Companies at this stage have employees doing different jobs. But usually they lack formal departments or managers of those departments. Most employees wear several hats and do what’s needed at the moment. This is not always a bad thing.
In fact it’s useful for this reason: companies at any stage need all the functions performed by big companies. But they usually don’t need them full time. Nor can they afford a full time position for many functions. That’s why employees have to wear many hats.
One other characteristic of these companies is they are frugal.
What’s missing is they often don’t have time to plan for the future. They tend to management from crisis to crisis thinking they don’t have time to be strategic. And that often becomes a barrier that prevents growth. That is a bad thing.
The first place to start is The Company Blue Print. My program called 20 questions will help you specify what you want from your company at this time in your life and translate that into a blue print that will help develop your company so it can achieve your personal goals.
After that we usually work on better cash flow management. Why? Because taking time away from the day to day to focus on the future requires cash.
The next step is to document work flows and job expectations. Expectations (rather than descriptions) define what you expect a person to produce. This leads to better management, fewer crises and a more organized company.
Call me. 203-775-6676. I’m on eastern time. Or shoot me an email: john@betterceo.com.
Let me know what questions you have and we’ll see if it makes sense for us to work together.
This is a critical stage for a CEO. For the company to grow you need to stop acting like a one-man band, and more like a conductor. But with a difference. An orchestra conductor makes none of the sound him or herself, but is responsible for all of it. Companies of this size rarely need a full-time CEO. That means you’ll spend some time playing an instrument.
Call me. 203-775-6676. I’m on eastern time. Or shoot me an email: john@betterceo.com.
Let me know what questions you have and we’ll see if it makes sense for us to work together.
Can you go away for a week? A month? As your firm grows beyond 50 employees the CEO spends less time dealing with day to day situations and more time planning for the future.
That means you need systems and managers in place to deal with the ongoing operations and keep them up to the standards that have got your company where it is. In other words, the wisdom and experience that you’ve developed can’t just live in people’s heads. It has to be transferred throughout the company.
The way to do that is by having standardized processes for routine tasks. This must be done in a way that doesn’t burden people with needless bureaucracy. You should also allow for new ideas to arise and be incorporated into the systems quickly.
But what about your job? As CEO you’ll now have time to focus on the more strategic aspects of growing the company.
Programs I have that help with this include:
Call me. 203-775-6676. I’m on eastern time. Or shoot me an email: john@betterceo.com.
Let me know what questions you have and we’ll see if it makes sense for us to work together.
Every start-up by definition is a small company and they all have the same problem: They don’t have enough revenue to pay for ongoing operations. However there are different ways to solve this problem and choosing the right one depends on knowing which kind of company the start-up is likely to become when it grows up. Choosing the wrong one can be fatal.
There are 4 kinds of small companies. What makes them different is the potential scope of the business and this is defined by business model and the owner’s goals.
To get over the hump of being a start-up it’s critical to know which kind of company yours is. Then develop a plan to raise money and scale in the most appropriate way.
Call me. 203-775-6676. I’m on eastern time. Or shoot me an email: john@betterceo.com.
Let me know what questions you have and we’ll see if it makes sense for us to work together.
In any new company, there are 4 distinct types of risk to a successful business outcome. It’s my experience that seeing these risks in different ways is often at the root of problems between investors and entrepreneurs.
This is the risk that your product won’t work. This is why drug companies say they need such high prices: because it costs to much to find a new drug that works. This is also why some things can only be accomplished by non-commercial organizations. No sane board of directors in the 1960′s would have let their CEO bet company money on sending a man to the moon. But it was a great thing for government to invest in. For economic as well as other reasons.
This is the risk that enough people won’t want to buy it at the right price. MySpace is currently experiencing this problem right now. The price is FREE and yet they just announced a lay-off of half their employees. Why? Even at FREE not enough people want to buy it. They prefer Facebook.
In some ways these two risks are opposite ends of the same line. The cure for cancer is entirely technology risk with zero market risk. If you can make it work, people will buy it. Making a video game, however is the opposite. There’s no doubt you can get the technology to work. The entire risk is in the market.
The web has reduced technology risk for a lot of new ideas. It’s now cheaper and easier to build things that people could barely conceive of a few years ago. FourSquare anyone? But that has not eliminated market risk. This is what makes the Customer Development Methodology so powerful. You start early in the process to connect with customers so you don’t waste time building something people don’t want to buy. And you learn quickly how to sell to them.
This is the risk that even with a technology that works and people who will buy it, management won’t find a business model that makes a profit or won’t be able to execute on that model, or scale the company properly. It’s common that inventors often don’t make good CEOs (and vice versa). One is all about technology and one need to focus on running the company.
A key to minimizing this risk is first to understand that being a CEO is a definable skill. And that being a CEO of a start-up is a different skill than being CEO of a growing company. Experience helps here as well. Experience on the team, experience in your board and experienced advisors. Don’t shy away from asking for support.
Even large established companies are not immune to this risk. It’s what led to the need for General Motors to need a bailout to survive. They had a sizeable market, wonderful technology, ample capacity but for decades management just couldn’t put the pieces together properly.
This risk is to the investors. The risk is that the technology will work, people will buy the product, management will run a profitable company, and you still won’t make a good return on your investment. Maybe there won’t be an exit. Maybe the deal will be structured so that only some of the investors make money.
There are different types of investors and investment vehicles. Be sure to pick the right ones so everyone’s goals are aligned as much as possible. Of course bootstrapping is one way to go – without investors you don’t need to make deals with them. I’m a big fan of bootstrapping. But there are occasions when not taking on investors slows your growth and that can open up the risk that a competitor will get exploit the market before you do.
We must respect the other fellow’s religion, but only in the sense and to the extent that we respect his theory that his wife is beautiful and his children smart.
– H. L. Mencken
We all love our own ideas. But they are not as valuable as we think. If you try to raise money from investors based on the strength of an idea, you’ll quickly see how little the market values ideas.
Business idea from xkcd.com
Many of us have had the experience depicted in the cartoon. If you read about the history of almost any technology, you’ll find that many breakthrough ideas occurred to several people independently around the same time. I think 5 people lined up behind Alexander Graham Bell to patent the telephone. Leivnz and Newton are usually both credited with the invention of calculus. Charles Darwin had delayed publishing his “Origin of the Species” because he feared the repercussions, but changed his mind when it looked like someone else had come to the same conclusion and would publish first.
The market values the action, products, sales etc that comes from ideas – but not the ideas themselves. And usually when ideas get loose in the real world, they don’t survive unless they change, adapt, morph, evolve etc. It’s the result of the changed idea that produces value.
Takeaways:
My guest post on “A Never Ending Source of Money” is up on FreeYourData. Enjoy
Bill Bryson says it was done in large part by utilizing innovations and technologies that were invented in Europe. These were then scaled and perfected in America and the products sold back to the Europeans. Does that remind anyone else of what Asia is doing today? China is the leading producer of many environmental technologies that were invented in the USA. Korea has much faster and cheaper internet service (a technology invented with American tax dollars). And other places are developing stem cell advances faster than we are.
I think one thing that contributes to this phenomenon is that while business people are very innovative when it comes to products, they often focus too much on the traditional and the short term when it comes to politics.
I posted four years ago that typical pro-business political positions are often bad for business because they are short sighted. In my experience working with business owners, lack of strategic planning is something they are almost always “too busy” to do, so it doesn’t surprise me that this problem expends to their politics.
Today Seth Godin writes a post with a similar conclusion – though Seth adds some more profound insights as he usually does. One interesting line from Seth is “At some point, a healthy and fairly paid community is essential if you want to sell them something.”
A business transaction must be considered as something that benefits both parties. I get what I want by selling you something that you want. And the result is not a zero sum game, but a bigger pie for all. Political forces, must take that into account to provide for a stable business environment. If I vote for policies that benefit me now and never consider you or the future then my business may prosper in the immediate but that prosperity will be short lived.
Before you vote, ask the candidates what their policies will do to ensure a healthy, prosperous, and stable market for your company, not just what effect it will have on your tax rate.
UPDATE: Tom Cooper has pointed me to this TED TALK by Eric Dishman. One of the most innovative ideas in health care that I’ve heard about. Spend 17 minutes and watch it.
If you run an American business, check out this guide to the new Health Care Bill. Thanks to Andrew Tobias for pointing it out.
If you have fewer than 50 employees, you may be able to get a tax credit to help pay your health insurance.
Now that the bill has passed, the furor seems to have ended, but the problem is far from solved. I believe the new bill is a step in the right direction, but we must continue to think about this problem and work toward a better solution, so here are some thoughts.
The last though is one I’ve not seen anyone else talk about. Ever. But I hope you’ll really click through on #8.
One of the biggest challenges I deal with in helping people improve their companies, is changing beliefs. All of my clients are successful and what they’ve done (based on their beliefs) has gotten them where they are. But many times what got us here, won’t get us there – wherever we want “there” to be. And facing up to that reality often requires real courage. I think health care is one of those situations.
Did You Win?
I don’t get the proliferation of Business Competitions I see lately.
Being in business means you are competing for the customer’s dollars. What other competition matters?
But consider that you’re not competing with “competitors” as much as you are competing FOR your customer’s trust and desire for the value you provide. I’ve said before that business is like sex not like war. It’s just that the result is profit not babies.
This video of Dan Ariely from TEDÂ has several enlightening and surprising ideas you can use. It’s 18 min long but the last 2 minutes are an ad.
Why people cheat and steal and how this can be encouraged or discouraged. The reasons are not at all what you’d expect.
How these conditions were exacerbated by the stock market and financial systems to cause the mess we’re in.
Why our intuitions can lead us wrong and what to do about it. This doesn’t come up till about the 14th minute but it’s the most important takeaway. It broadens the appeal beyond cheating and beyond the financial mess. How many of your intutions do you rely on to run your business and how many have you really tested?
Takeaways:
[tags] CEO skills, entrepreneurs, intuition, small business, management [/tags]
Mark Cuban – owner of Dallas Mavericks – put an interesting perspective on the AIG bonus situation using an analogy to a free agent athelete. Did I say he owns the Dallas Mavericks?
Hint – to keep good employees, financial firms will have to offer not bonuses but options. IF they do well in a few years they will get filthy rich and it will look like they did it off taxpayers money. How will that play in the press?
Seth Godin writes about how company founders can split equity.
Key point: Don’t give out all the common stock. If you and I split a company 50/50 we each own half. If we you get 5% and I get 5% for all practical purposes we still each own half. But we have a lot more latitude about how things work in the future. Seth doesn’t say this, but as an angel investor I know, founders often have no idea of the most useful place of common stock in the pecking order of a growing company.
Most of us aren’t in a position to turn the entire economy around. But don’t think you are powerless. Some people look at this situation and see all the negatives. Some people see opportunity. It’s easier to feel the fear and do the cut back thing and blame the economy.
In fact, it’s both the worst of times and the best of times (haven’t I heard that before?) And you’ve got to deal with both. I’m launching a new program to help companies do this called “Tighten Up and Come out Swinging”
Tighten Up to deal with the problems. Come out Swinging to take advantage of the opportunities.
In fact I’ve re-done the opening page of my web site to explain the details. Check it out.
Takeaway:
[tags]CEO Skill, economy, small business, entrepreneur, turn around [/tags]
My apologies to non-US readers. We sometimes do things a little strangely here.
Did you US readers know that in Australia there’s a fine for not voting? or that in Canada the government just sends you a voter registration card so there’s no opportunity for one party or the other to purge the rolls? And how is it we’ve been doing electronic transfer of money from ATMS for decades – I can get cash from my bank in almost any country in the local currency without any significant error – yet we can’t figure out a way to vote where the disputed votes are smaller than the margin of victory? That’s what I mean by strange.
And is the bailout bill a boondoggle? Spend an hour with Warren Buffett.
Yes, he talks in a few cutsey sound bites, but he also talks so you can understand (at least I could) what really caused the problem and why the bailout bill is/was solution. It was broadcast on Oct 1, 2008
By the way, he’s supporting Obama.
[tags] economy, entrepreneur, warren buffett [/tags]
Thanks to an email from Will Hill and Paul Graham’s latest essay I’ve shortened my advice (so you get to do less reading)
1. Make something people want.
As obvious as it sounds this advice is often ignored. Well not exactly ignored, but confused. Inventors especially, are apt to confuse the word “people” with the word “me”. They think if they like something, they can make a business out of it. You need enough people to want it bad enough to pay enough for it. In this context enough means the following. A number of people that you can find, market and sell to so cheaply that they’ll pay more for what you make to cover the cost of making it and also finding them, marketing and selling to them. Start-ups particularly underestimate the cost of finding, marketing and selling to people who want to pay for what they make. If you’re making software or a web application you can tweak and change it cheaply to find out what people really want. Provided you do the next 3 things.
2. Keep your costs low.
I mean really low. Many companies get lazy when they have start-up cash and they end up making stuff that people don’t want, or spending marketing money in ways that don’t get them sales. That’s why so many good companies are started out of a garage or on the side. Sure it takes a bit longer but when your costs are low you have many more chances to learn what people want and how to sell to them. And remember, The goal is not to get investors. The goal is to get customers. Getting investors takes time away from building your business. And if you get the money it could give you confidence to keep charging off in the wrong direction (building something not enough people want badly enough) for a long time. Plus if you keep your costs low and do the next 2 tips, you’ll be more valuable if/when you do get investors.
3. Learn what works.
You can’t assume. Hence the number of tips in my long post about measuring stuff. It’s tedious to measure and you’re never sure if you’re measuring the right stuff. Do it anyway. Force yourself to listen to people who don’t agree with you and challenge your beliefs. Learn what customers (and employees and suppliers) really want and also how your marketing and sales efforts affect their behavior (if at all).
4. Be persistent.
It’s currently in vogue to say be passionate. I disagree. Passion can keep you going, and when it does it’s helpful. But it can also blind you so you don’t learn. But you will need something to keep you going through the emotional roller coaster that is a start-up. Find within your gut, whatever it is that keeps you going and keep on truckin.
Takeaways:
[tags] start-up, entrepreneur, small business, ceo [/tags]
Image from http://www.flickr.com/photos/drb62/1189903030/sizes/m/#cc_license
What would you pay for a tool that could transmit the wisdom of your smartest people out to everyone in your whole organization? One that is able to reduce errors in the most complex activity and achieve consistent results time after time? I’m sure you’d pay a lot, but this tool costs very little and requires almost no training to use.
By now you’re beginning to suspect the tool does not exist or this is some kind of joke. But this tool has accomplished the following things:
In 1935, a new generation of long-range bomber was all but certain to be adopted by the US Army until, in it’s competition flight, the Army’s chief of flight testing crashed it killing himself and another of the five crew members. There was no mechanical failure – the problem was pilot error due to the complexity of the new machine.
The bomber was scrapped in favor of a simpler plane which had much less range and capacity. But a few of the more complex planes were purchased for testing and this tool was adopted. Using this tool, pilots went on to fly this plane a total of 1.8 million miles without a single accident. The Army eventually ordered close to thirteen thousand of these bombers and because of its increased capacity gained a serious air advantage in World War II. The planes were known as the B-17 and nick named The Flying Fortress.
In more recent times, the tool has been applied to the complexity of hospital intensive care units where over half the ICU’s in the country (USA) rely on a super-specialist to oversee the intricacies of care which involve on average 178 separate, individual actions for each patient every day. In Michigan, starting in 2004 this tool was used where many hospitals are short on staff and funds. It saved over 1,500 lives and an estimated 175 million dollars in a year and a half.
What is this tool? A check list. That’s right. A check list. A simple check list. In this great New Yorker article, Atul Gawande points out that check lists have two benefits. I’ll quote him here and provide my emphasis.
First, they helped with memory recall, especially with mundane matters that are easily overlooked in patients undergoing more drastic events. (When you’re worrying about what treatment to give a woman who won’t stop seizing, it’s hard to remember to make sure that the head of her bed is in the right position.) A second effect was to make explicit the minimum, expected steps in complex processes. Pronovost was surprised to discover how often even experienced personnel failed to grasp the importance of certain precautions. In a survey of I.C.U. staff taken before introducing the ventilator checklists, he found that half hadn’t realized that there was evidence strongly supporting giving ventilated patients antacid medication. Checklists established a higher standard of baseline performance.
If something so simple can achieve such fantastic results why are they not used more often?
I’ll bet the answer lies in your response when you read what the tool is. Didn’t you think “Well that can’t apply to my business. Most of what I do can’t be reduced to something as one-dimensional as a check list – it’s too complex/unique/has special circumstances?” Didn’t you think that?
So did doctors and test pilots. The truth is most company founders don’t go to work thinking their main job is to develop check lists. No. We think our job is to get real stuff done. Solve problems. Sell product. Collect money. We don’t have time to develop check lists.
But that’s only our job if we don’t want to build a very large company. If we want to scale what we do then we should spend half our time developing check lists, the other half making sure people follow them (read the article for some great insight on that) and the third half handling the stuff that truly is special. It’s my experience that the “third half” is actually less than 15% of what goes on. The rest can be documented and replicated with something as simple as a check list. Or, actually, many check lists.
The problem with this approach is that it doesn’t feel so good. We don’t feel like heroes walking around with a clipboard ticking off boxes. We feel much better thinking that what we do is special and unique. We like to be heroes.
But you know what? A friend of mine’s house burned down recently. The picture above is of their house. Here’s the video.
Luckily he was awake at 2AM getting ready for a trip so he heard the smoke alarm go off. He rushed upstairs and got his kids and wife out of the house. With literally seconds to spare. One of their three pets died, another escaped in good shape, and the third was resuscitated by the fire fighters with oxygen and is doing fine. The house was destroyed. All their possessions including video tapes of the kids and all his wife’s art work were ruined. The family was checked out at the hospital, but didn’t need to stay. He described it like being sunburned and having smoke in the lungs like a few cigars. Sunburned skin from being so close to a fire in your house! That’s how near they came to disaster. Instead they only lost all their possessions and a pet.
Somewhere between the smoke detector, him rushing upstairs through smoky rooms, and the fire fighters I’m sure there’s a hero or two or three. I’m just as sure they wish they never needed one.
Sometimes our desire to feel like the hero gets in the way of building a company. Because the majority of what we need to accomplish is not heroic. But making sure the right things happen day after day every time anyone in your company does their job or helps a customer; to do that consistently with great results we need a cheap little tool, not a hero.
Takeaways:
Change the batteries in your smoke detectors.
Don’t be a hero
Build some checklists
[tags]Checklist, CEO Skills, Entrepreneur, Build a company, small business [/tags]
The key to growing your company is to prevent problems rather than solve them. There are two parts to this: Attitude and Skill.
Attitude – you must not like being the hero
Heroes solve problems. Usually at the last moment in dramatic fashion with a fanfare and a flourish of cape – just before they dash off to a secret place where they can transform into their secret identity. If this turns you on, it will be hard to stop solving problems. You won’t get the same kind of attention or validation. Because when problems are prevented, nobody knows. How many colds didn’t you get last year? How many times did your roof not leak, or the bridge you were driving on not collapse? But all of these things took some not inconsequential degree of effort – the first by your immune system, the second by your builder and the third by a whole slew of people: some who paid taxes, others who allocated them to public works instead of flashier projects, and still others who built and maintained the bridge.
If, in your heart of hearts, a smooth running transportation system is not more satisfying than charging on the scene in a cruiser with lights flashing to set up a detour and save folks from driving over a rotted out bridge, then the best you can hope for is a company that stays small enough that the problems don’t kill it, and you can still be the hero.
Skill – root cause analysis
The skill in problem prevention is to find and cure the root cause of the problem, not the most obvious symptom. Cash flow is a prime example. It’s common wisdom that the reason most companies die because they run out of cash. Well that’s like saying in the 1700′s the two main causes of death were consumption and heart failure. They figured if you didn’t die of consumption, then it’s a sure bet that your heart had stopped. Obviously medical science was in its infancy.
The knee-jerk reaction to cash flow problems (in start-ups anyway) is to raise more cash. This almost always prolongs the agony rather than cures it. If cash is tight because sales are too low the solutions are a whole lot different than if cash is tight because costs are too high, or collections are not efficient. More cash is rarely the ultimate solution to any of these.
Common Sense & Quick Fixes don’t usually work
Two quotes from http://www.isixsigma.com/library/content/c050516a.asp are enlightening. The emphasis is mine.
“Research has repeatedly proven that unwanted situations within organizations are about 95 percent related to process problems and only 5 percent related to personnel problems. Yet, most organizations spend far more time looking for culprits than causes and because of this misdirected effort, seldom really gain the benefit they could gain from understanding the foundation of the unwanted situation,” according to Gene Bellinger, who writes on the web site Systems-Thinking.org
Alexander Dunn, director of Assetivity Properties Ltd., in a paper posted on the Maintenance World web site, quotes a study which showed, “…that, when trying to prevent unacceptable events from happening again, 10 percent of participants immediately sought to place blame, 26 percent immediately expressed an opinion of the causes and offered an opinion without investigating the problem, and only 20 percent of participants examined the problem in sufficient detail to be able to identify an effective solution.” From these statistics, its clear that effective problem-solving is far from common sense.
The 5 Why’s
One technique used to find the root cause is to ask why five times. Suppose your car won’t start because the battery is dead. Calling a tow truck to provide a jump start is solving the problem. But asking why five times might result in prevention.
You can see from the example that the key is asking the right questions. You might also note that five is not a magic number – the point is to keep asking why till you find a root cause and five is often enough for that. According to wikipedia, this technique was developed by Sakichi Toyoda.
Takeaways:
[tags] CEO Skills, Problem solving, Small business, entrepreneur [/tags]
Lots of things. Mostly they put too much emphasis on the outcome and not enough on the process. I’m not a big fan. Yes, I know you need them if you’re going to ask for money. And yes planning is a good idea. But planning is a verb not a noun. You should engage in planning on a regular basis. And you should compare your thoughts when planning to what actually happens. Then you should learn how to plan better.
It will be helpful to have some documents to do this. But a typical business plan is not usually the right document. The right ones capture what you thought would happen, and more importantly, why you thought it would happen that way. Then they make it easy to compare what did happen and why to what you were thinking at the time.
Here’s an example. In the marketing section, most business plans cover who the market is, how fast it’s growing etc. They often get this information from generic research reports that talk about market segments. But market segments are irrelevant to a small company (and all start-ups begin as small companies). Then the business plan makes some guess at what percentage of that market they can capture. The guess seems to be based on what number will look like they can make a lot of money, while not make investors think they are smoking crack.
But this evades the more important questions about your market: how you’re going to find them, educate them about your product and ultimately sell to them. And how much time this will all take, and how much it will cost?
Here are some better things to document about your market:
Rank your market in order of the cheapest / easiest to sell to. For each group estimate the following:
Never forget that a customer is a person. It’s not a company, a family, a household, or a demographic. It’s the person (or people) in that organization who actually decides to pay the money. Say you want to open a family restaurant. Yes, you need to know how many families live within a certain distance from your place. But don’t stop there. The time and cost of marketing a meal to a kid (think Chuck E. Cheese or McDonald’s happy meal) is different from marketing a meal to an overworked Mom or to a grandparent. Who is going to decide to spend money at your place and what will it cost to get them to do so?
Document your thoughts on that. Then you can regularly compare what your actual sales are, and what it actually costs to make a sale to what you were thinking. If you’ve been open a month you have enough data to start the process. The actuals won’t match up (trust me on this) but the point is to get better at projecting so that by month 6 you’re doing a better job and by month 18 you’re doing a good enough job to know if you should stay in business, close the doors or raise more funds. And if you do need to raise funds, that kind of detail will convince investors yours is a business not just a product.
Takeaway:
[tags] small business, entrepreneur, business plan, planning , CEO Skills [/tags]
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