Thursday, May 29, 2008
We likened the E’s job to that of a battlefield commander. The analogy holds for use of financial resources. You must carefully assess the battle and decide where to apply resources. Should you attack (spending on R&D, marketing, etc.) or should you defend (strengthening your infrastructure)? Should you hold back reserves to allow a counterattack in case things don’t go as well as planned? How much should you allocate to troop morale? How much should you allocate to your own morale?
For most Es, even fairly well established Es, financial resources are limited, and potential uses of those resources are vast. The only relevant advice is, “Use good judgment, and exercise appropriate restraint.” Some issues:
Be careful to allocate enough resources to marketing. It is a tragedy to develop a great concept and have no money left to market it.
Hold something in reserve, such as a back-up line of credit or contingency funds from your venture capitalists. A large number of businesses develop more slowly than anticipated but may still be very sound.
Be patient in withdrawing money. Because Es almost always sacrifice financially in addition to investing immense amounts of time and energy, it is tempting to grab some goodies as soon as they seem to be available. As we’ve discussed, growing businesses have an ongoing need for cash, so premature goodie-grabbing can slow growth.
Consciously invest in relationships, particularly employee and customer. Employee investments can be in working conditions, benefits and bonuses. Customer investments can include side fringes such as sports event tickets. In my experience, though, investment in the support system that will generate outstanding customer service has more lasting benefit.
Invest in the future. At almost any time, there should be some variation of R&D investment: ideas, products, programs, technologies, etc. that will impact how your business operates in the future. Today’s Internet is a fabulous example. As these words are being written, much is still unclear about the long-term role of the Internet, but it is certainly clear that the role will be important. To enter the arena now, even if on a minor basis with no goal beyond starting to climb the learning curve, is almost certainly a sound R&D investment.
Be the leader. You will receive immense pressure on the subject of funds use: salespeople, vendors, employees, fellow entrepreneurs, outside media, family, even friends. Listen well. Consider carefully. But remember there is no more crucial E decision than allocation of financial resources, and it is your job.
A room full of entrepreneurs would debate this question fiercely. Some would say, “Money, of course.” Sure, they’re right in the same way that air to breathe is the most important attribute of a great family vacation. If we don’t have enough money and don’t use it wisely, we’re kaput. Some would argue “your employees,” some would say “your customers.” All these positions are defensible. But as a 100% practical matter, the most precious resource of early-stage entrepreneurs is time.
Here’s a simple way of looking at a complex issue.
The E (which is what I’m going to call us entrepreneurs from now on—in the interest of saving ink, trees and potential carpal tunnel treatments) must balance time among these demands:
• Planning the business and where it’s headed, sometimes involving “relationship selling” to bankers, investors, vendors and other interested parties;
• Being sure the sales/marketing effort is happening
• Running the day-to-day operation;
• Trouble-shooting and problem solving;
• Being sure to have some kind of life outside the business.
There is a lot to do, and here’s an unsettling revelation to those who were perfectionists before they became Es. There just plain isn’t enough time to do everything you’d like to do (unless your rich uncle or deeppocketed venture capitalist is willing to fund a sizable staff). Therefore, it is absolutely crucial to invest time based on carefully set priorities.
We' ve Gotta Get Organized!
More on priorities in a minute, but first a challenge:
You can skip to the next paragraph if you are a highly organized person who maintains a highly organized calendar, constantly updates a comprehensive “to do” list, and utilizes highly organized files that make it easy to find all important information. But stay with me here if your desk frequently looks like Hurricane Nellie blew through and you occasionally find yourself rummaging again through multiple stacks to find that envelope you wrote an important note on.
The very first time-management goal should be improved personal efficiency and time management. When time is precious, it is a tragedy to waste several minutes daily, that become several hours monthly, because of disorganization. As your business grows, the downside becomes bigger: potential missed appointments or deadlines, missing data necessary to do important proposals, etc. Take the time to secure and learn to use a powerful organization and time-management tool. Options include hard copy systems such as the Franklin Planner or electronic systems such as Microsoft Outlook and “Palm” products. Similarly, develop a system of organizing and storing key notes and papers. Make it a singular goal to know where key information is.
Prioritize Even If Painful
OK, now that we’re committed to time-efficiency, let’s look again at priorities. If your business is still in startup phase, you’re in a classic race against time. Your overriding strategic goal is to reach “critical mass.” Critical mass is a somewhat mysterious concept that you don’t quite understand until you reach it. It is the point in a business’s growth when it has enough market presence and business momentum that it seems to gain a life of its own.
In the early days, you might wonder where the next customer will come from. After you reach critical mass, they just come. You must continue marketing, serving customers well and executing the fundamentals, but the momentum of critical mass, once achieved, can normally be maintained by careful business execution.
Getting to critical mass is something else again. It can feel like carving granite. The marketplace hasn’t accepted you. The competitors are tougher than you expected. The ad campaign you were sure would work is falling flat. So you’re in a literal race against time as you strive to get the business to critical mass before you run out of money (or your spouse runs out of patience).
In most cases, the most important priority is sales or marketing, primarily because critical mass is achieved based on market-acceptance. Correct prioritizing is a company-specific issue, but there are some general errors to avoid:
Former 'Big company' people tend to over concentrate on infrastructure in the early going. I’ve
seen start-ups that had zero sales volume but highly developed procedure manuals and cost control systems.
Infrastructure is important. Especially if the E used personal time to develop the structure, the time could likely have been better spent in business building. A related error is the expenditure of many hours and dollars in “the perfect logo” or an impressive cover for the impressive procedure manual. We must avoid “majoring in minor things” especially during start-up.
Another 'big company' tendency is heavy use of high-priced professionals in start-up. This may include lawyers, accountants, computer gurus, communications consultants, or other consultants. Good professional help is crucial, and the right help can help you attain critical mass.
But in looking at priorities, consider the tragedy of a startup that has invested so heavily in infrastructure consultants that it can’t afford to test (and perhaps retest a few times), then launch its marketing programs. Early-stage consultants also tend to absorb a great deal of E time. A related error is visualizing a three or four tier growth process but pre-investing to support all four tiers. As a simple example, let’s say our restaurant concept will be introduced in small towns, then medium towns, then major cities. Once we’ve realized full rollout, our computer system will be a masterpiece of data collection and management feedback. One choice is development of the entire software package. But an E carefully using resources might be wiser to use a much smaller platform for start-up. Time and resources can then be devoted to the marketplace.
When we get to phases 2, 3 and 4, we’ll have relevant experience and can better afford the full-blown package.
There is a tendency to 'over-refine' the product. There is virtually no product concept that can’t stand some improvement. Often the E says, “I’ll keep tweaking this thing until I get it just right.” The clock ticks. Revenues don’t come in. Competitors may be moving forward. Finding the right point to go to market is crucial, which leads us to an extremely useful concept, admittedly not an original Bill Corbin idea.
Ready, FIRE, Aim
Tom Peters in his must-read Excellence series introduced Ready, FIRE, Aim. Simply stated, this idea says, “get ready enough to get in the game. Start playing, learning and fine-tuning. The advantages are two. First, you are in the game. The sales and marketing wheels can begin turning. Revenue can start. The first step toward critical mass is begun. Second, there is often no better way to finalize product development than by direct feedback from the marketplace. Some of the things you thought were important won’t be. Some things you never thought of may be suggested by customers you won or prospects you didn’t win. A great many E-projects never happen because of the human nature to “be sure we’ve got it right” before moving forward.
Time and Your Comfort Zone
We Es are human, meaning we like to do what we like to do, and tend to avoid doing those things we don’t like to do. If your background is product development, that’s likely a favorite area. If you’re a number cruncher, you’ll like that part of the entrepreneurial life. Marketers like to market, etc. Here’s another annoying truth. The highest priority of your entrepreneurial endeavor is often outside your personal comfort zone. A common example is sales and marketing. There are Es who break into a cold sweat at the thought of “selling.” But sales and marketing may be crucial. On the other hand, if you’re a fabulous peddler but have never balanced your personal checkbook, you’re going to need to spend some time outside your comfort zone while you plan the administrative side of the business. Moving outside the comfort zone requires both good priority setting and firm personal discipline. The discipline is often the tougher issue. We know in our hearts what we need to do, but tend to resist the uncomfortable. Even reaching critical mass does not eliminate the need to operate effectively outside your comfort zone. We could cite 100 E-examples. Here are just a couple:
• You are a bit of a non-confrontational, gentle-at-heart person. Your business now has multiple employees. Unfortunately it isn’t big enough yet for a full-time group of hard-nosed supervisors or for an HR manager. One of the employees is behaving very badly and must be severely reprimanded if not fired. Even if reluctantly, the E must step up and firmly address the situation.
• Out of the blue a huge potential client calls to learn about your business. She wants a personal visit, including detailed background on your company and a proposal of what you can do for her. Your “sales team” at that point is your great uncle who is a heckuva guy who used to sell auto parts until he retired. Guess who steps up?
As you grow, you will add employees—hence time and talent—to help handle the issues that fall outside your personal comfort zone. Until then you must stretch the zone.
After You Reach Critical Mass, INVEST Time
Congratulations if you’ve reached that magical point. The business is actually working. There is a steady revenue stream. Hopefully the revenue stream is higher than the ongoing payment stream. Time management remains crucial, but the issues change. An important concept is whether you are spending time or investing time. Es tend to be busy people, and much of the busy is driven by “the tyranny of the urgent”: talking to the next customer, getting out the next order, invoicing, handling cash receipts, etc. Time must be spent “doing business,” but for the most part that time is spent vs. invested. Invested time yields future benefits. When you develop a new, effective marketing plan, you are investing time. When you hire and train a new, effective employee, you are investing time. When you develop an effective internal procedure that overcomes a recurring problem, you are investing time.
Notice the recurring use of the word effective when describing your investment of time. Es can think time is being invested, but generate the equivalent of an equity stake in the Brooklyn Bridge. Some examples are obvious.
If we take a chance on a marginal job applicant, spend considerable time training, and wind up with a poor employee, we have obviously not invested well. If our new quality control procedure is poorly conceived or executed, we’ve wasted time. If by chance our new idea is so weak that additional problems result, we may have disinvested.
For some Es (Bill Corbin included) there is a tendency to be a brainstorm machine. My spot is the morning shower where, almost daily, great new ideas pop into my head. Some of them are good. Some are so-so. Some are out-and-out bad. In my early entrepreneurial career—when life had not yet taught me that I have the capacity to be an idiot—I tended to execute brainstorms at a furious clip. Careful reading of my resume shows a 3- issue foray into a new magazine during the very early stages of my core business’s growth. That was, being blunt, idiotic. We diverted precious resources (time and money) from the core business. We risked the core while failing to
reach critical mass with the new venture. It was a stupid thing to do, but very entrepreneurial. Today, I utilize a “several deep breaths” rule regarding new ideas. In part that means intense personal scrutiny and staff scrutiny over several days or weeks. My staff is empowered to say, “Uh, Bill, how ‘bout putting that one on ice for awhile?” It is vital to understand that diversion of resources from the core business is a very serious strategic issue and should be done only with great care.
Remember that your time is one of the precious resources that should be diverted only with great deliberation. Some early-stage entrepreneurs, flush with a bit of success, enter new co-ventures, join boards of directors, teach classes, etc. Be careful of diversion.
Invest Every Day
It is doable—and a good thing—to have at least one item on every day’s to-do list that relates to investment in the future. It is also doable to vow that no week shall pass without some identifiable long-term improvement being made in the business.
Here are examples:
Generate a quality control procedure that helps eliminate a recurring error.
Generate a lead follow-up system that gets a brochure to new prospects by tomorrow morning.
Establish or make a specific improvement in your website.
Building Infrastructure” and “The Power of Policy and Procedure”—provide multiple improvements that involve time investment.)
As you add and empower employees, you can develop the same concept. By yourself, a weekly longterm improvement results in 50 investments. If you have an empowered staff of six, the total becomes 350. If they have empowered employees, the numbers skyrocket.
One Final Thought: Be Sure to Have a Life!
A combination of motivation, fear and latent workaholism can cause an E to prioritize the venture above outside interests and relationships. It is definitely an occupational hazard and should be carefully monitored. For most Es, success isn’t sweet enough to justify sacrifice of relationships and quality of life.