mail then by third party, in that order of preference and effectiveness.) Remember, don’t push on a string: get in front of the decision makers, 1 on 1, and sell, sell, sell.
“Selling is persuasion. Marketing is persuasion. Every business meeting is based on persuasion…. You can do all of them better if you understand how the mind works, how people think,” Scott Adams, Creator of Dilbert, BizEd, November/December 2002, p.19.
Everyone in your organization is in sales. Nothing is worse than calling a receptionist and asking him or her to direct your call to the right person or department and they answer: “Huh?” Your front line staff are just that- they are the point of first contact for many future and existing clients. Your receptionist is really your CIO (Chief Information Officer) in a way, even if you don’t think so. Staff training is essential.
‘You want attenuators, I’ve got attenuators. You want connectors, I’ve got connectors,’ Jozef Straus is reputed to have said at a trade show in the early days of JDS Uniphase.
Your accounting and finance staff are selling too. Where do you find new customers?
Firstly, you can find new clients from your existing client list (your accounts receivable list). Secondly, you can find them in your accounts payable list too. This is called reverse selling. If someone is fixing the plumbing at the Corel Centre, don’t you think they should be a season ticket holder too?
You can you sell to people who you buy from. Don’t treat your accounting and finance staff as glorified bookkeepers; they are a crucial source of leads and cashflow (remember to collect early and pay late too).
“Selling isn’t about taking advantage of people, it is about communicating and informing them,” Mark Cuban, Owner, Dallas Mavericks, November 7, 2002 on The Score.
“Selling is telling,” Mark Gencher, Executive Vice-President, Brymark.com, June 2003.
Sales Tip: You are NEVER too busy to return a sales call.
Recently, a SME business owner I know, was contacted to quote on a monster account but he was too busy to return the call. Everyone is busy, I understand that. But we are often busy doing urgent but unimportant things while important but non-urgent things (like returning this call) get ignored. Wrong. You should call back potential clients within a day or two (at the latest) no matter how busy you are, if only to say that you are too busy to respond properly right now, but can you get back to them later and then set/schedule a time for that call.
If you can’t sell (your ideas, to clients and customers, to staff and suppliers, to bankers), you can’t be an entrepreneur.
When selling don’t be afraid to name big numbers ( refer to: What They Don’t Teach You at the Harvard Business School, Mark H. McCormack, Bantam Books, New York, 1984 plus his follow up book, What They Still Don’t Teach at the HBS, 1989).
Pricing is a complex subject; learn it:
a. Pricing is an art not a science.
b. Pricing (and taxation) in the words of a famous French bureaucrat and tax collector is the: “art of picking the maximum number of quills from the goose with the minimum amount of hissing.”
c. Your prices have no relationship to your costs. In a competitive marketplace, you can charge whatever you like. It may be above your cost (often way above, in, say, the marketplace for major league baseball players), at your cost or even below cost. These are called loss-leaders; e.g., selling below cost milk to get folks into your supermarket. Ever notice how the milk is always furthest from the door in every store– that’s to get you to impulse buy when you are walking through the facility.
d. The market is always right even when you think it is wrong. (Just because you have built a better mousetrap doesn’t’ mean much.)
e. Demand has been known to go up if you increase your prices: snob appeal.
f. Prices are what a willing buyer and a willing seller freely agree to in competitive markets.
g. Price is a mechanism for rationing goods and services.
h. A price based economy is the worst way to organize a society except for all the other ways yet discovered.
i. Prices are democratic. Dollars don’t discriminate.
j. Don’t be afraid to name high prices (i.e., as in what IMG’s Mark McCormick wrote in What They Don’t Teach You at HBS and What They Still Don’t Teach You at HBS.)
k. Realize that by naming high prices you have excluded the mass market.
l. Freemium models are a new riff on an old model—try before you buy/don’t pay a cent events…
m. Customers naming prices they are willing to accept was such a new concept that Priceline was able to patent this business method.
n. Social commerce is entering the lexicon as communities get together (mostly online or in apps) to influence pricing; e.g., getting a certain number of Likes can induce providers to reduce prices.
o. Breaking prices down into components has been helping car companies, for example, sell their wares for a long time. The base model is $X but if you want doors, engine and transmission, it costs more…
p. Two for one or buy two get one free…
q. Rob Hall at Pool.com revolutionized the domain name backorder business by making it free to backorder—you just pay if they are successful.
r. The number of variants of the auction and bidding systems is staggering.
There are an infinite number of pricing models and it is an incredibly important part of your overall biz model so give it a lot of thought and then experiment if something you try doesn’t work.
If you really want to sell someone something, go to see them. It is a lot harder to say “No” in person and you can read body language and other non verbal clues too.
Don’t be afraid to make the first move- lots of deals go sideways because each side lacks the confidence to be first to name a price; they don’t build trust- people like to buy from people they like and trust. Don’t take ‘no’ for an answer.
Don’t overstay your welcome- when the client says ‘Yes’, thank them and get out.
Don’t forget to ask for the sale. ‘Yes’ is better than ‘No’ but ‘No’ is better than ‘Maybe’. Watch out for the ‘Hoop Treatment’ where a potential client says: “If only your (product or service) could do XYZ, then I’ buy it.” You go away and fix it and come back six months later; they’re still not ready to buy- they raise the bar or hoop a little higher. You’ve become a poodle in training- people don’t like to say ‘No’. They would rather you figured it out yourself. Listen carefully for a ‘Yes’ or a hidden ‘No’ and act accordingly. Tell then that if they say ‘Maybe’ you’re just going to assume it’s a ‘No’ and save you both a lot of time. You’ll be amazed how often that leads to a deal.
Don’t be afraid to ask the client/customer: “What’s your budget?” Don’t be afraid to put your prices on your web page- people want data from the net and you don’t want someone who is looking for a Volkswagen in your Mercedes showroom anyway.
Selling is all about providing information, not selling things to people they don’t want or need. Everyone in your company is in sales: the techies, the receptionist, even the accountants and lawyers. Nothing is worse than calling up a company and asking the receptionist for help re. your serivces or products and they answer with a “Huh?” That isn’t their fault: it’s yours for not training your staff.
When companies fail it is almost always management’s fault, not the union, not the government, not the market, not the competition, not the employees, not your suppliers, not your clients or customers; it’s your fault.
Give your sales staff a living base salary; one they can live on and pay their bills with. Load up the incentives. When you do this, you get the whole person- their effort and their creativity. When you pay 100% commission, while you have no fixed overheads, your sales staff have no commitment to you. Your tunrover rate will be unacceptably high. There is a lot to be said for stability; it helps you to develop an ‘institutional’ memory.
A major nation wide store chain regularily sacks its experienced staff to avoid wage creep and reduce its fixed costs. It also reduces customer service to close to zero. Its competitors like Home Depot and Walmart who belive in staff training and retention are eating its lunch.
Always pre-sell everything. Remember if it was up to the engineers and lawyers, no product or service would ever be ready for prime time. If you pre-sell your product or service, you’ll have a lot more confidence that you’re on the right track and not about to go over a 1,000 foot cliff.
4. Never Confuse Marketing and Sales
Marketers get to wear nice suits and make $35k per year. Top salespersons make six figures and almost never get laid off. Marketing is part of the tail of an organization; sales are part of its teeth. Market studies are nice to have but can never replace real world experience. A NHL marketing study once indicated that it was possible to sell 100,000 season tickets in that marketplace (Ottawa btw) when even the very elite teams struggle to sell 15,000.
In assessing the market, remember that you are not the market. Your views, your likes and dislikes are essentially irrelevant. As I said above, the market is always right, even when it is wrong. People are often irrational and markets can be as well. Sometimes you get more demand by raising prices not less (snob appeal, for example).
Probably less than 3% of all people are leaders and less than 1% are still leaders after age 30 because they get burned and quit. One young person I know, after two business failures, quit to take a J.O.B. He wouldn’t take on any more debt (he had $35k in debt at the time) or any more risk because of his recent failures. But what is Entrepreneurialist Culture if not risk and reward- a balance of probabilities; careful use of resources including OPM (Other People’s Money)? This guy was beaten before he started. He should have learned from his failures and gotten on the horse again.
“Whether you believe you can, or whether you believe you can’t, you’re absolutely right,” Henry Ford.
5. Goal Setting
“We (the Ottawa Senators) have a 7 to 12 year plan to win the Cup; we want to make the playoffs within five years and, in our first year, we’ll get 22 points or better,” Dr. Bruce M. Firestone, Founder Ottawa Senators, October 1992.
Results were: 24 points in Year One, the team qualified for the playoffs in Year Five on the last day of the season by beating the Buffalo Sabres and the world’s best goalie at the time, Dominik Hasek 1 – nil in a win-and-in or lose-and-go-home situation and achieved 103 points and 95 points in Years Seven and Eight.
The Stanley Cup remains at bay but in 2002/03, the team came within 2 minutes and 14 seconds of the Stanley Cup final in a Third Round 7th game showdown with the New Jersey Devils, the eventual Cup winners.
Goal setting is an amazing force for change and achievement. It is almost always better to go somewhat later in a downhill ski race, for example, after you know what your main competitors have already done. That way, you can set your split times and race to win.
6. Visualize and Verbalize
If you can also visualize yourself completing your race and achieving your goals, you will greatly enhance your chances for success.
There is a saying in Japan: “You fall down seven times, you get up eight times.”
If you verbalize your ideas with a trusted confidante, you can sort through the really bad ideas and get at the good ones much more reliably. Remember the example of Tom Hanks’ friend “Wilson” in Castaway; as soon as Tom had someone to talk to and someone he could bounce ideas off of (even if it was a volleyball), he started to make better decisions.
Meet Wilson
7. Make Room for Yourself
Every entrepreneur faces obstacles; every society has an elite that takes the preservation of their position and power seriously. They don’t want you to succeed. The top levels of politics, media and business in most countries form an identity- like the pigs in George Orwell’s Animal Farm, at the end, the plebian animals can’t tell the difference between their pig ‘brothers’ and their former human master. So it’s your job to never take “No” for an answer.
Every Nation has an Elite—They Don’t want Any Competition, Thank you very much
8. Under Promise and Over Deliver
Lower expectations. Push analysts and media ‘back’. Your most important signpost on the way to under promising and over delivering is the decisions you take in HR. Your first hire, your tenth hire, your ten thousandth hire should first and foremost have a good ‘heart’.
Good hearted people don’t quit on you when the going gets tough. And it always gets tough in entrepreneurialist culture. Everyone who you interview is going to have the right credentials- good education, great experience.
Look for the ones who have a good heart- they’ll be team players and they won’t blame everyone else when things go wrong. They’ll understand that every job is 98% work and 2% glory.They’ll learn from their mistakes and won’t repeat them. Never fire anyone for making a mistake, fire them for making the same mistake (over and over). Always ask yourself and your managers every so often, out of the 20 employees who report to you, which is the person you’re least likely to turn to for help in a crisis. Fire that person.
Virtually everyone can think of one person in 20 (just 5% of your employees) who doesn’t cut it. You can add (a lot) by subtraction. When you don’t do this, you keep deadwood around and the rot begins set- your good employees see that someone can do little or nothing with few if any consequences. That is a bad scenario.Remember: Take responsibility for your own actions. Don’t pass the buck.
Learn from your mistakes. Tolerate mistakes in others, once. Hire people who have ‘good hearts’ first, education and experience are second. They stick with you and won’t fold at the first hint of trouble. Don’t hire part timers if you can help it. Don’t let employees have two or more bosses. There are no fallback positions. You are either in the boat or stay on shore.
9. Don’t Overplan
Have goals and a short term plan and some longer term objectives but realize how unpredictable markets, technology, competition and life are. Remember long term forecasting is insanely difficult: for example, “THE STOCK MARKET HAS PREDICTED NINE OF THE LAST FOUR RECESSIONS,” Brown.
Discovery
I have come to believe over the years that there are some things, maybe many things that can only be discovered and cannot be planned for or thought out in advance. I realize I am coming at this from the POV of an entrepreneur, who does most things this way anyway. But still it is true, I believe.
It also frustrates many people (my wife included) who want to plan things out well in advance. I have already written elsewhere about the futility of long range (and quite often short range) planning—too many pieces are moving around and too many changes are happening day to day in our political-economy for planning to be of much use.
How many economists thought petrol would soar to $145 a barrel two years ago? How many thought it would drop from there to less than $60 a barrel in less than four months? How many thought that Lehman Brothers would go OOB before it actually did?
I personally believe economists can only tell you what has already happened and sometimes they can’t even manage that—it took the Business Cycle Dating Committee of the National Bureau of Economic Research (NBER) a year to make a determination that the US is in a recession. A year! Sheesh, any corner store owner could have made that determination earlier than that. PhD not required.
So while planning may not be of much use, goal setting is. Humans are much better at setting and achieving goals than they are at making plans. I have always liked the US Marine Corps unofficial motto: “Show some adaptability!” Trust me, it will save your life (if you are a marine, blindly following a pre-ordained battle plan will surely get you killed) and your business (if you are a business owner or CEO and, say, in six months car sales drop from an annual run rate of 20 million vehicles in the US market to a demand for just 10 million, your precious plans are useless.)
Just to make things more complex (sorry about that), there are many things in life and business that can only be discovered by experiencing business processes or by living your life. Do you think you can plan out who you are going to fall in love with? I believe that most of us DISCOVER that. (According to Malcolm Gladwell’s thesis in Blink, you might actually discover you love her in the first two seconds after you meet her. Your unconscious mind is at work here. It is terrifically fast and, in complex matters, often a better guide than the best you could do after months of collecting additional data and ‘thinking things through’.)
The first time the woman who was going to be wife kissed me, I got lost on my way home—in my home town no less. I had to stop the car and collect my wits for more than 15 minutes. I had NO idea where I was. Then I realized, that’s the girl for me!
Recently I moved real estate Brokerages. I wanted to be in a place that acted and performed like a team. In this industry, everyone says they want to work in teams but, frankly, that is just so much hooey. In place after place, your biggest competitors sit around the table with you and will take your clients, ideas, inventory if they can.
Did you know that if you ask someone else in our industry to do an open house for you for one of your listings and a Buyer comes in, likes the place, is represented by a Buyer agent and makes an Offer through that agent, you get paid as the listing agent, the Buyer’s agent gets paid but the poor sap who did the open house for you gets nada?
So some young guy or gal, probably new in the biz, gets suckered into doing open houses for you because you are too busy doing your Xmas shopping and he or she gives up say five or six weekends before Xmas to help you out but at the end of the day he or she may get nothing for doing that. The rationale* is simple—this is the way we do it because this is the way we have always done it and this is the way we will always do it because this is the way we have always done it. Got that?
(* Senior agents do have some political cover for this—they say that the new agent, by doing open houses for you, may get some people who come in who are not already represented by an agent and thus may get some Buyer clients for that home he or she is showing or if the Buyer doesn’t like that home then for another one. Pretty tenuous cover, I think.)
Commercial real estate isn’t any better and maybe it’s worse. Many broker-owners compete with their own agents for clients and deals. I can’t think of another industry where this happens on such a widespread basis.
So I came to the new brokerage with the idea that we would try real team selling. When asked to explain it, I could only say what it is not by quoting the above examples and a bunch more.
But over the last five months, from the DOING OF THE WORK, I think we are coming to understand what it might mean. It sure is different and again I believe there was no way we could have planned out what we were going to do in advance—we had to discover it.
I am amazed that so many of the people I work with are willing to live through this experiment with me. The theory is that you are better off with 25% of 30 deals say than 100% of five. Not only are you better off financially (at least in theory), you feel you are part of something bigger than yourself (which most of us crave and need) and you can rely on others to have your back, not stab you in the back.
Now this is not for everyone—REALTORS are notoriously independent and I understand that.
There is nothing at our firm that says you have to join the team—be an individual or form your own team, no problem. Just don’t engage in unethical practices.
Some things we have learned is to put three agents on every listing or deal. We are also doing Trade Record Sheets, TRS (which divvy up commission income) that are really new in the industry. Instead of the usual 50/50 or 72/25 TRS, ours look weird: they could be 12.5/12.5/25/50 or 6.25/6.25/43.75/43.75 (yes, we just did one like that!) or 33.33/33.33/33.33 or ….
I won’t go into too much more detail about what we are doing because some of it is proprietary, but we are definitely discovering things as we go.
If you are open to new ideas, opportunity is everywhere in the ‘ether’. The other day I happened to put one file down next to another one and it suddenly occurred to me that I had a match between Buyer and Seller. Despite having my own data base software, it just had not been apparent before. Making connections is often a random event. You just need to SEE it.
Sean Murray in our office had a big insight the other day. Don’t many middle aged, potential condo buyers have homes to sell? What if condo developers allowed us to help them sell more condos by moving the existing homes of their potential clients? Now how did Sean discover that? I can tell you. I asked him to call a condo builder for some info on their project and a light went on when he was talking to them about their problems—this just popped out of the conversation. It was completely fortuitous but Sean was OPEN to the process of discovery.
Another REALTOR friend of mine, Dan Oakes, had another big insight last year. There is a shortage of commercial condos in Ottawa—if you want to own your own place of business, it isn’t easy to do here. So Dan was driving around one day on one of our main streets and he noticed how many private residences there were on major arteries like Carling Avenue, Maitland Avenue, St. Joseph Blvd., Churchill, Woodroffe, etc.
He thought: “Hmm, if the City of Ottawa got their act together, they could rezone all these homes for commercial/residential purposes and, in one fell swoop, create a huge increase in inventory for would-be owners.”
This initiative would have some terrific results:
a. More business owners could own their own place. They would no longer be subject to rental increases set by Landlords, they would have security of tenure, they would have some diversification of risk by owning some real estate in addition to their operating business, they could renovate their premises to their requirements, they could benefit from property value increases.
b. Residents on these main arteries, many of them elderly, would have more Buyers to sell to and at higher prices. I mean who really wants to live on Maitland with 20,000 cars a day buzzing by your living room at more than 60 kph less than 20 feet away?
c. The City of Ottawa which is suffering its own financial problems would get a large increase in their municipal assessment base and a huge increase in realty taxes (commercial rates are around four times the residential rate) while costs for commercial assessment are much lower (very few city services are extended to commercial establishments, who must, for example, pay for their own garbage removal and don’t need schools, play grounds or libraries built for them).
d. Many of these properties are in need of significant repair—their foundations are failing, their roofs need replacing, their facades need refacing, their building envelopes are not weather-proof, their interiors are shabby and so forth. It probably isn’t worth doing if they are used for residential purposes but almost certainly would get done if they were used by a dentist, a CA, a law office, etc.
e. Many of these buildings will be multi-use with second floor apartments or maybe basement apartments with the ground floor being used for commercial uses. So some affordable housing may also come out of this initiative.
f. REALTORS would make more money too. And that surely is a good thing!
Now this makes a lot of sense but don’t hold your breath for the City of Ottawa to act. This is one of the worst run cities in Canada with a staff that is more bureaucratic than the guys running the UN.
Anyway, do you think Archimedes could plan out how he was going to figure out how to measure the density of King Heiro’s irregularly-shaped, gold crown before the King of Syracuse lost patience and executed him?
He needed to be open to new possibilities. He subsequently noticed that large, irregular objects (like the male of our species) cause water levels in public baths to rise. And so, he discovered the principle that the buoyancy force exactly equals the weight of an immersed object and with that, he immediately recognized he could measure the density of the crown to ensure its purity was as advertised.
I would bet that things like Amazon’s use of its relational data base (asking the question: “Would you like to see what other people who ordered this book (CD/DVD/etc) also ordered?”) was discovered from contact with their client base. This is why pre-selling is so important for start-ups or even for large companies that are starting a new division or selling a new product or service. Contact with customers (and potential suppliers too, BTW) will lead to many, many changes and improvements that can not be found any other way than by the actual doing of a thing.
Postscript: I think most artists also find that their art is a process of discovery. For example, a sculptor may discover or uncover the image in a block of stone. A novelist may discover or unearth things about their characters as the book is being written. I think that the scriptwriters for the hit television show LOST probably are discovering the story as they go along. I would like to talk to one of them. There is probably no way that for a story with: a) such a large ensemble cast, b) back stories that are woven into the fabric of the show, c) timelines that are extremely hard to track, d) characters that behave in a manner that is consistent with their back story development and e) plot lines that constantly delve into the past to resolve present conundrums, could ever be written in a conventional manner—they are open to the process of discovering the story as they go. And so should you be in whatever field of endeavour you toil in—science, business, politics, arts, social enterprises, etc…
Postscript2: You can become more creative and more open to discovery by: a. getting lots of rest, b. getting some exercise, c. not drinking and thinking, d. don’t take drugs, e. focus on a problem then stop if a solution does not present itself, f. sleep on it– let the subconscious work on it for awhile, g. focus on it again, h. get some more exercise, i. sleep on it again, j. don’t suffer from the not-invented-here syndrome: if someone has a better idea or way of doing things, adopt it immediately, k. read a lot, l. draw, m. write notes, especially at 3 am when you wake up with a good idea, n. talk about it to someone you can trust– verbalize, o. listen to your subconscious and your ‘gut’ feelings, p. be open to learning new things and new experiences (this keeps you young at every age), p. do the hard stuff, q. exercise your mind!
Here is an example: What is the non-obvious next number in this series?
1,3,5,7,…
Answer: 11 (these are prime not odd numbers)
10. Hope
You need to also give some thought to the role of ‘hope’ in human endeavours. Hope is a central requirement to survival- survival of human life and human businesses and organizations too. You need to engender hope in your employees and your suppliers and customers and clients too. If they are hopeful about the future and about your future, it will help you achieve your goals.
One day in the mid 1990s, I was walking around the Carleton University Campus in and I ‘discovered’ a train tunnel running under Dow’s Lake, which is adjacent to the University. Curiosity got the better of me and I scrambled down the embankment. The foundation stone circa 1960 was impressive to read.
Later on, a few minutes of research uncovered an interesting story—Canadian National Railways had needed a new cross-Ottawa line and the only way that the then Chair of the National Capital Commission (NCC) would agree to it was if the CNR would bury it under the lake. The NCC apparently wanted to protect views in the National Capital Region.
Now I realize this is kind of frivolous when compared with the enormous challenges that say LDCs are facing but I was struck by the courage it took on the part of the NCC to take this position. This got me to thinking about an earlier trip to Calgary, Alberta and the foothills of the Rocky Mountains.
If you have ever looked at the Rockies from the eastern side and thought about the idea of running a rail line over those mountains as Van Horne did beginning in January 1882 and completing the crossing just three years later in 1885… what courage these people had.
11. Ideas are Cheap
Approximately, 35 million Americans are right now in their basements working on your business plan. Some of the best new businesses are simply good execution of technical changes in existing systems and services. Fed/ex comes to mind. It isn’t e = mc**2!
Fred Smith saw: a) a need for overnight, guanranteed delivery, b) a future market made up of time crucial (predominantly) packages, c) an existing service provider that was slower and unlikely to move in this new direction (the US Postal Service), d) a way to actually economically achieve this objective (the hub and spoke system). Until Fred Smith came along, a network of ‘n’ cities had a total number of possible routes (N) equal to n(n-1)/2. For 50 cities, for example, there are then 1,225 possible overnight routes to connect every city in the network to every other city and, presumably, packages can go in both directions on each route so that the total number of overnight flights required could be as many as 2,450 flights, an obviously impossible task. By constructing a hub and spoke system, Fed/ex was actually able to greatly reduce this number and thus implement Smith’s vision. A useful (second order) and timely insight but it’s not Newton’s Laws of Motion. “In the end, a vision without the ability to execute is probably a halluciantion,” Stephen M. Case, AOL Time Warner. Execute, execute, execute.
Fred Smith’s idea was “overnight package delivery” is ‘cheap’ because it is easy to say, but very difficult to do. On the other hand, his creativity in implmentation is very valuable because the hub and spoke system that he devised is the basis for a hugely successful operation: ideas are cheap but creativity counts.
“Why invent radically new things that are like science-fiction movies when there are smart, gifted people who have been working on maps for centuries, trying to convey lots of information on a flat space? I think that invention is a terribly difficult thing, and we should try to get away with the minimum that we can,” Tim Bray, inventor of XML language for the web, on why he uses maps as the basis for searching for information on the Internet, November 2002.
12. If you can’t Connect with Potential new Clients and Customers in a Cost-effective Manner, your new Enterprise is Doomed
If you need to spend huge sums on a SuperBowl commercial before you acquire your first client or customer, your new eneterprise is doomed. It’s just as true for a charity or not-for-profit: no one like to give money to a charity that uses up more than about 15 to 20% of the funds raised for its operations and management. So reaching your audience in a cost-effective manner is key.
Guerrilla Marketing is just another term for smart marketing (substituting brains for cash in the marketing wars). In marketing, nothing sells better than faces. Nothing gets more micro second recognition than faces. Faces are important everywhere even in cyberspace of the near future (see Neal Stephenson’s description of the ‘metaverse’ in Snow Crash.)
Bootstrap your business—using both guerrilla marketing (and social marketing) and bootstrap financing. Start small and grow it. The slower you go sometimes, the faster you go. Business Week (February 19, 2001) ran a headline in their e.biz report: “Shakeout! … How will their (VCs) woes affect startups?” Well, some of the best businesses were started with bootstrap financing (Mark McCormack started IMG, an international sports management group with $500 and one client who happened to be Arnold Palmer).
Bootstrap startups won’t be affected at all by the VC shakeouts of 2001 and 2009.
The best startups are usually capital starved.
They learn how to use a dollar wisely.
Entrepreneurs see things and connections and opportunities and relationships that others miss. They build the old fashioned way: with customer service and good products and services.
You need financing? Everyone suggests start-up founders go to the ‘bank’, VCs, rich ‘Uncle Buck’, Mom, Dad, your friends. How about ‘none of the above’? None of these folks have any real stake in your business plan. So, who are the true stakeholders? They are your suppliers, your (future) customers: people you buy from and sell to. They will help you get started if they see that your b. plan will address some of their needs.
Afterall, what is your new business worth if you have an advance order or contract with a credible customer or client? A lot more than it is without it. It builds your credibility; it builds your potential cashflow; it reduces uncertainty; it allows you to finance future revenues (receivables). Presell everything.
You need a ton of money to build your product or service? Get at least half of it on supplier credit.
Use guerrilla marketing to make your limited funds go further. Again, the slower you go, the faster you go. If you have a secure base to venture out from, you are more likely to succeed.
For every ‘overnight’ success there are thousands of examples of people who built great companies over very long periods of time measured in decades. Sam Walton comes to mind.
Remember you are not the market. You may like your idea but maybe you are the only person who does. The reverse also applies. The market is always right, even when it’s wrong. Understanding the market and developing a world view or a ‘mental map of the way the world works’ is incredibly valuable to the entrepreneur. That way you can perform what Albert Einstein called ‘thought experiments’ to assess whether your great new idea is going to work before you do it. The human mind is the fastest tool and is a far more accurate barometer of success than any number of market surveys if you have developed an accurate mental map of the way the world works.
Avoid reverse marketing and bad PR. There are a lot of things that you initiate that make the situation worse.
Most likely, you will rely on the following for bootstrap financing of your new business: a) angel investors, b) family and employees, c) supplier or vendor financing (30, 60, 90 day terms), d) customer pre-sales, e) factoring, f) fixed asset financing (leasing), g) personal debt, h) credit cards, i) trading activity (trading up the food chain is a typical entrepeneurial strategy- start a business so that you have some ‘chips at the poker table’ then sell it before the peak of the market is reached and start the (bigger) one you really wanted in the first place- trade up to the Sens and the NHL, for example; always sell ‘too soon’ and leave something on the table for the purchaser- obviously, the purchaser needs some value otherwise why would they buy it in the first place?), j) strategic partners, k) employees, l) accretive selling (consulting assignments, for example), m) accretive selling with strategic partners, n) accretive buying (a homebuilder start-up, for example, or the purchase of a division of an (often large) company which division doesn’t fit their model anymore. You use the assets of the targeted division to secure the debt you need to buy it in a classic LBO or MBO.
Even after paying the debt, you are left with positive earnings, you hope. Accretive buying means that you buy when you are weakest and sell when you are strongest in a counter intuitive way. This is different from ‘buy low, sell high’, which is counter cyclical in a macro economic sense.) Investors are likely to come from a group that has an interest in your success: strategic partners, suppliers, family, employees, future customers. Even persons or organizations that are geographically tied make ideal targets for certain types of investments. Find out who benefits and sell them on your start-up. He/she who benefits, pays. He/she who pays, benefits.
Trading activity includes such strategies as buying an option on a piece of land and flipping it (real esate speculators are professionals at it), buying stocks on margin, selling short, buying airplane options and selling them, LBOs, MBOs, arbitrage, and so forth. All are risky but can yield large sums in a short period of time, enough to give you a ‘grub stake’. Even large companies do this: flipping electricity contracts in the California power crunch of 2000/01 was immensely profitable for aluminum producers. It paid them to shut down operations: they could make more money by speculating in the power market than producing metal. They bought power on long term contracts at $22 per KWH and sold it in the spot market for $430!
Rememeber that equity is more expensive than debt. But equity is more patient than debt. Equity investors including angels and VCs are looking for returns in the 30 to 40% p.a. range. You, as the founder and key entrepreneur, should expect 100% p.a. returns on the total of a combination of your cash and sweat equity contributions. Bank debt will come in at prime plus one to prime plus three depending on your credit worthiness (currently in the range of 7 to 9% p.a., March 2001).
Clearly, use of low cost debt increases your leverage and improves the IRR for equity (it also increases your risks). Shareholders are also frequently asked to provide the company with (relatively) low interest rate loans as well as make direct equity investments in company securities. Debentures are a common form of financing for start-ups and they are a combination of debt and equity. Typically, they have a coupon rate in the range of 8 to12% with an equity conversion privilege that ups the return to the 20 to 30% range.
It is important for most start-ups, even if they are not bootstrapped, to have at least three pre-committed clients or customers before much else is done. This is now a requirement for most VC funding. You can sell almost anything to one fool, maybe two but not three.
Considerably less than 1% of all startups actually ever get close to any type of VC money, which means that you are left to bootstrap financing and bootstrap (guerrilla marketing). That’s OK though: more than 990 out of every 1000 new businesses are in the same situation. Capital starved businesses are often hardier anyway, when they make it they know that every business (even IBM) is built every year, one client, one customer at a time.
There are no shortcuts, really. Terry Matthews once said after being congratulated on building a great new Company (Newbridge Networks): “It takes a minimum of 7 to 12 years to build a great Company and we still have a ways to go.” And remember, this is from someone who had already done it (with Mitel).
When you read about someone building a company in 18 months and flipping it for millions, you are really reading about the lotter winners of life: it isn’t real, not for you.
You can’t plan on winning the lottery but you can plan on entrepreneurial success: it just takes a generation of effort and one customer, one client at a time.
The old Hollywood Studios amaze me. They spend incredible amounts of money in absolutely incredible, sometimes stupid ways. Yet they survive nincompoop managers and occasionally produce marvellous masterpieces. No startup could ever operate that way and survive. But many of the Studios have been around for 100+ years, laying down deep roots and layer upon layer of relationships that bring the best talent on the planet to Hollywood, California. Deep roots, many layers, it takes a long time to do that and then you almost can’t fail. Once you become part of abusiness eco-system, you are not often going to fail…
13. HR, Hire Up!
The most important decisions you make after you establish your business model and get the business going, will are your HR ones.
Get the right people and you are more than halfway to success.
Do your best in the interview process, don’t waste time on people that you feel may not turn out. But take the time to find the right people. When hiring for any position make sure to interview at least four different people. Your objective is to try to get to know these people and understand their needs. Just like selling your product to the end user, employees have to be sold also on their job.
Ask a lot of anecdotal questions. “Tell me about the worst experience at your previous employment”, get to know how they deal with pressure and tension. Tell them about your company’s vision and goals, then ask them about their personal goals. “Where do you see yourself in five years?” Everyone has a secret dream; find out what their’s is.
If you feel there’s a fit (work hours, challenge, compensation etc…) then move forward. Build commitment from day one, be serious about your idea or company. Get to know what makes them tick, what motivates them. Hint.
It’s not always money!! Conduct 2-4 interviews and make sure they completely understand the environment they will be immersed into. No surprises. Check out their blogs and facebook accounts.
As an employer, always honour your commitments to your staff. They are your representatives, your front line. Remember they have different lives and each should be treated as individuals. When times call for it, be firm. But never disrespect people. Always approach your staff in a proactive manner when addressing problems. Look to them for input and solutions. Make them accountable.
Take the time (once every 6 months) to recognize your people and their achievements.
Reward those that achieve more, work hard, play as a team, and do that little bit more. When dealing with conflicts always address people one on one in a private setting. When dealing with consistent bad performance get to know the issue and assess whether it’s a commitment or skill issue. If it’s a skill issue, then use your experience to transfer those skills, if it’s commitment, then agree that the relationship should be terminated. Always try to terminate a relationship in the friendliest manner possible. You never know when your paths may cross again!
If I Gave You a Million Dollars… You would be poor. With apologies to the Barenaked Ladies for a poor parody of their tune, the fact is, it’s true. Most mega buck lottery winners are worse off less than five years after winning—they have drug and alcohol problems, they have lost their jobs and families, they have a bunch of new best friends, all of whom have can’t-miss business ideas that tanked. In entrepreneurship, we say it differently—“Give a person a fishing rod, not a fish.”
Recently, a friend of mine sent me an article on Zappos, a web-based retailer that grew to around $1 billion per year in sales in less than ten years, in part, because of an emphasis on customer service, CS. I can’t believe the number of companies that believe that CS is a cost centre—it is not. It’s obviously a profit centre. If you get most of your business as Zappos does from repeat customers (75% of their volume is from repeat customers!), just imagine how much money they save by not having to spend precious marketing dollars on replacing unhappy clients?
They do things like provide free shipping… both ways. One of the biggest drawbacks of using web retailers is returning goods. They take the hassle out of returns. It’s expensive but the results are in… excellent customer service, works.
To drive home the point, Zappos will pay any new hire $1,000 to quit after the first month. No questions asked. You can have $1,000 to go away. Zappos has realized something that almost no one gets these days—your HR is the number one thing you have going for you. If you have good people, you will be much more likely to succeed.
Now $1,000 to get rid of someone who provides lousy CS, who doesn’t buy in to the idea that the customer is number one and who doesn’t buy in to your corporate culture is a really cheap way of de-hiring someone. Trust me, it costs a lot more to fire someone—you have to give them a reasonable period of time to improve, meanwhile the lousy customer service may continue. You lose orders, you get bad word of mouth and your brand suffers.
One unhappy client tells two others. You need to give them a warning letter then you must monitor their performance and meet with them a second and maybe a third time. This takes up a lot of management time. You need to get your legal staff to prepare a letter of dismissal.
You have to provide them with notice or payment in lieu of notice. (The latter being infinitely preferable because you don’t want them around for five more minutes damaging not only your customer relations but poisoning your staff.)
You may get sued for wrongful dismissal. Then you need to prepare a defence, present yourself for cross examination for discovery, attend a settlement conference, go to trial if you can’t settle and, if you win or lose, face a possible appeal. It’s endless. One thousand bucks to pay someone to go away who doesn’t want to be there and who doesn’t buy in to your corporate culture is a bargoon.
Now what if your Rich Uncle Fred gave you the World Financial Center in NYC consisting of four towers of eight million square feet in the centre of Battery Park for free? A heck of a deal, right? Wrong. I would predict that you would be broke and lose this wonderful portfolio in no time at all.
It isn’t your buildings that produce revenue for you, it’s your people. If you don’t have great leasing people, maintenance folks, property managers, financial controllers, contractors, cleaners, security personnel, managers and so forth, you won’t manage your portfolio well at all. Pretty soon, tenants will be giving you notice and you won’t be replacing them and, if you did, you might get the wrong ones—tenants who don’t pay their rent are worse than no tenants at all.
Do you know who pays the operating costs and utilities when your buildings are empty—you do. Do you have any idea what it costs to pay—realty taxes, cleaning, garbage removal, security, snow removal, maintenance, heat, gas and electricity—for a Class A Tower in New York City? It is at least $45 per sq. ft. per annum; that works out to $360,000,000 per year for the WFC!
Before Uncle Fred gave you those buildings for free, you were happily working as an advertising executive somewhere earning $100,000 per year. Your annual salary (if you still have a job) can support an empty WFC portfolio for .101 of a day or around two and a half hours. You would lose your real estate portfolio before lunch.
Stick to what you know. Every business has ‘secret’ levers you pull to make them work. No business is easy. Even one you get for free.
It’s great to have a good business model, a few launch clients and customers and some cashflow, but after you get the business off the ground, your first hire and every one after that are the most important things you will do. Be like Google, get the very best people you can.
There is a great book, Blink by Malcolm Gladwell (Little Brown and Company, 2005), that talks about using the power of your unconscious mind (the part of your brain that forms impressions in the first two seconds of any situation) to make certain decisions. He also points out how it can work against you.
Gladwell talks about how hiring for the wind section of a Symphonic Orchestra can be overwhelmingly influenced by the eyes instead of the ears. He calls this the ‘Warren Harding’ effect.
Warren Harding is considered the worst President of the US ever (although I suspect that President George W. Bush will, in the distant future, vie for this role). But he looked the part—tall, good looking and imposing. And he got elected despite being patently unsuited, unprepared and unready for the job.
So in auditions for the wind section, a good looking, tall imposing male has every advantage over a petite woman. Women were ‘known’ to be unable to play with the strength, vitality and range of a man. But it turns out that when Maestros were encouraged to do blind auditions (placing musicians behind screens), women could, in fact, play as well or better. In less than a generation, women make up nearly half of US-based orchestras (up from less than 5%).
Walt Disney knew this. He realized that an attractive female could unduly influence his judgment of the calibre of her voice. He placed all would-be Snow Whites behind a screen. The result is a magical film that saved Walt’s company from bankruptcy in 1937.
The number one thing we look for in our employees is good heartedness. Pretty much everyone will have the required credentials or they would not be in the interview in the first place. What we want is people who care about people—their colleagues, their clients, their suppliers, their families, their company, their city, their country. These people don’t quit when the going gets tough. They share information. They are generous with their time.
This you can probably deduce from the first two seconds after you meet someone, if you pay attention.
14. Keep the Winners and Dump the Losers
Know when to held ‘em and when to fold ‘em. How to recognize ‘Zombie’ Companies when a company or project or division or parts of a company are dead and need to be pruned. Don’t marry your ego to your business. Don’t let it get in the way.
When bad things are happening to your business, as Ripley (aka, Sigourney Weaver) says to her crew mates in the Alien series: “Deal with it!” Once the event is completed, it is forever in the past. Don’t dwell on past failures or live off of past successes: you are only as good as what you did today, not only in sports but in the business world too. When you get to be successful; remember what you did to be a success and remember who you were and where you’re from. Even large companies can be destroyed in a hurry when they forget the keys to entrepreneurial success.
15. GTBMR, Get The Business Model Right
If you have a bad business model, you are going to work hard, possibly for a long erpiod of time, to no great effect.
Don’t waste your life—as Jack Dawson said in the film, Titanic: “Make each day count.” Your career may span 40 years but you can easily waste four or five years on a crummy business model; that’s ten percent of your career, wasted!
You can read THE COMPLETE BUSINESS MODEL here: http://www.eqjournal.org/?p=692.
16. Limit your Personal Risks
For peace of mind and a clear field of fire, take steps to limit your personal risks. In a very litigous society, you can be sued for almost anything. Any litigation has risks. Even if you appear to have the truth and right on your side, there is still a risk of failure.
In Ontario, you may be sued as a director for environmental contamination, unpaid employee remittances, statutory payments (PST, PAT, GST). A limited liability company does not protect you from this.
Strategies for limiting personal liability include: a) exercising due diligence, b) placing personal assets under your spouse’s name, c) directors’ liability insurance.
Personal investing for entrepreneurs often is quite conservative (using, for example, the “Warren Buffet” method of investing; invest in value: great companies with strong brands and good management; hold for long periods, avoid commissions and capital gains taxes, sleep well at night, stay away from day trading, timing the markets and general ‘casino’ style investing). Take risks in your business not your personal investing.
Try not to pledge your personal assets in the course of your business. Try not to give personal guarantees. While companies you own may go into bankruptcy or Chapter 11, never allow yourself to file for personal bankruptcy if it can be at all be avoided. The latter will cause you no end of grief: you can not get a loan or a credit card; you can not be an officer or director of any company.
Bankruptcy laws are there for two reasons: a) to protect creditors and b) to allow the entrepreneur to start again. If you go bankrupt personally, that may not be the end of it. The Trustee with the concurrence of the court can reach beyond the bankruptcy and compell the individual to pay a portion of their future earnings to their creditors. You will end up paying the Trustee’s fees and the creditors too. However, if you do or your company does go bankrupt, you have four days to get over it: Day 1 (Feeling Sorry for Yourself), Day 2 (Getting Some Exercise), Day 3 (Thinking About Your New Future), Day 4 (Getting onWith the Rest of Your Life).
Remember to practice the smart truth in these difficult circumstances. Say little. Most people hang themselves (unfairly, in many cases). Remember the Bankruptcy Act is there, in part, to also help you get a new start. Don’t throw yourself away. It is a terrible waste in any society to unnecessarily dump our most valuable resources (our human resources) because they have failed. From failure comes experience, from experience comes success.
17. Protect your Personal Reputation
“Good will win, if Good is very, very careful,” said First Officer Spock on the USS Enterprise as Captain James T. Kirk fights the Captain of the Gorns. Pioneers get shot at and good may not win.
Linear thinkers tend to get wiped out in entrepreneurial endeavours by their competition, the media or the political establsihment. P = M = B; there is an identity between politics, business and the media at the highest levels of most societies and they will seek to protect their positions. There is no welcome mat for gate crashing entrepreneurs.
High ethical standards and smart, timely disclosure will establish your reputation for fair dealing and when things get tough, as they inevitably do, people will be willing to go out of their way to help you or cut you some slack (even bankers, VCs and Vulture Captialists- i.e., cut throat VCs) because you have a reputation for fair dealing. Every town or city has less than a few hundred people who are really doing things and make a difference at the macro level. If you get a reputation for (as they say in legal circles) sharp practice, you are ultimately doomed.
18. Buy Low, Sell High
People are sheep. Go against the tide which is easier to say than to actually do.
Do you want to make money in the real estate business?
Then buy when everybody else is selling (i.e., when Cap Rates are the highest and interest rates are the highest) and sell when everyone else is buying (i.e., when Cap Rates are the lowest and interest rates are the lowest). A simpler way to say this? Buy low/sell high.
Now this is easier said than done. We like to buy what everyone else is buying. The salesperson who says about your new suit or dress: “This is really in this season—everyone who is anyone is buying this” is telling you this because it works. It’s the single biggest closer.
It’s hard to buy real estate when no one else is and interest rates are high. Everyone will tell you not to—your CFO, your auditor, your bank, your spouse, your lawyer, your BOD (Board of Directors), your CAO, COO, even your CTO (Chief Techie) will not want you to—she or he will want more dough for their department instead—it’ll have a better ROR, or so they will tell you. But you are the CEO and, at the end of the day, the decision is yours.
The best deals I ever did (and if only I had stuck to Real Estate and not got into other distractions) were when real estate markets were depressed. I bought some land in Ottawa near a major, east-end shopping centre in 1983 when interest rates were 19%. The land cost me $1 per square foot for ten acres. In 1984, I got an offer for the land at 50 cents a square foot—I thought I was in real trouble. But I went to my Dad and he reminded me about rule number 1—buy low/sell high and I declined the offer.
By 1985/86, interest rates were down by half and I sold four acres for $10 per square foot to an auto dealer and the other six acres to an industrial roofing company for $12. We made about $4m in three years on an investment of $450k; you don’t need to do an IRR calculation or ROR or ROE on deals like this—they are good deals. (That money too later found its way into the Sens. Money in NHL hockey seems to go on a one way trip—in, but never out.)
In 1994, the real estate biz was again in a slump. (These down cycles seem to come about every seven years and real estate tends to lead the national economy into a recession and lag it coming out which means it usually lasts longer than the general recession. But when real estate bounces up, it bounces in a hurry and you have to start selling right away if you want to time the market). I bought 60 acres of industrial land in Kanata for just 15 cents a square foot. I couldn’t believe it—people were just giving the stuff away—prices were lower than at any time since the Depression of the 1930s for goodness sake. By 1999, in the tech boom, serviced industrial land in Kanata was selling for $6 to $8 per square foot, if you could find it.
19. Turn Cost Centres into Profit Centres
Be creative. Think around corners. Think things through. Sleep on ‘it’ over night. Listen to your intuition. Force yourself to go over and over a problem over a period of days or longer to turn it into an opportunity. You can learn to be more creative. Necessity is the mother of all invention.
Entrepreneurs (like engineers) are people who can do for a dollar what any fool can do for two.
Nothing focuses the mind like the fact that you are being hung in the morning. Example: the lone holdout in the Palladium land assembly actually improved the ultimate traffic solution for Scotiabank Place by forcing us to move the interchange west a few hundred metres and giving us a northern access to SBP in addition to a southern access splitting the 80% of all traffice coming from the east into two and making arrivals and departures much more efficient.
Practice the Yacqui way of seeing. For example, seeing the spaces between the leaves of a tree rather than the leaves. Hearing the jazz notes that the artist doesn’t play. Seeing the things that a great architect didn’t build. ‘Thousands can speak for one who can think.
Thousands can think for one who can see. To see clearly is poetry, prophecy and religion, all in one.’ (Rankin.)
Make sure you use appropriate technology and technique and level of resources for each problem. Don’t spec American-style suburban homes to solve an affordable housing problem in the third world.
Jack Welch talks a lot about differentiation; he means it too in all facets of business: product or service differentiation, differentiation in HR (rewarding your top perfomers differently from run-of-the-mill performers), etc.
In the real estate business, every time you drawa line on a piece of paper, you make more money- severances, mini offices, retail at grade with apartments or condos above, offices with lofts, offices with water views, offices with balconies, indeed, if you make every space in a building a bit different from its neighbor, people feel special and will pay more. The web will make it possible for tract home builders to ‘customize’ their product and charge more at the same or lower cost, for example.
When we operated mini offices in the 1980s, every month we lost money operating the word processing unit. We sold the rights to operate that business for $65,000 and they paid us rent. Within three months that micro entrepreneur who ran that unit had turned it around and was making money.
20. Impeccable Warrior
To be a successful entrepreneur, you have to be an ‘Impeccable Warrior’ (from Carlos Casteneda’s The Yacqui Way of Knowledge).
Don’t drink and think. Don’t smoke. Pursue lifetime fitness (not peak fitness). Eat moderately and well. Get enough sleep. Drink little or nothing. Don’t take drugs. As the ancient Greeks said: “Everything in moderation.”
The Dalai Lama suggests: “Try to get 20 minutes alone every day.” He also says when you have a difference of opinion with someone: “Deal with that issue. Don’t bring up the past.”
Deal with the present. Assigning blame is usually not helpful in resolving matters, expecially in a crisis. Know yourself.
You need to engage in lifetime learning: as soon as you feel you know everything, you will grow old.
Taking responsibility and looking in the mirror first and keeping your perspective when everyone around you has lost theirs are key to a successful career. A career is an agglomeration of achievements and learning experiences. Remember, sometimes the ‘centre does not hold’; your next failure is sometimes just around the corner after your greatest success. Learning to deal with failure often separates the successful individual from the unsuccessful.
Work hard and work smart. Get up every day and go to work. All you can do, is all you can do. “The harder I work the luckier I am,” Stephen Leacock.
There are both positives and negatives in choosing to become an entrepreneur. Make your choice an informed one. As Owner or President of a company, you are responsible for everything. If things go wrong, even if it isn’t your fault, it is. You never get off the hot seat and you can never share or delegate this ultimate responsibility. All entrepreneurs get tired of this and from time to time try to get someone else in to do this part of the job. Never do this. When you are fed up, share your lonliness with someone you can trust: a mentor, a peer. It helps to know that all entrepreneurs have the same fears and many are, in fact, quite lonely. If you really can’t take it anymore, it is time to sell instead of trying to pass the buck, bringing in a partner, hiring a new manager or absenting yourself. Do any of these things and your business is doomed.
The Impeccable Warrior and the Life of an Entrepreneur:
a. Complete your education.
b. Get regular exercise: buy an exercise bike, go for walks, play tennis, whatever.
c. Don’t drink too much and don’t consume or use other substances.
c. Watch your diet: less starches, less sugar, limited fruits, more green vegetables, more protein.
d. Check in with your coach or mentor regularly, at least monthly.
e. Expect to work at least 60 hours each week.
f. Manage your time efficiently so you can have some time with your family and friends too.
g. Work smarter and harder.
h. Personal success and professional success is hard work.
i. Commitment is important.
j. So is focus.
k. Know when to quit, when something isn’t working and when to change to something new.
l. Embrace spirituality.
m. Entrepreneurship is a lonely life.
n. Beware your fear of success.
o. Become an entrepreneur for the right reasons: not to be your own boss but because you can: a) create more interesting things for you to do than other people can create for you to do, b) be a responsible person and take ownership over your own life and become an impeccable warrior, c) make more money, d) help others too.
p. The moral underpinnings of entrepreneurship are based on Adam Smith’s principal that your first duty to society is to ensure that you and your family do not become a burden on your fellow humans.
q. The world is a tough, competitive place and entrenched interests will not want you to succeed.
r. Success takes years of effort: reading about persons who have been successful in months is like reading about lottery winners; you can’t plan on winning the lottery so plan on taking years or decades to achieve success.
s. There is always some luck involved in success but the harder you work, the luckier you get.
t. Lead by example and nurture your colleagues but never tolerate those who make the same mistake twice.
u. Surround yourself with positive people at home and at work.
v. Entrepreneurship is an exercise in positivist thinking: if your partner or employees are negativists, dump them.
To be a successful entrepreneur, you need to able to lead and co-ordinate your team. Team members are not only your employees but also your suppliers, your clients and customers and your banker, your shareholders, your lawyer, your accountant, the media, the community-at-large, community associations, trade assoications, politicians, government ministries, regulators and many others.
You need their confidence and trust to be successful and you need to be able to communicate with the team accurately and successfully. People make better decisions when they are fully informed: don’t hoard information. A team that is top down directed can only move as fast as the entrepreneur, you, can move. Teams that are networked with you at the centre of an interconnected, communicating web move much faster and are synergistic and are learning organizations.
Probably the most important decision you will make is who to select to be on your team. They must trust you. You must be able to trust them.
I happen to believe that the number one thing in life is not love but trust; I learned that after some hard life lessons.
Whether you are picking an employee, a supplier, a banker, a lawyer, pick the best not the cheapest. You should also carefully select your clients and customers. Firing clients and customers can sometimes be the best thing for your business. 20% of your clients take up 80% of your time. Fire some of these and you will be more productive. Recruit people who are as good as you are or better. Don’t fear the truely expert. Don’t be afraid if someone knows more about something than you do.
Don’t react like the not-invented-here manager who can’t stand it when someone else thinks of a good idea. Give credit where credit is due. Learning is a lifetime exercise for everyone including you- adopt best practices wherever you find them.
You aren’t necessarily in a popularity contest as a leader: your job, rather, is to make your views, positions and goals popular amongst your broadly defined team, which btw includes not only your employees but your suppliers, your clients, your community and the regulatory/legal framework within which you work.
Never lead-by-fear. Remember that real power comes from ability, not the organizational chart, not from age, not from title or position.
“You don’t want to sit on the cart, you want to be the one pulling the cart,” Roger Babson, Founder of Babson College, a leading school in entrepreneurship, 1919.
Leadership is a key to getting you and your team (your whole team including your employees, your community, your clients and your suppliers) from the starting line to safely across the chasm. All human progress starts with an act of faith. No matter how much analysis is done before a project is started, at the end of the day there are still so many unknowns that ultimately we do what we do because we have faith and confidence in it.
My daughter got a job as a life guard at Red Pine Camp on Golden Lake in Ontario. It’s a family camp with over 50 staff and 350 campers of all ages in camp at any one time.
She asked me why people love to gossip so much. I told her that gossip can serve a useful purpose, in fact, three purposes:
a. It establishes a pecking order. Have you ever noticed that group dynamics always have an informal structure to them? It doesn’t matter what the formal org. chart says, some people just have more say than others. Two peers are not the same; one is almost always dominant. It is the ‘unseen’ pecking order that makes an organization actually function. If you have two lead dogs in any one group, that organization is going to be dysfunctional. Gossip helps to establish that. You need a pecking order: one vision must prevail.
b. Gossip gives you information on people and a heads up on who’s who. This can be incredibly valuable– if someone has a bad temper or is deceitful or whatever, knowing that in advance can be crucial to your success. It also helps you establish who you can trust and helps you form alliances that can contribute to your success and your organization’s too.
c. Gossip provides a fast, efficient (and unofficial) communications network that alerts you to trouble and opportunity both within the organization and outside. I have found that people don’t like to say ‘no’ to your face and don’t like to give you bad news. Gossip can act like an early warning system.
Power does not equal position and hierarchy. Instead, true power is proportional to ability.
You should know that there are many people who do not want to be leaders and they don’t want to be led either. Many people spend a lot of energy trying to avoid responsibility and covering up their mistakes. I respect people who will first look in the mirror to see of there is anything they can do to improve a situation.
You need to be able to communicate well: in public, in meetings, one on one. You need to be able to communicate clearly and effectively and to think-on-your-feet. You need to tell the truth, the smart truth. Always practice and rehearse before a presentation, Verne Chant once recommended. Think things through.
If you don’t know the answer to a question, say so. Never guess. Say that you will get back to them on that. Never agree to anything without giving yourself a chance for a timeout,
Rod Bryden once told me. Say something like: ‘That sounds reasonable, let me think about it overnight and we’ll get together tomorrrow to decide.’ Give your subconcious a day to mull it over and you’ll be surprised at how you can improve things or clarify things that will be an advatage to both sides.
If you can write well, this is a huge advantage. As my PhD thesis supervisor told me: “It’s the first million words that are the toughest, Bruce.” Like most other things, you get better with practice, so practice!
A Vancouver legal secretary was recently awarded the top prize for bad writing (Nationa Post July 11, 2001). Here is her introduction to an imaginary novel:
“A small assortment of astonishingly loud brass instruments raced each other lustily to the respective ends of their distinct musical choices as the gates flew open to release a torrent of tawny fur comprised of angry yapping bullets that nipped at Desdemona’s ankles, causing her to reflect once again (as blood filled her sneakers and she fought her way through the panicking crowd) that the annual Running of the Pomeranians in Licechenstein was a stupid idea.”
Remember to balance out the lows and highs.
Compartmentalize. Your ability to compartmentalize will help you achieve success more quickly. Successful entrepreneurs like Terry Matthews of Mitel and Newbridge fame are very good at keeping going even when they have many, seemingly insurmountable, problems to deal with. Most people just get overwhelmed and shut down. Don’t feel bad if you are one of those, most of us have been there.
People who can compartmentalize not only their business but also their personal lives tend to become more successful more quickly.
As discussed above, if you can get the business model right when you start out (instead of ten years down the line like most of us), you will obviously have a better chance of earlier success. This is what the “overnight’ successful people do: they keep all the balls in the air at the same time while they are implementing the right b. plan. They are capable of multi tasking. They are comfortable with ‘controlled chaos’ and insufficient information.
Successful entrepreneurs must be capable of doing everything in parallel. In real estate, for example, the North American model is to do everything at once for a new office project: buy the site, rezone it, design the building, pre-lease it, finance it, even build it while building permits are pending (not recommended). The European model is an example of first order thinking and in series: buy the site then design the building then rezone the site then file for building permits then build it then lease it (after prior unknowns are removed) then finance it (after all unknowns are removed). Obviously, the NA model involves much more risk. On the other hand, the European model is so capital intensive that only large companies can play.
This leads to an uncompetitive industry, much higher prices for clients and less flexible markets (25 year lease terms, for example, are common in Europe and obviously don’t suit NA needs and especially SMEE requirements.) The NA model is much faster too. And that is a key difference between an entrepreneurial company and one that is not. Speed counts.
For tech companies, do not let the engineers strive for perfection; perfection is not possible. A good product ready on time is better than a perfect one that is never ready for prime time.
21. Check, Check, Check
There are no ‘fire and forget missiles’ in management. Set goals, follow up and see that you and your staff achieve them.
My Dad, the late Professor OJ Firestone, and I tried to determine which three things were the most important skills for an entrepreneur to master:
- SALES SALES SALES (moi)
- CHECK CHECK CHECK (my Dad).
As I have grown older, I have come to realize they are equally critical: without sales, all organizations will eventually disappear and, without attention to detail, they will fail to execute and just wither away.
Here is a Venn Diagram for Dad:
If it’s important, make sure you remember it: CHECK CHECK CHECK everything.
Postscript: Parents have been passing on this advice to children for generations if you can rely on the film ‘The Godfather (Part 1)’ as a guide. Near the end of the film, Vito Corleone goes over and over again possible scenarios with his son, Michael, on how he (Michael) will be able to recognize the traitor in the family and avoid the trap his enemies are preparing to spring on him. The Don gives Michael a lecture on being careful and checking everything, advice that will soon save his life. When I saw that, it had the ring of truth, at least to me.
22. Pick your Spots
“The best trades you make are the ones you don’t make,” Glen Sather, when he was GM of the Edmonton Oilers.
In the face of overwhelming odds, run.
Out of every 100 deals that come across your desk, reject most or all of them. When the right one comes along, strike quickly. Carpe diem.
Having said this, entrepreneurs never actually make a final, final decision about anything. They stay flexible and change their position in light of new facts as they become available.
There is no ultimate solution in life or business. Life is a series of tests so you never actually get ‘there’.
You need to be able to change and adapt, much as successful organisms change and adapt to changes in their environment. The entrepreneurial life is a lot like professional sports: it’s ‘what have you done for me lately’ from all stakeholders (your shareholders, investors, suppliers, partners, customers, employees, your family and so forth.)
23. Focus on your Core Competency
Contract out everything else. If it isn’t in the business plan, don’t do it. Divest everything outside your core competency or simply stop doing it if you can’t sell it. You need discipline and focus.
You need to be in a niche that is big enough to generate something bigger than just a J.O.B. for you; that means your niche has to be wider than you thought and a lot deeper too.
Everything else is just a hobby. Don’t turn your hobbies into a business. You’ll hate yourself in the morning.
The differnece between a J.O.B. (aka, Journey of the Broke) business and an entrepreneurial company is that the latter creates value that is independent of the Founder. Make sure you’re in that space.
In operations that don’t form part of your core competencies, costs always rise to exceed revenues. (It is kind of like your personal income, you always seem to spend more than you make no matter how much you make.)
That is why you need to contract these types of things out to companies that specialize in that area, who know how to control costs, who know how to make a little bit of money over a large base of transactions. Payroll management, arena management, parking lot operation, security services, cleaning services, routine manufacturing come to mind.
Profitability is a key to success; not so you can go spend time on a beach but so you can reinvest in your core business to make it stronger and better. Profitability is power. It is independence from the bank and creditors; it is power to grow the reach of your business to do the insanely great things you have in your b. plan.
With the National Hockey League’s Ottawa Senators, core competencies included a) managing key commecial relationships (season ticket holders, sponsors, suite lessees, signage, concert and event promotion, junior fan club, ticket selling) and b) the management of hockey operations: putting a winning product on the ice. Everything else was contracted out- radio rights, TV rights, parking, F & B, security, cleaning, arena management, catering. Note that web rights were kept in-house as a key to managing commercial relationships.
Anything that is not in your core competency should be contracted out or you should fold it and stop doing it or you should sell the division. It is surprising that even very small businesses have within them projects or divisions, products or services that can be sold to a third party. You can add by subtracting (get rid of loss making products or services, allow your people to focus on what they do best and your costs will drop, your revenues or margins will increase and your bottom line will grow). Also, somewhat surprisingly, you can often sell these unwanted divisions, product lines, services and businesses at a profit: what you don’t want may have value (sometimes a lot of value) to someone else who can make better use of your asset; you can turn a liability into an asset this way.
Mergers, acquisitions and divestitures can form a big part of your success. You have to make the other party feel that they have won a hard fought battle so even if you are happy with the first offer, haggle a bit- make a counter offer. But don’t be greedy and never look back: don’t worry if you left a little too much on the table; life has a funny way of rewarding you.
Clients who feel they did particularily well in their dealings with you will often come back themselves or refer someone else to you- your sales volume will be higher than it otherwise would have been.
Finding out what your core competencies are, requires:
Strategic Issues:
a. Define the industry. Are you creating a J.O.B. or is it scalable?
b. How can you grow the business?
c. What is your exit startegy?
d. What is your business model?
e. Are you partnering with other individuals or with a strategic (corporate) partner?
f. How can you reduce complexity?
g. Examine the strengths and weaknesses of your team. Focus on the strengths.
h. What parts of the business are creating positive cashflow?
i. What parts are growing fastest?
j. Which parts do you enjoy dealing with the most, the least?
k. Which cities or locations are doing best?
l. Is your industry one where all boats are rising?
m. Do you have any divisions in slow growth sectors?
Tactical Issues:
a. Are you having problems with HR acquisition and training and where?
b. Can you grow the people in the business or do you have to hire from outside?
c. Are you doing any guerrilla marketing or bootstrap financing?
d. If you had to fire 10% of your workers, who and where would that be?
e. Do you have trouble attracting investment capital (bank debt, mortgage debt, fixed asset financing, equity, ..)?
f. can you contract out any operations currently done in-house?
g. What role does creativity, design and utility patents play in your business model?
24. Don’t fear Competition
I wasn’t going to put anything in here about competition because I have a different view about competition—I like it.
When one of my colleagues would come running into my office to tell me in a breathless, somewhat frightened voice that one of our large competitors was going to build a competing office tower right next to one of ours, I was secretly glad because I knew that: a. they did more marketing than we did, b. at least a third of the clients they brought to their site would walk across the street and check us out, c. by entering the market in this location, they were confirming what we already knew but the media and the public didn’t: that this was a good choice for tenants, d. we were smaller and could move faster. (For instance, way back in 1982, we purchased a dozen or so of these new fangled things called Personal Computers from Apple (they were Macs) and we could turn around a lease document with these in about a day. Our competitors, who were still using typing pools (although some had word processing pools), took six to eight weeks to get an Offer to a prospective client.)
I mean there has to be a reason why fast food emporiums and gas stations locate in close proximity. Could it be that there is some kind of synergy happening, that the market gets bigger and there is more pie for everyone as consumers’ learned behaviour changes as they recognize this or that location as best for their purposes?
Terry Matthews has stated that he is glad he started most of his businesses before the web became the ubiquitous source for information about competitors that it is today. It is darned intimidating to think you have a great new business model, only to find out that there are a couple of others out there already operating with a great looking web site to boot. But
Terry’s comment might be: “So what?” And he would be right. It doesn’t matter that there is competition. In the first place, if you think of an idea that no one has ever thought about before, maybe it isn’t such a good idea. Maybe there is a reason why no one has thought of it before because maybe they had, and it is a bad idea. And if it is a good idea, why, you’re going to have competition anyway as soon as people do a google search and find you.
I think there are only two things you need to worry about with your competition: a. is this market big enough to support more than one entrant, and b. can I execute the business model so I can compete?
Sometimes the answer is ‘no’: at the end of the 1980s, real estate became a game for the big to play– penfunds, banks, insurance companies, publicly traded companies, all had access to capital at a cost which was less than a third the cost to smaller businesses. On a $10m project, this meant a head start of almost $1m per year in terms of cashflow and there was no way, SMEs could overcome that type of lead with clever marketing, fast response times, lean operations or anything else that entrepreneurial companies tend to do. It was over.
So most entrepreneurs in real estate went out of business (or at least out of the business of building large office or retail projects). They had to go into markets where they did not compete with large institutional money– home building, mini offices, public storage, NHL Hockey (aka, the Ottawa Senators and the Corel Centre), whatever, wherever the huge, elephant-size players aren’t. Here is a political cartoon I drew that kind of reflects my view of how Banks and large enterprises view competition from SMEs– they don’t want you to succeed. Why would they? You might steal away some of their customers. As Jerry McGuire said: “We live in a tough, competitive world.”
Having said this, you’ll notice that by moving out of large projects and into market niches, entrepreneurs in real estate did not rid themselves of competitors at all. It just was that in these niche markets (which are still big enough to create great businesses, btw), they faced competitors who were more their size and the playing field was a bit more level.
Even in the NHL business, which is a legal monopoly (the NHL grants exclusive domain to operate a franchise within the City limits plus 50 miles or as otherwise provided for in the Franchise Agreement), you face terrific competition for the entertainment dollar from other professional, college and amateur sports as well as a huge menu of entertainment choices that the consumer now has.
25. There are no Rules in Entrepreneurship
One of the hardest things for my students to learn is that there are no rules in the field of entrepreneurship. By that I don’t mean that you go outside the Law; I am not talking about those kinds of rules. You always obey the Law and protect your reputation; the latter is the most important thing you own BTW.
But how many times have you heard: ‘We don’t do it that way because it isn’t done like that and, anyway, no one else does it that way either’? Entrepreneurs are constantly asking BIG questions and thinking of ways to do things differently. It is usually this kind of creativity in EXECUTION that creates the most value for entrepreneurs. Fred Smith’s brilliant insight that he could develop an overnight package service (Fed/Ex) by reducing a 50 by 50 matrix of origins and destinations (with its impossible requirement for 2,500 overnight flights) to a handful of flights by developing a hub and spoke system was responsible for one of the great startup success stories of the late 20th Century.
Let me give you another example.
Gino Rossetti from Detroit asked the owners of the Detroit Pistons on a visit to Joe Louis Arena: ‘How come the people who pay the most (i.e., suite holders) are the furthest away from the floor?’ Joe Louis only has one ring of suites, which are located at the nosebleed level.
The answer was that all arenas are built that way; it’s just the way it’s done. Gino whipped out his sketch pad and said: ‘What if we had two lower rings of suites– the first one just 12 rows from the action on the court?’ That single insight revolutionized arena design and economics. It not only increased the number of suites in these buildings, but people also paid more (a lot more) for private suites close to the floor or ice surface. Plus it gave the ownership committed revenues (because they signed 5 and 10 year deals with leaseholders) and it gave them the ability to finance new arenas on a commercial basis. Additionally, it created the opportunity to bring all the seat holders closer to the action because the balconies created by the lower rings of suites could be stacked closer to the arena level much as in an Opera House with rings of private boxes.
Less volume in the building creates a less expensive but more intimate structure which beneifts not only the fans of major league sports but concert goers too. So Gino gave the world not only a much higher revenue-generating sports facility but there a qualitative improvement too.
Students often ask me how prices for new products or services are arrived at. They seem to feel that there is some form of government control or other, officially approved, algorithm that generates a price. I tell them the story of Butch Cassidy (in the film BUTCH CASSIDY AND THE SUNDANCE KID) when he was challenged for the leadership of the gang in a knife fight. Butch says: “Before we fight, I have to explain the rules.” His opponent, a giant of a man, says: ‘Rules, in a KNIFE FIGHT?’ Butch then walks up to him and kicks him in a vulnerable spot and then stomps him into the ground saying; “Rules? There are no rules in a knife fight.’
Pricing is a bit like that. In a competitive markplace, you can charge whatever you like.
It may be above your cost (often way above, in, say, the marketplace for baseball players), at your cost or even below cost (these are called loss-leaders; e.g., selling below cost milk to get folks into your supermarket. Ever notice how the milk is always furthest from the door in every store– that’s to get you to impulse buy when you are walking through the facility.)
Rules? There are no rules in entrepreneurship; you get to make up your own. You just have to hope the set of rules you choose, works; i.e., they underpin a viable business model.
Prof Bruce
