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.

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.