Startup: An Insider's Guide to Launching and Running a Business (25 page)

Can you see where I am going with this? With this creative riff on a quick drive down the road, we are playing with something altogether different from a linear visualization of a body sitting in a car holding a steering wheel and pushing on the accelerator pedal. This is a transition from a separate, isolated, Newtonian model of a person plus a machine to a systems-thinking approach.

Systems thinking takes into account multiple simultaneous variables and inputs. The potential result of this is the synthesis of information and understandings that would be unavailable to you if you were thinking in a linear fashion.

As another illustration, I was recently on a walk in Zilker Park near my office in downtown Austin. Just 5 minutes from the office is a patch of woods that has within it a kid’s summer camp facility. This facility has installed a 15-foot log, suspended by steel cables just inches off the ground, which is like a moveable, rounded balance beam. The first time I tried to get up and balance on it, I immediately fell off. Same for the second and third tries. I gave up that first day,
and came back the next day. That time I got on the log again and fell off again. On reflecting on why it was so hard to balance, I realized that I was thinking about it all wrong! I decided to allow my systems-thinking mind to kick in, and let my thinking expand beyond my own body to encompass the log, the cables, and the ground. Suddenly (and without effort) I had access to feedback mechanisms and a way to feel my way into the problem of balance. I was immediately able to walk all the way down the log and back without falling off. The difference? Nothing except the way I was looking at it.

Thinking about this phenomenon, I took my kids to visit the park and did an experiment with them. My two sons (Mitchel, age 5, and Connor, age 10) were excited about this balance log and immediately tried to traverse it—and fell off. I let each of them try two or three times, and they teetered and repeatedly stepped back to the ground, frustrated. I wanted to try to get them into a systems mindset to see if they could increase their ability to perform this task.

I told them, “Let your feeling reach into the log beneath your feet. Feel into it and relax. Feel into the log and it will stop moving—you will be able to balance with no problem.” I kept repeating this as Connor immediately stabilized his balance and walked the length without any problem. Mitchel then tried, and I repeated the same thought: “Let your feeling reach into the log beneath your feet. Feel into it and relax. Feel into the log and it will stop moving—you will be able to balance with no problem.” The five-year-old was also able to walk the length of the log without falling. Both of them succeeded on their first systems thinking–assisted attempt. This is the power of a changed perspective.

I believe we are all wired
naturally
to do this. In fact, I think it is more basic and intuitive than language-based linear thinking. The trick is to recognize this fact and allow yourself to relax into the alternative whole system–thinking model.

In business, this kind of visualization is of critical importance to me. I make it a point to build a multifaceted model for each business that I am involved in, which takes into account a long list of variables. Examples are

• The product
  
• The customers
  
• The marketing plan
  
• The team of employees
  
• The geometry of relationships between marketing, customers, and products
  
• Financial models for marketing, products, and staffing
  
• Frequency of events such as updates, product releases, and so on
  

This list will be long enough to include every bit of information that you know about the company, the market, and the world at large. The end result of each of these elements coming together is a laboratory environment—a representation and model that can be used to test any potential change to business strategy, tactics, or operations.

The feeling of having the model in action is that of a morphable, multi-dimensional structure that can be rotated in space, twisted, analyzed, rolled forward and backward in time, split apart, and otherwise manipulated in any way that the imagination can create. For me, this structure is experienced from inside and throughout it. Key to this structure are the geometric relationships inherent in the business. How many customers are coming in? Are they online or are they real customers in stores? With what frequency? What percentage of the time do they actually make a purchase? What structures outside of the business are bringing them in? What is the timing and dependency model for the marketing plan? These questions are not asked in words, but by applying them physically to the model and observing how the feeling changes. The experience of it is effortless, and the field of available information is incomparably rich.

What does all this
thinking
do for you?

Having built the understanding of the business, and having assembled the model, the model is just waiting to be asked questions. But questions without words. What repeatedly has happened in my experience is that someone says, “OK, we are going to do
this
and
this
in the marketing plan.” After plugging it into the model, there will be an immediate conclusion, for instance, that “the plan doesn’t make sense, and here’s why.” What may follow from this is a 20-minute discussion of
why
it doesn’t make sense. That discussion (with whiteboard diagrams to support it, of course) may take quite a while to work through because the logic needs to be translated out of a systems-thinking perspective (which is wordless and nonlinear) and put into a language-based linear model for sharing with other people. This takes time.

As I said, I believe that we are all naturally wired to do this. It is simply a matter or recognizing the potential of it, and turning off the language center of your thinking long enough to get inside and
feel
the relationships in your business instead of asking yourself in words. Take the time to play with this. I
started doing this about 20 years ago, and I am still learning how powerful it is. I use it daily. It is where the “wow” factor comes from when bringing strategic guidance to my businesses. Let it be the wow factor for you too.

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Know That You Don’t Know

We know all kinds of things about our environment, our market, and our business. Realize up-front that there is a great volume of information that is hidden from your sight.

You don’t know everything, even if it feels sometimes like you might be getting close. Wise businesspeople should be humbled by the complexity of the world and always stay in touch with the fact that much more is
not known
than is known. They also realize that there is no end or limit to how much they can learn—which means that what they know at any moment is always incomplete.

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Domain Knowledge

You can analyze a situation or market and produce remarkably elegant understandings and mental structures to deal with it, it is true. But before making any important decisions, or even feeling confidence in your conclusions, make sure that you have adequately coupled this type of exercise with sufficient experience in the market itself. While mental analysis is a valuable and necessary tool, it is important to note that a
single missed fact
about any marketplace can invalidate substantial amounts of strategic planning.

Confidence is often misplaced by smart people who have had a great track record of decision-making in one domain when they jump the boundaries of that specialty and begin to ideate in another domain. The process
feels the same
, but lies on different ground with different assumptions and background facts. A fantastically smart energy industry executive, for example, has no business expressing confident, detailed opinions on the publishing industry (unless and until he jumps into that industry and earns his confidence by the process
of getting to know the publishing business firsthand). Having success in one area using a rich palette of thought-tools such as those discussed in this book will absolutely make it easier to enter other areas of action, but your capacity to analyze is no substitute for firsthand experience and domain knowledge.

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Enjoy the Drama

Just as I created the mailroom-to-the-boardroom scenario for myself, identify what kind of drama you want for yourself. For me, this meant that as a young man, I wanted to work my way up from basic entrepreneur labor, to being a business leader and to see first hand all of the steps in between. From a strategic-thinking standpoint, this becomes your overarching story frame from which you contextualize and understand how each chapter of your life fits together. This can be a powerful tool when it informs you what cadence and tone best suit your personal needs. This frame has within it many classical formulas, such as the comeback, the underdog, the tycoon, the philanthropist, and many others. It is how we use archetype to describe to ourselves and others what flavor of experience we represent.

Identify your ideal story, and then go out build it and enjoy the heck out of it. It may well be
what you are here for
at this time and place. Go out today and make it happen. There are no excuses for simply waiting day by day to arrive at the finish line. If you feel some kind of spark or a voice that tells you to get up and do something great, making it happen is less “a doing” or some great effort, and more a matter of getting out of the way and watching what happens. Don’t delay. There is no time like the present. Enjoy every step, every failure, every success.

Exiting Your Business

This book is primarily about starting and running your business. A critical part of that subject is a discussion of what to expect when you make the decision to sell what you have built, and move on. It is important for entrepreneurs starting out to understand the big picture of what likely options and events lay ahead for them in this regard. In recent years (since the 1990s), the idea of selling out to investors or issuing an initial public offering (IPO) has become the focus of incredible amounts of media attention and the stuff of modern folklore. It seems that in tech circles, everybody knows someone somewhere who sold their business for millions of dollars, so it is natural to want to replicate their success in your own business. While it is my personal preference to focus attention on the process of operating the business, it is important to realize that for those businesses that survive and thrive, it is likely that at some point the idea of an exit will become important.

Selling a business is the culmination of a lot of work—usually years of it. In order to be acquired, you ultimately need to have something that others feel that they have to have. This means knowing the right people, being visible in the market, and being on the right side of an intense valuation done by investors.

I have had three exits in my career so far:

• Private equity sale
  : In the late 1990s my Meridian World Data business was acquired by private equity investors. The investors were not in the mapping-data business (until it bought Meridian), but thought that there was good potential in running Meridian as a portfolio investment.
  
• Strategic merger
  : That capital from selling Meridian World Data, and a few years of work, helped us develop a growing online retail business—but this operation felt underdeveloped in many ways. We approached and negotiated a merger with a larger competitor in Chicago. It had a weak technology profile, but it had great facilities and operational capacity. With our strong technology back end, and their much weaker operational capacity, the fit was too good for us to pass up. We merged and the gravitational center of the two companies moved to Chicago.
  
• Acquisition by competitor
  : Some time later, I joined a company with the explicit purpose of positioning the company for acquisition. From day one, the primary objective for me was to get the company sold. My mandate from the CEO to was change the engineering, marketing, product, and culture of the company to get the investors a return on the substantial investment they had already made in the company. It was an intense fast-forward rebuild of just about every part of the company in preparation for attracting the best possible buyout offer. With the successful industry networking of our CEO and a well-received reboot of the business, we had an acquisition deal 13 months after I came on board.
  

These acquisitions were not accidents; they were planned for, and they were the result of a great deal of deliberate work, positioning, and communication. As you start or run your business, here are some things to think about that will help you to position and prepare for an exit on the best possible terms.

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Preparing from Day One

If you are running a business, you have numerous and daily opportunities to take shortcuts or allow problems to fester. These shortcuts can span a wide spectrum, including how you deal with taxes, legal issues, intellectual property, HR issues, bookkeeping and financials, problems with product quality, and so on. These types of problems will appear as issues for most companies at one time or another, and the way that you deal with them will have many consequences. Those consequences manifest themselves in both the short term and the long term. The short-term consequences of not dealing completely and properly with this category of issues are clear enough, and vary from problem to problem. The long-term consequences are such that they can easily endanger your ability to successfully reach a graceful and profitable exit from your business. I advise you to plan on positioning yourself for your exit from the very beginning—by keeping in mind that to exit and transfer your operation to somebody else, the complete details of any hidden problems will come out of the closet and be subject to the scrutiny of your potential acquiring company. This means avoiding shortcuts, and making a point to clear up the messy issues that sometimes seem like they can just be ignored. The hope that they will go away on their own accord is a false one—the messy issues just seem to linger, demanding your attention for their proper resolution.