What are the
Ten Most Important Things You need to do
to Create a
Successful Startup?
By Dr. Bruce M. Firestone, B. Eng. (Civil), M. Eng.-Sci., PhD.,
Entrepreneur-in-Residence, Telfer
March 1st, 2008
(Prepared for the First Annual Entrepreneurship Seminar
sponsored by The Entrepreneurs’ Club, Telfer School
of Management)
Well, there are certainly a lot more than ten things you
need to do to create a successful startup but for the sake of brevity today, I
will limit myself to ten. Here is my list:
- Select the right idea for your next startup;
- Create business models
for the 21st Century that produce great results so that the
harder you work, the more money you make and so you can compete
effectively with hard charging entrepreneurs from China, India and other
Tigers by having a business model that can not be easily duplicated or
dislodged and gives you a lasting, sustainable competitive advantage and
concession or franchise.
- Add differentiated
value, innovation and ‘pixie dust’ to your business models;
- Create a compelling
value proposition and learn how to clearly demonstrate it to customers and
clients;
- Self-capitalize
(bootstrap) the new enterprise so that you end up owning it and not a VC
firm or other investors or partners;
- Use smart marketing
(guerrilla marketing and social marketing) so you can acquire customers
and clients cost effectively;
- Mass customize products
and services using the Internet so that, for the first time in history,
you can get custom outputs from standard inputs as well as reverse out
some of the work to your clients, customers and suppliers using the
Internet so that you create a scalable enterprise that can produce more
value than if you had a JOB;
- Find pre-launch and
launch customers and sell, sell, sell (as Ben Affleck said in the film Boiler Room: “ABC—always be
closing);
- Execute expertly, show
leadership and become a trusted member of your community and business
ecology;
- Make your own rules and
set and achieve your goals!
Select
the Right Idea
If you ask me, the big idea is LESS important than good execution which obviously includes staff training. Most of my students think that the big, NEVER BEFORE TRIED, idea is more important but there are lots of companies that do very well with good execution of fairly mundane things.
I am pretty sure that the only thing that is in infinite supply is ideas; numbers, for example, represent an idea and they are infinite. There are probably more than 25 million smart Americans in their basements at any one time trying to come up with the next bid idea (like, say, Google). They are generating a huge volume of new ideas; that tends to suggest, in economic terms, a surplus of ideas while the skills to implement them are in much shorter supply and, hence, the latter will generally attract a higher price.
The market for new ideas, such as it is, tends to put a low price on them (just try to sell your BIG IDEA at a business model stage and you will see: a) how hard it is to do that and b) just how little you will get for it). Obviously, a startup that combines some type of innovation with good execution is better off than one with just sound execution. Fred Smith, when he started Fed/Ex, brought the hub and spoke system to the overnight package delivery business, essentially creating that industry.
Before that, it was thought to be an impossible challenge—if you had 60
cities as both origins and destinations in your US network that would have
meant that you have 1,770 unique pairs of cities ((60 x 59)/2) and you would
need to make 3,540 overnight flights to connect them all, an obvious
impossibility. If you had instead five hub airports within easy trucking distance,
you would have ten unique pairs of cities and, hence, could get by with just 20
overnight flights to connect continental
However, most successful startups do not create new industries or are not necessarily first movers. Google wasn’t the first search engine; however, they did bring significant innovation to the table including: neutral search rankings, search rankings that reflected traffic loads on and links to a site, paid search links and auctioning off of paid search links. GradeAStudent.com, now GradeATechs.com, was not the first at home computer repair service but their execution was good and they used a back end system (GASnet) to automate their appointments and their billing systems.
Create Business Models for the 21st Century
Digg.com’s founder, Kevin Rose
made $60 million in 18 months. Kevin was just 29 years of age so there is still
time for you!
Kevin Rose, Founder, Digg.com (BusinessWeek August 14, 2006)
While I think great execution is really important, having
some type of innovation in your business model can help you create a
sustainable advantage; i.e., you need to have some type of ‘pixie dust’ or
differentiated value in your organization’s business model. This creates a
franchise or concession for you that is hard for others to copy.
Let’s return to the Digg.com model. What makes it
different? What is its differentiated value?
- It is a new model for a newspaper uniquely
adapted to the Internet.
- It is not simply the
online version of the New York Times or some classified advertising page
transferred to the Internet.
- It is a digital community made up of a
fairly homogenous demographic?80% are male,
mainly young techie readers.
- Readers are also
contributors.
- Readers dig up
interesting stories from all over the web and post brief synopses to the
site and links to them whereupon other readers vote on them—the most
popular ascend the page.
- The site harnesses the
competitive instincts of the readers/contributors to compete to see whose
story will lead.
- The site works because
of its homogeneous demographic—contributors only
post stories that will be of interest to the group.
- The site is dynamic—leading
stories change by the minute or hour.
- Digg.com’s cost for
headline writers = ZERO.
- Digg.com’s cost for
journalists = ZERO.
- Digg.com’s cost for
editors = ZERO.
- Digg.com’s cost for distribution
= ZERO (at least, the marginal cost is practically zero).
This is a lot of pixie dust. I think Digg.com is important
for another reason—I believe that it is important for communities that are
working together to be reading the same things, to share a common culture. If
you think about it for a moment, many of the communications you have in a given
day are made much easier by possessing a common culture; you don’t have to
explain where you are coming from and the context of what you are saying in
every conversation you have.
Now the innovative nature of Digg.com would be pretty useless without good execution so creativity is a necessary condition for the kind of success Mr. Rose has had but not a sufficient condition.
Add Differentiated Value, Innovation and ‘Pixie Dust’
To build sustainable business models, you need to have control over some
type of ‘factor of production’. When my wife and I took the mule train to the
bottom of the
How would you like to control the bridge from
Business models that work need to have some kind of differentiator; some type of ‘pixie dust’, the magic that makes a business work. For a National Football League franchise, it is the right to operate an exclusive franchise within a defined geographic area and exploit all the revenue rights within that area– tickets, merchandise, suite rentals, sponsorship, signage, parking, etc. and to share in national television revenues.
Most entrepreneurs who don’t have some type of value differentiator either can’t build sustainable businesses or the ones that they do build produce no more value for them than if they just went out and got a JOB.
The role of an entrepreneur, in my view, is to build a business that creates more value than that and which can take on a life of its own– i.e., it can survive the passing from the scene of its founder or can make money for its owner while she/he is lying on a beach. The latter is the preferred option, obviously.
A spa, for example, might have some pixie dust because of its high end location or because it has some highly sought after hair stylists or because it has some sophisticated software that runs its appointment calendar and inventory of products and reverses out some of the work to its clients (e.g., they can self book online).
A friend of mine, Rob Hall, runs Pool.com, a business that revolutionized the backordering of domain names. Instead of paying $60 to backorder a domain name that may never delete, Pool.com allows you to register your backorder FOR FREE. You only pay if Pool.com is successful in getting the name for you. Guess which site gets most of the backorders now? (BTW, over 5,000 dot-COMs delete every day).
Pixie dust/value differentiation– think about it, see how you can add some to your business and watch your revenues and margins grow.
Create a Compelling Value Proposition
Demonstrating your value proposition from your client’s point of view is a powerful tool in sales and I don’t care if you are selling vacuum cleaners, architecture services or hockey tickets. Clients and customers don’t really care what cool technology you are using or incorporating in your product or service or what, in general terms, it can do. What they want to know is, what can it (you) do for me? And usually, that means, what can it (you) do for my bottom line?
Recently, I ran into Yoga Specialist, Heather Moore, at Mountain Goat Yoga
Centre in
She thinks things will go better when they get their own Yoga mats with their names on it (she admitted that she wasn’t the biggest hockey fan before and didn’t know all their names). Knowing their names will mean she can call out recalcitrant players and encourage others.
For my macho readers who don’t know this, Yoga uses your own weight to improve your flexibility and core strength and, at advanced levels, is hellishly hard. It makes sure oxygen gets to all parts of the body and promotes faster healing. It gets stress levels down and, if you don’t think stress levels are high for professional athletes, you don’t know much about sports. How would you like your on-the-job performance rating done every day and on the front page of your local newspaper too?
More core strength, more flexibility, greater agility, better balance, faster healing and lower stress levels are sure to be good for hockey players. They need tremendous levels of dexterity to play in the National League. They need strength too but not brute strength like NFL players do. Long lean muscles will beat muscle mass in the NHL.
It turns out that, in all probability, a very small investment in Yoga training will result in very large benefits for the Sens by reducing the number of player days lost to injury. Check out the spreadsheet (http://www.dramatispersonae.org/ValuePropositionOttawaSenatorsMountainGoatYogaCentre.xls) I did on this which I have uploaded to my server in .xls format so that you can download it and save it as a spreadsheet and fool around with it yourself on your PC.
(For an investment of just over $7,000 in
Heather’s Yoga instruction fees, the Sens reduced team injury costs by over
$350,000 in the 2006/2007 Season according to my rough calculations… a pretty
dram good ROI.)
See if you can adapt it for your product or service or create one like it from scratch. Try to show how one single customer or client benefits in terms of cold, hard cash by using your products or services…
There are other benefits too for the Sens. For example, if the team earns more points during the regular season and, as a result, attracts more fans, revenues will increase. Further, if the team has, say, one more home playoff game as a result of a stronger, healthier team then benefits from Yoga training climb astronomically.
And lastly, hockey players are human beings so reduced injury means reduced human suffering, and that is a good thing…
Self-capitalize (Bootstrap) the New
I have felt for a long time that VCs are heading in the wrong direction; they should NOT fund startups. Rather, they should wait until startups have proven themselves in the marketplace. It’s kind of like watching for tall shoots in a field of grass. Those are the ones they should fund. It’s better for VCs, better for the national economy and, interestingly, better for startups too.
It’s better for VCs because they will fund more winners and fewer losers and generate better returns for their investors. This, in turn, will attract more capital to the industry which is good for innovation overall. It’s better for the national economy since careful rationing of scarce capital will provide higher overall growth rates. And finally, it’s better for startups, in my opinion, to focus on: a) building a sound business model, b) self (bootstrap) capitalization, c) using smart (guerrilla) marketing to capture customers inexpensively and d) generating real cashflow from real clients and customers. The founders of these businesses will find it much faster and much less frustrating to find customers first rather than spending nine months or more hoping to attract VC funding or going after government grants. They will also get help from clients in other ways such as designing the final product or service. It’s like a war plan—as soon as your contemplated business model comes into contact with customers, it will change; they will force changes that YOU CAN NOT PLAN FOR.
Finally, the founders of these businesses will get to keep more of the equity in their businesses if they do a deal with a VC firm later when their business is more mature and, frankly, they are more mature. Nothing gives you more leverage in negotiations with VCs than the fact that you have enough cashflow to fund the business without them.
Is lack of access to capital really the main barrier to entry for most entrepreneurs? I believe that the stated lack of access to capital by many would-be entrepreneurs is more of an excuse than anything else. Here is my (absolutely unscientific) bar chart of what I think are the main sources of capital for startups. (I leave it to a future grad student to prove it or disprove it.)
Home Equity Loans
*************************************************
Soft Capital #
***********************************************
Supplier Credit
********************************************
Consulting
*****************************************
Pre-sales/Launch Clients
*************************************
Credit Cards
*********************************
Deposits, Retainers ##
******************************
Receivables Factoring
****************************
Financial Leasing
*************************
Partners/Debentures
*********************
Trading/Speculating/Reselling
*****************
Strategic Investors/Partners###
***************
Banks
***********
VCs
*******
Government Grants/Tax Credits
******
Angel Capital
****
Franchising
***
Accretive Buying/Selling
**
ESOPS####
**
Sponsorships
**
Patents and Royalties
**
Collectibles Sales
*
Business Competitions
*
# Mom, Dad, Rich Uncle Buck, co-guarantors
## Plus Progress Payments and Draws
### Investment by competitors, near competitors, future clients and future
suppliers
### Employee Stock Ownership Plans
This is just my experience talking—who knows I may be wrong but most entrepreneurs are, by definition, people without money. Again, in my experience, people with money are not entrepreneurs, they are called ‘old money’ and old money anywhere, tends not to do very much—it sits around collecting coupons not starting high-risk new enterprises.
I always laugh when my students in entrepreneurship at the Telfer School of Management at the
Dr. Yunus also realized that the way out of poverty for the vast majority of people on this planet is to become (at least at first) micro entrepreneurs. In fact, Grameen Bank lends on a priority basis to people who have the greatest need and the least money! And you know what? Their loan loss ratio is tiny and they make a profit too.
If Canadian Banks had their way, they would probably do zero small business
lending. It takes very few bank resources to approve a home mortgage, give out
a credit card or make an auto loan. Banks think nothing of approving a $350,000
home mortgage—if your credit score (your Beacon Score)
is high enough—in minutes. But go to the bank for a small business loan of
$350,000 and you will find that: a) they need a massive amount of data from you
and b) they need an expensive infrastructure in terms of on-the-ground bank
managers, loan officers and back office types to approve your loan application.
I believe if it weren’t for the fact that successive Finance Ministers lean on
the Chartered Banks in
Other students will tell me that they want VC funding. I believe that most
startups have about as much chance of attracting VC funding as they have of
winning the annual Ottawa Hospital Lottery and probably less. First of all,
most business startups don’t have the growth prospects to attract VC funding.
Secondly, most startups are in industry sectors that don’t appeal to VC funds
anyway. Thirdly, most startups should be much further along in their
development before they go after VC funding, if they ever do. If your business
has real cashflow and real customers and clients, you are on a much more even
footing with respect to negotiating a fair agreement with VCs, if that is what
you choose to do. Finally, it is much more efficient for
So if you plan to start a business and you don’t want to give up control and a ton of equity to VCs and Vulture funds, learn everything you can about self capitalization—you are going to need it.
Use Smart Marketing (Guerrilla Marketing and Social
Marketing)
You have to give credit to KFC for some terrific Guerrilla Marketing. I realize that GM is all about ‘substituting brains for money’ in the marketing wars but KFC used brains AND money in this.
To tackle households that are zapping their ads using TiVO or their PVRs, KFC ran an ad with a hidden message that could only be deciphered if you play it back in slow mo. If you could figure it out, you could then go to KFC’s website and get a coupon for a free sandwich. The traffic on their site went up by 40%. (Business Week, April 17, 2006).
So they got people to watch their commercial (over and over again), boosted traffic on their website AND in their stores. I still think this example meets the test of what is (and is not) GM since you could look at it this way: How much money would they have had to spend in conventional marketing to get this kind of boost in terms of CPM (thousand pairs of eyeballs on their marketing message) and customers in their stores?
There is another form of GM that is taking hold today too—a huge expansion of social marketing.
In the past, most GM has been about some kind of stunt that attracts the attention of the established media—they hear of a neat story and it then gets a lot of play on the local or national news, in the local newspaper or gets you a few interviews on radio. This is called ‘earned media’. Nothing wrong with that—you can certainly do a lot more with earned media than a ton of paid advertising.
But social marketing is playing a much bigger role in helping startups grab attention and market share. A former student of mine, Ryan Anderson, now Director of Communications at FuelIndustries.com, gave a wonderful lecture on the power of social marketing. Ryan uses the term ‘Social Startup’ to designate an enterprise that uses social marketing to get traction in its marketplace. This is not to be confused with a Social Enterprise; the latter can be a not-for-profit, a charity or a NGO (Non Governmental Organization) that performs good works. They too can use social marketing to further their goals but social marketing also applies to for-profit businesses.
You can read more about social marketing on Ryan’s blog at: http://www.ryananderson.ca/.
In simple terms, the Internet has changed the media equation—instead of
limited bandwidth (a few TV channels, a few newspapers and a handful of radio
stations in most local markets a generation ago), today we have 1,000s of
bloggers, 10,000s of Facebook or MySpace
profiles, hundreds
of TV channels just in a small city like
Social marketing allows you to disintermediate the established media—to go around them to talk directly to and with your customers. I build my own PWSs (Personal Web Sites (it shows)) but at least I disintermediate the techies—I can communicate directly with my students, clients, friends. I don’t allow much two way traffic because I am so time pressed but social marketing means that you should.
An example, Ryan gave in his lecture demonstrates the power of social marketing—a small South African winery (BTW, it makes good wines, otherwise this wouldn’t work and, in fact, would probably result in reverse marketing if the wines actually sucked) sent a case of their wines to an influential blogger in California and told him they wanted to sponsor 100 Geek Dinners in Santa Clara County—no strings attached. They didn’t have to blog about the company or their wines, they just wanted people to try them.
He wrote about the offer on his blog and the winery sent out 100 cases of their wines. Even though they didn’t ask for it, they got huge exposure on blogs everywhere in Nocal.
Their sales went up by a factor of six (!) in less than two years. The total cost for the campaign—around $40,000. That represents less than half a second of the cost of a 2008 Super Bowl ad. But even assuming that the NFL and its broadcaster would give you a 30 second Stupid Bowl ad for $40,000 (trust me they won’t), would it have resulted in a 500% climb in sales? I doubt it.
Social marketing (in this case, harnessing the power of the blogosphere) is about engaging your customers in a dialogue, having a two-way conversation with them and listening to them and making changes as you learn from the conversation. Ryan told us another quote: “If people talked to people, the way that marketers talk to people, they would punch you in the face!”
(Note: Ryan said that he doesn’t hire anyone who doesn’t have their own blog.
He told our class that a CV is fine but it is pretty static. A Blog that you
have been keeping for a few years tells him a whole lot more about you. Are you
smart, creative, hard working, have good values, etc. You can get a free blog
and set up one for yourself in less than a minute, so do it! I use WordPress.org
but you can find many sites that will help you with this.)
Mass Customize Products and Services Using the Internet
Nothing has shaken our world like the Internet revolution that has taken root in a massive way since 1994. The Internet revolution is continuing at a fantastic pace-the changes are still happening but they are occurring with less hype since 2001and more substance-below the waterline, so to speak.
Jack Welch said that in his 40 years at GE nothing matched the Internet in terms of its technical or technological impact and Jack saw a lot during his career as a CEO.
Professor John Callahan, at Carleton University's Sprott School of Business and his research partner, Mr. Scott Mackenzie, have created an important contribution to understanding the impact that the Internet is having on how we conduct business-their curve shows that it is now possible for the first time in history to get custom outputs from standard inputs and processes.
What this means is that we have transitioned
from the days of an artisan or guild worker (now called a 'consultant') who
produced one off creations to order (made to measure suits, for example)
through to mass produced products (Henry Ford's automobile assembly line) and
now to made to order, custom products from standard processes and inputs (like
the way Dell's web site allows each client to customize their PCs to their
specifications using only standard Dell inputs and processes).
By reversing out the design work to the
customer, Dell has created a powerful position in the marketplace and become one
of the largest PC makers on the planet.
The internet is all about automation and
reversing out the work. Doesn't apply to me and my business, you say? Well, it
turns out that most of us have the ability to move up the value chain by using
some of the revolutionary aspects of the Internet in our businesses
Let me give you another example. We have a
number of home builders who are figuring out that they are soon going to be in
the web site operating business and not the home construction business at all.
Today, with all due respect, the home
building business is still largely a craft based endeavour which, if it were
compared to the computer industry, would still produce five function
calculators that look like primitive World War II vintage Turing machines (used
for breaking Japanese and German codes)—big, clunky and expensive.
Ultimately, a home builder's web site will allow consumers to 'goggle' in to
the site in three dimensions, to choose the model that they want,
the lot that they want and then to load up their shopping carts with the
features they desire. As they make changes to their design and add and subtract
amenities, the calculator will tally and show them their costs.
Visa and MasterCard are moving upstream—their
credit cards will be used for everything including buying a new car or buying a
home. There is a small but fast growing market for power cards that carry
credit limits in the hundreds of thousands of dollars.
But this home buying e-commerce transaction
using a credit card is only the tip of the iceberg. In all probability, it is
the e-business applications that will have the most dramatic impacts on home
building. Pre-authorized suppliers and sub-trades will log on to the builder's
web site to estimate the volume of work required and to bid on it.
Scheduling, based on just-in-time delivery,
will be net based. Payments will flow business to business via e-payments.
Municipal inspectors will log on to see when they are required for inspections.
Municipalities will recognize that home builders are their clients. The number
of separate subcontractors and trades will fall from 25 or 30 today to perhaps
just 8 or 9.
If former Russian President, Boris Yeltsin in
his early days as a construction boss in Sverdlovsk
(1,000 miles east of Moscow) could build five storey, wood frame apartment
buildings in five days (albeit with a huge crew), surely we can learn to build
houses in 45 days or less at higher levels of quality, with fewer defects,
higher margins for the industry and lower prices for consumers.
The home builder will become a web site
operator. Legal closings, land registry documentation, mortgage financings …
all will be web enabled. And what does this do to profitability? There is no
doubt that efficiency will climb, productivity will increase and in every
instance where this has occurred, more wealth is created for all to share.
Americans are early adopters of technology
and none is more earth shattering than their embrace of the internet. As a
result, the Internet is eating an enormous hole in the world's economy. After
all, it does not matter how little someone is paid in the third world, the Internet
can do it faster and cheaper.
Old-line industries are going through
incredible re-engineering.
A national advertiser who wanted to launch a
national billboard advertising campaign just five years ago went through a six
to twelve month process. They drew up a campaign theme, got the creative done
by an agency, had the agency contract billboard locations with up to 25
regional billboard companies, sent the artwork out to all of them by courier,
received back the proofs from all 25 for approval, made the necessary changes
to get consistency in the artwork, sent them back, checked them again, signed
off finally. The images were then often hand painted on huge strips and, at
last, a crew went on site and glued them to the board.
Today, billboard companies put their inventory of available billboard locations
on their web sites and agencies can book and pay for that inventory on line.
Agencies then can download their artwork over high speed lines and, as
billboard companies merge and become national and as they move towards
replacing conventional billboards with high definition video boards, an agency
can place a national campaign in a matter of hours or days. It does not matter
how little a third world labourer is paid; the web can do it faster and cheaper.
Harnessing the Internet effectively means:
- you can ‘make money while lying on a beach’—i.e., your enterprise
can run without you being there every second to manage it;
- the enterprise is scaleable—outputs grow non-linearly with
inputs—i.e., more hours worked will produce way more money for you;
- you have reversed out the work—let your suppliers and customers do
the work for you like, say, dig.com does;
- you can mass customize products and services for clients in a cost
effective manner;
- you can connect with new clients and customers in a cost effective
manner using things like social marketing!
The entire global economy has to move up the
food chain and the only way to do this is to invest in education, medical care
and social order, which happen to have been
Find Pre-launch and Launch Customers and Sell, Sell, Sell
Business Week published (
To me, a business that does not generate enough revenue is probably (by far) the biggest cause of business failure. Perhaps, they are not generating enough revenue because of inadequate leadership, poor planning, failure to change and inexperienced management, which also means they can’t meet their debt obligations. In other words, they may not be interpreting their stats in quite the right way in as much as their independent variables are not truly independent and, hence, their take on causation might be wrong.
What are the three most important things for a startup to focus on? SALES, SALES, SALES. The focus on sales is also an important requirement for established businesses. I mean how long do you think mighty IBM would last if it didn’t collect its receivables? IBM sells around $85 billion worth of goods and services a year (one customer at a time, btw) so that means around $7 billion a month. If they don’t collect for two months that means that they would have a cashflow shortfall of $14 billion so my guess is that even IBM would be in serious trouble in less than 60 days.
Today, if you have enough revenue, you will get financing, not the other way round. This is the lesson of the false boom of the late 1990s when VCs and others financed startups with interesting business models but no revenue prospects. This has never worked, in any age.
If you have enough revenue, you can meet the cashflow demands of debt servicing costs so a focus on revenue growth is vital. One needs to not only generate the revenue but collect it too. This seems self-evident but a lot of startups don’t do billing, invoicing and collections very well and many don’t do selling or pre-selling very well either.
In my experience, the number one reason for failure is the absence of buoyant revenues. I mean how many businesses have you heard of folding if their revenue numbers are going up and up?
Remember the Golden Rule: “He/she who has the gold, rules.” Put another way: “Cash is King (or Queen).” If you have real customers and real clients and real cashflow, you have POWER.
Another thing you have to do is find launch clients. As soon as you come into contact with a real customer, you business model is likely to change (for the better). Clients who plunk down their money (this is called a deposit), give you additional confidence that you are on the right track.
NHL hockey fans in Ottawa gave us $22 million in cash (deposits on season tickets and sponsorships (signage, media rights, pouring rights, product rights, etc.)) for the expansion Senators in December 1990, some 22 months before the first game was played (in October 1992)!
Execute Expertly, Show Leadership and become a Trusted
Member of your Community and Business Ecology
Jack Welch and Suzy Welch in a Business Week article (Feb. 4, 2008) state
that a CEO (and a prospective President of the
1. They need to be authentic and, hence, trusted;
2. That have to have vision and be able to communicate that;
3. They have to be able to hire great people and sometimes fire them too;
4. They need to be able to bounce back from a setback;
5. They need to be able to “see around corners”; to notice changes in their
markets pretty much before anyone else does.
They also mention another requirement which I would put under the category of management rather than leadership:
6. They have to be able to execute.
These are pretty good guidelines. I would think that they also apply to entrepreneurs but I think entrepreneurs need a few more:
a. They need to be able to sell;
b. They need to be able to control costs;
c. They need to be able to make up their own rules as they go along;
d. They need to be creative in many of the things they do;
e. They have to bring a sense of urgency to each day;
f. They don’t take ‘no’ for an answer;
g. They need to buck the system and be comfortable doing it;
h. They have to be self reliant;
i. They need to be able to deal with risk and
uncertainty;
j. They have to be able to set and achive goals but
be flexible enough to change their plan in an instant;
k. They need to be able to borrow best practices from wherever they find them;
l. They need to know when it is time to give up on a business and start
something else;
m. They need to be able to work long hours and to be effective during that time;
n. They have to set priorities;
o. They have to see their whole business ecosystem as part of their TEAM;
p. They have to understand human psychology: the psyche of their employees,
their clients, their suppliers and they have to be better poker players than
they are chess players- they need to be sympatico;
q. They need to be humble, learn from their mistakes and never make the same
mistake twice;
r. They never try to go back and revisit something that didn’t work already
once- they just move on;
s. They can cope with high levels of stress.
I am sure there are a ton more characteristics of successful entrepreneurs but this a pretty good list to start with. If you get 70 or higher on our ECQ Test, you probably have what it takes to be an entrepreneur.
Take the Test: http://www.dramatispersonae.org/ECQTest/ECQ(ns)TestAuto.htm.
There is nothing more important for you and your career than your ethics and your reputation.. When I was just starting out in business in 1982, a wealthy lawyer by the name of Kent Plumley (he made a lot of his money as an early stage investor in Mitel and later in Newbridge) told me: “Bruce, the number one thing you have to remember is: protect your reputation.”
I thought that was easy for
Well, here is how it works:
- You work hard (for years) to establish a reputation for good work, high ethical standards and trustworthiness.
- Trust creates an environment for you where clients will send you more and more of their work.
- Trust creates an environment where your clients will refer other clients to you.
- Trust gives you breathing room when you do make a mistaken—people will cut you a lot of slack even then because they trust you.
- Trust creates a personal brand for you individually, independent of your law firm or accounting practice.
- If you change firms, your clients will follow you because they trust you and have confidence in you.
- Trust creates a brand and a brand creates a marketing opportunity and you can turn that market into sales or as my wife, Dawn likes to call it ‘IGA money’, money you can touch, feel and spend.
One of the best recent examples I have seen of this process at work is the current marketing for Clarica. Their television ads are done with a sense of humor and have made a lasting impact on the marketplace I am sure. But why would Clarica have invested hundreds of millions of dollars in a marketing campaign like this? It is instructive to find out why.
First, let me ask you another question. How many of you have wanted to get up off the couch after watching one of their commercials and place a call to a Clarica agent to buy some life insurance? I don’t think there is even a call-to-action at the end of theses commercials; selling life insurance is not like selling K-Tel slicers and dicers: “Call now; operators are standing by to take your order at 1-800-555-5555!” Well selling legal and accounting services isn’t like that either (or at least, mostly, they’re not. You have to ignore the later night commercials by lawyers asking if you have recently been injured an accident.)
So why does Clarica do it? If you look at the diagram above, they market through a marketing process to build their reputation and brand. A good reputation and solid brand creates trust in Clarica in the minds of the public. So when a life insurance salesperson sits down with John and Sally Smith in their living room to sell them life insurance, John might say: “Oh, I have heard of you!” John and Sally already trust the salesperson before their meeting ever takes place.
They trust Clarica a heck of a lot more than they trust, say, the Pirate Insurance Company of Kinakuta, who they have never heard of before and who hasn’t spent a ton of money creating their brand and a reputation.
Note that Clarica doesn’t sell a thing through their marketing; they have established a separate sales process (having thousands of life insurance agents out there, making meetings and actually doing the selling.) Lawyers and accountants can learn a lot from this example I think.
Note that a sale, any sale, actually gets completed because of trust—the client trusts you and, therefore, they are willing to buy from you. That’s the real secret to selling—creating trust. Remember, people like to buy from people they like and trust.
When I was starting out, one of the real estate lawyers who
helped me also helped herself. We noticed that whenever we were closing on a
property, another developer always seemed to be in the same area, sniffing
around. It wasn’t long before we figured out there was a leak in the law office
we were using at the time and, with the help of the senior partner, we set
about trying to prove it. Unfortunately, it turned out to be the case. It was a
devastating blow to the firm and the lawyer involved was summarily dismissed.
She was never a significant player after that in the real estate business in
I don’t care what city you practice in a small city like
What that means is that if you muck up your reputation, you probably have to move. Better to keep it in the first place, right?
Make Your Own Rules and Set and Achieve Your
Goals
One of the hardest things for my students to learn is that there are no rules in the field of entrepreneurship. By that I don’t mean that you go outside the Law; I am not talking about those kinds of rules. You always obey the Law and protect your reputation; the latter is the most important thing you own BTW.
But how many times have you heard: ‘We don’t do it that way because it isn’t done like that and, anyway, no one else does it that way either’? Entrepreneurs are constantly asking BIG questions and thinking of ways to do things differently. It is usually this kind of creativity in EXECUTION that creates the most value for entrepreneurs. Fred Smith’s brilliant insight that he could develop an overnight package service (Fed/Ex) by reducing a 50 by 50 matrix of origins and destinations (with its impossible requirement for 2,500 overnight flights) to a handful of flights by developing a hub and spoke system was responsible for one of the great startup success stories of the late 20th Century.
Let me give you another example.
Gino Rossetti from
The answer was that all arenas are built that way; it’s just the way it’s done. Gino whipped out his sketch pad and said: ‘What if we had two lower rings of suites– the first one just 12 rows from the action on the court?’ That single insight revolutionized arena design and economics. It not only increased the number of suites in these buildings, but people also paid more (a lot more) for private suites close to the floor or ice surface. Plus it gave the ownership committed revenues (because they signed 5 and 10 year deals with leaseholders) and it gave them the ability to finance new arenas on a commercial basis. Additionally, it created the opportunity to bring all the seat holders closer to the action because the balconies created by the lower rings of suites could be stacked closer to the arena level much as in an Opera House with rings of private boxes.
Less volume in the building creates a less expensive but more intimate structure which benefits not only the fans of major league sports but concert goers too. So Gino gave the world not only a much higher revenue-generating sports facility but there a qualitative improvement too.
Students often ask me how prices for new products or services are arrived at. They seem to feel that there is some form of government control or other, officially approved, algorithm that generates a price. I tell them the story of Butch Cassidy (in the film BUTCH CASSIDY AND THE SUNDANCE KID) when he was challenged for the leadership of the gang in a knife fight. Butch says: “Before we fight, I have to explain the rules.” His opponent, a giant of a man, says: ‘Rules, in a KNIFE FIGHT?’ Butch then walks up to him and kicks him in a vulnerable spot and then stomps him into the ground saying; “Rules? There are no rules in a knife fight.’
Pricing is a bit like that. In a competitive marketplace, you can charge whatever you like. It may be above your cost (often way above, in, say, the marketplace for baseball players), at your cost or even below cost (these are called loss-leaders; e.g., selling below cost milk to get folks into your supermarket. Ever notice how the milk is always furthest from the door in every store– that’s to get you to impulse buy when you are walking through the facility.)
Rules? There are no rules in entrepreneurship; you get to make up your own. You just have to hope the set of rules you choose, works; i.e., they underpin a viable business model.
Lastly, I am not a big believer in detailed planning. I am a big believer in having great business models as you know from reading this essay but plans, well, they are usually out of date shortly after you finish writing them.
Good Generals know that war plans are out of date the moment you make contact with the enemy. Your enemy is not just going to sit there with large KILL ME signs taped to their backsides. They are going to move and react to what you are doing so if your troops can’t show some adaptability in the field, they are likely to wind up dead.
Entrepreneurship is like that. Your competitors want to kill you; don’t kid yourself about that. They want to buy you out by taking your customers away from you, one at a time. As Tom Cruise said in Jerry McGuire: “We live in a cynical world. A cynical world. And we work in a business of tough competitors.”
One way to counteract that is to set goals for yourself and your team, both near term goals (like monthly sales targets) and longer term goals (we will get x% of the market by year’s end). Tell your goals to your staff, put them up where everyone can see them—democratize information!
Also, get rid of negative language. Never say: “I’ll try.” Say and think to yourself: “Ill do it.”
Humans are uniquely able to visualize, self actualize and internalize goals. If you can see yourself doing something, your chances of doing it are much improved. When I was 11, I was the youngest member of our gymnastics team but I had a hard time doing one particular flip off the springboard and over the high horse. Our gym teacher, a tough task master by the name of Major Anderson told me on a Thursday that if I couldn’t do it by the following Tuesday, I was off the team. I practically cried when he told me that.
I practiced and practiced but could never get it right. I knew on Monday I was cooked but that night, I had a powerful dream—I saw myself hammering that springboard and doing a perfect flip. The next day I went into gym class and a couple of the guys were sniggering as I lined up to attempt the flip. I executed it perfectly and made the team.