Startup: An Insider's Guide to Launching and Running a Business (7 page)

Takeaway:
Identify single points of failure. Find a way to manage them before they bite you in a way that you can’t recover from. I have seen entire companies and years of work lost to this. Don’t let it happen to you.

_________________

Specific Intention

In business, it is really important to have a specific intention behind everything you do. If you are going to spend money on marketing, what specifically are you trying to accomplish with the investment? If you’re going to hire a new employee, in what specific ways do you plan to benefit from having another person on staff? If you’re going to invest money and buy new software, in what ways do you think your business will be more efficient or in what ways will value be created?

An analogy that I like to use is playing pool. Most of us have played the game at one time or another. The first time I ever really played was in college. I occasionally found it frustrating trying to figure out how to make the balls do precisely what I wanted, and I could succumb to the temptation to just hit the cue ball as hard as possible, thinking that at least something would end up in a pocket. The fact of the matter is that just hitting the ball hard in the absence of a specific intention is one of the worst options available. As a beginner, in the process of evaluating the best ways to win, the just-hit-it-hard strategy is always there, waiting, as a fallback option when you don’t know what else to do. In my case, however, it did not take long to realize that if I wanted any reliable chance of getting what I wanted, I really needed to have a specific intention: eight ball in the corner pocket.

In business there are lots of similar situations. For example, experience has shown me that you can throw money at anything. You can buy an expensive phone system. You can purchase new furniture. You can hire extra salespeople. There’s no end to the ways that you can invest money in your business. I want to reiterate that point:

There is no end to the ways in which you can invest money in your business.

A corollary to this is that most of the ways in which you can invest money in your business are not going to have a clear positive outcome. You have to be very selective of where every dollar goes in your operation. That selectivity comes from specifically defining your intentions before you move forward with any investment.

Often, when you get into an honest evaluation of an investment decision, you will find you don’t need what you thought you did, or that you can function at 100 percent with much less than you thought at first blush.

A Waste of Cash, Time, and Energy

At a dot-com startup where I was an executive, the investors behind the operation had a history of getting personally involved with decision-making and day-to-day operations. On one occasion, they decided to purchase a $100,000 phone system. That thing was complicated. It probably seemed cool to imagine what such a system could do, but it was completely impractical and way too expensive to be justified for the still-money-losing operation. This is an example
of just hitting the cue ball as hard as possible and hoping something good happens.

The business need was simple: to have a phone with a voice mailbox for each employee. Period. What was chosen was a corporate-level, multi-city, computer-controlled, integrated phone system with dedicated T1 Internet connectivity. It was also a system that was prone to breaking and that nobody on staff understood how to operate. The funny thing about investments like this is that the costs aren’t just in the sticker price. The operational cost was several thousand dollars a month for just the dedicated Internet connecting the offices. It cost us money every time we needed to change the system because we had to hire a specialized consultant to come onsite. These guys were hard to find, difficult to get to answer our phone calls, and outrageously expensive when they did show up. Another hidden expense was lost productivity, when employees and engineering staff were trying to get this thing to work, instead of designing products. Lost calls and unanswered voice mails were yet more cost points for us.

Instead of pursuing an inexpensive yet adequate solution, the investor who made the purchase decision felt a need for a “phone system.” What followed next was an emotional response to some telco marketing materials that painted a picture of business success and the required infrastructure behind it, which went along the lines of, “Imagine multiple cities combined on one private security network, with intelligent phone message routing, and with productive, smiling, employees happily routing customer after customer to one another on the BizNet 2000
¹
phone system.”

This is a much sexier vision than what we probably actually needed. If it had been planned out in advance (in the absence of the sales propaganda), we could have functioned well enough with a central toll-free number connecting to a receptionist desk with an answering system. Sales people and other staff could have a POTS (plain-old telephone system) line or a cell phone. Is this perfect? No. Would it work? Yes. The actual best-case scenario is probably somewhere between the POTS solution and the BizNet 2000, but the guidance of specific intentions could have led to a saner solution:

__________

¹
Fictional name.

• Customers should be able to reach the company by phone, and the company should be able to respond professionally.
  
• Each staff member should have a phone with voice mail.
  

Specific intentions, defined before an investment is made, guide how the investment is made, when it is made, how it is executed, and how it is evaluated along the way. This set of specific intentions, if laid out and pursued, could have saved the company a lot of money.

Backing Up the Truck

Recently, we had a meeting where the team was discussing what we were going to do to implement Facebook more centrally on our site. The discussion was on where and how Facebook would be added to our user experience. I had joined the meeting late, and was interested in finding out what the point was. I asked that we “back up the truck a bit,” and figure out the answer to “Why?” This is closely related to having a specific intention.

“
Why
are we adding Facebook to the site? What specific intention do we have, and how will that be reached by the options we are discussing?”

The question seemed to take everyone by surprise. In fact, nobody was able to articulate
why
we were going to integrate Facebook more centrally into our user experience. Would we get more users? No. Would we get more money, as a business? No. I took a stab at it by saying, “While we don’t have any specific intention to get more customers or more money, we believe that it is useful to experiment with Facebook integration as a means to gain more experience in social media, and to gather data on whether or not users will engage with our brand in more meaningful ways through this tool set.”

This specific intention, shared between team members, was useful in that it framed the exercise as a reconnaissance mission as opposed to a fundamental reimagining of our brand experience. The engineers and creatives were then able to understand how much gravity (or lack thereof) was at play with the project. As it was, users did not really want to opt into that tool set when we deployed it, and it was removed from the site entirely within a few weeks.

Takeaway:
When starting any project, always ask yourself and the people involved to describe the specific intention of the effort. Beyond saying “do this,” clearly describing the desired outcome will help you to ensure that value is
being created, and that everyone has clear insight into the thought process behind the actions they are taking.

_________________

How to Determine the Demand of the Market

This is basic. Anybody who reads this will say, “I already know this.” Be that as it may, even seasoned executives can forget this from time to time.

The exercise: Identify the total set of all potential customers, and the expected transaction value for each one per unit of time. Then calculate the percentage of them you think you can reach with your marketing message. Follow up by estimating how many will actually pull the trigger and pay you their hard-earned cash (
Figure 2-2
).

Figure 2-2.
The law of profit potential

A useful way to apply this rule when analyzing a business opportunity is to ask yourself how much money is in the entire market for the product or service. In other words, how much would you make if you were able to take 100 percent of the transaction volume that is available? This first analytical step concerns the market opportunity.

The next step is to ask honestly how much you can expect to capture in the next year, and then in the next two years, and so on. Basic. I will often “chunk down” and ask this same question about incremental changes to an existing product. “If we modify our product by adding A and B, how much more sales can we really expect to capture?”

This idea is important as heck because it can help you to identify the good ideas and prevent you from chasing the silly ones. Going ahead and doing this exercise
every time
you want to consider a new product or a product change is a
must do
. It will add clarity to what might seem at the gut level to make sense, but on closer observation isn’t worth pursuing.

_________________

Make Yourself Obsolete

When you start out, as the founder of a business you are going to be wearing multiple hats. That means you are going to be responsible for many areas of your business, and be The Decider on everything from the important stuff to the necessary but time-consuming little things. In the beginning, you will likely become a hands-one expert in multiple areas of your business. If you don’t know how to manage something, you are going to have to either learn it yourself, or hire someone to do it for you. Hiring out for certain tasks is a natural phase of evolution for every business. At some point in the future you may have the option of posing as the big CEO, chauffeured to the office every day, known to ominously occupy a big leather chair and to steeple your fingertips under your chin while you consider your further plans for world domination. Until you get to that point, you may find yourself needing to handle some customer support calls, vacuum floors, and even fix your computer network when it goes down.

Advertising agent, marketing and product planner, security expert, customer support representative, business trend prognosticator, contract negotiator, legal document writer, intellectual property monitor, window cleaner, paper clip buyer, furniture assembler, utility bill payer—these are some of the many hats you may wear.

Figure 2-3
illustrates a trend. The trend is going from 100 percent you to a small percent you. This trend line represents a process that you have heard of before: the process of
delegation
.

Figure 2-3.
Trend line representing delegation

Delegation means

• Hiring the right people
  
• Training them to understand the business (start with why and then work your way up to what and how)
  
• Gradually giving up control, providing feedback along the way
  
• Empowering your employees to make decisions and to make mistakes
  

For key team members, it means connecting performance with compensation: equity or profit sharing. This is key to progressing up to and beyond the
self-determining threshold
.

Be prepared to delegate as your business gets bigger. You are going to
need
to delegate. Look forward to this and regard it as a sign of success. If you have run your business month after month, and year after year, and you are not trending strongly toward delegating more and more important tasks to others, then you may need to take a hard look at what it is you are doing.