There’s a fantastic video on Inc.com about the creator of Spanx, Sarah Blakely. It’s a phenomenal video for budding entrepreneurs because it highlights a number of things that affect people starting a new business:

1. Learning – Sarah didn’t know anything about starting businesses or about the fashion industry, yet she made a revolutionary new product because she was willing to learn whatever it took.
2. Selling – Blakely is also a fantastic public speaker. Her background before Spanx was in sales, and you can see that so much of her story is about selling her idea and product, first to create it in the first place, then to convince stores to sell it, and finally to get more people buying it.
3. Solve your own problem. When you find something that’s a problem for you, ask yourself if it might be an issue for other people.
4. Eating your own dog food. This disturbing expression means that you should use what you make. Spanx was created because there was an unfulfilled need, and Blakely points out that a lot of the problems were because the manufacturers of hosiery and underwear were predominantly men, who didn’t use their own products and had little appreciation for the problems with them.
5. Opportunities for female entrepreneurs. Women can obviously start any business they want, but there are special opportunities in industries where the products are made by men but sold primarily to women. The competitive advantage of actually knowing and using the product (eg. “eating your own dog food“) can be enormously profitable.
6. Stick to It, and Adapt — Virtually every entrepreneur’s story includes a lot of scary moments, and times when it seemed like every option had been tried and nothing had worked.
7. The Lean Startup. It’s become a buzzword, but once upon a time that’s how almost all businesses were started: with little more than ideas, dreams, and a lot of hard work. The idea of burning millions of dollars in the hopes of attaining profitability is what’s new. The Spanx story is a perfect example of starting out with next to nothing and building a company, using ingenuity, bargaining, and salesmanship.

Check out the video below:

• Sara Blakely Dared To Ask, “Why Not?” [Inc.com]

There’s an article in the New York Times that goes in depth into one of the most important recurring entrepreneurial themes: that a major secret to success is failure.

There are a number of reasons why failure is extremely important:

1. Entrepreneurship is about starting new things. If it’s new, it means in reality you don’t know how it works. Whether you’re doing something completely new, like a revolutionary new killer app, or just trying to do something better, such as building the world’s best swing dance school, the assumption is that you don’t yet know the best way.
2. Small means quick. It’s easier for small companies to make changes quickly. Conversely, big corporations tend to have a lot of cash but have to go through a lot of bureaucracy in order to change, leading to a tendency to use money to “power through” bad ideas with advertising and staff. So as a new business owner, you need to leverage what you have: the ability to recognize and fix mistakes early rather than spend money.
3. You learn more from failure than success. When you succeed immediately at something, it’s hard to figure out why. How much was luck? How much was timing, choosing the right staff, creating a brilliant marketing campaign… and how much was that the product was great? When you fail, it’s often easier to see what went wrong. Maybe the customers loved the product, but too few of them heard about it. Or maybe the early adopters loved it, but you tried to mainstream it too quickly and turned off people will a product that was too rough around the edges.

There’s a myth in business that the “first mover” in a new product category always has the advantage. While being first has its advantages, the myth isn’t always true–and here are some counter-examples:

• Google came along and took over the search engine industry that had been dominated for years by players like Yahoo and Altavista. Anyone even remember Altavista?
• Microsoft moved into the personal computer industry after Apple was already seeing success. After Apple then introduced the Mac, Microsoft came out with Windows to compete. And who got the most market share?
• Internet Explorer went from obscure web browser in the age of Netscape to the dominant browser.
• Facebook was relatively unknown at the height of Myspace’s success–and then went ahead and killed it.
• Gas Stations, Restaurants and Coffee Shops tend to cluster around each other. Ever wonder why they’d want to be second to arrive at the intersection? Because there’s already a traffic of qualified sales leads who want the product. The first to arrive has already had to generate traffic. It reduces the marketing from “find people who want this product” to “convince them that we’re the best.”

The reality is that first movers have the advantage of momentum and mind share, but only if they keep getting it right or at least consistently improving. The advantage of being the second company on the scene is that you can look at all the mistakes that the competition has commited to, as well as all of the great ideas the first mover has invested in, and come out with something that learns from those lessons, while saving the costs that go into making those mistakes in the first place.

Stealing Ideas: Mistakes, Too

So stealing ideas isn’t just about using great ideas pioneered by other companies. It’s also about being willing to learn from their mistakes. Knowing the difference is part of the art.

Not New, Just Improved

Most of the best ideas are really just mashups of previous ideas. So look for people and companies who have great ideas, figure out what really works and why, and do a better job. Most importantly, don’t be shy about copying a good idea–within legal bounds of course. And remember, it’s a two-step process: first you take inspiration from a great idea, then you improve on the idea.

Speaking of stealing ideas, here’s where I got the inspiration for this post: How to Steal Like an Artist.

According to Businessweek, bailout money would be better spent on startups.

From 1980 to 2008, startups, defined in this case as companies less than five years old, accounted for all net job growth in the U.S., according to the Kauffman Foundation’s Business Dynamics Statistics[.... The] average annual net employment growth rate for startups was about 3% a year while the growth of the rest of the U.S. private sector for the same period was about 1.8%.

The message here is clear: big business loses jobs, and small businesses make them again. As someone who’s started a few companies that are still increasing employment, I’m proud of the role that entrepreneurs have in making jobs. Still, two things bother me:

• Doesn’t anyone remember the Dot Com era? That whole bubble was built on startups. Sure, they employed a lot of people, but how long did that last? Do we really need to give startups even more money?
• How much of the employment gains from startups are simply at the expense of bigger businesses? It would be great to get some figures on that.

Funding startups to fight the recession and increase employment could be a stroke of brilliance if the kick-start follows these rules:

1. Loans are better than grants. Obviously as an entrepreneur, I’d rather receive a grant than a loan. (Free money, anyone?) But the way companies are funded in North America is too much about VC money, which is about spraying money around and seeing what sprouts up quickly. It favours short-term payoffs. Long term loans are more likely to build solid companies.
2. Focus on the long term. The whole point is to have a permanent effect on the economy, not stimulate yet another bubble. The solution isn’t to fund a hundred “could be the next thing” companies. It’s to support companies that are likely to be around in five years.
3. Don’t focus just on tech companies. Sure, high tech is sexy. And it’s important to stimulate that kind of growth. But tech companies–hardware, software, biotech–are where the VC money is already going. And not everyone in the US is ever going to become an engineer, so we need to create more jobs outside of tech. Peter Lynch has said that the best bets are companies that use technology, not the ones that make it, because the margins on any given technology consistently decrease.
4. Do fund resources for entrepreneurs. Successful entrepreneurs tend to be experienced in their field but not experienced running businesses. They are also likely to already have families, which makes them sensitive to needs like health care. Resources such as business education and subsidized health benefits could go a long way towards encouraging the creation and growth of new businesses.

Thanks to Guy Kawasaki for Tweeting the Businessweek article.

I stumbled on this, another example where strategy of all kinds is “the same at the top.” This is a list of principles created for WWI dogfighting by the teacher of the Red Baron:

http://en.wikipedia.org/wiki/Dicta_Boelcke

I find it really interesting that in business, often it’s about “fractal”-based success. That is, just as fractals are complex graphics based on very simple rules, business strategy is about learning to use a few extremely important maxims extremely consistently. Sort of like, sure 80% of your decisions and actions might not fall within these, but your ultimate maxims decide your fate in those 20% of the decisions that make 80% or more of the difference. The maxims basically prevent you from making really dumb decisions in the situations that are most likely to impact your success.

I think it’s a big thing, the “ultimate maxims” thing.

Part of it, that you can see from the “Dicta,” is identifying the key dynamic. In WWI, one of the biggest things was that whoever got behind the other and started shooting first, tended to win. Once you know that, you build an entire strategy around it, and until the situation changes, you have the most effective strategy. In the meantime, a lot of the other people are just trying to “be really good fighters” and so they lose, since they’re concentrating on 100% rather than being nearly perfect at the crucial 20%.

Surprisingly, the Red Baron wasn’t known for being the most brilliant fly-boy, or the most acrobatic pilot.  He was a good shot, and more importantly, a stickler with the rules. The right rules.

Ultimate maxims teach us a lot about how to actually put the 80/20 rule into practice:

1. Figure out the crucial dynamic.
2. Develop a strategy based on exploiting this dynamic.
3. Create a set of maxims that ensure you never screw up the most important things.
4. Follow the maxims more strictly than you’d like to.