Startup: An Insider's Guide to Launching and Running a Business (3 page)

This bias toward customer indifference is a reality of the market. But to tell you the truth, I like the fact that getting into markets is tough, because that means that it is
tough for my competitors too
, and will serve to keep the folks in your market that aren’t smart enough or fast enough from hogging the swing set for too long.

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What Is a Business?

Too often, business owners, managers, and decision-makers get fooled by the way they use language into thinking that their business is a “thing.” It is not. It is convenient and even necessary to use a noun to refer to your business when communicating with people, but when you visualize it for yourself, make sure you
don’t ever
do so. One of the lessons I have brought along to all of the companies that I have worked at and consulted for is the following:

Your business is not a noun. It is a verb. It is a “happening” and a “doing.” It is nothing less than the sum total of the actions and thoughts of every employee and customer. It is the result-in-motion of all of the things that the people who participate in your business do each and every day.

Mentally framing your business in this way is an easy and useful step toward understanding it and how its complexity is organized between ideas, your staff, your customers, and the wider market. If you are visualizing the business as a noun (an object of some kind), your model of understanding is inherently missing much of its complexity. By promoting your visualization from a noun (static) to a verb, you automatically give yourself a much more complex modeling paradigm. You will immediately get closer to the reality of dance-like complexity found in all businesses as they grow and operate.

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The Boat

Most people are employees working for other people. This employment may chafe them a bit from time to time, but they are sacrificing a bit of freedom for the stability. They usually aspire to become leaders in their environment, in part to grow their salary, and in part to ease the chafing—and to have more control over their own lives. Inherent in this is the idea that you “plug in” to a structure that other people have created (a corporation, university, etc.). The idea of advanced education (getting an MBA for example), is a way to open options for plugging in to the structure in some advantageous manner. This is the most common work pattern in the developed world—finding a company to work for.

Some make a different choice: to find their own path, and take the burden of owning something from top to bottom and being responsible for the outcome in a way that others will never understand. Here are the characters in a parable that usefully describes what I am talking about.

The Employee

He is riding in a big boat. Cold seas thrash outside, but in the boat’s sturdy, rigid interior it feels relatively warm and dry. There are waves and movement that can be felt inside the boat, but he feels safe most of the time. He knows that there is the threat of the boat sinking or being asked to walk the plank if he makes a mistake, but he tries not to worry about that most of the time. He has a set of duties onboard that he attends to. He gets health insurance and a steady paycheck; his life feels safe, except it is not as stimulating as it could be. Looking out of the window at the strange lands outside, he thinks, “I wonder what else is out there? Where is this boat going anyway? The captain knows. Probably.”

The Entrepreneur

He has no boat, but has a dream in mind. He heads to the forest. Once there, he
makes
an axe and then proceeds to cut down trees to make a boat. This is tiring, but somehow the work propels him. Next, he has to figure out how to
get the boat into the water, how to waterproof it, how to repair it, how to steer it—and he does so. Eventually it is safe enough for employees to ride in it along with him. When the storms come, all eyes turn to him for answers. When treasure is found or blue-sky sailing takes place, it is to his credit. Eventually he hires a captain to steer, and he settles on the best of the beaches found during his voyage. At night he has vivid dreams of forests, waves, and opportunity.

The major difference between the characters in this tale comes down to two words: o
wnership mentality.
Being an entrepreneur forces you to address every detail of an operation—to own the details from top to bottom (lest ye be owned by them, and fail). Starting from scratch, and having nobody to fall back on changes you. Your vision widens and deepens, your sense of resourcefulness grows, and your tendency to take action independently without having someone else prompt you becomes second nature.

Because of this, entrepreneurs can make excellent employees. If you can get them on staff and keep them interested, they can create a great deal of value for you. Truly a rare and valuable commodity.

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Launch Strategies

There are a number of different strategies for launching a business, and they depend primarily on the amount of resources you have available.

The Soft Launch

What do you do when you have an idea and no cash? Keep your day job, that’s what. Being an entrepreneur is not an all-or-nothing proposition. By doing a
soft launch
of your business, you can scout out the territory with low risk by continuing whatever career you have, but starting to put feelers out into the market in support of your idea.

Build a web site, and sell your product or services at a small scale. This allows you to gather information about the viability of your plan, satisfy your itch to
build something, and experience a good bit of the adventure without putting yourself or your family in a dangerous financial position.

Never underestimate the value of a steady paycheck and the benefits that come with a good job, such as health insurance. It takes a lot of progress on a startup to get to the point where it can provide comparable security (probably years).

Jumping In

This kind of business launch is what I think most people think of when starting a business: putting all of your chips on the table and playing your hand—win it all or lose it all. This is a risky proposition, and not to be taken lightly. The benefit of doing this is that you can give your full attention to the project, and you can move fast. This is appropriate when the window of opportunity for your business will only be open for a short time. The caveat here is that you cannot jump in without some pool of resources to draw upon, or a very manageable risk profile (such as no family to support). That is how I started—I was single and just out of college. I could afford to take the risks, and jumped in and made it work. It changed me forever.

Another example of the “jumping in” can be seen in a fellow entrepreneur, and good friend. He is so determined to make his business work, he took out a second mortgage on his house to pay for operational expenses—and he has a wife and kids.

Clearly, jumping in is much easier when you have capital reserves to work from, whether from investors or your own bank account.

Joining Someone Else’s Party

You may end up with an opportunity to join a business venture that is entrepreneurial, but already funded and in motion. In this scenario, you have the benefits of a paycheck and corporate niceties, but also the open environment of a startup where your entrepreneurial skills can be applied to define a business that is not yet well formed.

The downside of this is that you will have to negotiate for even a piece of equity, as opposed to being the founder and deciding equity distributions for others. You are also likely to be compensated as an employee for the most part.
And depending on the organization, not being the top guy probably means that you won’t get much credit for your ideas.

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Different Kinds of Work

One of the most important pieces of advice I ever got was from my father. He told me that it was critical to be
paid for your thoughts, and not your labor
. This is quite obvious to me now, but it was revelatory to me at the time. When you think about the options available to you as an employee or business owner, the model you choose has structural features, which provide both opportunity and limitation. Let’s use the construction business as a storyboard for taking a look at some fundamentals of work.

The Laborer: Shoveling Dirt

On the construction site, this type of work has the lowest barrier to entry, and is the simplest business model known to man. You work and get paid for it. You are trading your hours for dollars in a linear sense. Work more hours, get more money. When you stop shoveling, you stop getting paid. Here are some observations for you to consider:

• You have little control over your own schedule.
  
• You have little flexibility in how you do your work.
  
• Your labor does not scale—if you are not shoveling, you don’t get paid.
  
• When you are shoveling, you don’t have time to do anything else.
  
• It’s hard to make your labor unique and thus more valuable. Lots of people can shovel, so the wage will be low. Compensation goes up as what you do (or how you do it) becomes more scarce in the market.
  

Some examples of laborers include day laborers, and most programmers and creatives (e.g., designers). Many high-status people are in this category as well, including most doctors and lawyers. In fact, most people in our society fit into this description of work.

Like a Boss: Have Other People Shovel Dirt for You

So you are getting smart and you hire a group of guys to shovel dirt for you, leaving you responsible for making the deals. You get paid for the job and you pay your people for being shovelers. This is the start of entrepreneurship, which means

• You have more control over your schedule.
  
• You have some flexibility over how your team does the work.
  
• Your business nonetheless scales poorly in many cases—you will often not be able to make a dollar unless you are there on the work site to point and explain to the shovelers what they have to do.
  
• You have some amount of time to plan.
  
• It’s hard to make this unique—lots of people can field a team of shovelers, and the fundamental work (shoveling) can be obtained easily in the market.
  

Examples in this category include contract programming companies, cleaning services, creative agencies. These are businesses that usually have a principal founder that selectively hires talented employees to scale his or her ability to deliver a service.

The Big Boss: Hire a Team of Managers to Manage the Shovelers

You are moving up in the world now, which means you have lots of control over your schedule, but you have to make sure your managers are incentivized to protect your interests with your customers.

• At this point, you may be less concerned with how the team does the actual work.
  
• On the plus side, the business scales up to your capacity to arrange work for your teams.
  
• You have lots of time to plan.
  
• The fundamental proposition (shoveling) is still constrained by its easy availability in the marketplace.
  

An example in this category is any service company that has grown a layer of managers beneath the owner (software, financial services, construction, legal, etc.).

The Impresario: Invent a New Shovel and Sell It to the Shovelers

Now this is starting to get interesting! You can sell tools to the shovelers and then make money from every one of the many people out there who shovel either for a living or at home. This is the
B to C
(business-to-consumer) operations model.

Your two main concerns are

1. Designing a shovel that is different in some fundamental way than those already available. Is it lighter? Perhaps it is cheaper? Has a better handle? Or is it a different, more efficient shape?
   
2. Getting this shovel into the hands of the laborers.
   

With this model, you have lots of control over your product and your schedule. Marketing may be difficult, however, because you have to reach lots of individual customers who are spread out across the market.

Steve Jobs and Michael Dell are two examples of people in this type of position. They both created products that were targeted at a population of consumers—resulting in a large volume of relatively low dollar transactions.

The Impresario Grande: Invent a Shovel and Sell It to the Big Bosses

You are now directing your marketing at a smaller group of larger customers, the big bosses. This is the
B to B
(business-to-business) operations model. Marketing is more targeted when you have to reach only a few large customers instead of a wide population of small customers. This business model carries different opportunities and demands than the B to C business model, and although
it is the last example in a progression of business types, it is not necessarily superior to the others—just different.

• Each transaction may be more difficult to get, but it is probably worth much more money and will likely result in multiple transactions over time.
  
• Successful B to B organizations have the capital, relationships, marketing, and manufacturing expertise to get into other areas. Moving beyond shovels, how about screwdrivers, saws, and specialty tools?
  
• Fewer customers means a less diversified customer base—which can be a risk.
  
• Major pivots are sometimes necessary for B to B businesses. An example of this is IBM, which pivoted from being a hardware vendor to being a services provider, because after decades of selling businesses computer hardware, the market evolved to where this was no longer profitable. On the other hand, companies like Procter & Gamble (B to C) have a diverse audience, and many products and will not likely ever have to pivot into a different business focus—there will always be a market for shampoo!