Some startup ideas I’d love to see

 Here are some business ideas I'd love to see become real. 

An online junkmail account

 Imagine controlling the advertising you receive through your own account.

You can select the products you want to know more about, and local supplier’s brochures are automatically sourced and loaded onto your account.

Looking for a new car – end of financial year specials coming soon.

Looking for a new sofa – here are the latest deals.

Looking for a new computer – here are the hottest specials.

You name it, for work or home, I’d love to see it.

This would provide a direct marketing opportunity for companies, and would allow you as a consumer to control the deluge of catalogues you receive. It would also help save all those countless trees sacrificed to advertising catalogues for things that people aren’t interested in.

E-book libraries for companies

I love my Kindle and have started buying a lot of reference books on Amazon now.

Imagine being able to buy a few copies of a book, and being able to lend it out internally in your company. For example, only one person at a time can have a copy of that book on their reader.

This would allow for copyright control, same as for existing hardcopy books and magazines.

And, yes, I know you can have up to five people access the same book on Kindle at a time providing a business library workaround.  I want to make it the real deal with administration, etc.

Get to know your neighbours

In this day and age we have all become a bit weird about getting to know our neighbours. We all seem to be focussed on our work colleagues and old friends.

So how about having a circle like on Google+ that allows people on your street to tweet an invitation.

• “Lord of the Rings marathon on Thursday night at number 22. Bring some beer”
• “Barbecue on Tuesday”
• “Watch the finals, come on over”
• “Help wanted to move some logs in the backyard – sausage sizzle and beer afterwards”
• “Charity bakesale for Spina Bifida on Tuesday. Come over on Monday night and have some fun making cupcakes.”
• “Does anyone have a drill I can borrow?”

Legal/accounting advice by subscription               

There are heaps of day to day issues that we sometimes want to know what our rights are for. So think of this as group buying for essential advice – a kind of insurance.

Pay $250 a year and receive basic advice for up to 2 hours. Also, there would be a FAQ section to a website that could give examples and references for similar questions.

You could do the same for basic medical questions, dental issues, plumbing, house maintenance, etc. In all this, you are not obliged to buy services from the person who provides the advice.

I know that the professionals need to say that each situation is different, but most of the time we are just trying to get our heads around the fundamental issues – i.e. what is it, what does it mean and what are our basic options or next steps.

Fixed price rehab/physiotherapy

 I get injured a lot – so I have been in and out of physiotherapists regularly since I was a teenager.

What really gets under my skin is that you receive close attention the first day, then for the next 6-10 weeks you are going back a couple of times a week just to use their equipment, but you still pay full consultation rates for at most 30 seconds of personal time with the physio on these visits.

So, how about packaging it up so that there is a one off fixed price for complicated injuries. You get attention when you need it, and you can come back as often as you like to use equipment till you are fixed. If you really need ultrasound or something, why can’t there be on call technically trained staff who don’t need a full college education.

Turn the whole experience into a production line and pump them through. It might feel impersonal but in many ways it is more honest, cheaper for the patient, and most of all it is more likely to get the person to stay all the way through.

A single contacts list

In the smart phone and tablet world I would love to have a contacts list that I can use on any device anywhere. Even on any software anytime.

Ideally it would be totally independent of technology or operating system. It would be something I could have for life, and it would be regularly backed up.

I was recently traumatised by having my first mobile phone virus (via MMX) and this has really got me thinking about this.

In case you are thinking that this already happens – well, yes, but not really. Google and Apple don’t talk that well. Business card contact software is great, but everything has to translate to everything else, but database fields don’t always correlate. I have been juggling things between Blackberry, Google Apps, Android, iPhone, iPad, Outlook and Cardscan. It is making me go nuts.

Can we have a universal standard out there please.

Imagine receiving a call from someone and it would automatically upload their name, job title, contact email and address into your phone. It could be placed in a temporary group (circle) and you can then decide to keep it or not later.  As the person making the call you can provide a certain amount of information based on whether this is a query about a product, a call to a friend or a business call.

Let’s automate contacts folks.

Hot Desking Brokerage

 Just like AirBnB is helping people offer up their spare bedroom as accommodation to strangers, how about we advertise and offer up spare desks around town for people.

I can tell you who I want in my office – graphic designers, web designers, IT types, and all sorts of other freelancers. I’d be willing to rent them a desk for a month or year at a time at a much cheaper rate than they could otherwise get.

Yes, there are legal issues, but these are solvable.

Get rid of universities – give us proper online training

 I don’t mean this literally. What I mean is that there is a tendency to overcomplicate everything now.

A while ago I helped clean up my grandfather’s library after he passed away. I couldn’t believe how thin textbooks were. He studied business and accounting at night school in the 1930’s and when I read the content not much had changed except for the thickness of the texts.

Nowadays it almost seems like if you want to learn how to change a band aid you need to train how to be a qualified surgeon.

Let’s get back to the fundamentals, remember that until the 90’s university was the exception and not the rule, and recognise that vocational training is all most people need most of the time.

A lot of the online content nowadays is video clips. Sorry, but this isn’t really training. Mix it up a bit with readings, problem solving, essay writing, submit your own videos, etc.  Make learning and training part of our everyday lives and make it easy.

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.

The NBD model – ways to grow your business

Let’s get mathematical for a change and talk about negative binomial distributions (NBD) – more specifically the NBD-Dirichlet Model as developed by Andrew Ehrenberg (Wikipedia Link Here).

The maths of this need not put you off, however, if you understand the principles that Ehrenberg uncovered you will improve your business decision making rapidly.

For a great introduction to this model and also to read one of the best books on business I have ever read please track down Byron Sharp’s ‘How brands grow, what marketers don’t know.’  The following is a precis of some of the points from Byron’s book.

The above is an idealised version of a negative binomial distribution – I say this to mean that the percentages and frequencies are guaranteed not to match your industry, but the principles of this illustration are what counts. And apologies to Byron Sharp – the following is my poor attempt to paraphrase the key principles.

First off, you can see that light buyers represent the largest part of your buyers. In other words it is infrequent buyers who make or break your business.

I personally think you can also apply this to a service business too if you think of the number of purchases as blocks of billable hours.

Secondly, you can see that improving the loyalty of your frequent buyers won’t make that much of a difference to your revenues.

Thirdly, targeting a particular segment of your buyers is unlikely to make a material difference to your business. You are better off targeting the light, medium and heavy buyers through mass marketing.

Finally, as your market penetration grows the binomial distribution will stay roughly the same shape, it’s just that you earn more sales revenues. Again, this means you are better off targeting all buyers rather than a select few.

Ever since reading this I have been applying (and likely misapplying) this principle all over the place.

Even this blog and the user statistics bear out the NBD-model in a crude way.

My main marketing so to speak is LinkedIn. I post the blog on a Monday and my regular readers are on to it the same day. However, after reading about the NBD model I realised many people may log on to their LinkedIn account weekly if not monthly.

So given that most of us don’t go past the first page of news on LinkedIn by Friday my blog post advertisement would be buried by new posts somewhere on page 2 or 3 of your LinkedIn home page.

As an experiment I started reposting (sometimes) on a Friday, and lo and behold, readership went up as I captured those who log on on Friday and Saturday too.

To take it to the next stage, I realised that many LinkedIn users only log on every month or so – which I see when someone logs on and catches up on 10 or 20 postings – which happens once every week or so. So, the next step would be to repost old blog postings regularly (daily) as the light readers would be unlikely to have read that headline yet. On the other hand, regular readers will become jaded, and many people would start blocking my LinkedIn posts. However, targeting lighter readers appears effective.

One of the key challenges I would like you to take away from this is how you can best service light buyers.  

For example, the following are a challenge to those in the world I live in, service firms:

• Calling all law firms – while it makes sense to chase large clients which undertake a lot of complicated transactions, don’t neglect the many thousands of small and medium size businesses that only undertake a transaction every 5 to 10 years.
• Calling engineering consultants – winning major deals that employ hundreds of people for a couple of years does make sense. However, have you thought about how to win and deliver the smaller jobs for smaller clients.
• Calling bankers – winning the big deal is nice, but I bet if you added up a lot of smaller deals it would be better for your bottom line.

I have been talking to some of you out there about this, and the most common line I am hearing against targeting lighter buyers in the service industry is that there are too many overheads and that it is hard to be efficient.

My counter argument to that would be to say that if you have a large volume of customers in the light buyer category then you are likely to make enough margin to cover the overheads.

As to the efficiency argument, my response would be to commodify those transactions as much as possible. A lot of service firms build themselves up around providing specific tailored solutions to exactly match each client’s exact problems. I’ll bet a lot of customers will be happy with ‘a solution’ as opposed to ‘the solution.’ I am sure you will find that much of what you are doing is the same, except for the names of the companies involved.

So, next time you are talking to someone about their business, feel free to ask how they are affected by the NBD-model. It’s a great party conversation.

P.S. After posting the above I was watching the cable TV show Storage Wars in which the most successful businessman said, "It was when I started selling low end items instead of just high end furniture that I turned my business around and started making a profit." It took this man 20 years to figure that out - don't wait that long.

Can I have some more efficiency please

If cash is king then efficiency is the queen.

Also known as productivity, efficiency means taking care of only what needs to be taken care of in the most resource and time efficient manner. Every percentage point your people are more efficient means less cost per unit of production, which in turn means that you are more competitive, or more profitable, or hopefully both.

Government sponsored major public-private sector efforts to improve productivity in what then was mostly the primary (mining and agriculture) and the secondary (manufacturing) industries.

For example, on the factory floor time and motion studies are used to identify optimal layouts for equipment and motions for the workers. Management and supervision are modelled on rigid hierarchy.

However, in the tertiary sector - the knowledge, software and service industries - matters are not so straightforward.  If you can work out how to accurately measure productivity then you could make a fortune selling the idea.

There is no definitive ‘right way’ to instil efficiency as an aim in your people, only observations. Here are a few.

Being busy doesn’t mean efficient

Many of us believe that being busy is a sign of a good worker. We admire (consciously or subconsciously) busy people. They have a sense of energy and achievement that others want to be part of.

However, what if the person who is busy is just a perfectionist, unable to make timely and informed decisions?

What if they just fill their day with trivial and unimportant activities that do little other than keep them busy?

Being orderly is a sign of efficiency, or not

A clean desk and a clean workspace with everything in their proper place is important for efficiency isn’t it?

The answer to this is both yes and no.

There are many people who can’t concentrate if anything is out of place. You remember them from school, they were the ones who obsessively lined up their ruler and pencil on the desk to the nearest millimetre and would have a meltdown if someone moved their eraser. To these people having an orderly personal workspace is important as they can’t work properly without order.

On the other end of the spectrum are the paper collectors – you know who I mean – the types of people with foot high stacks of paper on their desk who know from experience roughly where everything is. If you mess with their filing system they too will have a meltdown as they won’t know where anything is any more.

The main problem with an overly orderly workplace is that it reeks of inefficiency. Everything in its place means nothing is at hand when you need it and you spend a lot of time organising rather than working.

So, let people use and abuse their personal workspace as they see fit (subject to hygiene and safety), and enforce a general level of cleanliness for the rest of the office. Understand that other people can work with and cope with different levels of orderliness.

Volume versus quality

Someone who produces a high volume of work must be missing out on quality, right?

The software industry has discovered that their most productive workers produce 10 times as much work as their least productive, and that includes higher quality work.

Having a thorough knowledge of your field, plus the innate curiousity that goes with finding out about new fields of knowledge and the drive to be more efficient are what I would be looking for if efficiency were my sole goal.

Many companies are now turning to practical tests to see whether potential candidates can perform the job well or not.  The reason for this is that in an interview process we tend to favour the well groomed and well-spoken candidate who may in fact be bullshitting you and maybe themselves about their ability.

Hire the best only – a bad mistake

One of the worst mistakes you can make is to build an organisation around one or two efficiency superstars (and yes, this may include you as the founder).

At the beginning you manage to pull off miracles on a regular basis for your clients based on your superstars. Everyone is happy: you, the superstar who gets to feel achievement, and your customers.

As your company grows you put on good people who do a great job and are highly competent. However, they may need more direction and support, and they don’t produce as much under the tight deadlines the superstars responds to.

At first your best and brightest take delight in coming in at the last minute and saving the project.

Later, this turns to resentment as they see themselves as the only ones who know how to get things done and they are only being paid about the same as everyone else. If you are lucky this is the point where they quit in disgust. If you are unlucky they will stay around and turn toxic.

So, hire a good team and recognise that they need help and support to be efficient. Leadership and culture will be key to improving the average level of efficiency across your organisation.

In other words, you need to bring your whole organisation on the efficiency journey, not just rely on a few key people to average out the inefficiency of the others. 

Cash flow management for a startup – learning to be frugal

Money doesn’t grow on trees, and for many startups the expenses that go with establishing a business come as a shock. The delays in revenues come as an even bigger shock.

Here are some of the key things to remember.

It will cost three times as much and take three times as long as you think.

This old saying is a reminder that you will either need to save more than you think before you start, and that you need to start looking for income or investment in your company as soon as you can. Also, forgive yourself for not meeting your ambitious schedule that wasn’t tempered against suppliers or the market.

Flog product as soon as you can

You may have grand plans for your ultimate product, but I guarantee that you will go bankrupt before it is ever developed. Products are always a work in progress. Always remember that your product needs to satisfy your customer first, and you second.

None of this is suggesting or recommending selling inferior products, only that you sell products that meet your customer’s needs.

On TV we are often treated to tales of people who stick relentlessly to their vision of product and quality and have reaped the benefits in the long run. Fine, yes a few do succeed, but you have a better chance of winning the lotto than doing this.

The people who do succeed like this tend to be artisans for whom there is a small but rich clientel willing to pay for the product.  You also need to have a decent amount of experience, the ability to deliver on your visions of perfection and an ability to ignore the fact that you are out on your own.

The market will tell you what is working or not, and you will very rapidly start adapting your business model and product to match.

In other words, you need to make money to pay for improvements to your product, and you can’t do that unless you are selling product.

Spend as little money as possible

To start a business nowadays you need a website, email address, a business card and a company. This should only cost a couple of grand.  I would have said computer, but as of the last year or so you can probably run your business on internet based software (SAAS) without even owning a computer if you really wanted to.

Wait till later to reward yourself.

Spend money on the product or experience

A typical trap for a startup is overcapitalisation. You pay too much for everything up front to build what you think is the way to run a business.

Stick to this rule – ‘If it doesn’t genuinely make a difference to the customer experience or genuinely help staff retention, safety and productivity, then don’t spend it.’

Here are some tips on saving money: 

1. Office and business premises are expensive, so work from home for as long as you can. Use telecommuting tools and online collaboration tools.
2. Pay a bit more for an unlimited phone plan.
3. If you are embarrassed by your car, catch a cab to important meetings or park your car round the corner and walk a bit further.
4. Spend time doing research yourself rather than paying advisors where you can. As the owner you have a vested interest in making things work, and your time is effectively free as long as you aren’t neglecting sales. So ask around for pointers, but do the heavy lifting yourself to save money.
5. Pay for a virtual office address. Sadly, many buyers feel weird about dealing with people working from home and this is why there are companies who will answer the phone for you, collect your mail and offer meeting rooms for clients.
6. Meet people in good cafes rather than in your home office or tatty cheap meeting room.
7. Meeting rooms, showrooms, retail space and the reception areas should always be professional looking, very clean and welcoming. If you don’t take anyone behind this façade it can be held together with sticky tape and string as long as it works.
8. Use public transport where you can and always but always travel economy class. If you really want to be fresh for that important meeting then it is often cheaper to fly economy class the day before and stay at a hotel for the night. 

Counter examples include: 

• Paying the money to be located near the majority of your potential customer base could be the best investment you make.
• Make sure your website looks great and functions well.
• Don’t skimp on IT for knowledge workers -  I make sure my team get a decent lightweight laptop with a good internet connection and current software.
• Allow people to personalise their work space a bit. That element of choice can make a big difference to morale.

Always bill on time

Yes, this is obvious, but when you are in the time consuming business of a startup invoicing can take second place to more urgent work – after all they have a contractual obligation to pay don’t they.

This is true to a certain degree and can work while you have a decent amount of credit available. The issue here is that the timing of revenues and expenses don’t match.

For example in my own business I pay my staff every two weeks and invoice monthly. In practice this means that I receive cash up to 6 weeks after I pay my staff. If I delay invoices by a week, then in many large companies this means that I am now allocated to the following months invoices, and I will then be 10 weeks out of sync. If you have large expenses this timing mismatch will kill your business faster than anything else.

The second reason for billing on time is more psychological. If you bill late you are effectively saying to your customers that you don’t care so much about money and that they can pay you late too.

The old rule is that if you act like you’ll get paid then you will. I have learned the hard way how true this is.

Learn to think short term to reduce locking yourself into longer term risks

Lease equipment at the start. Sure the monthly bill may be high, but you get to sign up a short term contract, or even take equipment on an as needs basis.

For physical products use rapid prototyping or other higher unit cost, short product run methods for your initial product. The reason being is that it the capital costs are a lot lower. You don’t want to spend $30,000 on tooling dies when you can print your product on a 3D printer or use a slower more labour intensive method.  Many of the truly cheap unit cost manufacturing technologies require you to make many thousands of your product. This can be the kiss of death to startups as it is pretty much guaranteed that your first design or two are not going to be as popular with the market as you think.

There are also manufacturers who specialise in short product runs and prototype manufacturing for complex goods. They spend a lot of money on equipment and sell their high quality services to a wide range of clients.

Use local IT people for any complicated web based business where you can. The reason for this is that you can have that face to face interaction and spend time with them to learn what the problems are and sort them out. Yes, this is a lot more expensive that hiring people out of India, Ukraine, the Czech Republic or so on, however, it makes the process smoother and brings local cultural sensibilities to design and wording.

Keep on being frugal

I could keep going on this topic, but you get the essence of it now. Learn to be cheap where it doesn’t matter and you will do better.

Selling: how to keep motivated

Do you sometimes feel you can't even get in the front door?

As I sit here at the quietest time of the business year my mind is turning to sales.

We don’t know yet what the troubles in Europe mean for the global economy but we do know that not all companies will survive the tide going out for the next little while.

Having fought my way through the last recession by taking on five times the normal customer base in order to maintain turnover (and almost having a nervous breakdown to go with it), I am furiously determined to come out of this one with a bigger and more profitable company.

So again back to sales – the lifeblood of any business.  Of the many aspects of sales my question today is how to keep your motivation up.

I don’t know about you, but the rejection can really get to me sometimes.

For every positive meeting you may have ten bad ones.

For every friendly phone call you get told to go away by four or five people.

Most of the time you can brush it off, but every negative experience takes a little piece of you and it’s hard to get it back. After over 7 years of selling professional services, recruitment services and engineering services, some days I feel worn down.

If you really want to feel some more rejection in your life just try selling recruitment services into middle management – it is a magnificently masochistic profession.

On top of the constant rejection there are also times where personal factors such as illness in the family, divorce, death of a loved one, etc. can sap your energy leaving you with little vitality for making sales calls.

Yes, I know taking a holiday could help, but guess what folks, when you are establishing the business that’s really not going to happen for the first year of two.

First I thought I’d start with a bit of a sidetrack into acting. Actors are selling themselves and their own ability, so the many rejections they face are truly hurtful. Their pride is trashed by rejection on an almost daily basis and they can’t separate their own ego from the product as they are the product.

Here are some tips from the world of acting.

http://www.ace-your-audition.com/dealing-with-rejection.html

http://www.actingbiz.com/articles/dealing_with_rejection.php

http://joy-osmanski.suite101.com/dealing-with-rejection-as-an-actor-a194744

Next, the following are links into articles and blogs from salespeople on how they deal with rejection and stay motivated.

http://salescareer.net/how-to-stay-motivated-in-your-sales-job/254

http://www.nextlevelsalesconsulting.com/sales-insights/free-sales-tips/tips-staying-motivated-while-prospecting.php

http://thomas-kelly.suite101.com/how-to-stay-motivated-to-make-sales-calls-a99215

http://www.davekahle.com/article/motivated.html

http://www.salesresources.com/articles/article.cfm?ID=103

http://www.inc.com/geoffrey-james/5-easy-ways-to-stay-motivated.html

http://salesgurunl.blogspot.com.au/2010/07/staying-motivated-in-challenging-times.html

Your observations are also welcome – please feel free to comment or email me.

As a good friend says – “keep on swinging, you might just connect”.

And remember to smile.

Five things you need to know about starting a business

First – Cash is king

The world is full of good ideas that are unfunded. You need to put your own money in, then aim to earn revenues as soon as you possibly can.

The costs of starting up and growing a business are more than you realise, so be prepared to re-mortgage your house, max out your credit cards, sell shares, pre-sell product, or whatever it takes to get up and running.

Running out of cash is the main reason companies fail. The worst part is when you run out of cash before your product is ready for the market – you will have nightmares about this for the rest of your life.

Spend your cash where it makes the most difference. For example, Google advertisements are going to be a heck of a lot cheaper and more effective than advertising on television, so why do some startups insist on spending the $30,000 to $80,000 for a single 30 second advertising slot. Post your ad on YouTube instead.

Speaking of spending your money wisely, you will be inundated with offers of help from advisors, suppliers, etc. You will go bankrupt very quickly if you pay for every bit of help you need. Fortunately the one thing you do have is time – so spend your time reading up on issues and working your network for answers.

The good news is that every single other business out there is in exactly the same position, so get your game on and get competitive.

See the following for more:

http://grow-a-set.blogspot.com/2011/07/what-can-you-sell-now.html

http://grow-a-set.blogspot.com/2011/05/sell-stake-in-your-product-run-not-your.html

http://www.inc.com/encyclopedia/cashflow.html

Second – Business plans are fiction 

Detailed business plans are really a reflection of how you want the world to work and unless you have deep experience in your chosen industry you will likely find that the market rejects your version of reality and imposes its own.

A sensible business plan will state what industry you are in, how big it is, who is doing what to whom and for how much, key target customers, key competitors, likely startup and ongoing costs, staffing requirements, etc. This could take up a few pages.

When you actually talk to customers, suppliers and potential employees you will rapidly discover issues with your initial idea. You will then reinvent and refocus your business.

See the following for more:

http://grow-a-set.blogspot.com/2011/10/business-model-versus-business-plan_04.html

http://grow-a-set.blogspot.com/2011/11/think-long-term-act-short-term.html

http://grow-a-set.blogspot.com/2011/01/your-business-plan-is-wrong.html

Third – Test your idea before you commit

You are about to quit your job and put your life savings on the line, so it is only sensible that you test out your idea a bit. Fortunately it is pretty cheap to test your idea, and you can do it before you quit your day job.

Registering a company, getting a logo, buying your domain names and getting a website up should cost you a couple of grand in the USA, Canada or Australia.

Go talk to potential customers and suppliers. Read up on industry trends. Look at your potential competitors – sure they may look like dinosaurs but they are making money so don’t be different for the sake of it. Talk to people working in the industry. Talk to people in the same business in a different city so you can test your ideas with someone who won’t compete. Talk to family, friends and people in your network.

Do find reasons to talk to lots of people as most of them do not have the drive or interest to steal your idea, and if you create a bit of a buzz then that is a nice form of marketing too.

See the following for more:

http://grow-a-set.blogspot.com/2011/01/secret-entrepreneur-makes-no-money.html

http://joelmacfarlane.com/2010/02/25/market-test-your-ideas/

http://www.inc.com/guides/201109/how-to-assess-the-market-potential-of-your-new-business-idea.html

Fourth – Passion is a buzzword

Watching the latest American Idol auditions again highlights the misuse of the word ‘passion’ in modern society. It seems that when a contestant uses the word passion they can’t actually sing.

I am passionate about movies, but I wouldn’t have a clue how to make a movie or write a good script.

I wouldn’t be surprised to hear that venture capital firms and angel investors screen out any companies that use the word passion in their pitch.

What I do like to know about are the following attributes: determination, flexibility, resilience, curiousity, inventiveness, clarity of vision, frustration with the status quo, interest in your investor’s interests as well as your own, recognition of your limitations, etc.

Leave passion for lovemaking, not business.

See the following for more:

http://grow-a-set.blogspot.com/2011/04/passion-is-overrated.html

http://www.gamasutra.com/view/news/38095/Passion_Its_Overrated.php

http://www.thepsychfiles.com/2009/04/episode-92-passion-for-your-work-is-overrated/

http://parisianfeline.wordpress.com/2011/05/16/why-passion-is-overrated/

http://www.needinputblog.com/2011/10/why-finding-your-passion-is-overrated/

Fifth – Minimum Viable Product please

Perfectionism is your enemy. The whole point of business is to earn enough money to cover your costs. See point one above about cash is king. Unless you have a stupendous idea that investors love so much that they pour money into your company then the carefully crafted path to final product will remain on paper only.

The trick is to get something up and sell it as soon as possible. The current catchphrase for this is minimum viable product.

When you get that product up then you will find out what the market thinks of your product. You can make improvements based on feedback. You will also likely find that the feedback you get leads you in a slightly different direction than you thought you would take.

The really nice thing about making sales as soon as possible is that it gives you the cash flow to pay for upgrades and improvements to your product. This point cannot be emphasised enough.

See the following for more:

http://grow-a-set.blogspot.com/2011/09/whats-minimum-product-they-will-buy.html

http://techcrunch.com/2011/10/19/dropbox-minimal-viable-product/

http://en.wikipedia.org/wiki/Minimum_viable_product

http://www.andybudd.com/archives/2011/12/the_tyranny_of_the_minimum_viable_produc/

Transmission Resumes

Thank you for your support to date.

Last year was a lot of fun. I churned out daily blogs on all matters to do with starting a business, and had a lot of fun.

The old adage that the best way to learn is to teach someone else is definitely true.

Through writing the blog I had a chance to reflect about a lot of matters that I deal with and that I see my friends and clients deal with. This has helped me as much as I hope it has helped you all.

Over the year we have received the following feedback:

• Your posts are too long
• Your posts are too short
• I want to know more – do you have any references?
• Holy crap, you don’t pull your punches do you
• And so on.

As well as the feedback above, family issues forced me to realise that life is precious and perhaps some of my rants were a bit too sarcastic or forthright for most people. I have ended up like this after years of working with startups and I can be frustrated at the absolute nonsense that the popular press, including business websites write about starting a business.

This website is intended to be an antidote to that, and I am now endeavouring to rewind the clock and reduce the evident frustration in my blog entries.

I also take issue with experts who have a definite answer to problems. Guess what, that is technically, physically, conceptually and philosophically impossible.

Business and markets are too complex to have a one size fits all solution. Sure there can be trends and general activities that work, but the fact is that a lot of the solutions you need are both industry specific and personally specific. In other words, there is a lot you are going to have to work out yourself, and you need to accept uncertainty and give yourself time to learn.

The aim of the Grow a Set blog as always is to help the 99.9%. Yes, the 99.9% of business that aren’t high tech startups funded by Silicon Valley VCs.  And in the spirit of the Occupy movement, I will continue to occupy the word startup to cover any new business.

So, here we are in 2012 and I endeavour to write the blog regularly, make sure it is both longer and shorter (whatever), and provide further references where I can. I may be gentler too…. we’ll see.