Beginner Business

One of the reasons that startups are often able to innovate in ways that larger companies can’t, is because they can cut a smaller feedback loop.  Large companies often take too long from noticing a problem to fixing it.  And part of the problem is that when five people are using your software and they notice a bug, you just fix it.  But when the latest version is used by millions of people, it’s more complicated.  Which missing features matter most?  Which bugs?  And what new problems will come from the bug fix?  The biggest problem, though, is that giants move slowly.

The key to improvement in anything–sports, public speaking–is feedback.  Feedback is even more important than knowing HOW to improve.  Why? Because if you know how to improve but have no feedback, you’ll never know how close you’re getting.  But with good feedback, you can simply try things at random until you start seeing an improvement.

That’s basically the biggest advantage a new company has, which is why great entrepreneurs always seem to be trying something new.  A large supermarket takes time to collect data on how customers react to a reorganization of the aisles, but the owner of a grocery store can just watch the customers coming in.  Where do they look?  What do they pick up?  What do they buy?  And who buys what?

Since small businesses can iterate so much more quickly, it makes sense to spend more time just doing it than thinking about it.  Your mistakes just don’t cost as much as they would cost the big boys.  And chances are that if you’re small, you’re probably able to maintain a better relationship with your customers, who are likely to forgive your mistake today because they can see it will be fixed tomorrow.

So just do it, get feedback, make changes, and do it again: iteration.

(Inspired by this post about iteration and software development.

The usual profile of an entrepreneur is of a young guy just out of college, but is that accurate?

Male? In fact it’s the age of the woman entrepreneur, with increasing numbers of women becoming entrepreneurs and showing a high degree of success. On the other hand, statistics suggest women are usually more cautious in their ventures and so men fail more but strike it richer when they succeed.

Young? Now here’s the real question. Do entrepreneurs peak early, making it a job for young people only? Or can you get better at it over time? This is the question Mark Andreessen asks: is entrepreneurship more like poetry, in which writers peak in their 20s and 30s, or novel writing, in which authors peak in their 40s or 50s?

Let’s look at some possibilities.

1. Entrepreneurship could be like poetry AND prose. Rather, you could compare entrepreneurship to “writing” and find that different *types* of endeavours are appropriate at different career stages. And that’s what I see across the board - young bucks start dumb ideas at 21 that somehow morph with insane work hours into something cool, and then at 45 they’re starting smarter and smarter companies and working smarter as well (a la Dan Kennedy).
2. Success in entrepreneurship can be measured in different ways: number of attempts over time, number of successes over time, or size of successes. Typically, younger entrepreneurs have more time and energy to spend on trying, failing, and trying again - the hallmarks of an entrepreneur. This means younger people can afford more risk, and therefore stand to gain more when they succeed. So the chances are that the next Google will be started by people in their 20s or 30s. (Maybe their teens.)
3. But most entrepreneurs never create a Google, Yahoo or Apple. In fact, all romance aside, most entrepreneurs are running corner stores, flower shops, and small web design boutiques. So maybe it’s irrelevant whether at 48 they’re more likely to hit the world with Myspace than at 21. The point is, they’re NEVER likely to make it that big.
4. Different products for different ages? Risky, innovative products probably make the most sense when you’re 21 and have nothing to lose… or when you’re 50 and have nothing to lose. Those family building years in the middle are when you might choose to be more conservative.
5. Can you learn to be a better entrepreneur over time? Just about any entrepreneur I know personally will say YES. You learn about the 80/20 rule and how to apply it to work less for more payout. You acquire contacts and learn tricks that can make starting a new venture take months instead of years. And while younger entrepreneurs have the time and energy, they often don’t understand the importance of “just trying a lot of stuff,” which is something I’ve seen dozens of entrepreneurs learn over time. Many entrepreneurs get more conservative over time, the result of experience teaching what not to do. And this can mean they don’t try things that might have the biggest payout. But on the other hand, they usually have more financial resources and reputation to leverage when they do have a great idea.
6. Young versus old - what does it mean? Does it mean a young first-time entrepreneur compared with an older first-timer? Or could it mean a 21-year-old with a first business, compared with a 45 year-old who’s owned six businesses and has millions in the bank?
7. Age depends on the person. A member of my family biked through Europe in his 80’s. I know many teenagers who wouldn’t do that. If we’re looking at average cases, then the “geezers who defy age” don’t count for much. But for one thing, entrepreneurship is not for people who want guaranteed success. So the average case doesn’t matter - if you’re in it, it’s because you’re betting that you, your idea, and your company are better than average.
8. Are young people more creative? Considering all the bizarre older people I’ve known, I’d say no. But certainly it’s easier for younger people to be more open to new ideas: they haven’t had a chance to see what doesn’t work. But then again, if you’ve been an entrepreneur your entire life, I think that “thinking outside the box” can become a life-long habit.
9. Time versus effectiveness. Entrepreneurship is largely a numbers game - you try a lot of things, and keep what works. This gives young people an advantage: without a family to support or spend time with, it’s easier to spend all your time working. But on the other hand, young people usually use their time very ineffectively. Over time I’ve seen many entrepreneurs learn how to leverage their time better, and often this is because of having a family. When you have less time to devote, you’re forced to cut the fact and focus on the meat. You have to be more effective. And finally, over time entrepreneurs learn how to make business and family work - often by encouraging family to get involved in the business.

The answer? It depends. At any age I think it’s important to fit your work together with your lifestyle.

I’ve seen a lot of lifetime serial entrepreneurs doing quite well into their 50s, and there have been a number of older CEOs who have gone on to start successful new companies. So I don’t think age has much to do with it. The question for an entrepreneur is still the same: it’s not “can it be done?”

The question is, “can I do it?

It’s easy for an entrepreneur with a small business to feel dwarfed by the marketing power of big business - companies that can afford to spend a million or more on changes to their image. Can you build an brand for less?

Yes.

Take logos. Seth Godin points out that logos are just placeholders and that generally speaking, investing a lot of money in a logo just doesn’t make sense. You don’t win customers because of your logo; you keep them coming back once they associate your logo with great value. So you need a logo? If you can’t do it yourself, someone else can do it for under $100.

What’s a brand, anyway?

Let’s look back to the origins of corporate image. It began with merchant marks, eventually becoming trademarks. Essentially, trademarks evolved because they enabled merchants to identify their goods and benefit from establishing a reputation for quality.

The big-business version of branding has evolved to create an image of more than just the product. Coke doesn’t compete with Pepsi over the quality of their sugar water, of course, but over associations people have with their brands. However, this is a waste of time for a small business.

Like the merchants, you should only care if you do two things:

1. Generate Sales
2. Bring Customers Back
   

With a new business, you don’t care if people associate your name or logo with “chic” or “rugged” or “daring” qualities. You’re not Nike or Apple; most people don’t even know what you do. So your first goal is for your advertising to bring them in. To that degree, the image your advertising projects may help attract the right customers. If your store sells trendy clothing, you should care most about whether your ads and signs convey what you’re selling and attract good leads. From that perspective, your ads could succeed without even having the name of your business, as long as there’s a way for the customer to take the next step.

Then bring them back. That means it’s all about the product. Focus on satisfying the customers, and that will bring them back. Past experience has shown me that even an unattractive logo and an unimpressive web site can work if your product is good enough, whereas the snazziest business cards, ads brochures and web site can’t save a horrible product.

One of the businesses I co-owned in the past was known among its customers for unattractive, largely inconsistent and even incoherent marketing. Multiple logos and even brands were used but almost interchangeably. Most clients were confused about which brand was even associated with which product.

To top it off, eventually a certain client of ours confided in me that she had initially been introduced to our company because a friend told her to “check out the worst web site you’ve ever seen.” (It was.) Not exactly what a business owner wants to hear, right? But people kept coming back because they liked what we offered. Most of our new business was from word of mouth, and a friend’s recommendation meant so much more than our ugly web site! The business is now very successful and the web site is still ugly.

So image means nothing? No. I’m not advocating ugly web sites as a marketing strategy, or neglecting image-building completely.  Even for small businesses, branding and image can have an impact. The key is identifying the parts of your business that are important. And better than image, is attitude.

Attitude. Instead of thinking about “image” - meaning a facade that your business hides behind - focus on keeping your attitude consistent in the employees you hire and the products you offer.

In some businesses image and attitude are the product: if you’re running a restaurant, the image and attitude create your ambiance, and ambiance can be more important than food in attracting customers. I often patronize one restaurant because its outdoor terrace with a view means more than the mediocre food: it creates ambiance.

Similarly, if you’re running an online business, your web site isn’t just an internet brochure or comforting presence, it IS part of the product.

Ugliness matters

While our ugly web site didn’t seem to affect our ability to get clients, hideous web sites and marketing materials can have an affect: on the employees.  If even you are reluctant to show clients your web site or business card, run, don’t walk, to hire a graphic designer.

Still, it doesn’t have to cost an arm and a leg.

Good enough

You can start building your brand with things that are “just good enough.” Despite what I’ve said, you don’t want an ugly web site or business card, but you don’t need a work of art, either. For under $100 you can get something good enough designed and then move on to the only parts of small-business branding that matter: getting customers, and keeping them.

Earlier I talked about how too many cooks spoil the broth - that is, too many leaders on a team lead it nowhere. However, that’s not always true.

One team I was on was compared by one of the members to the early days of Saturday Night Live, and to prove his point the member passed around a short history of SNL for us to read. Interesting stuff. The article described how in SNL’s early days, it was a ragged yet intense group of people with great chemistry. (And yes, there was a lot of chemistry going on in every sense of the word.) It was a group of very talented people who managed to click and create something spectacular.

It was one of the rare examples of how a lot of “Makers” can sometimes create amazing things together if you somehow manage to glue them together with the right energy. I’d call it context in the sense that it’s used in The Tipping Point. With the right context, sometimes too many cooks make AMAZING soup.

Similarly in one of my favourite articles, Paul Graham talks about how his first company included Robert Morris, Jr. doing system administration. Having several “Makers” on the same team created great synergy there, too. Then there’s Google. And so on.

But often when you have a lot of Makers, eventually they leave the team. How many great SNL stars stayed on? Most left to start solo careers, just like so many rock stars.  It’s very rare that a team - or a company - is able to hold onto those players forever. Sometimes the Makers are artisans, and concerned only with their art, be it coding, comedy or choreography. It’s a little easier to hold onto talent like that, because like it or not, the talent needs the business as much as it needs them.

However, many Makers are machers in the making, to use an old Yiddish word. Primadonnas. Often Makers don’t do as well on their own as they did with their original group, but they find it hard to work well with others. They’d rather fail on their own than succeed with a group.

The question for a group leader or entrepreneur is two-fold:

1. “How can I hold onto these key people?”
2. “And, in the end, is it really worth it?”

The later years of SNL seem to answer #2 in the affirmative (and Drucker’s The Effective Executive agrees) but then the real question becomes:

“Is it more valuable to hold on to the Makers-turned-machers, or should we just get good at finding great new people?”

Notes

• Macher - Yiddish word for big-shot, usually someone well-connected who also has a swollen sense of self-importance.

After starting a few businesses I’ve become familiar with a lot of common mistakes that entrepreneurs make when starting a new business. Mistakes are inevitable (sometimes even desirable - more on that another time) but at the very least you can make new ones. Here’s a list of common mistakes you can avoid when you start your new business, whether you’re on a shoestring budget or funded by rich and optimistic investors.

The List

1. Trying to start too big.

   Keep growth organic by putting no more in place than you need to. Start with a direction and a plan, but realize that most of the planning you do today will seem wildly imaginative two years from now. Stick to what you know.

2. Wanting to seem too big.

   I’ve seen so many new businesses try desperately to seem and feel like they’re bigger than they are. It’s the “perception is reality” deception. Do you really need that downtown office today? Chances are, it won’t draw clients as much as great work and word of mouth will.

3. Letting anything come before revenue.

   By this I mean two things.

   1. Time. The very first thing you should do is to make sure you have a product and customers.
      Get out the simplest excellent product you can provide, and find customers for it, before you do anything else. Until you are selling a product to customers, you don’t have a company, just an unpleasant, expensive hobby. This is especially dangerous when you have a lot of investment money.
   2. Priority. At the end of the day, revenue is simply the way you tell how well you’re satisfying your customers, so nothing’s more important than this.

4. Trying to be everything to everyone or trying to do too many things.

   Ok, you’re in business and you have no money. So any work that comes along is good, right? Not quite.

   • Beware of accepting work too far from your core business. Every category of work you do carries a certain overhead, whereas when you’re doing a lot of similar work you can streamline processes and get economies of scale.
   • Also, recognize that when you do work outside your core business, you don’t increase the value of your business nearly as much. A design shop that is known for amazing, innovative web development will get much better business and word of mouth than a company that is known to have done merely average work in logo design, web design, and programming.

5. Caring too much about the business plan.

   It’s important to have some sense of direction, but the only reason you need a full, formal business plan is when you’re trying to beg for money from someone. Otherwise, your business plan only needs:

   • A brief market analysis
   • Cost analysis

   Most business plan revenue projections fall between “sardonically witty” and “slapstick humour.”

6. Starting a business with friends.

   Some people say this is because friendship and business don’t mix. I say it’s for two other reaons:

   1. Most people don’t know how to do business with their friends. Business with friends requires even more work. There’s a tendency to say, “we don’t need to worry about that, we’re friends.” Running a business with friends is the best way to discover how different your values, goals, skills and work habits are! On top of that, you have your friendship to manage at the same time.
   2. Usually, people don’t go into business with their friends for the right reasons. Typically they choose their friends as business partners because they already get along and have things in common, rather than because they can make a business partnership. Beware of starting a business with friends who are too similar to you–you’ll both want to do the same jobs. Instead, find someone who complements your strengths and weaknesses.

7. Equal partnerships.

   The only way an equal partnership can work is if there are only two partners, and they complement each other very well–such as an outgoing sales and marketing guy with a software whiz who spends all her time behind a computer screen. Usually equal partnership is a euphemism for “constant arguing.”

8. Any bizarre revenue-sharing scheme.

   I’ve seen a number of new companies try to work ways of handling inequality in the amount of work done by partners, by creating some kind of bizarre revenue-sharing scheme. This problem has already been solved. If you have a registered partnership, then you are equal partners, period. If you are incorporated, then it’s mostly a question of who has how many shares. To reward hours spent working in the company, pay wages or salaries, even very modest ones. If you feel that this isn’t enough to reduce the inequality of different partners’ time and effort contributions, then you’re
   in business with the wrong people and that is your real problem. Hint: in a healthy start-up, nobody pays much attention to how much work the others are doing, or how much they’re being paid, because they’re all too busy working.

9. Some of the founders work full-time and some part-time in the company.

   This is a recipe for disaster! Not only does it create instant inequality, but it also goes against a fundamental entrepreneurship value: if you’re not willing to invest yourself completely in a business, you shouldn’t be trying to run one. Get a day job and let the real entrepreneurs do their thing! If someone is willing to invest financially as a “silent partner” without participating in the day-to-day, that’s great–as long as they stay silent! The only people who should be working part-time in your company are your part-time employees, which is often a great way to transition from a company where the owners do all the work, to a company operated mostly by employees.