Will tech kill your job?

Stop me if you’ve heard this story before. “My job as a (newspaper publisher telephone installer, stockbroker, travel agent, retail store manager) is safe as this economy continues to grow.”  Yup. Thought so.

We are in a decade of creative destruction that will affect most everybody.  And the prime motivators of this massive destruction are the same class of entrepreneurs and innovators that have done it before.  This time they are aided by tail winds brought on by the rapid spread of access to the Internet.  In 1995, thirty-five million people used the Internet. That is six-tenths of one percent of the world’s population.  And only one percent of these who had access also had mobile phones.

By 2024, ninety percent of the global population will have regular Internet access.  Add that to the rise of robotics, artificial intelligence, biotech, genetics, and several forms of virtual reality, and we will soon see wonders we could only imagine a decade ago.  Meanwhile, in the U.S., an estimated five million jobs will be lost to tech innovations in the next five years, with two million new jobs created in these fields alone.

Robots will perform half of all manufacturing jobs by 2025, up from ten percent today.  Since 1999, the U.S. manufacturing workforce is down twenty-eight percent, and the U.S. has lost 54,000 manufacturing businesses.  In 1980, it took twenty-five jobs to produce a million dollars in manufacturing output. Today, that can be done with fewer than seven jobs.

[Email readers, continue here…]  Yes, Amazon is partially to blame.  Last year, Amazon employed 145,800 workers. But Amazon displaced an estimated 300,000 retail jobs.  Just check your local store fronts.

Our current graduating class of college seniors reflect much of the past needs of our economic society, just as they did in the early 1970’s, when many bet that aerospace jobs would continue to be the hot job ticket.  The mismatch between what employers want today and graduating seniors majored in is striking.  For example, 81% of businesses hiring today want graduates with business or accounting degrees. But only 19% of seniors have majored in this.  Worse, 3.1% of seniors majored in computer science, while 65% of businesses looking to hire need these skills.

What general kinds of jobs will be lost to automation?  Almost eighty percent of jobs performing predictable physical work will be gone.  People in welding, soldering, working on assembly lines, food preparation or packaging of objects will be most at risk.  Then come the unpredictable physical workers.  Twenty-five percent of these will be gone, including jobs in construction, forestry and raising outdoor animals.

White- collar jobs most at risk to the rise of artificial intelligence and machine learning are those in middle management, commodity salespeople, journalists, report writers, and even doctors.

And the last jobs to be lost to automation and AI are, not surprisingly, K-12 teachers, professional athletes, politicians, judges, mental health professionals and coaches, advisors and motivators.

Tech entrepreneurs are out there in every corner of the world today finding ways to eradicate disease, provide clean water, change the way we deliver education, fight obesity and climate change, and reduce accidental deaths.  These heroes of the next generation are remaking our lives at hyper-speed.

So, will tech take your job, or your offspring’s job or your grandkid’s job?  Old jobs will be gone for sure.  But that same villain, tech, will prove to be a creator of jobs we can’t even imagine today, and will improve the quality of our lives immeasurably at the same time.

These are times to celebrate innovation and trust that, like many eras in the past, the world will be a better place in which to live and work because of their world-changing innovations.

Posted in Hedging against downturns, Protecting the business | Leave a comment

What do you give up when taking outside investors?

Taking in angel or venture money requires a setting of an entrepreneur’s expectations that may come as a shock at least at first.

From the moment such an investor looks seriously at your company, the investor or VC partner is thinking of the end game, the ultimate sale of the company or even of an eventual initial public offering.  There is no middle ground.

Taking money from these sources involves resetting priorities over time.  There is no such thing as a lifestyle business with outside investors. To protect against such an event, almost every professional investor includes a clause in the investment documents which allow the investor to “put” the stock back to the company after five years, requiring the company to pay back the investment plus dividends accrued during the term of the investment.  This sword hanging over the company is not often used, but is a constant reminder that an outside investor is serious about getting out, hopefully in less than five years, at a profit, usually from the sale of the company.  Many companies find themselves at the five-year point completely unprepared for a sale and without the cash resources to carry out such a repurchase of investor stock, making the clause moot.

[Email readers, continue here…]  There are also clauses in many such investor documents that allow the investor to override the founder and force a sale of the company if a proposed sale is attractive to an investor for liquidity, even if the founder feels that there is much more potential if the business is not sold at the present time.

Finally, it is an unfortunate fact that when a company needs money and has not met its original planned targets, the newest investor prices the round at a level below the last or last several rounds of financing, angering and frustrating previous investors who took what they perceive as the greatest risks by investing before the business proved itself.

The last money has the first say – in valuation and in sometimes forcing draconian terms that require prior investors to contribute a proportional new investment to retain a semblance of their original rights and avoid dilution or worse yet, involuntary conversion to a lower class of stock.  As the years progress with typical VC firms seeing lower returns than expected by their limited partner investors, such terms are more common in secondary rounds of financing, causing a real riff between angel investors and their former close allies, the VCs, with whom they had once coexisted as suppliers of deals at expectedly higher valuations at each stage of investment.

So be aware that professional investors are in your company for the eventual large profits at the liquidity event.  They are your friends only as long as you meet or exceed planned growth and value.  They tolerate you and your management when the numbers are a bit murky but with an explanation that is believable and correctable.  They act in their own best interests when things go south. That’s just the facts.

Posted in Depending upon others, Raising money | 1 Comment

Does your business need money? Read this!

The subject of raising money is critical to many businesses and a passing option to others, depending upon the capital efficiency of the enterprise.  Some businesses require very little capital and the founder can self-finance the enterprise and retain 100% of its ownership and control from ignition through liquidity event (startup through sale).  For you who fit that description, nice work.

For the rest of us desiring to build large, valuable enterprises quickly, the need for outside capital is high on our list of requirements and even the source for some sleepless nights as we worry over the availability and cost of capital.  It is for this group that we explore the implications implicit in raising money for growth.

It might be useful to list some of the ways in which you can raise money for growth with and without outside investors.

[Email readers, continue here…]   Bootstrapping:  This term describes your ability to start a business with little investment and grow it using internally-generated funds.  Certainly, bootstrapping is a preferred method of funding growth if it does not hold back the speed of growth or hobble the quality of product or service to the extent that better-funded competitors can overtake the business.  There is a lot to say about retaining control.  You will realize much more from the ultimate sale of your business even if at a considerably lower price than if splitting the proceeds with investors.  You will have more control over strategy and execution than with an outside board overseeing planning and performance.  But few businesses grow into the sweet spot of $20 million to $30 million in worth to an ultimate buyer without the injection of outside capital.

Friends, family and fools:  This term, although pejorative, describes the typical mix of early investors in a small, young growing business.  Money from these sources is relatively easy to come by, and most often comes with no strings as to oversight by a formal board

Dave’s book and ebook on raising money available on Amazon.com

composed of these investors and management.  However, most often, these funds are solicited by a well-meaning entrepreneur from investors who are not qualified as accredited investors under the law (currently requiring a proved income of $200,000 a year or $1 million in net worth for an individual investor).

I’ve arrived at a significant number of companies that were looking for additional growth capital after a “friends and family” round, and had to “clean up” the cap table more than a few times over the years.  Taking this kind of money has a number of pitfalls you should be aware of.  It is most common to greatly overprice such a round of financing, valuing the enterprise well above what it may be worth at the moment for friends or related investors who do not have the sophistication or willingness to challenge the valuation.

When professional investors look at such overvalued prior investments, they may refuse to become involved with a company, knowing that there will be, at the very least, universal disappointment and anger from prior investors when a new round is priced lower than the earlier friends and family round.   Sometimes this money is just too available and the risks seem so far away; so, an entrepreneur will take the money and put off the worry over the eventual consequences, all in the hope that no more investment will ever be needed and everyone will be richer for the effort.

Using your bank credit line and credit cards:  Even with the credit crunch signaled by the recent recession, many banks will issue business credit cards with a $50,000 limit if the entrepreneur is willing to personally guarantee the balance, and has the net worth to do so.   And even with the significant cost of credit card debt, many entrepreneurs aggressively use existing cards to finance a startup.  It’s an option, even though an expensive one.

Strategic partner” investors: If you can find a strategic partner willing to invest in your enterprise, consider it a blessing. Whether the partner is a supplier looking to gain a lock on your business as it grows or a customer looking to create a competitive barrier through use of your product, such an investment typically carries fewer restrictions than from a professional investor and less oversight.  Better yet, the valuation of your enterprise is often higher than if the same investment were taken from a professional investor.  Strategic investors validate a business, by their presence creating the very value they pay for with increased price per share purchased.  It is most often a win-win for both you and the strategic partner.

Professional angels:  This is the arena where I work and play.  This class of investor, once quite disorganized, has become much like the venture capital community, creating a process including due diligence (careful examination of a business before investment), terms of investment that match those of venture capitalists, and a process that often takes

More on raising money in BERKONOMICS book, also available on Amazon.com.

months from introduction to investment.  Yet, professional angels are usually willing to take active board seats in a young enterprise and act as cost-free consultants to the CEO-entrepreneur, giving freely of their individual and collective years of experience, often in the same industry as the investment target.

Do not expect grand valuations of your enterprise from these professional angels. They have been burned too badly during the last decade by overvaluing businesses and finding themselves like friends and family, “stuffed” into a down round of lower valuation when a company takes its next round of financing from the next step, venture capitalists.  Professional angels, often organized into groups, usually invest from $100,000 to $1 million in a young enterprise.

Accelerators: This relatively recent combination of coach and limited investor is available to some early stage businesses, usually in major cities, and requires that the entrepreneurs spend from weeks to months being coached by the accelerator team.  In return, the accelerator often invests $25,000 to $100,000 in the young enterprise and takes from five to ten percent of the equity in return.  At the conclusion of the acceleration period, the company participates in a “demo day” in which institutional investors are invited to review the company in a live pitch session.  Many accelerators have come and gone during these past five years.  Several are well-known and professional investors pay special attention to their graduates. These include Y-Combinator and TechStars, among others.

Venture, private equity and more:  Here we lump a large number investor classes into one.  Venture capital comes with a cost, and there are no bargains for the company when taking such an investment.  VC’s value an enterprise lower than others might at the same stage of investment, always aware of the need to create opportunities for “home run” profits at exit, since over fifty percent of their investments typically are lost when companies die before an opportunity to sell to others.  Further, as a class, VC’s have not done well for their own investors over the past decade with the exception of several first-tier entities, making it doubly important to fight for low valuations and high profits at exit.

VC’s do not even engage in discussion with most of those entrepreneurs seeking capital. By some estimates, 95% of contacts are ignored unless they come as referrals from trusted sources such as known lawyers, accountants or fellow VC’s.  And just for measure, VC’s fund less than 2% of all deals they do investigate.  Typical VC investments begin at $2 million and quickly rise to $5 million and above, depending upon the size of the fund and stage of investment.  Terms are much more restrictive than from strategic or angel investors, often requiring the entrepreneur to escrow his or her founder stock for a number of years to prevent the founder leaving, and restricting the sale of prior stock without the VC also being allowed to offer a share of its holdings in the same sale.

Micro-VC’s are a recent class of venture investors, often with smaller funds, and willing to invest from $1,000,000 to $2,000,000 on average, filling a gap between professional angels and VC’s.

Private equity investments are available from firms created for this later stage opportunity, but typically are available only for businesses that have achieved revenues well above $50 million.  Often private equity investors will want control of the business as well.

Bank lines of credit are often available to businesses that are profitable, most often personally guaranteed by the entrepreneur, but available at a cost in interest less than most any other source.  Small Business Administration (SBA) federally-guaranteed bank loans are becoming available again after years of limited activity.  With some restrictive provisions, these loans are favored by many banks as carrying much less risk than loans without the guarantee.

But it is the outside investor that validates a business, often influencing growth with shared relationships, experienced guidance and providing a gateway to needed resources.  In the next weeks, we will investigate several insights that relate to theses money resources, all to help you to determine what is right for you, and how to prepare and succeed in securing funds.

Posted in Growth!, Raising money | 1 Comment

Is your budget a forecast? When do you change mid-course?

Hold it! These are confusing terms. When does a budget become obsolete? Do we rely upon constant changes and call it a forecast?

So, let’s spend a few moments defining this sometimes-confusing set of terms.  A budget should be created each year after a series of negotiations between departmental managers and their superiors all he way up to the CEO, all in support of the next year’s tactics previously agreed upon (which in turn support the longer-term strategies leading to the next goal beyond).

Here is the punch line: a budget sets the limits upon spending for the next year – limits negotiated between the players.  An important part of the budget is expected revenue for the coming year, a critical factor in setting hiring and resource expectations for the year.

But during the year, if the forecast revenues fall short or are greatly exceeded, it is fair to revise the budget and rethink your hiring and resources.  Otherwise, it is the expectation of the board of directors of a company that each year’s budget be approved in advance and adhered to as long as revenue goals are met.

[Email readers, continue here…]  Note that I used the term “forecast” for revenues for the next year.  The term is also used when projecting revenues for succeeding years. The term “forecast” is a bit confusing, because it is also used by some as a measure of expected revenue and expenses to the end of the current year, found by taking actual performance year-to-date and adding best estimates of remaining revenues and expenses for the rest of the year to obtain an expected or “forecast” outcome at year end.  Both uses of the term are common.  Just be sure all who participate understand which use of the word is the current one.

The real point here is to create a financial plan to support the strategic plan, marrying them in harmony one with another.  Many entrepreneurs are impatient by nature, not the best of detailed planners.  Yet, with the assistance of those in support such as the CFO, everyone in management must be aligned in a single direction, with the budget reviewed and updated annually as accomplishments, the marketplace, and even the competitive landscape change.

Posted in Growth!, Protecting the business | 1 Comment

Here’s the test: Can you create 5 strategies and 5 tactics to achieve your goal?

In past weeks, we explored the need for a tangible goal and strategies that are measurable as steps toward achievement of your goal.  Today, we explore how to create tactics to accompany each strategy, and even suggest a number of tactics to consider for each strategy.

Tactics support strategies and are more short term and procedural than the strategies they support.  Tactics change frequently as achieved and may be updated or replaced during a year when achieved, unlike strategies which often span a number of years.

Five tactics to support each strategy seem a fair, even if arbitrary number.  Tactics direct each department in very specific ways.  Here are several examples of tactics from my recent experience with companies where I serve as board member.

Strategy Three: Expand into at least three new continents through new distribution channels.

[Email readers, continue here…]

  1. Sign one distributor by June of this year in each of three major geographic areas. EMEA, Asia, Latin America.  Each distributor should be capable of generating $1 million in business by year two.
  2. Assign our development manager to localize design and oversee the needed enhancements to our product and support materials for each new territory.
  3. Train and transfer technology to each new distributor within 90 days of signing.
  4. Assign one of our corporate employees to support sales and installation efforts by all distributors.
  5. Seed demand in each new territory with at least two corporate marketing events in partnership with each distributor.

Note that each of these tactics directly support the strategy, are measurable and assumed to be achievable, bought into by each department affected by the tactic.  Note that the strategy calls for cooperation between business development, sales, marketing, product development, installation and support.   This is a great way to unify departments that once may have competed for resources toward individual ends, now pointed toward a common goal supported by all levels of management up to the CEO.

Development of these important elements (goal, strategy, tactics) of the plan should be made using all the resources available, from your board of directors to your senior management to departmental management. Getting all to buy into each step may not be easy, but when accomplished, is a powerful and invigorating opportunity to celebrate, then to get to work as a functional unit of the whole.

Posted in Growth!, Positioning | Leave a comment

Think like a general! Create strategies and tactics now.

If you have been following the last several weeks of these postings, then now we’re getting organized.  There are many ways to express the road map for your enterprise.  One of the most popular was used by the U.S. Army late in World War II, and adopted by many high profile businesses such as Texas Instruments after the War.  The structure combined the listing of the goal with a series of strategies and then tactics, each designed to support each other, each measurable and made public throughout the organization.  The technique, “OST” (objective, strategies and tactics), is a very good way to organize your effort to find guideposts and then develop metrics to measure progress.

What is a strategy?  It is a medium range process involving senior management and departmental management as well, directing resources in ways that, as accomplished, lead the company toward the goal.  A typical small to medium, business finds five sweeping strategies for the current year, many cross-departmental, and some carried over from the previous year’s plan and even from years before that.  Here are some example strategies from some of my companies over the recent years.

  • Expand into at least three new continents through new distribution channels.
  • Penetrate the Fortune 500 with at least five active accounts within two years.
  • Create a hosted “software as a service” or “on demand” addition to our product line by end of (next) year.

[Email readers, continue here…]  Note that these are expansive “junior” goals that, if achieved, would certainly move the company forward toward a larger financial goal.  Yet each is measurable if achieved.  In fact, the degree of progress toward achievement can also be achieved, such as “We did establish and do business with two of the five Fortune 50 accounts this year.”

Measurement is the key to success.  Even at the strategic level.  Next week, we’ll look at the last major step in creating an OST plan for an entire organization.

Posted in Growth!, Positioning | Leave a comment

Please map your goal and USE that map!

It’s time to speak of some sort of business plan.  As a professional investor in early stage companies, I have long discounted long, detailed business plans in favor of a concise “executive summary” followed by a believable spreadsheet-based financial forecast projecting three to five years into the future.

Yes, everything does change between drafting that plan and its successful execution.  But flying without a map of some kind seems just plain too risky.

I once joined the board of a company that was growing slowly, running beyond break-even, but had not approved a plan for the current year, let alone attempted to develop one for the next.  So, the CEO had one of his own that he did not share, while the CFO had one for internal use that was never shown to the CEO or to the Board.  No wonder the Board members wanted to dig in and find who was communicating with whom, and who was in charge of the map to the goal.  By the way, there was no goal understood by all or agreed to by anyone.  How do you compensate executives and all levels for successful accomplishments if there are no established steps toward the goal?  And how do you measure a person’s contribution to an unnamed goal?

[Email readers, continue here…]   So, if you have not, create a concise map for your enterprise.  Start with a reasonable goal, usually expressed as a revenue number some number of years into the near future.  Assess your current resources and attempt to calculate the resources needed to accomplish the goal.  Do you need to raise money, focus spending upon only core projects that advance the company toward the goal, or bring in new management talent to make it happen?  Write these steps down in any form for now. We’ll explore a more organized approach in the next insights.

Posted in Growth!, Positioning | 1 Comment

How to use metrics and a dashboard

Have you ever driven a car that had no speedometer?  I had that thrill when a student at the Richard Petty Stock Car School of Driving at a motor speedway in California.  With a wide track, angled aggressively at the curves, and being told to hug the wall on the straightaways, there was little reference available to a novice driver as to speed.

I followed my instructor’s car closely, but still could not tell anything about my speed, so that I could neither compensate for lags behind the leader nor test my comfort zone at various points that matched the expectation of my instructor and my own increasing capabilities as a driver.  Upon conclusion of eight laps of this, after pulling into the alley and climbing through the window on the driver side (there are no doors in these cars), I was handed a sheet with my timings for each of the eight laps.  Only then, after when the information might have been useful, could I see how well I did.

That’s how you would feel if you ran your company without a dashboard containing relevant metrics that drive your company.  If you cannot relate to this, then you probably have been driving without a speedometer from the start and need to pay particular attention here.

[Email readers, continue here…]     Metrics should be created by you and your managers to measure near real time progress for your enterprise.  Those deemed critical to you and your managers should be combined into a single page on your desktop screen or in printed form and available or circulated as often as daily.  These measures of progress must be fresh and meaningful.  Yesterday’s sales and returns compared to same day last week and last year for retail businesses;  Units produced and units shipped compared to plan and same period last month for manufacturers;  Yesterday’s overtime hours by department;  Ratio of hours worked to units produced;  Backorders unshipped;  Customer service calls in cue or unresolved.

You can think of numerous critical measures for your business that must not be ignored, but often are neglected by senior management. It is not bad to manage by walking around, a term that became from another of the many business advice books of the ‘90’s.  But that method, although good for employee morale, is imprecise as a tool of measurement and should be relegated to a supporting role for you.  Financial information from last month compared to plan and same month last year is certainly relevant, but not part of a dashboard, since there is nothing you can do to fix a problem when numbers are as old as a week, let alone the typical several weeks required to prepare financial statements for review.

Finally, what good is the information contained in a great dashboard if you ignore it?  Show that you value the information by acting immediately upon variances, even if only to question the numbers.  Everyone down the line will become aware of your attention to their work, your interest in the outcomes and care for their success.  And you will drive revenue and better control costs and the customer experience with quick reaction to the variances within critical metrics that best describe your immediate situation.

Posted in Growth!, Protecting the business | 3 Comments

Have you set your life and business goals?

We’ve spent several weeks discussing your vision for success, and whether you could be the next Ford, Jobs or Musk.  Now it’s time to make this more tangible, more real – by attaching personal goals to this vision we’ve created together for you.

So, your vision tells the world what you want to be as you contemplate how you will change the world for the better.

But your goal is a tangible aiming point, one that should be achievable within several years if you accomplish your progressive steps planned between now and then.  You can express it in terms of money, market share, influence or other measure that reflects success.  Here’s a business example: “To be at a $25 million run rate by the end of our fifth year in business.”  That is measurable.  From it, you’ll be able to look backward to develop a set of steps (strategies) to achieve that goal.

[Email readers, continue here…]  Once achieved, a goal is meant to be overwritten with a newer one, set to even higher standards.  If achieved early, celebrate and set another goal earlier than planned.

The good thing about a goal is that it is measurable, and progress toward it can be measured as well. Unlike your vision, which can’t be measured, there is a satisfaction in each step toward achievement of your goal.  For business goals, your employees and investors will appreciate constant attention to the goal and reports of progress toward it.   A goal serves as a rallying point for all associated with your vision.

Make the goal realistic, achievable and public.  You’ll find others buying into the objective and even creating better ways to achieve it because they are invested in the dream and the measure of that dream – the mutual goal.

Posted in Ignition! Starting up, Positioning | 1 Comment

Could you be the next Ford, Jobs or Musk?

Well, it’s a fair question. Note that none of these three famous innovators were inventors like Thomas Edison, but visionaries who find a new marketplace or niche – or how to reach the mass market in new ways.

Leaders and companies that innovate new products, services and methods of delivery are the ones that stand out in a crowded business world, especially when attempting to gain recognition among the throngs of competitors visible on the web.

Innovation is valued by our society, by investors and certainly by consumers.  It is the focus for state and federal governments worldwide, many finding ways to reward innovators with tax incentives or investors with tax credits to finance innovative new enterprises.

As a keynote speaker, I often start presentations that start with a short history of innovation in the United States, using the twist of examining innovation through the lens of 150 years of cyclic bursts of bubbles, leading to subsequent recessions and depressions.  It is not hard to find strands of gold in the carnage left by failed businesses lost when a bubble bursts, such as in 1857, 1902, 1929, 2001 and 2008.

[Email readers, continue here…] Innovators make use of golden strands of opportunity left when the unfinished vision of another cries for completion, or when a genuine new concept changes the very way people think about their lives.

Leonard Kleinrock and a few of his UCLA computer lab students worked to send the first several text characters from UCLA to Stanford in 1969 over a direct line established for the test.  They could send only the “LO” of “LOGON” before recording the very first crash of the Internet.  And I’m sure they had no idea what they were fathering with that effort which eventually became ARPANET, and then of course, the Internet itself.  They had no mantra, and a limited vision to connect mainframe computers to share academic information.

How many entrepreneurs used that new Internet infrastructure to create an expansive vision of what could be?  Tim Burners-Lee wanted to use it to create a friendlier “web” of pages, sharing data like the pages of a massive library of books extending throughout the world.  The result was the worldwide web, upon which Mark Andreeson and his crew in Chicago built the Mosiac browser with his vision to make this data more available to anyone.  Which in turn allowed innovators worldwide to create applications inside a browser, share detailed information previously locked inside libraries and corporations, and ultimately to change the world by making the exchange of information frictionless.

We can look back to Ford and other visionaries who were not inventors as well as Edison, Bell and Tesla who were inventors – as great innovators of their time.  And perhaps the most impressive invention of recent times is the result of hundreds of people, firms, and institutions, each adding a new brick to the building of the Internet.

Now we have the infrastructure for innovators to create applications with open source software – building innovations for mobile, artificial intelligence, virtual reality, augmented reality, blockchain and drones.  And millions of innovators are at work extending these capabilities.

So, could you be the next Ford, Jobs or Musk?  You don’t have to invent the next big thing, just see the place where you can fit a technology into a new, much larger environment.

And who said that “Everything that can be invented has been invented?”  Ah yes. That was Charles H. Duell, U.S. Commissioner of Patents in 1899.   Oops.

Posted in Finding your ideal niche, Positioning | 1 Comment