Vision for your future success is EVERYTHING!

I love absolute statements. And this is one of my favorites.  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 insure your success.

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 effort to help entrepreneurs build great businesses that 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: 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.

[Email readers, continue here…]  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 the enterprise became critical to your own 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.”

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 as a result 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.

Posted in Ignition! Starting up, Positioning | 1 Comment

How to protect your company lists and trade secrets

Most senior and middle level managers will understand when a subordinate comes to them to resign and begin a new business.  But all will immediately question whether the new business will compete in any way with their enterprise, and react to the future entrepreneur in either of two very distinct ways based upon those fears.

Even more suspicious is the action of an employee who resigns suddenly without notice or explanation.  It is natural to worry over whether that person is off on a journey to a competitor.

If the employee who is about to resign tells you that he or she is off to conquer the world in a completely new arena, there is almost always the unspoken sigh of relief and a cooperative attitude that flows from that point on in the conversation.

But if the departing employee is even a little bit reticent to tell of his or her plans, the result is the first stage of what could become an outright war between you and a newly separated past employee, sent away that day with an escort out the door.

[Email readers, continue here…]  You can expect to have the same attitude if a past employee resurfaces after a layoff, resignation or after being fired, with a plan for a competitive business – or as an employee of a competitor.  Most employers have all their employees sign non-disclosure and confidentiality agreements to protect the company’s trade secrets, customer lists and business plans.  Many states recognize the right of a former employee to work, even if in direct competition with a past employer.  But that right clearly stops when the entrepreneur uses any trade secret data from the past employer, especially customer lists for contacts and confidential business plans.

Anyone can be sued even if without merit, and responding to a suit can be traumatic in many ways – from expenditure of cash and valuable time to emotional drain from worry over a negative outcome, to loss of industry goodwill by an entrepreneur perceived to have stepped over the line.

This is especially true for someone who has sold a business only to surface later to compete in some way with the buyer.  Never underestimate the venomous response from such a threat.

So, here’s the obvious advice to give to departing employees.  “No matter what your circumstance, never, ever be guilty of using trade secret materials or ideas from your past employer, especially customer lists.”

Posted in Protecting the business | Leave a comment

Fewer words, greater effect.

I have a good business friend, an experienced manager and teacher with a Harvard MBA, whose deep thinking creativity and intelligence are admired by many.  But he dilutes his effectiveness with wordy PowerPoint presentations.  It has become a long running joke between us, as I often remind him that most of us have a very limited attention span and ability to recall important points from a presentation.

Note the title and tone of these insights.  Short, to the point.

Mark Twain said, “I didn’t have time to write a short letter so I wrote a long one instead.”  He cogently encapsulated the problem.

It is more difficult to reduce your thoughts to a few core sentences, but that is what you should do for maximum effect.

Posted in General | 3 Comments

Which is more important: Management quality or a better plan?

So, what do you think is more important? The quality of your management team, or the plan you execute toward success?

Checking with professional investors from angels to VC’s, the answer appears to be near unanimous: the quality of the proposed or actual management team comes in a strong first, before the attractiveness of the business plan itself.  The quest for a great management team is not a fluke, but rather a result of backward looks at the failure rate from past investments by those same angel investors and venture capitalists.

If you read last week’s analysis of statistics for startups and early stage businesses, you have learned the truth that at least half of the businesses backed by professional early stage investors will die within three years or less. That reality is a tough one for the professional investor, almost as tough as for those entrepreneurs who lose their businesses.  The latter can start new businesses, flush with the experiences gained from the previous effort and much the better for it.  But the investor’s cash is lost forever – and the experience gained usually is just another notch in their investor belt.

[Email readers, continue here…]  Here is the conclusion: It is the management team, most often led by a passionate entrepreneur with experience in the industry, which makes the biggest difference between success and failure, even for businesses built upon less than sterling basic ideas.  Among professional investors, almost all would rather back a great team with an average idea before a great idea and inexperienced team.  It comes back to coachability and flexibility, our insight from several weeks ago.

As a reminder of that conclusion: Great teams are flexible and have the advantage of experience in seeing the pitfalls before them from their past.  They are coachable in that they have taken advantage of the vast experience of others in overcoming obstacles and finding ways to speed a product to market faster or create a service whose quality exceeds that of the competition.

None of this is to say that an inexperienced entrepreneur cannot lead a great new business.  But it would be foolish to try without surrounding himself with as many experienced co-leaders as possible from the outset.   As a start, that smart entrepreneur will soon “know what he (she) doesn’t know”, an important qualifier for success in any business endeavor, when combined with the willingness to fill gaps in knowledge with help from those who have the experience to do so.

Even if you are not considering taking in money from professional investors, this advice would serve you well in protecting your own monetary investment.

Posted in Ignition! Starting up, Surrounding yourself with talent | 2 Comments

Startups: What are your odds for success?

Well, the numbers don’t lie, even if there are several sources of these statistics.  Starting a company is HARD – in so many ways.  And risky too.

I read several years ago, that the average startup restaurant lasts only about a year.  Ouch!  Here I am a professional investor in early stage companies, and I attempt to find those with the greatest chance of success and growth in value over time.  Restaurant startups would not top my list.

We have years of real data to call upon: data that impacts both investors and entrepreneurs.  For 2016 alone, there are two reliable sources of recent data for us to examine.  The Angel Resource Institute (ARI) recently published a study conducted by well-respected Rob Wiltbank, quoting that seventy percent of investments made by angel investors to date return less than the amount invested – upon a sale or closing of the business – the great majority of these outright losses as businesses die.  Tech Coast Angels, one of the largest angel groups in the United States, published its data in 2016, showing sixty-eight percent plunging to less than the amount invested.

Attempting to get to the number of real failures for all startups, not just those with angel group investments, Fortune Magazine published an article claiming that 90% of these startups do fail.   The U.S. Census Bureau reports that 400,000 new businesses are started every year in the USA, but 470,000 are dying. What does THAT mean?  John Chambers, former CEO of Cisco, stated that “More than one-third of businesses today will not survive the next ten years.”  And this includes all businesses, not just startups.  Harvard University recently published a study that three of every four venture-backed firms fail.  And, the U.S. Bureau of Labor Statistics states that 50% of all businesses survive five years or more, and about one-third survive ten years or more.

[Email readers, continue here…]  The Small Business Administration (SBA) claims that 66% of new businesses survive their first two years (and that 50% fail during their first year in business.)  Although these are not parallel studies or similar statistics, most seem to refute Fortune’s claim that 90% of all startups fail.

You might be interested in this data as viewed from the early stage investor’s viewpoint.  Again, quoting the ARI study, angel investors hold their average investment for 4.5 years before a liquidity event (positive or negative.)  That buries the real data that – if you strip out the short-term company failures or investor losses, the average years to a positive return is between eight and nine.  And that is after investment, not after a company’s starting up.  Would you be willing to invest a significant portion of your wealth in “deals” that are completely illiquid for almost a decade on average?

And yet, these same early stage investors – if they diversify into enough companies and wait long enough – see an average annual return on their investments of 22%.  Way above market investment returns. But those returns come from the 3% – yes only 3% – of their investments that pay out more than ten times the amount of the original investment.

Starting up a new company is risky. Investing in a young company is risky.  But the potential returns over time for investors makes this an attractive diversification.  And we hear of successes like SNAP that make us all want to jump in and try our luck – even if the odds are well below 3% for ultimate success.

We are a cadre of optimists and that is unlikely to change.  Entrepreneurs will always start new enterprises. Angel investors will always finance many of them.  We all look for the lottery win, and hope to be well-rewarded over time.

Posted in Ignition! Starting up | 4 Comments

Do you think you are flexible and coachable?

As an early stage investor, the first test for me is whether “my” entrepreneur is flexible in both the plan and execution of his or her vision (since from experience almost everything about a business plan changes over time), and whether s/he, no matter what age or experience, is coachable.

Doctoral theses have been written on this subject.  Early stage investor groups often list these traits at or near the top of their list when filtering opportunities for investment.  And I have numerous stories from personal experience that reinforce these two traits as the most positive indicators of future success in business.

In my book, “Extending the Runway” (Second Edition, Berkus Press 2014), I explore the thesis that there are five basic types of resources an entrepreneur must exploit in growing a successful business: time, money, process, relationships and context.  Understanding the effects of each upon an entrepreneur and early stage business plan is critical.  Being able to adapt to the realities and changes in the fast-moving environment is essential.

Flexibility: the context in which a business plan envisions the enterprise in its marketplace is constantly changing as new products and services challenge competitors to innovate and adapt.  A plan written last month may easily need tweaking this month to recognize changes in the marketplace, the central context of the plan itself.  Everything happens faster these days than even a few years ago, especially in the arena of technology, where many new businesses are developed each month to solve problems or take advantage of opportunities that existed at the moment of an entrepreneur’s vision for the future.

[Email readers, continue here…]  One of the best indicators of future success for an entrepreneur and an early stage idea is the quality and depth of great relationships with industry veterans or technology gurus, or experienced successful business leaders.  Those relationships would be impressive but worthless if the entrepreneur was not coachable, open to suggestion and criticism from those who have experience enough to surface the issues unspoken but obvious to the coach.

And finally, there are always ways to improve the process of design, test, roll-out and marketing a new idea.  And many potential coaches out there have made mistakes in these processes at the expense of their employers or even their personal savings.  Since we all learn from our mistakes, it seems reasonable that we should learn from the mistakes of others, particularly those who freely offer their experiences as lessons for our enterprise.

I’ve seen entrepreneurs go through the complete process of raising money for a business from investors, many of whom were experienced and well beyond just friends and family, only to ignore all advice and execute a flawed business plan to death, ignoring the pleas and attempts at coaching by others including those investors.

Don’t be one of those.  Be flexible and be coachable.

Posted in Depending upon others, Growth!, Ignition! Starting up | Leave a comment

Will you be happy at your finish line?

Have you figured out what you want to have, or to be, when you reach the end of your personal run in this business life?

It is a fair question.  Most of us work in our businesses, either as managers or owners, and rarely step outside to think about how this will end in a perfect world.

Investors call this discussion “exit planning” and of course they include themselves in the

Crossing you personal finish line…

discussion.  But this is more personal, isn’t it?  If you are relatively young, you probably think of this question as too distant to consider seriously.  Of course, you’ll find another exciting venture and start again.

But for most of us, this question is or should be real and very personal.  And obviously, the answer depends upon the circumstances of our lives, our age, and our health among other factors.

And the truth is that sometimes our business runs end badly, not with a crazy–large wire transfer or retirement bonus, but with a quick goodbye or a failed enterprise.

[Email readers, continue here…]  But this question begs for a positive answer.  How would you like to see your finish line?  If you own a significant piece of the business, is this a time to consider planning an eventual exit or liquidity event?  Or do you plan to pass control to the next generation if appropriate?

Considering the alternatives early in the timeline helps you to monitor growth in terms of valuation, weigh the value of continued investment, bring family members into the discussion, and picture the end game in your mind.

In this series of insights, we continue to examine issues related to all phases of business management, including a piece on “evergreen companies,” where your picture of success is one involving the next generation continuing your good work, and not a sale of the company.  But where we have examined your management style and given insights for you in your business life, now we ask you to consider – even if just for a few minutes – that next or last stage.

Perhaps for the first time, this is a question to share with family.  From considering retirement to plowing right back in to another run, family is deeply involved in this, and should be.

So here is my wish for you.  Consider what you want in the end from your years of work, often years of sacrifice between business and family, with business often winning more of the time battles.  And picture how this should finish.  Make that picture vivid and actionable.

Then work toward, and enjoy someday crossing that finish line just the way you envisioned.

Posted in The liquidity event and beyond | 3 Comments

Control your euphoria!

One thing a senior manager can count on is that someday, something will go right, very right.  Well, after all the disappointments, pressure and outright failures, this is NEWS.

So we tend to go overboard a bit.  As a member of the board, I’ve received calls on weekends, at night and texts at hours I didn’t even think existed – from CEOs who couldn’t control the euphoria.  A successful test.  Completion of a software project by the remote workers in (Philippines, Brazil, Armenia, fill in the blank… Just name a country whose daytime is our nighttime.)  You get the idea.

Now, even those late night awakenings don’t bother me. I can get behind the excitement as well as anyone, especially when my money is riding on the outcome.

The problem sometimes comes shortly thereafter.  Guided by the enthusiasm of the moment, management orders (fill in the blank from your own experience here) an early release, increased spend for marketing, hiring more people to handle expected demand or early manufacture, or maybe just feeling so optimistic – that the conservative approval of spending is suspended in anticipation.

[Email readers, continue here…]  A moment, please…

Remember to think of the many steps in the supply chain.  That success is by definition just one of many such steps, and others will be affected almost always in negative ways not yet considered.  Early release?  What happened to the careful rollout plan?  The capacity analysis? The cash requirements forecast?

It isn’t hard to be optimistic, and it is a joy to see others be euphoric, or to be so yourself.  And yet, I’ve seen and heard stories of companies that ramped prematurely directly as a result of management euphoria, especially in the software and medical device niches.  But no–one is immune to this disease.

Feeling a bit euphoric?  Congratulations. Now calmly analyze the next steps to success before placing your foot on accelerator…

Posted in Growth!, Protecting the business | Leave a comment

Avoid the race to zero…

When do you sell your company?  Obviously we all want to sell at the top.  And there is the problem.  How do you know when you are at or near that right point to sell for maximum value?  Those of us in the business of calculating (guessing) this mythical peak in value often make the same mistake as our entrepreneurs.  We hang on just a little bit longer, expecting continued or accelerating growth and value as in previous periods of the same.

But there are wolves in the woods when it comes to entrepreneurial growth.  Companies sometime run out of cash in the midst of success, and often find that sources of loans or investment are not freely flowing at the moment of need.   Young companies have been known to outgrow the abilities of management to focus and direct them, failing to make the transition to organized, stable growth.  Competitors, seeing a successful development of a niche, flock into the competitive void with products or services built with a fresh view of the current environment.

Think of major companies, public and private, that have lost their shiny appeal over time, including Zinga, LivingSocial and Fisker in this generation – and Alta Vista in the last.

[Email readers, continue here…]  For young companies, often the question is whether to suffer a new round of dilution to stimulate growth, or to sell earlier and not share the (presumably) increased proceeds with additional investors.  Not so long ago, Basil Peters wrote his book, “Early Exits,” after analyzing 150 young companies and their exits.  He concluded that the sweet spot for valuation was in the $20–30 million sales price range, and that many, many times more deals were completed in that range than above $100 million in valuation at exit.  Adjusting these numbers to fit your circumstance, the conclusion is that waiting for higher value after sustained growth becomes more and more of a risk in the majority of early stage cases.

There are only a few Uber or AirBnB investments to point to – where the street value of the company may ultimately validate that amount of investment.  LivingSocial took in $583 million in capital in 2010 and 2011 with little left in time to show for the investment and tremendous dilution to the founders.

And some of us know from experience that, in a retrospective view, some of our entrepreneurs and their boards of directors pay the ultimate price of erasing all economic value by waiting too long.  In such instances, the phrase, “race to zero,” perfectly describes the result of a miscalculation in the name of either optimism or greed.


Posted in Protecting the business, The liquidity event and beyond | 4 Comments

About personal use of corporate assets

It is no secret that the IRS looks carefully below the surface for personal use of company assets (including cash) in its corporate income tax audits.  This insight addresses more the impact of such behavior upon the actions of employees and others who observe that behavior from a senior manager or owner of a business – and know that they cannot say anything about it without jeopardizing their jobs.

Use of a corporation as a personal piggy bank seems to be an earned perk in the mind of some entrepreneurs and some CEOs, reasoning that the only harm in doing so is in taxes never paid to the IRS.  The truth is that there is a much deeper degree of damage done to the moral and ethical fiber of the company itself, and certainly to the credibility of the executive or entrepreneur with employees.

The culture of a company is created from the sum of many parts, most all coming from the top.  One of the most toxic shocks to good culture come when a promise of ethical decency and mutually fair behavior is breached by a senior manager, observed by others.   Think of the effect of locking the supply cabinet only to take from it whatever the person controlling the security of the cabinet wishes for personal use.  Or of the reaction of your accounting person when asked to book obvious personal uses of the corporate credit card as company expense.  Or flaunting the privilege of that corporate card by charging expensive meals with high priced wines when not entertaining outside guests.

[Email readers, continue here…]   And there is another degree of damage to measure in more extreme cases – the robbing of the entity’s ability to finance its own growth, sometimes causing reliance upon bank loans or other sources for capital.

Those in charge, even if one hundred percent owners of the business, have a special obligation to be open, lawful and ethical in the use of those assets upon which others depend for their continued jobs and living wage.

Posted in Protecting the business | 2 Comments