I can understand their emotional state:   they are bright and restless and need to engage their skills and to experience the feedback and stimulation and identity of working in the world.  They despair of economic recovery.  They are young and want to take their shot, or middle-aged and want to do something to control or enhance their savings or retirement fund.  In most cases they have enough personal savings or 401Ks to get through a year or so without salary, but after that year, there will be nothing.  So they want to take an action and not remain passive.

I admire their spirit.  I want to support their vision and their courage.  And I want to warn them, and you, about the realities and timing of successful ventures.

Here is what has alarmed me:  these first-time or next-time entrepreneurs are suggesting that they build software companies (Internet or SasS or database/metrics or social media) involving product development, when they have never built a technology product before.  They are not techies.  They have their savings to live on but no capital to pay a team or consultants, or to launch and market, or to search for investment.  They seem to think that building the software gets them a business, without understanding all the steps necessary to capitalize, launch, market and sustain a business over several years before there is any return on their risk.

And they do not think about “lost opportunity” costs.  It takes many years to create a return on your risk of starting a business.  There is the “hidden year” of planning, sometimes 2 hidden years of planning, assembling a team and writing a plan or a pitch.  Then a year minimum to build the initial product and search for capital.  Then, if successful, you can spend another year to close the capital, launch and  achieve market traction.  At this point, your company is still an early stage business with no return of wealth creation, and we are 3-4 years into the venture.  Next, market share must be attained, then defended against competitors, some of  them young, lean upstarts with disruptive new technologies (like you were 4 years earlier). 

At this point, say 5 years in, having sustained all this, your company begins to have a valuation that can create a significant return on your risk and a possibility for exit and wealth for you, if you have not lost your control or ownership of the company to your early-stage or savior-stage investors.  So, if we assume 6 years from concept to wealth creation, given you were smart and savvy and the industry market timing and the capital markets cooperated with your vision, you may have a way to cash out. 

Look at all those “hot new companies” that are your inspiration — look for their hidden years, look for their changes in their business models if they were too early to market, look at what ownership the founders have now.  The story of risks and rewards are in the details.

I am not citing here the statistics on how many start ups fail (surely you know this).  I am showing here how long you take this risk before knowing that it will bring you the reward you want.  How old are you now, 6 years later?  What have you risked?  Your savings,  your mortgage, your retirement fund?  Your career path?  Your family - current or future?   The accumulation of salary or consulting fees and the filling up of your 401K?  Can you re-enter the job market now if you need to, older, with a long gap in your resume?

Let me suggest more simple alternatives.  If you have a business, make it work by targeting immediately adjacent markets for your products or services, expanding your vision of how you can build on its success despite this economic lull, or how you can transfer its offerings to new territories, or new customers with minor changes in product application, service packaging or pricing models.  Effort in this direction will take far less than 6 years and all your savings to achieve, and you may find a new energy and enthusiasm for your work in these new explorations.

If you do not have a business, then take your skills and build a simple and cost effective service business, with minimal overhead, aggressive networking and a calling in of favors, to extend your expertise into the world as an independent consultant or advisor.  Be creative with pricing, pro-bono work, building your track record, using your social media.  Keep your costs and risks to a minimum, and keep your energy high. 

No one knows what recovery from this economic downturn will look like, when it might appear, and most importantly, when that recovery will actually have an effect on you.  Economists disagree.  Uncle Harvey doesn’t know.  Your banker/broker has only an opinion.  This  is my 5th economic downturn (between technology sector downturns and general economic ones), and the  strategies for surviving these times can be summarized:

• Minimize costs and risks.
• Get creative using your existing business or personal expertise to move to immediately adjacent markets or territories.
• Be flexible and creative about pricing to suit market conditions, while still being paid for your value.
• Keep your energy, health and spirits high for the duration.
• Do not take new long-term risks until your capital and market conditions allow.
• When you can, save your money as a buffer against the next downturn.

Economic downturns are a pattern of life and business.  In my full support of the entrepreneur, I want to see new, successful companies built with as many supportive factors in play as possible.  Even in a downturn, a business can be built or built anew with the best strategies.

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Public companies share their financial results with the world; mostly because they have to in order to freely sell their stock. Privately owned companies don’t share their financial results with anyone unless they have to in order to get a loan, file their tax returns, or sell the company. What both have in common is that they only share when it’s a requirement. What they don’t have in common is that public companies’ information is, well, public. More to the point of this article, financial information is available to every employee of every public company in the land.

Is that a bad thing? You would think so from the pains that most private company CEOs go to in order to keep that information away from their employees. The mutual feelings of mistrust run deep, perhaps stemming from the lack of loyalty that employers and employees perceive from each other. Employees think their employers will lay them off at the drop of a hat (or net income) and employers think their employees focus largely on doing as little work as possible while pocketing office supplies and looking for a better job somewhere else. In management terms that sounds like:

• “If they know we’re making a profit they’re going to demand raises, bonuses and a membership in the local health club” or
• “If they know what our goals are and we don’t reach them, we’ll have to explain why” or
• “If an employee leaves and goes to work for a competitor, there goes our competitive advantage when he tells them all about our plans and strategies” or
• “Explaining this stuff in lay terms is a lot of work, and periods of poor profits can create anxiety that we know how to handle but our employees don’t” or
• “If they find out our customers will find out and we’ll get requests to cut our prices or our suppliers will find out and they’ll want us to pay more for what we buy.”

OK, maybe that’s a bit overstated, but come on, folks. We know that a football team’s goal of winning will fail if all the members of the team don’t work together. That means every player knows the game plan, their evolving role in the game plan, and what the end goal is. And they all know whether they’re making progress at any given time. So here’s where I’m going with this: if teamwork requires mutual trust and mutually well informed team members, and if profit is the “end goal” of the company, then why is it anathema for the team leader to keep the team informed about their progress? In other words, why isn’t Open Book Management, or “OBM,” the rule for private companies, rather than the very rare exception?

In a weird bit of irony, it seems that OBM practices are more visible when a company gets into trouble. The logic goes like this: ‘We’re really hurting, team, and we need you to sacrifice without blaming management so we can find a way to hold the team together and get to the goal.’ Of course once the sacrificing is over, we won’t need to share all that stuff with the team, because they’ll go right back to the raises and bonuses pitch and we’ll have to explain why we’re buying a boat instead.

Am I being too cynical? I tried to find a publication, article or speech that spoke of the problems encountered with OBM – the pros and cons, if you will. No one speaks, writes or teaches against this method of sharing information. To the contrary, there are volumes of information describing the improvements that companies have made in productivity and profits as a result – directly or indirectly – of making the move to share more of their financial and business planning information with their employees.

So why isn’t OBM happening in your company? Could it be that the perceived risk of the bullet list above is greater than the perceived benefit of having your employees invested in your company’s success? Perhaps you don’t believe they really want you to succeed. Or you don’t believe the employees’ feelings about the company’s success will have anything to do with your actual results?

Maybe I’m not the cynical one after all. If everyone who has had exposure to OBM thinks it’s beneficial to the company, but you’ve not been willing to consider it for your company, either you haven’t heard the success stories or you don’t believe them. I’ll go with ‘you haven’t heard them.’

Here are some examples.
• Pool Covers Inc. – the poster child for a recent Wall Street Journal article – has been using OBM since 1994. The CEO credits the practice with helping the company’s value grow an average of 23.8% a year from 1997 to 2007. During the current recession the company had to consider its first ever layoff, and six employees volunteered to be laid off based on the information they had seen, rather than have the company struggle and perhaps not make it.
• Dorian Drake International – when the employees began seeing their company’s financials in 2002 they realized some departments were getting better deals from vendors than they were for similar purchases. The resulting changes in purchasing procedures helped the company go from a $500,000 loss to a $200,000 profit in one year – with no increase in sales.
• Springfield ReManufacturing Corp. (SRC) was an ailing division of International Harvester when a new CEO assumed control as part of an employee-led buyout. The biggest change under his direction was cultural. The company created and embraced an environment of open communication, learning and development, and trust. SRC taught its employees how to read a balance sheet and began sharing key financial information. Employees learned how key performance measurements such as defect rates and order backlogs impacted the bottom line. The result? From 1983 to 2004 the company’s sales grew from $16 million to more than $160 million.

So, might it be worth a try?

Wall Street Journal, 2/23/2009, page R8.
Wall Street Journal, 2/23/2009, page R8.
Open Book Management, The Coming Business Revolution, John Case, HarperBusiness, 1995.

My close colleague, Gene Siciliano (our “CFO for rent” at www.cfoforrent.com) provides training in finance for non-financial managers, and helps companies develop performance metrics that are the leading indicators of profitability.  His website is filled with resources and articles, and you can sign up for his newsletter. I wanted to share this article with you.

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If the CEO does not have this precise domain expertise, then a full or nearly-full partner must have it, bound to the Company by significant incentives like stock ownership or vesting, a voting position in decisions, and so on.

I have worked with a CEO recruited into early stage software companies who came from the semi-conductor industry, and found myself educating them on the difference between intellectual property companies vs. chip companies - a difference that goes far beyond the cost of goods required.  These two industries have different and sometimes conflicting world views.

Another time I worked with a highly intelligent and successful attorney, with legal experience in transactions of early stage software companies.  Trouble is, nothing that trains an excellent attorney is the same as training an excellent CEO.  Attorneys live in cooperative and mentoring environments.  Until they are senior partners, they do not hire or fire, sell , market or handle complex budgets.  They manage neither teams nor product development.   They may understand the workings of an early stage company, but as attorneys they are always outside of it.

One client had deep domain experience in the end-to-end management of his industry.  So he decided to accept an offer to fund the development of an enterprise software product that would replicate his experience.  He even had an excellent reputation and a golden rolodex into which to sell the product (and an expertise in deal making).  Trouble was, as he freely admitted, he knew nothing about either software development or the sales cycle of an enterprise product. 

The learning curve for domain expertise is very long, and early stage companies do not have time for many errors. And, to lead, the CEO must be ahead of all learning curves, not catching up.   Before taking the lead position, the CEO should have completed his or her ”10,000 hours” (as referenced by Malcolm Gladwell in his book Outliers, based on a study by Anders Ericsson http://bit.ly/mXUs ).

Operations, sales and marketing excellence can be hired — and of course, expertise in the Company’s niche is necessary here.  But there are more candidates for these positions than for the CEO role.  Even startup expertise can be hired as consultants (as long as they have completed their 10,000 hours).

Some of the CEOs in the descriptions above succeeded, some did not.  The lesson here is that, if you are the CEO, build a product or service business directly in line with what you know.   If you have founded a company, and it is time to add a CEO or replace yourself, look long and hard for the best candidate with the appropriate expertise, and additional experience in the growth stage of your company.  And stay involved.  Many successful startups fail upon this change in the CEO position.

And if you have domain experience but not the technology experience, find a partner with the appropriate expertise.  Do not “hire out” your R&D to consultants, freelancers, or offshore talent in place of a significant partner, fully invested in the Company,  clearly incented to stay for the long haul.  From my years of helping CEOs start technology companies, I find that those CEOs who believe they can build technology without prior experience risk the highest failure rate.

Be careful starting out — early stage companies take longer to succeed (or fail) and more capital than you expect, and your deep domain expertise will keep you on the winning side.

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So, you get one sentence to state your unique value proposition and your first-level differentiation. In simple language. And I mean simple – See Spot Run. See Jane watch Spot. That kind of language. No jargon. No tech-speak. Say it like you would explain it to your sister’s cousin’s grandmother. So you say:

“I’m John, CEO of Startup.com. We make (widgets) that let our customers (replace with your specific target customers) improve their (insert the value of using your widget or service) because our widget (state your differentiation from your competitors – technology, pricing, etc.).

Watch the structure. “I’m John, CEO of PhoneCoupons.com. We provide internet supermarket coupons that let shoppers find our 10% better-discount coupons on their smart phone in real time while shopping and use them at the checkout – no research, no clipping, no forgetting.”

Notice no tech speak. Grandma could get it if she understands how smart phones work.

Ron says, “Interesting. Tell me more.”

This is your chance to extend your value proposition and dig more deeply into your differentiation and success. You say:

“PhoneCoupons.com is in partnership with 70% of the major product brands and 80% of the regional supermarket chains, our technology is in use today, and sales are growing at 40% per month. We take a 2% fee from the product brands for each transaction, and will be profitable within the year. We are looking for strategic partners and capital investors for our growth phase.”

Ron says, “Can you send me some information on this to share with my Board?”

You send your pitch deck (for the product or the investment, as appropriate – these are separate decks). Each deck, no more than 10 slides in each, positions the unique value proposition, the differentiation and the return on investment to the customer or the investor. And it can be a 2-page pitch piece, not a PPT deck, if you prefer.

The response you want from the pitch piece is: “Can you come in and show us a demo and tell us more?”

At this point, you have a qualified prospect (you have determined if you are talking to a customer or investor or both), and can go in with your demo and full pitch for closing.

Notice that all you want in a response is 1) Tell me more, then 2) Can you send some information and 3) can you come in for a meeting. If you push for a faster response than these measured requests, you blow the deal. This is why each sentence from you must be crafted to speak to value and not technical detail, and to speak to differentiation and ROI, not product specifics.

The secret is to not tell too much too soon in too-technical language.

My key work in this area received an immediately $2.1M equity commitment on a 2-page pitch piece in See Spot Run language on a complex software product, and allowed another company looking for its 1st professional equity investment to sell itself to a strategic partner within months.

Knowing how much not to say when, how to position value and differentiation in a sentence or two, and how to use simple language to explain technology is the secret to successful pitching. Good luck.

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So, rather than keep them to myself as an internal checklist, I thought to explore them here in a series of postings, digging deeper than I have done before.  Comments are welcome. 

Note that these are not tactical considerations, but strategic skill sets that can be applied to any venture.  This list doesn’t look like other lists or chapter headings I have seen — it seems adjacent to the usual business school outline.  

These skill sets create successful serial entrepreneurs who can fail at one venture and still succeed at several others.  My experience has shown me that at least one of these characteristics was missing in any failed company I witnessed or evaluated, even if the other 9 characteristics were in play, despite market conditions. 

To begin, here is the list of 10 characteristics:

1. Domain expertise (technology or other)
2. Leadership & personal power
3. Financial savvy
4. Ability to pitch and close
5. Honor
6. Realism
7. Perseverance
8. Patience
9. Perspective on the larger scheme of things
10. Courage to move forward, or stop, and to know when to do either one.   

 Please join me in this exploration as I post these upcoming 10 blogs over the coming weeks.  I’d appreciate your thoughts as this conversation evolves.

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The fact is, in today’s highly competitive business environment, no firm can afford not to communicate. And, in the start-up phase, handling your own public relations can help keep the costs down. Then too, potentially negative media situations can be diffused by preparing in advance. This, however, does require that all issues be thoroughly and honestly addressed and the media strategy adhered to.

In strategizing effective communications, what you say is as important as what you don’t say. The message must be strategically planned to achieve the purpose you desire, to target the markets you want to saturate. What you communicate is the most important. Your approach is more valuable than your contacts in achieving positive results.

Every solid public relations campaign is based on the conclusions of market research and management’s objectives.

Before you commit to a communications campaign, conduct market research. Yes, it is costly. However, it is even more costly to do the research the other way, through trial and error campaigns. All companies do market research, one way or another. It’s better to plan that research and spend less money up front to ensure that your first campaign is on target. It can be the business decision that keeps you in business.

These are competitive times. A good reputation and an extensive product line or a long list of services are no longer enough to ensure that business finds its way to your door. You must understand your position and image in the marketplace. Find out how your competition, your clients, and the general marketplace view you. If yours is a new company, you must create an image.

Once you have made a commitment to an ongoing public relations campaign, compile a list of all the techniques available and avenues open to your type of business. Then prioritize them. They may include:

1. Active participation in trade associations, Chambers of Commerce, or other business organizations;

2. Exhibition at conventions and trade shows;

3. Speaking engagements;

4. Sponsorship of major events or planning your own;

5. Press conferences and press previews;

6. Placement of by-lined articles in key publications;

7. Preparation of new product and/or personnel releases for trade publications;

8. Capitalizing on a trend or newsworthy occurrence (or creating one) to target major business or general interest magazines as well as major metropolitan daily and local weekly suburban newspapers, and radio and television news and talk shows;

9. Submitting PSAs to radio and television to garner “free” air time;

10. Design and implementation of a financial and investor relations program;

11. Development of a direct mail campaign and other collateral
(brochures, website, etc.) materials; and

12. Government relations, i.e. lobbying.

Once you’ve planned your work, work your plan.

My close colleague, Devon Blaine, is the CEO of the Blaine Group, an award-winning total communications agency with a broad range of services and a master rolodex. I want to share some of her expertise in these pages. Check out www.blainegroupinc.com

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Here is that world, and you can visit it here: http://bit.ly/2oMIqi
This is the Hazda tribe of Onwas (named for their elder) living in the bush in Tanzania. Leave some quiet time for a long read and longer think.

Some excerpts that made me laugh:

“I asked Ngaola if he’d waited a long time for me. “No,” he said, “Only a few days.”

“No Onwas I met…seemed prone to worry….Why grow food or rear animals when it’s being done for you, naturally, in the bush? When they want berries, they walk to a berry shrub. When they desire baobab fruit, they visit a baobab tree. Honey waits for them in wild hives. And they keep their meat in the biggest storehouse in the world –their land. All that’s required is a bit of stalking and a well-shot arrow.”

“The school-age kids I spoke with…had no interest in sitting in a classroom….It’s far better, they said, to be free and fed in the bush than destitute and hungry in the city.”

“A significant number of Hazda women who marry out of the group soon return, unwilling to accept bullying treatment…. Woe to the man who proves himself an incompetent hunter or treats his wife poorly.”

“Onwas was interested in a picture of my cat. ‘How does it taste?’ he asked.”

Please visit this other world, and let your reflections take you where they will. My thanks to author Michael Finkel for the journey (and the abuse to his body during the trip) and to National Geographic for sponsoring this adventure. We are the richer for it.

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There is great power in excellent manners. It allows folks to trust you. Those extra gestures of politeness are respected and welcomed in our too-fast world of 140 character communication. Sometimes a colleague won’t specifically understand why he or she thinks so highly of you, but will always hold you in high esteem, and say so.

Here are some of those gestures of good manners:

• Write a brief note of thanks following every initial meeting, even if you were not the one requesting it. This should be automatic and within 24 hours of the meeting.
• Acknowledge your client/prospect/colleague’s ideas, even if you will not participate in them.
• If you have pursued a prospect several times by follow-up email or voice-mail, but have received no response, send a closing note that acknowledges the conversation or meeting your shared, and say you will be available “whenever the time is best.”
• It is not weakness to be available, but graciousness. If you are not available later, you can say so then, with your kindest regrets.
• Do not expect others to have the good manners that you exhibit – impeccable behavior is more and more rare.
• Do not take others’ rudeness personally (it won’t help your situation nor change anyone’s behavior).
• Be generous with your advice, even if you have not signed on to the work. But don’t do the work itself before you have a contract.
• Be supportive of the idea, even if you doubt its ultimate success. How many times have you mis-judged the next new thing?
• Be polite: if you feel you must issue some warning about an idea, do it in positive terms, as a suggestion to safeguard against the unexpected.
• Take the time to share some bit of news, or an announcement of a potential competitor, or an article that may be useful. Do this with clients, colleagues, vendors, and prospects. This is part of your generosity – that you are thinking of someone and taking the time to show you remember them. Be simple about this – attach the information and just send a brief message with it, “thought of you and hope this is of interest.”
• Spend time with younger folks who seek your advice, even if they can not be clients or prospects. They will grow older and more advanced in their careers, and remember that you were kind to them. This includes teaching as well as one-on-one meetings.
• Listen more than you talk. Much more.

We live in an aggressive get-ahead world, filled with competition. Excellent manners are the inverse of this aggression – the yin, not the yang. There is great power in having so much abundance that you can share a note of thanks, an hour of your time without expectation of gain, a message with a piece of useful information for no reason other than to share it.  You will be remembered for these gestures.

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A company’s Net Promoter Score (NPS) is based on the fundamental perspective that every company’s customers can be divided into three categories: Promoters, Passives, and Detractors. By asking one simple question — How likely is it that you would you recommend [Company X] to a friend or colleague? — you can track these groups and get a clear measure of your company’s performance through its customers’ eyes. Customers respond on a 0-to-10 point rating scale and are categorized as follows:

Promoters (score 9-10) are loyal enthusiasts who will keep buying and refer others, fueling growth.
Passives (score 7-8) are satisfied but unenthusiastic customers who are vulnerable to competitive offerings.
Detractors (score 0-6) are unhappy customers who can damage your brand and impede growth through negative word-of-mouth.

To calculate your company’s NPS, take the percentage of customers who are Promoters and subtract the percentage who are Detractors.

We recommend this program to our clients. To find out more, you should visit Net Promoter http://bit.ly/8a2tAp  . If this is interesting, there is a book about how to implement this practice.

In their book, Answering the Ultimate Question, Richard Owen and Dr. Laura Brooks of Satmetrix describe the Net Promoter Operating Model that captures the elements necessary for a successful program. The operating model provides a best practice framework for how companies collect and act on customer feedback to optimize financial benefits.

Please comment to mail@robertgonsalves.com  and let us know if you have heard about the Ultimate Question and if you have had any experience implementing a customer satisfaction program at your business.

My friend and colleague, Robert Gonsalves built the award-winning, online success of Disney Online and Warner Bros. Online, and now consults to CEOs and senior executives to build loyal life long customers and to drive profitability from their online efforts. Check out his site at www.robertgonsalves.com.

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I have a long connection to Chinese culture (from early exposure to the iChing to building a company in Shanghai in the 1990s), and have been anticipating the turn of this year and the putting aside of last year, which has been so difficult for so many folks around the world.

In juxtaposition, yesterday I heard an old Paul Simon song (American Tune, © 1973) quite by accident, a blues song that seems relevant for the current times:

And I don’t know a soul that’s not been battered
I don’t have a friend who feels at ease
I don’t know a dream that’s not been shattered or driven to its knees
But it’s all right, it’s all right
For we’ve lived so well so long
Still, when I think of the road
We’re travelling on
I wonder what’s gone wrong
I can’t help it, I wonder what’s gone wrong.

Even in a blues year, the turning of the new year signifies the putting aside of what has come before, and the looking forward with an optimism to the coming changes.

Traditionally, any New Year’s Day (January or otherwise) celebrates the coming of Spring, even if the ground is covered in snow, because we have passed the Winter equinox on December 21st (the shortest day) and are looking forward to the increasing light and easier living in the coming season.

Preparing for Valentine’s Day, I got to thinking about the cyclical coming of Spring. A native Bostonian once told me that after mid-February, you couldn’t trust the ice in Boston for skating. Another person explained that the increased sunlight re-activated certain hormones in all creatures (us included) that incited us to mating (hence, Valentine’s Day and the Spring re-birth of animals). In semi-tropical California, the Spring flowers arrive in February.

So, in harmony with the Chinese, I have put on a red ribbon to remember the turning to the new, and I am excited about the changes coming to meet us in the re-birth of the year.

The red ribbon is a wish for all of you who follow these meanderings ~
For all affairs, great good luck!

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