Startup: An Insider's Guide to Launching and Running a Business (8 page)

Knowing that you are going to need to delegate, you should be looking for quality people
from the first day you even think about starting a business
.

As an employee, it may seem that employers have all of the power. They can hire and fire at will, and they can direct what the employees do. The other side of the coin is very interesting, though: employers
need
good employees and will do what they must to keep them and grow them.

To attract and keep the kind of talent that can actually take over the corner office and make the strategic decisions that will be needed to keep the company in business without your guidance, you will need to break out of the mold of pure salary-based compensation. This kind of employee will eventually demand a bonus or equity-based compensation that will properly incentivize them to do for you what they could do for themselves (go out and become your competitor). Otherwise, that key person or persons will likely leave the company and work for somebody else, or just start their own businesses. It is the way of the world that you will have to empower them through training, exposing them to your knowledge, and provide operational experience and the ability to make, and learn from, mistakes. All of these things create confidence and competence. The qualities of confidence and competence in executive functions require you to recategorize these types of employees into an executive class that shares directly in organizational success. Not doing this will mean that you’ll lose their talent and knowledge. That puts the future of the company at risk, because it takes years to groom such employees for the roles
that you have in mind. This being said, even if you compensate them at an executive level, there is no guarantee that they won’t leave anyway. Building a personal rapport and a culture that supports emotional buy-in, and providing a vision of what the business means, and where it is going, are key to increasing your chances of success.

A cornerstone of your plan should be, in most cases, to make yourself obsolete. Why should this be? Part of the appeal of being an entrepreneur (for most people) is being able to call the shots and to be master of your domain. This is truly part of being a business owner/operator. However, this becomes somewhat less rosy if you fall into the trap where instead of owning a business, the business ends up owning you. This inevitably happens at the outset of your business. The goal is to grow the business, its team, and its processes to the point where it can become self-regulating at the least and self-directing at best.

The Self-Regulating Business

A
self-regulating
business is one where the principal (you) can unplug for hours or days or weeks at a time without the business falling apart. On the long road to making yourself obsolete, this is the first big and impressive milestone. I define
self-regulating
to be the stage at which you, the founder of your business, can lie dormant in a hammock on Fiji (with mai tai in hand) for two weeks—without e-mail or phone—and be confident that your business will still be happily humming when you return. Self-regulating businesses have competent and empowered employees who know the day-to-day operations and do not need your explicit direction to perform them.

The staff knows how to respond to most situations, and it is empowered to make the day-to-day decisions required to keep all of the wheels turning and the customers happy. It will probably take years of work to develop a self-regulating team (see
Figure 2-3
again), and it should be one of the primary intermediate goals you set for yourself. You should begin thinking about it as soon as you get out of business infancy and prove that your business model is workable, and begin to carve out an economic niche in which you can prosper.

The Self-Determining Business

Getting your business to the
self-determining
level is the ultimate delegation accomplishment, because it means you have found, hired, and trained a staff that knows the daily operations, and you have also installed managers who
know the big picture—and are prepared to make the long-term strategic decisions that you have been making all this time. In terms of what this means to you, it means you can come into the office and work, or go to Fiji (again), or, most importantly, sell the company if you want to. If you plan to sell your business at some future point (having an
exit strategy
), you being obsolete will make the business more attractive to potential buyers. Why would anybody buy a business that will end up having a required component (the previous owner) missing after the purchase?

_________________

You Will Need More Money Than You Think

How much capital you have when you start out is a critical piece of your survivability. Make sure you have enough to get started, and to survive a few mistakes after your business is open. Know ahead of time the following things. Problems will arise that you did not anticipate—problems that will cost money to solve. Things will generally take longer than you thought to get going. Expenses will likely be higher than you estimated. If you plan with this bias, you will have more survivability built into your plan. So don’t embark on your venture until you have some reserve cash available to help in a disaster. Identify sources of credit that you can tap if needed as a last-ditch, break-glass-in-case-of-emergency backup plan. Here are some examples:

• Series B (or C or D) financing (more rounds of financing means less value left for you)
  ²
  
• Line of credit at the bank (potentially dangerous)
  
• A rich uncle (also potentially dangerous!)
  
• Credit cards (even more dangerous)
  

__________

²
Series B
indicates the second round of formal investor funding in a company. The sequential naming traditionally follows the alphabet: Series A, Series B, Series C, and so on.

Use suppliers as a source of credit whenever possible. In an online retail business where I was a partner, this was a boon; wholesale companies would extend credit to cover cost of goods on 30- or 60-day terms. That meant being able sell and generate revenue and pay later. Magic.

Design your business to start making money quickly if possible, and don’t start spending money like you are a big business until you are a big business. Get something out the door and generating cash as fast as possible so that revenue can cover many of your expenses early on.

_________________

Active Iteration

In a meeting of the engineers and creative folk, I was recently reviewing the fantastic success we had in growing our product portfolio and reaching nearly 5 million users per month. I dangerously mixed metaphors and summed up our accomplishment by saying “our secret sauce is that we know how to dance.”

What I meant was that we execute idea after idea for communicating our value and getting more customers. In so doing, we rapidly iterate over each concept with minimal up-front effort, while tweaking for performance. Some of these ideas are winners, which we invest more time in. Some are not clear winners, but don’t take a lot of time, so we let them be. Some other mechanisms that we try just perform badly, so we withdraw them. This is a dance. As we do it we find that over the passage of time, the center of gravity of our operation changes, step by step in the (otherwise hidden) evolving direction of the market. The fact that we gather data on many different strategies simultaneously gives us the information we need to act smart and choose the best options. In the absence of multiple simultaneous outreaches into the market, we would be less likely to perform well. It would be a matter of chance when what we were doing worked (or didn’t). We increase the odds of success proportionate to the number of things we try. Key is that each of these efforts is relatively small in terms of resources employed.

A core strategy for finding and capitalizing on a business model that works is to
actively iterate
through variations of ideas and strategies to connect with customers and fulfill their needs. It is important to always keep feelers out in the
market for changes. Adapt as the market changes to avoid drastic and painful adjustments later. This means building in feedback mechanisms to keep you connected to the pulse of the market, as well as a set of measures that will help you to detect change as it happens and before it becomes any kind of threat to your survival.

Here are some examples of feedback mechanisms:

• Talking to your customers
  
• Tracking classic performance metrics such as sales, visitors, cost per lead, cost per sale, and inventory levels.
  
• Tracking the performance of each marketing source (e.g., separate phone numbers for different campaigns)
  

Your data collection is only useful if it alters or has the potential to alter your decision-making. Clearly, the most relevant and meaningful data in the world is useless to you if you do not have a willingness to allow it to change how you do things. If you are going to go to the effort to gather data, couple that with a commitment to listen to it and to act on what it tells you.

Let’s boil this down by looking at
Figure 2-4
. There are three iterative phases of operation for a business strategy: exploration, refinement, and repetition.

Figure 2-4.
The phases of forming a business strategyxs

Exploration
is when you are not sure what will work. You are putting out feelers to find what the market will respond to.
Refinement
is when you have found a way of touching your customers that has promise, and you are tweaking it to make it sharper and better.
Repetition
is when you have explored and refined, and hit the point of diminishing returns on tweaking a particular activity. Once you have something that works, you repeat it for as long as the market will bear it. Successful businesses are based around this cycle, sometimes running dozens of such cycles in parallel.

Note
Your business is like a living organism. If you understand it as such, and treat it as such, you will play Charles Darwin and search for opportunities to evolve by pushing the boundaries of what you understand, and what you are capable of doing. You will treat this evolutionary research and adaptation as a core component of your operations.

A
feedback loop
is a system in which data is collected at regular intervals, and that data is used to correct or alter the conduct of your business at regular intervals. This is the same type of system that governs all living creatures, both great and small. If it is good enough for nature, it is good enough for your business. Beyond that, I would say that multiple feedback loops are required for you to be successful in any business venture that has even a medium level of complexity.

The result of active feedback loops, and general feedback from all sources, will likely be a series of stages of evolution over time. This is adaptation, just as a living organism will adapt to its environment as the environment changes. Pay attention to two rules here:

• Avoid doing something today just because it was what you did yesterday. Be open to changing any process or aspect of your operation if needed.
  
• Experiment with low-risk feelers into new and untried activities. Set aside some of your capital to dedicate to novel gestures that can connect you to your existing market or altogether new markets in ways that you have not tried before. This is very important. Constant experimentation is the cornerstone strategy for moving beyond survival and becoming a standout success among your peers in any kind of business. You will find business ideas that fail, some that break even, and a few that will
  really work
  . The best ones will eventually become core to your operation, while some things that you do today will eventually become obsolete and you will stop doing them altogether. This is fundamental.