Entrepreneurs are the priests of hope

Most people won’t take risks unless the feel comfortable with the decision. You, on the other hand, as the entrepreneur are more comfortable with taking risks. So, if you want to take on employees you need to find a way to make them comfortable enough to take on the risks of your business.

Salary and perquisites are all standard asks, but what people really want is the feeling that they are belonging to something bigger than themselves. They want to feel that they are part of a group taking on the world. Most of all they want to buy in on the hope that this will all work out.

Without hope all your efforts will founder.

The best leaders give the group the courage to believe that the mission is possible. They then herd the group from behind and lead from the front as necessary to get through the tough times and come out the other side.

In my time in business I have met con artists and top entrepreneurs and I can tell you that they are generally the same, except for their intent. What they both do well is get people to suspend disbelief and give something a try.

I’d love to give you a definition of leadership but apparently after 30 years of studies of what makes a leader is that they are a person that other people are willing to follow.

The following are a few bits and pieces I have observed in common over the years:

1. Provide hope through a clear vision of where the company is heading.
2. Act and talk like the latest difficulty will be dealt with.
3. Find ways to solve problems, don’t just point them out.
4. Don’t be defeatist.
5. Be honest about problems facing the company, but also show how they can be overcome over time.
6. Unleash the potential of your people – delegate, encourage and then delegate even more.
7. Make sure the vision is about ultimately helping others, whether it is a better product, making customer’s life easier or helping those in need. Never make it just about the money.
8. Don’t be afraid to ask for help – you live or die as a group.
9. Keep worry out of your face – as they say, stay calm and carry on.
10. Never ever panic in front of the troops.
11. Work on the most important issues and trust your people to mop up the smaller issues.
12. Encourage constructive dissent.
13. Take things a step at a time – if you try and do everything at once they won’t feel like they can keep up.
14. Find ways to bring in cash as soon as possible. This makes a big difference to your own morale and the way you treat people.
15. Don’t trash talk people – talk everyone up to the others, otherwise a culture can turn toxic overnight when things get tough.
16. If someone needs help, ask them what help they need and get their buy in to the solution. Just bringing in a new person to assist them without asking will not only upset them, but will also show everyone else that you don’t trust them.

Most of all, just believe in your people – that, more than anything will give them hope.

QR Code Madness

I’ve been a huge fan of QR codes ever since I found out about them in 2007. The Japanese firm that came up with them really brought us a great new piece of technology. It allows you to put several sentences of information into a compact area, and it is a universal format. Best of all, it allows you to take note of information by using your phone’s camera instead of having to manually enter it or write it down.

Recently, however, it is being used in ways that totally misunderstand the consumer.

Here’s the trick about using QR codes – make them an additional benefit to the shopping experience.

If you use the QR code to replace labelling or conventional text, guess what, 99.9% of your consumers simply couldn’t be bothered. That’s not good for sales.

A recent example has been the development of clothing chain apps that allow shoppers to scan a QR code on the clothes they like, or scan the QR code for the window display out of normal shopping hours. Ostensibly this allows the shopper to keep track of their wish list and see related products. Let’s go through the issues here.

First, they need to download the app.

Second, they need to be motivated enough to pull their phone out and scan the QR code.

Third, this app is dedicated to the shopping chain itself. In other words it is a walled garden approach and we all remember how poorly that worked in the past. (Apparently we are dealing here with an App Potato – which is a subset of the walled garden).

Fourth, if they are motivated enough to pull their phone out to scan the QR code, they probably would have been motivated enough to simply take a photo.

Fifth, you need to show conventional advertising copy and labelling as well as the QR code. One example I saw recently was a graphic design masterpiece. I would consider framing that QR code label – I am not kidding – it looked great. However, they failed to put any normal text readable by a human on the label.  

Don’t put barriers between your shoppers and their purchase.

If you really want to increase sales the best method would be to better train your staff. As the ongoing victim of going clothes shopping with my wife, I am amazed at the difference between shops in the same chain. The best ones have staff who recognise that women often lack confidence in what they look good in, so go out of their way to put my wife at ease and give a few options rather than let her walk out after she tries on the first outfit.

To put that in economic terms – if developing a clothing chain QR code app costs $400,000 and training costs $250 per person per day, you could train up 1600 of your staff in better sales techniques for the same cost as the QR code app. Which do you think will make a bigger difference to your bottom line? I know where my money is going to increase sales.

Other examples include teasing the consumer with games or discounts, if only they scan the QR code. It worked well the first few times, and it continues to work well for the major brands, but now people are mostly over it.

To give another example, when a number of years ago telemarketers and street touts for NGOs (i.e. charity muggers) worked out they could start a conversation by saying “can I ask you a question?” it worked for a while. Now when a telemarketer calls you know they have a script that has similar lines for every response you have,  and you resent them.  Nowadays when somebody asks me if they can ask me a question I say “no” by reflex. We now have immunity to this, and so it is with QR codes.

So, when your advertising agency talks about piquing the consumer’s interest through a clever social networking campaign with QR codes, instead consider simply telling the consumer what your product is, what the price is, any benefits or aspirational messages and where to get it.

We are all faced with so many choices, so many activities and rapidly changing technology. Make your customer’s life easier – not more complex, and if QR codes help then great, but please use them well.

The opposite of outcome focussed

It’s time we had a candid talk about some of the cultural attitudes you may have picked up working in big business or government – namely being overly process focussed.

In large companies and in government there it was recognised long ago that, due to the variability in ability of employees and their management, process and procedures are important. The theory behind this is that by having a consistent set of rules for management and employees to follow harmony would ensue and that the business would run itself automatically without much intervention from above.

In the best work places this is exactly what happens. Process is used as a tool to ensure that the business is run well. Remember those words – process is used as a tool.

However, at many organisations people are perversely rewarded for following procedure without regard to the outcomes for the business. KPI’s are set by management and are gamed by employees. Procedures are followed to the letter without thought of the effect it may have on customers, profits or competitiveness – “we’re just doing our job,” is the common refrain.

Empires are built by those who can accrue budget and people. Presentations are given. The appearance of professionalism is encouraged, regardless of the unprofessionalism and indolence underneath. All appear eager to take on new action, but inertia is the rule.

Doers are punished by increment. Managers recognise that they get things done so they pile work on them till they realise how much more they are doing than their compatriots on the same salary. Then their co-workers slowly freeze them out as they don’t fit in. They won’t last long.

When you start your own business you need to be self-aware enough to realise when your own behaviours are process focussed instead of outcome focussed.

Over time you will develop processes and procedures to help guide your staff, but to start with you live in the glorious anarchy that is being the CEO of a startup with only yourself to boss around.

Without some process your business will descend into chaos, but without an outcomes focus at the start you won’t even have a business.

Always think about where you need to be and what the minimum level of effort is to get there. Then focus on that. In other words, use process to help your business and remember that process is not your actual business.

Here are a couple of readings:

Becoming and outcomes-focused organisation - Banff Executive Leadership Paper

The big lie about transparency – IBM Consulting

Avoid reinventing the wheel

Starting a company is a fascinating journey. You are learning about so many things in a compressed period of time. You are learning to deal with suppliers, landlords, employees, accountants, your bank, customers, technology vendors and so on.

The more you understand these matters the better you get at making decisions and the better you’ll be in the future, right?

Yes, it does feel good to know how things work (I am often guilty of this) – but in business your imperative to start making money as soon as possible.

Let me put this in simple terms – this is not like building your dream home where you carefully choose each fitting and tile, etc.  A business is a money sucking black hole which will devour your savings in a very short period of time.

Here are your rules:

1. If you don’t need to do it, then don’t. 
2. If you need to do it then buy an existing solution where it makes sense.

 To explain.

Your time is limited – and yes I know you are working 70 hour weeks, but that can only last for so long, and trust me, administration will soon be riding you like demented jockey. So, ditch the fabulous social media campaign that everyone has convinced you is the solution to all your marketing problems. It will require an hour or so every day and when you see how few people actually read it despair will drive you to drink.

Put it this way, try and count on one hand how many times you have been influenced to buy something by a social media campaign (I can’t even count to one so my hand remains a clenched fist) – and then ask why your customers would suddenly come flocking to your business like bees to nectar just because you Twitter ™ .

Processes are important, but you need to remember that they enable your business – they aren’t your actual business. You buy and sell, you pay suppliers, employees, etc. What you need is a system to keep track of that. When you start out stick with paper and spreadsheets. Keep invoices and other records in folders for each month, or week, whatever works for you.  Hold off on the paperless office just yet.

When you buy a system to run your business look at a reasonably credible commercially available option. The key here is that as a small business owner you should bow to the inevitable and use the configuration that comes with the software rather than tailor it significantly. Never has more money been wasted in business than in the configuration of great software to match the processes of big companies and government.

The large software providers have put together hundreds if not many thousands of person years experience in the industry you are in into their product. They have simplified, tweaked and improved their software over time to provide the core business functions and processes.

For example, SAP is releasing a single web based core configuration for small to medium sized businesses (software as a service (SAAS)). I am sure you will be able to choose your business type or categories, and then just go with that.

Accounting packages are easy to use and allow you to just select business type. If you learned to do things a different way, then I am sure you can learn again.

You can reduce your need for IT support by using Google Apps or Microsoft 365 to be your online hosted mail server and normal server.

There are all sorts of specialist SAAS providers for customer relationship management (CRM), recruitment, point of sales, inventory tracking, web stores, credit card payment, automatic document compilation, supply chain management, etc.

You can buy HR manuals, quality manuals, capital investment systems, stock control manuals, etc. Yes, they cost money, and no, you don’t need them all from the beginning, but you also don’t need to reinvent the wheel to develop them.  Some larger organisations offer subscriptions to annual updates to their manuals and procedures to keep up with legislative changes and best practice.

Likewise, if you buy an existing business with all the right approvals and registrations you can save yourself a lot of time, effort and cost, plus you can start booking revenues the day you take over.

While you might save some costs by developing things yourself, you are likely to be costing yourself in lost revenues by delaying and bodging your solutions.

Your job is to make money as soon as possible – keep that in focus.

Getting laughed out of the room

Getting investors to put their money into your startup is not easy, even for exciting high-tech companies. Here’s an overview of different kinds of investors and their attitudes to help you understand how to raise funds, and from whom.

Angel investors

Angel investors are wealthy individuals – well maybe not really wealthy, but compared to you they are. They may be willing to put at risk between $10,000 and $50,000 each.

$50,000 may only be 2 months of wages to you and your startup, however, to an angel investor this might be a large part of their savings.

This is really the key point for these investors, they made their money the old fashioned way – over years of building their own business, or scrimping and saving. They genuinely want to help out up and coming businesses but they are in no hurry to lose their money – so be respectful as these guys have forgotten more about business than you have learned to date.

What they are looking for is a solid idea that can monetise relatively quickly for a low fee. If you are lucky a consortium of angel investors can pool $200,000 up to $1 million for a truly great idea.

The good ones realise that they are providing seed funding for your company and that other investors will come in the future. Consequently, they would like to set up the deal so that they aren’t totally diluted out in future rounds.

The other thing to remember about angel investors is that they only really understand businesses they have been involved with in one way or another before. For example, I have seen world class energy technologies go down like a lead balloon in front of investors from the property industry. So you need to try and meet people who understand your business.

Also, angel investors are investing in your ability to make the business work, so be prepared for interviews and ongoing discussions. They may like your idea, but they want to make sure that you like it enough to persist through the rough times so they don’t lose their money.

In the current market angel investors have stretched their involvement from the seed stage, right through the valley of death and into the growth stage. They are doing this as venture capitalists are getting harder to find.

Venture capitalists

Venture capitalists (VCs) in many ways are pretty much well organised and professionalised angel investors.  The VC partners set up a fund with a 5-7 year life. They establish the kind of market they will invest in e.g. social networking, agriculture and GPS products, or whatever. Then they go raise funds with the promise to spend it in that sector.

The fund buys shares in startup companies in return for high risk funding and know-how. A few years later the fund is closed down through exiting the investment – i.e. IPO, trade sale, etc.

A VC fund may contain $10 - $30 million, and will make 5-12 investments (scale varies). These investments will occur in several rounds. Instantly you can see that an energy technology company whose initial pilot project will cost $20 million is out of the market. So, VCs are really limited to smaller scale companies that could potentially make a lot of money in the future.

So, this means that 99% of new companies do not meet VC funding criteria – because our potential returns are not exciting enough.

Some people are now positing that the VC model is now broken as the returns haven’t matched the hype.

I’d ask whether it was actually the classic problem of too much money chasing too few deals. And now that we have reached the inevitable conclusion of that situation many people are saying the model is broken.

Most VC money will be put into whatever the latest fashion is. From a larger market perspective this helps innovation as if a lot of companies try and crack an idea those who come later can learn from the mistakes and succeed. From an investor point of view this sucks as it means you will be lucky to get your money back, let alone break even. For you, it means an easy way to raise funds – just be on trend.

If your idea is truly revolutionary and will make a lot of money then there are very few VCs prepared to understand you and your idea well enough to give it a go. I can explain why from my own short experience screening investments.  Given that you might only invest in one in every 100 opportunities, and that it takes 1-2 days to do a proper basic due diligence on a company, that means one investment (at best) every 100 – 200 days. If your idea is novel it could take weeks to understand a business model and whether it makes sense or not – so given the amount of truly delusional startups out there (after all, everyone has a unique idea that will make squillions) the odds are that I would be wasting my time looking at non-conventional deals.

If you really are a smart company then you need to chase the smart money – that is the VCs who have a depth and breadth of knowledge in your industry.

Good VCs come from a startup background themselves and have a lot of technical smarts, unlike private equity managers who usually have banking and fund management as a background.

Private equity

Private equity usually funds the high growth stage to growth consolidation stage of a company. That is, you have taken all the risks of establishing your product offering and ironing out the problems, and now you are getting a lot of orders and you need some serious cash to take on the people and the premises to deliver on the demand.

Banks still won’t look at you as they don’t take risk and there is still a whiff of potential failure about you. Remember, banks don’t take risks, equity owners take the risk.

So, private equity firms are usually set up and run by ex-bankers and fund managers who want to take a bit more risk, but not too much. By their mindset they do not understand startup risks. To be explicit, they come from large organisations with well developed systems and procedures with the right people in the job. You on the other hand are working in the chaotic and unpredictable world of startups. Your staff come and go, customer interest waxes and wains, your product seems great one minute and like a stinking turd the next. You never have enough people or money, and you are constantly catching problems just as they are about to go critical.

So private equity funds only want to know you when you look like a real company as they know it, and they want you to have firm orders from large and reputable buyers.

Stockbrokers

If you ask a stockbroker what to do they will likely say – hey, let’s get you listed. Yes, I am caricaturing the industry a bit, but that is what they do for a living.

Yes, you can raise funds this way, and a lot of funds if the market is in the right mood.

The issues to consider here are both immediate and longer term.

The immediate issue is that it costs a lot of money to list. They would normally ask $1 million or more to put together your prospectus and comply with all the regulations of your regulator (SEC, ASIC, etc.). Then they will ask for a percentage of raised funds which leaves you with even less in your pocket.

In other words it is all fee for service and if you don’t have any money in the first place how can you afford it. 

Some investors may be willing to pay for the upfront costs if they think the market is hot and they will make their money back from the percentage of funds raised. I.e. they are loaning you funds upfront and then take it back later.

The longer term problem is that you have already IPO’d, so unless you are a screaming success you have just entered the funding cul-de-sac. Nobody will ever want to know you again. The reason is simple – any further funding will require a massive issue of shares which not only upsets existing shareholders who are now diluted, but means that the future revenues of the company have to be very large to make it worthwhile investing. 

For example I knew of one listed company looking for $50,000 for an investment that would likely make $1 million a year. They couldn’t raise funds and didn’t understand why. I tried to explain that they had several tens of millions of shares on issue so that $1 million per year would only make a couple of cents per share difference to the price – any investor with a basic handheld calculator can figure this problem out.

Investors only invest in longshots if they think there is a really big payoff potential, kind of like dropping some money on the horse in the race with the long odds.

Put it this way, if Facebook had listed years ago it wouldn’t be able to try and ask for the $100 billion valuation it is now as it IPO’s.

Getting laughed out of the room

All of the above will help you understand your investors. Just remember that ultimately all risk taking investors are investing in you to deliver this idea. You have to be clear about what you want the company to do and how to make them and yourself fabulously rich. You also have to have a clear record of finishing off difficult things in your past (i.e. you don’t give up when the going gets tough.)

If you go into a meeting with an investor and tell them how good you are and expect to be funded, then you’d better get used to laughter.

For 99% of us the above is a nice dream. If your business is a mundane conventional business then you might have some foundation investors and you might be able to score a personal loan or re-mortgage your house to cover off a growth stage investment. Good luck.