Does a “good heart” diminish the chances of success?

First, let’s separate the “good heart” from the issue of whether an entrepreneur is driven to succeed.  A sense of values that allows for sharing and fairness is not at odds with a ‘type A’ entrepreneur driven for success.

What is important is that stakeholders (people working for and with the entrepreneur) accept the entrepreneur for his or her good intentions, sense of fairness and willingness to listen.

Stories of the selfish entrepreneur

I have had numerous experiences during my business career where businesspeople I dealt with took advantage of the moment selfishly because they could, not because they should.  I recall an executive who kept a large deposit but canceled a contract, refusing to negotiate, because the next payment due was a few days late.  Or another who sued over a gray area issue, refusing to listen or negotiate.  (He lost the suit and paid both sides’ fees.)

My unscientific conclusion

[Email readers, continue here…]    And I have come to conclude that “good guys” (men and women) do finish first.  There is no scientific proof, no metric to measure the full meaning of “good.” and no special acknowledgement from any “good-watching” organization.  Even without these, I am sure of this.

Surely the ruthless more often win in the short run.  But early successes, built upon the broken backs of adversaries, are rarely followed by long- term wins for the tyrant or for the tyrant’s company.

Be of good heart.  You will enjoy your entrepreneurial or managerial ride much more, and your stakeholders will follow you through the flames as well as cheer your successes.

Images created with MS Designer using prompt: A realistic photo image of a casually dressed female businessperson standing as her six direct reports applaud her recent action. White background, No text.

Ten tests for your business success:

1. Is your market identifiable and accessible? Test yourself as to whether you can identify the size of your market niche, and whether you can overcome the many barriers to access customers within your niche.
2. Where in industry life cycle? If your vision is for a product or service that fills a need in a mature industry, you may be flying against the prevailing winds as a market shrinks over time, taking your business with it.  Conversely, a fast-growing industry lifts most all good participants, making excellent companies excel even more and grow even faster, like a small plane flying at 150 knots with a 75-knot tailwind.
3. How large is your total market? If the total market for your niche is under $100 million per year, it is going to be difficult to build a $50 million business, even if not impossible. If the market is ten times that size, there is probably room for competitors to fight for dominance and still succeed if you are not number one.
4. Can you dominate that market? The dominant player in any niche controls pricing for all those under it, and often sets the risk profile for new entrants into the niche if the dominant player’s products or services fill the needs of customers at reasonable prices and quality.
5. [ Email readers, continue here…]   Have you created high barriers to entry? If your business is a “me too” entrant into any market niche, even the smallest success will soon attract competitors that will sap some degree of your potential growth. What can you prove as a barrier to entry for competitors?  Is it the advantage of time – years of development ahead of any competitor? A core patent or “thicket” of patents protecting your offering?  A strategic relationship with one or more of the largest customers?
6. Are margins high enough? Some great ideas just can’t make money and ultimately die for lack of profit potential.  Profit margins are higher for unique products or services early in the life of an industry niche, or for products protected by patents that prevent others from undercutting you simply by releasing a cheaper product.  High profit margins are a sign of high barriers to entry and attract investors and ultimately good buyers for your business.
7. Can this business grow to above $20MM to $50MM in annual revenues? This is a basic test for investors, separating your business from those with smaller visions.  There is nothing wrong with a vision for a smaller enterprise if not in need of professional investors to make it a reality.
8. Do you have a world-class management team? The best way to protect against failure is to attract a team with members who have experienced success and failure and can recognize the ways to manage toward success and avoid the pitfalls previously experienced from past failures.  From a professional investor’s perspective, the team should be able to be flexible, coachable and experienced enough to get a business through breakeven and beyond the next level of outside investment, greatly reducing execution risk.
9. Can you translate an idea into a compelling product? Some great ideas just cannot be made into a product at a reasonable enough price to attract customers.  And some attract early adopters but cannot pass into the mass market.  Sometimes, an idea is just too early for the available technology to make it attractive.  Early cell phones were large bricks that required a large carrying case and cost up to a dollar a minute to use.  As technology caught up, allowing miniaturization and light weight, mass adoption drove the price down and allowed the building of infrastructures everywhere to support the use of inexpensive minutes.  Do anything you can to develop compelling products or early prototypes as proof of ability to reduce your technology risk.
10. Is there an exit strategy for the investor(s) over time? There are many professional services businesses that make fine lifestyle opportunities for architects, doctors and dentists.   But these types of businesses are not attractive to potential buyers willing to pay a premium for businesses that are worth millions more than their asset value.  Building a great business to create wealth for the entrepreneur at exit, means thinking of the exit strategies from the beginning.  Who or what type of buyer would be attracted to this business if successful?   Great wealth is made from selling great businesses at immense profit for the entrepreneurs and investors who took the journey.

Note: All images created for this blog by Dave using AI prompts with Microsoft Designer (DALL-E).

This week’s insight came from personal experience and from a good friend who advanced the notion of the “teacher-customer” years ago.  I internalized this phrase, recalling the many times I had partnered with customers to design new feature-functionality into my hotel computer system back when such systems were brand new to the industry.  It was an ideal partnership for my growing company, as it approached one hundred employees on the way to almost two hundred fifty and selected special customers anxious and willing to spend time telling us of their pain points.

How it works:

Together we would work out solutions in the form of new functions, new controls, new reports, and new safeguards.  The customer would be the first to receive the new functionality in a new release.

Providing feedback to your teacher customer.

At the annual user conference, I would often make sure the entire user community present knew of these extraordinary collaborations by naming the teacher-customers in the presence of their contemporaries.   Sometimes the audience would cheer one of their own, knowing that everyone benefited from the extra time and effort spent teaching their vendor the needs of the industry not yet addressed by competitors or by our firm to date.

But there is a balance…

[Email readers, continue here…]   This is not to bend this insight into a claim that a company should wait to develop new, groundbreaking products and services until a customer asks for them.  If that were the ideal mode, many game-changing concepts would never have made it to market, including Fred Smith’s FedEx, first explained to a college professor in a paper returned with a C+ grade and the professorial comment that the idea was “good but impractical”.

Final thoughts:

Even if you are an expert in an industry segment, partnering with one of those rare, willing teacher-customers during the design stage for your proposed product or service is empowering and fruitful for both parties.

All companies whether service or product-oriented must fight to gain and maintain quality of product or fall to the bottom of the competitive heap.  We have explored feature-functionality.

Next week we will focus upon product quality and its effects upon the organization.

You have a great new product or service that you and your associates love.  Early adopters should climb all over each other for a look.

But are you HERE?

But what have you done to test the concept against the realities of the marketplace?   Have you developed a prototype, alternate pricing schemes, even a PowerPoint mockup to show to potential buyers?  I would be very, very nervous without testing the product in the market as early as possible, ready to make changes and enhancements before committing to production and release.

Even with a perfect product, is the market ready for this?

Will you have to be both the evangelist for the product and for its marketplace as well?  Few early-stage companies have the resources to do both.

One way to test your market early…

[Email readers, continue here…]   There are formal focus group organizations to help you, or you can attempt to test the market yourself by calling together a variety of potential users and asking a third party to facilitate a meeting where the product is exposed to the group and a conversation freely formed allowing the participants to agree with the premise or reject the product as useless to them, all without personalities getting in the way.

No matter how you plan to test, make that plan an integral part of the development cycle, as early as possible so changes will not be costly.  Do NOT rest until you test.

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

This is a budget:

A budget should be created each year after a series of negotiations between departmental managers and their superiors all the way yup 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.

…and this is a forecast:

[Email readers, continue here…]    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.

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 yearend.  Both uses of the term are common.  Just be sure all who participate understand which use of the word is the current one.

The punch line:

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.

Definition of tactics:

Tactics support strategies and are shorter term and more 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 several years.

How many tactics can you support at once?

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.

Example tactics for one strategy:

[Email readers, continue here…]    Strategy Three: Expand into at least three new continents through new distribution channels.

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.

Here’s how these tactics support your strategies.

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.

Here’s a memory tool for this exercise.

In planning, the matrix, “5×5=1” (5 strategies, 5 tactics, 1 goal) is a good memory tool for you to keep from overreaching with too many strategies and too many tactics.  But it is not written in stone.  And development of these important elements 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 of your stakeholders 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.

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.

A story of “secret plan

I once joined the board of a company that was growing slowly, running beyond breakeven, 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 oversaw the map to the goal.

[Email readers, continue here…]   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?

Here’s the simple advice for you.

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 several weeks of insights.

Ten tests for your business success:

1. Is your market identifiable and accessible? Test yourself as to whether you can identify the size of your market niche, and whether you can overcome the many barriers to access customers within your niche.
2. Where in industry life cycle? If your vision is for a product or service that fills a need in a mature industry, you may be flying against the prevailing winds as a market shrinks over time, taking your business with it.  Conversely, a fast-growing industry lifts most all good participants, making excellent companies excel even more and grow even faster, like a small plane flying at 150 knots with a 75-knot tailwind.
3. How large a total market? If the total market for your niche is under $100 million per year, it is going to be difficult to build a $50 million business, even if not impossible. If the market is ten times that size, there is probably room for competitors to fight for dominance and still succeed if you are not number one.
4. Can you dominate that market? The dominant player in any niche controls pricing for all those under it, and often sets the risk profile for new entrants into the niche if the dominant player’s products or services fill the needs of customers at reasonable prices and quality.  [Email readers, continue here…]
5. Have you created high barriers to entry? If your business is a “me too” entrant into any market niche, even the smallest success will soon attract competitors that will sap some degree of your potential growth. What can you prove as a barrier to entry for competitors?  Is it the advantage of time – years of development ahead of any competitor? A core patent or “thicket” of patents protecting your offering?  A strategic relationship with one or more of the largest customers?
6. Are margins high enough? Some great ideas just can’t make money and ultimately die for lack of profit potential.  Profit margins are higher for unique products or services early in the life of an industry niche, or for products protected by patents that prevent others from undercutting you simply by releasing a cheaper product.  High profit margins are a sign of high barriers to entry and attract investors and ultimately good buyers for your business.
7. Can this business grow to above $20MM to $50MM in annual revenues? This is a basic test for investors, separating your business from those with smaller visions.  There is nothing wrong with a vision for a smaller enterprise if not in need of professional investors to make it a reality.
8. Do you have a world-class management team? The best way to protect against failure is to attract a team with members who have experienced success and failure and can recognize the ways to manage toward success and avoid the pitfalls previously experienced from past failures.  From a professional investor’s perspective, the team should be able to be flexible, coachable and experienced enough to get a business through breakeven and beyond the next level of outside investment, greatly reducing execution risk.
9. Can you translate an idea into a compelling product? Some great ideas just cannot be made into a product at a reasonable enough price to attract customers.  And some attract early adopters but cannot pass into the mass market.  Sometimes, an idea is just too early for the available technology to make it attractive.  Early cell phones were large bricks that required a large carrying case and cost up to a dollar a minute to use.  As technology caught up, allowing miniaturization and light weight, mass adoption drove the price down and allowed the building of infrastructures everywhere to support the use of inexpensive minutes.  Do anything you can to develop compelling products or early prototypes as proof of ability to reduce technology risk.
10. Is there an exit strategy for the investor(s) over time? There are many professional services businesses that make fine lifestyle opportunities for architects, doctors and dentists.   But these types of businesses are not attractive to potential buyers willing to pay a premium for businesses that are worth millions more than their asset value.  Building a great business to create wealth for the entrepreneur at exit, means thinking of the exit strategies from the beginning.  Who or what type of buyer would be attracted to this business if successful?   Great wealth is made from selling great businesses at immense profit for the entrepreneurs and investors who took the journey.

Reminder: What is your vision?

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

How does that differ from your goal?

In contrast, 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.

And why is that so important?

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.

The best advice:

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.

Pardon my English. But this is one of my favorite statements.  You’re at the ignition stage of your newest business venture.  Of course, you have a vision for what you will do to change the world.  Let’s stress test that vision and sharpen it further to help ensure your success.

Stress-testing your vision.

First, if your vision is limited and you will be happy with a successful local dry-cleaning enterprise or small restaurant around the corner, you are not the target for this epic effort to help entrepreneurs build great businesses that do change the world.  (Please take what you can from these weekly posts.  Many will apply directly to you.)

For the rest of you who want to change the world, let me repeat using different words: vision is everything.  A great vision for a new enterprise drives innovation. It serves as the rallying cry for future employees, investors, customers, and suppliers.  It sharpens the understanding for those new to the enterprise and moves them to follow and even to become unpaid advocates for the business.

Think of some of the great visions from the past that did change the world. 

“Absolutely, positively overnight” made FedEx an indispensable name in supply chain management.  “A computer on every desk” made Microsoft a partner in the growth of most every business.   You can think of many more, visions expressed so clearly that their enterprise became critical to your success.

There are other, less dramatic ways to express a vision. 

“Be the largest supplier of laser toner in North America”, or “Make dining into a five-star experience.”

How an entrepreneur’s vision statement affected me…

[Email readers, continue here…]   Years ago, as a panelist at an entrepreneurial seminar, I watched as over fifty aspiring young entrepreneurs filed past a microphone, each tasked with making a thirty second pitch to the panelists of professional investors.  About halfway through this painful exercise, one man walked up to the microphone and said, simply, “We move oil through the Internet” and then he moved on.  Immediately after the panel presentation, I found that one entrepreneur and began a conversation that led to my investing $100,000 in his vision of a supply chain enterprise based upon perfect knowledge of oil delivery systems, precise timing of delivery and coordination of resources to move oil from source to customer using the Internet as a frictionless tool for communication and coordination.

Although that business ultimately failed, I remained in contact with that entrepreneur as he used his experience in a new field, better off because of his learning experience.  I carry no rancor because of the loss, since I bought into the vision, helped as I could with the execution, and came to the realization along with the entrepreneurial team that the number of uncontrollable elements far exceeded those which could be controlled by any third party at that stage of development of the Internet.

Express your vision in just a few words – so that others will remember them and remember you, and hope that they get behind your excitement and singular focus for success.