Archive for November, 2008
November 30th, 2008
I now see books being written and thousand dollar a seat conferences offered on how to use twitter. My model is fairly simple, starting in April of this year I post quotes that I believe are useful, thought provoking or otherwise inspiring for entrepreneurs on twitter/skmurphy. I try and post about ten a month. Here are my quotes for November:
“Ancient Greeks defined happiness as the exercise of vital powers, along lines of excellence, in a life affording them scope” Edith Hamilton in “The Greek Way” (inspired “Offer Scope for Employees to Exercise Their Vital Powers“)
“The hardest arithmetic to master is that which enables us to count our blessings.”
Eric Hoffer, “Reflections On The Human Condition” (See also “Thanksgiving 2008” and a longer quote in “Unfamiliar Pain“)
“Base your strategy on things that won’t change.”
Jeff Bezos (see also “Jeff Bezos on Strategic Planning“)
“Enjoyment is not a goal, it is a feeling that accompanies important ongoing activity.”
Paul Goodman (see also “Quotes on Operational Excellence“)
“Effective prototyping may be the most valuable core competence an innovative organization can hope to have.”
Michael Schrage
“Good business development is a sincere interest in clients and their problems, and spending time to be helpful to them.” David H. Maister
“I am reaching OSHA limits for PowerPoint exposure.”
Larry Lang
“We thought, because we had power, we had wisdom.”
Stephen Vincent Benet “Litany for Dictatorships”
“Point of view is worth 80 IQ points.”
Alan Kay
“Despair is not only a sin but bad tactics.”
Brian Dunbar in “Vote”
“Going to SCORE is a lot like asking your grandpa for driving advice.”
Cass Brewer, founder Truth to Power
November 28th, 2008
Some post-Thanksgiving musings on my belief that most people want to do a good job. As you grow your startup find ways for everyone involved to work hard, see an impact, and improve.
“Ancient Greeks defined happiness as the exercise of vital powers, along lines of excellence, in a life affording them scope” Edith Hamilton “The Greek Way“
I think most people (employees) want
- to do a good job and prefer to work hard.
- to see an impact from their labors, ultimately that their firm’s customers to be delighted with their experience of interacting with their firm’s products and service teams.
- to get better at what they do.
It’s our challenge as entrepreneurs to create the right environment for this.
I don’t think that working hard means
- Long hours, at least on a regular basis (also see the following for background on why more than 40 hours a week is quickly counter-productive:
- Having to put up with a lot of bureaucracy and poor management (note: this means you and your decisions or lack of decisions if you are in charge)
- One thing I am surprised we are not seeing more of is four day work weeks instead of layoffs. My experience with this has been that more gets done if it’s also used as a reason to cut back on unnecessary meetings and other time wasters.
Seeing an impact means just that. As founders we need to get out of the way and create systems that allow everyone in the company to see what’s happening without having to hear it from you. This does not mean showing any less appreciation for good work, or not actively addressing areas that need improvement. But it does mean establishing dashboards and metrics that allow everyone to help steer.
It’s been my experience that most teams perform up to a set of shared expectations and a “group pace” that a manager can help to set but is ultimately only a part of, not the determining factor (on the up side, on the down side poor management can wreck even a strong team over time). I think the best teams achieve an “Easy Does It” group flow where they are moving reasonably fast but making very very few errors. They may be trying a number of experiments and not having them succeed, but they aren’t creating re-work and ill feeling internally or externally.
November 27th, 2008
Our Thanksgiving table has been cleared and the low rhythmic hum of the dishwasher can be heard in the quieter passages of “The Shining” by Badly Drawn Boy on the stereo. Guests have departed with leftovers and I am left with a strong sense of contentment from a good meal and fellowship.
“The hardest arithmetic to master is that which enables us to count our blessings.”
Eric Hoffer, Reflections On The Human Condition
There is a Japanese aphorism that “one kind word can warm three winter months” that I am going to bear in mind over the holidays–and perhaps even a bit longer–in spite of the fact that California winters are more wet than frozen.
My short list of what I am thankful for this year is a reprise of last year once more
- Health
- Family
- Friends
- Opportunity
To be self-employed in a downturn is a wonderful opportunity: I don’t have to worry about getting laid off. And as long as I have health, family, and friends the formula for avoiding bad luck is simple:
“I never knew an early-rising, hard-working, prudent man, careful of his earnings, and strictly honest who complained of bad luck.” Henry Ward Beecher
November 25th, 2008
Yatin Trivedi has been in EDA for more than 25 years, he is currently the senior director for strategic industry alliances at Magma Design Automation Inc. What follows is a long excerpt from an opinion piece he wrote for today’s EET on Cadence decision to shrink the size of the Connections Program (bold added). It’s one of the clearest statements of the value of partner programs that I have read.
The motivation for a partnership program in any company is to better serve the customers beyond one’s ability. Although true in every industry, let’s stick to EDA vendors and chip designers to understand this better. Chip designers need design implementation, verification and analysis tools; they need various IP cores, standard cell and I/O libraries, memory compilers; they also need design services, foundry services and many more “back-end” functions to manage the production side of their hard work.
There is no single supplier to chip designers who meets all the requirements. Even when the best design implementation tools come from one vendor, verification tools are provided by another vendor and IP is delivered by multiple other vendors. Every design team has a “hodgepodge” of tools, IP and other environment helpers to make the whole flow tick. When something goes wrong, two or more vendors must work together to help the design team. Hence, the need for interoperability, reference flows, cooperation and partnership program.
For large vendors, such a program is also an excellent way of influencing smaller vendors. If one tool is feeding data into another tool, one can use a proprietary or a standard format for data exchange; or, one can use an API for tighter integration. It is much better to grow the ecosystem so the entire user base grows with it. For most us, that means working with open standards and actively promoting interoperability rather than pushing proprietary formats. We compete on superior algorithms, tool implementation, ease-of-use, and customer support; not by closing doors on others and protecting our turf through proprietary barriers.
“Coopetition,” far beyond healthy competition, grows the entire industry and creates win-win-win for partners and mutual customers. It requires a mindset and a long-term management commitment. Short-term views and protective behaviors are doomed to fail. We don’t have to go far to see how leaders in similar industries are behaving; TSMC announced its OIP program with a sound win-win-win proposition earlier this year. This is what differentiates winners from losers.
Some background links:
- Deepchip Nov-20-2008 “Can You Smell the Mendacity?”
Three days before the renewal date, Cadence evicted 48 EDA companies from their “Connections” program.
- EET Nov-24-2008 Cadence Boots Dozens of Firms from Partnership Program
Beleaguered EDA vendor Cadence Design Systems has removed a number of companies from membership in its Connections program, a collaborative effort the company maintains to support third-party software suppliers that offer complementary tools
- EET Nov-25 2008 “Cadence Exec Downplays Connections Controversy”
In an interview with EE Times, Pankaj Mayor, group director of business enablement at Cadence, said membership in the Connections program is fluid and that the list of member companies changes constantly. On a continual basis, companies drop off as they are acquired, decide the program no longer has value to them, or are denied membership extension when it is determined continuing partnership does not benefit Cadence, Mayor said.
I think Pankaj Mayor slipped on the last quote and told the truth instead of saying “does not benefit Cadence’s customers” but now and then a little honesty never hurts. You also have to be worried when your company is described as “beleaguered” in an EET article.
Net Net for EDA startups: unless you have several customers in common who are willing to sponsor you for the program I wouldn’t waste any time applying to Connections. Cadence will listen to its customers and that’s the only thing that will get you into or keep you in a program like this one. None of the major players (e.g. Cadence, Mentor, Synopsys) are interested in helping your firm get established in the marketplace or seeing you prosper. They are not necessarily against you but they are not for you. If you can get a few customers who want your solution to work better with an incumbent, and are willing to go to bat for you then rely on them to get you into the program.
As of this evening a check of the Cadence Connections website reveals the following 100 companies in the program: Actel Corporation, ADIVA Corporation, Advantest Corporation, Aldec, Inc., Altos Design Automation, American Computer Aided Engineering (ACAE), ANSYS Inc., Applied Simulation Technology, Arithmatica, Inc., Artwork Conversion Software, Asset Intertech, Atrenta Inc., Azuro, Inc., Berkeley Design Automation, Inc., Bluespec, Inc., Cadalist-Enterprises,LLC, CAE Consulting, Calypto Design Systems, Inc, Carbon Design Systems, Certess, Inc., CFD Research Corporation, ChipVision Design Systems AG, ClioSoft Inc., Concept Engineering GmbH, CopperCAD Design Inc., Coupling Wave Solutions S.A. (CWS), Coventor, Inc., CST GmbH, DAFCA, Inc., Dassault Systemes Enovia Corp., Design Advance Systems, Inc., DFM, EDXACT SA, Elgris Technologies, Inc., Engineering DataXpress, Fenix Design Automation, GateRocket, Inc., Genesys Testware, Inc., Gradient Design Automation Inc, Helic S.A., Hummingbird Ltd, IC Manage, Inc., In2Fab Technology Limited, Integrand Software, Inc., Intellitech Corp., Interra Systems, Inc., Knowlent Corporation, Library Technologies, Librato, Inc., LogicVision Inc., Lorentz Solution, Inc., Lynguent, Inc., MethodICs LLC, Micrologic, Inc., MODECH Inc., Modelithics, Inc., Nangate A/S, Nano Integrated Solutions, Inc., National Instruments, OEA International, Omnify Software, Orora Design Technologies, Inc., PDF Solutions Inc., Perception Software, Perfectus Technology Inc., Phoenix Design Systems, Physware, Inc., Pinebush Technologies, Inc./S3, Productivity Engineering GmbH, Prolific, Inc., PTC, Pulsic Limited, PwrLite, Inc., Sagantec, Inc., Sequence Design, Inc., Shocking Technologies, Signal Integrity Software, Inc., Silicon Frontline Technology, Inc., Silvaco International, SKILLCAD, Inc., SoftMEMS, Sonnet Software, Inc., SpringSoft, Inc., Stratosphere Solutions, Inc., STX Cadware, Synopsys, Syntest Technologies, Inc., Taray, Inc, Test Insight Ltd, Test Systems Strategies, Inc., The MathWorks, Inc., TOOL Corporation, TransEDA Systems Ltd, Transitive Corporation, Valor Computerized Systems, Inc., Veritools, Inc., YDC Corporation, Z Circuit Automation, Zeland Software, Inc., and Zocalo Tech, Inc.
Update Dec 10: it appears that Intellitech and Tool Corporation are both still in business but have been dropped from the Cadence website in the last two weeks.
November 24th, 2008
Here are three startup feeds that I use at last weekly (I am skmurphy on Hackers News and may check there two or three times a day) that represent three different models to generate a stream of topical links for folks in software startups.
What are your favorite sites for tracking news and developments related to software startups and entrepreneurship?
Update Nov-24: Two folks wrote in to suggest two free services for tracking EDA startup news
Both of these services are free and don’t require a registration to access.
November 23rd, 2008
I had an unfamiliar physical pain recently. It was sharp, sudden, and unexpected: I ended up talking to my doctor about it. I have been trying to understand why it was more frightening, even though it was less painful than many other problems I have experienced.
I think with unfamiliar pain you are not sure what’s going to happen next, and it’s this anticipation that can weigh on you. I’ve written about startups requiring a parallel self-improvement project by the founders. It’s been my experience that most teams change, or actually follow through on significant changes, in response to pain and the clear prospect of more pain.
I think it’s often the unfamiliar pain of failure that spurs entrepreneurs to real change.
But I have also seen it paralyze individuals who have been very successful in other settings, for example: as a college or graduate student, as an individual contributor in a corporation, or as a first level manager in a corporation. When they embark upon an entrepreneurial venture, it may take a while to understand that running their own business, and the required business to business selling, is very different from lobbying for support or budget for an internal project.
This sense of lost competency is not only painful but unfamiliar and frightening. It’s as if you’ve stepped into an elevator, punched your floor and instead of going up felt a short drop of two or three feet: you are not sure if you are going to be able to get out of the elevator easily, much less get to your upper floor.
As an entrepreneur you may find yourself failing in ways that you haven’t anticipated. You may have been an A student. Perhaps you were a well respected technical contributor or manager in a corporation. Eric Hoffer had a perspective on this that I find very useful to remember:
Our achievements speak for themselves. What we have to keep track of are our failures, discouragements, and doubts. We tend to forget the past difficulties, the many false starts, and the painful groping. We see our past achievements as the end result of a clean forward thrust, and our present difficulties as signs of decline and decay.
And I think it’s this fear of decline and decay from unfamiliar pain that you have to confront very directly. This may be complicated by events in the economy and setbacks that neighbors, friends, and extended family may be experiencing. You may be contemplating a new initiative that you are not comfortable with: signed up to speak in public, staff a booth at a trade show, write a white paper, go into a roomful of strangers and network, put your name and bio up on a website and publicly commit to a new startup, go on a sales call, complete your first sales negotiation…
I don’t know how to tell you how to lose the fear of unfamiliar pain, I am not even sure you can.
I do have some suggestions for how to anticipate and minimize it.
- Set some deadlines in advance: if this doesn’t improve or happen by this date I am going to make a change (e.g. trying the same old thing is not working).
- If you hit the deadlines without improvement make a change.
- If that change doesn’t work, make another and continue forward.
- Talk to other people who are facing the same challenges and compare notes.
- Get professional assistance.
- Read, but read with an intent to take action.
If you don’t have a kitchen cabinet or board of advisers that you are accountable to, I would encourage you to create some mechanism for independent outside advice from folks with relevant experience. I have several other independent consultants that I compare notes with, we also take turns kicking each other in the ass encouraging each other to make hard decisions and do the things we know we need to do that are getting neglected. We having a meeting with all of our partners together for the first time in early December. I hope to use this as both a joint planning and joint accountability mechanism.
Update December 5: Tommy Kelly wrote “Stress Management for Entrepreneurs” and did a better job of explaining what I was circling in “Unfamiliar Pain” in his third point:
3. Control secondary pain. This is, I think, related to Sean’s “unfamiliar” pain. I’ve found that there are often two pains or discomforts associated with any given unpleasant situation. First, there’s the pain itself. I stub my toe, and my toe is sore. Pain, plain and simple. But then there’s the pain I experience because of the existence of the first pain. “Oh no, I’ve stubbed my toe. Maybe it’s broken. Maybe it’ll get gangrenous. Maybe it’ll get infected and I’ll die. My wife and kids will be destitute. Ahhhhh!!” The key difference between the two pain types is that while you may not be able to control the first pain, you can very often control the second. Moral outrage is a good example. A large client pays slowly. They know you can’t afford, and don’t want to enforce the clear contract payment terms. So they cheat by paying late. They said they’d do one thing, and then they blatantly break their word. The first pain – the hit on your cash flow is real. And, within typical operating constraints, there’s not much you can do about it. But the second one – the anger at the very fact they are cheating – is almost all in your head. With practice, it can be controlled.
I have also come across a good quote from Marcus Aurelius on unfamiliar pain that has some good advice on managing pain: “If you are distressed by anything external, the pain is not due to the thing itself but to your own estimate of it; and this you have the power to revoke at any moment.”
November 22nd, 2008
Jeff Bezos was interviewed in the Harvard Business Review in an October of 2007 article “The Institutional YES.” The focus was on Amazon’s strategic planning process. I had a chance to hear Bezos speak in 2004 at a Stanford Entrepreneur Conference and was impressed at how relentlessly inventive and experimental the culture he had created at Amazon was. It made it less of a surprise that a firm that started by revolutionizing the book selling business is now a leading provider of “cloud computing’ infrastructure. Here are some excerpts that I found thought provoking and useful (bold added).
- First, we are willing to plant seeds and wait a long time for them to turn into trees.
- We may not know that it’s going to turn into an oak, but at least we know that it can turn out to be that big. I think you need to make sure with the things you choose that you are able to say, “If we can get this to work, it will be big.” An important question to ask is, “Is it big enough to be meaningful to the company as a whole if we’re very successful?”
- What I have found—and this is an empirical observation; I see no reason why it should be the case, but it tends to be—is that when we plant a seed, it tends to take five to seven years before it has a meaningful impact on the economics of the company.
- It helps to base your strategy on things that won’t change. When I’m talking with people outside the company, there’s a question that comes up very commonly: “What’s going to change in the next five to ten years?” But I very rarely get asked “What’s not going to change in the next five to ten years?” At Amazon we’re always trying to figure that out, because you can really spin up flywheels around those things. All the energy you invest in them today will still be paying you dividends ten years from now.
- Whereas if you base your strategy first and foremost on more transitory things—who your competitors are, what kind of technologies are available, and so on—those things are going to change so rapidly that you’re going to have to change your strategy very rapidly, too.
- I think most big errors are errors of omission rather than errors of commission. They are the ones that companies never get held to account for—the times when they were in a position to notice something and act on it, had the skills and competencies or could have acquired them, and yet failed to do so. It’s the opposite of sticking to your knitting: It’s when you shouldn’t have stuck to your knitting but you did.
It can be hard to cultivate a five to seven year perspective in a startup, but I do think the asking the question “What’s not going to change in the next five to ten years” is a good way to try and develop one.
November 21st, 2008
Interesting web site demo at http://nextgenerationelectronicsdesign.com/ by the folks at Altium. Unlike any PCB demo I have ever seen and an interesting use of self-deprecating humor to talk about the challenges of linking FPGA, Board, and Mechanical design. Two time coded remarks
- at 2:25 “We did what any traditional EDA company would do, we denied and avoided the problem.”
- at 2:50 “After offering the same thing as everyone else for a while, we decided to grow some bollocks and actually solve this properly.”
- Followed by a sequence of 3D views of PCB design–not the traditional a birds eye view–that allow you to more easily judge height interaction issues.
Altium is an Australian company–you may know them as Protel–that does about US$50M in revenue. I caught this link on the Mentor communities site in the comments by “pcb_man” on a post by John Isaac “Collaboration Across the Product Development Process.”
Based on a number of efforts to foster collaboration between Mechanical and PCB design teams in the past, I suspect that there will be significant cultural issues to be worked out to enable real time MCAD/ECAD integration and it’s attendant quality and time to market benefits. Loosely coupled toolsets in both domains allow groups to work more autonomously, even if the schedule impact is negative. Anytime you see a new tool that can redraw decision making and political boundaries, the barriers to adoption have more to do with changes in perceived level of control than shortcomings in the actual solution.
I have developed a rule of thumb for introducing new systems: the difficulty is proportional to the cube of the number of “silos” or distinct team/administrative boundaries you had to cross to get to an initially viable solution. For example
- 0 boundaries crossed: only adjust the workflow within a singe team or work group, leaving external inputs and outputs unchanged (except that you hope they have fewer errors or lower latency or can handle more complexity).
- 1 boundary: both sides have to want to change or one group has to be convinced to either supply a new input or accept a different output. This gets attempted unilaterally a lot in the form of
- “if you will only give us this new input our jobs will be easier” If the two groups don’t share a common reward structure there is always a sense of “What’s in it for me?”
- “You have to use our new form/system to make requests” You mean I can’t pick up the phone or send e-mail? Let’s see what kinds of crises get manufactured.
- “We can no longer give you this data or output, our new system doesn’t support it” Well then you may be spending a lot of time doing manual work-arounds until you get that fixed.
- 2 boundaries: 23 = 8 times harder. There are several different ways that three groups can merge together. If you can turn this into two pairwise transactions it’s much easier. Only possible if all three unhappy and willing to change.
- 3 boundaries: 33 = 27 times harder. I have only seen four groups come together in response to things like a corporate commitment to pass an ISO 9000 audit or satisfy SOX. Even then it’s much easier to focus on pairwise changes in the context of an overall plan for evolution.
November 20th, 2008
A lot of is written these days about how to conserve cash in a downturn. In particular the need to cut expenses by cutting headcount and unnecessary fill-in-the-blank spending. If you have been bootstrapping and only increasing expenses in response to revenue (versus in anticipation of revenue) then your next question might be “What else can I do?”
Ridge Evers wrote “Guiding Your Business Through the Recession” in March of this year. For me it stands out as the best “top ten” list for surviving this downturn. It starts off with two good suggestions for protecting your current revenue by making sure you stay intimate with your best customers.
1. Focus on your existing customers – Figure out how to keep them. Remember, they’re under the same pressures you are. Make sure you’re the one they want to do business with when things get tough. But don’t make the mistake of becoming their bank by extending too much credit.
2. Make sure you know your best customers, and that they know you care about them – Who, specifically, is your buyer? There’s an old expression in sales: “know your customer’s shoe size.” It’s always a good idea, but especially in an uncertain economy. If you sell to other companies, you need to understand them at the individual level. Communicate frequently, but take the time to make your communication relevant and interesting.
His list is the only one I have read that also addresses the need to remain trustworthy–and therefore creditworthy (hyperlinks added):
5. Conserve creditworthiness – Just like you don’t want to be your customers’ banker, don’t get into the position of being overextended with vendors, especially the ones you really depend on. This is often the opposite of what your instincts are – we all think our key vendors need us, which is true right up until they decide they can’t afford you as a customer. If you have to stretch payments, do it with ancillary vendors, and don’t wait for them to call you – tell them that you’re going to pay them later than you think you can, so you then pay them sooner than you said you would.
6. If things are tight, pay off all the little bills first – You’ll spend as much time and energy answering calls from the little guys as you do from the big ones. And remember the old adage: “If you borrow $1,000 and can’t pay it back, you have a problem. But if you borrow $100,000 and can’t pay it back, the lender has a problem.” Your bigger vendors will work with you – they don’t want to lose you if they can help it. So pay off the little guys, and then communicate with the big ones openly and frequently. And pay something – it shows good faith, and makes it harder to cut you off.
Evers wrote an earlier post in December of 2007 “Should You Raise the Ceiling or Lower the Floor” which used a great visual metaphor for business planning: headroom.
Essentially, a business has “made it” when you can stand up inside the “room” that you’ve created. Obviously, there are two different ways to create more headroom: you can raise the ceiling (revenues), or you can lower the floor (expenses). It’s a physical analogy, but one that I’ve found is really useful in both understanding what’s going on, and in figuring out what to do.
Many owners spend a lot of their time focused on controlling costs (lowering the floor). Some degree of this is healthy, especially when it comes to building a culture within your company that encourages thrift. It’s also the easiest thing to do when you hit a bump, generally, because expenses are something you can control. But it is exceedingly rare that cost control – in any size of business – paves a path to success. The best you can hope for is to buy time.
Most bootstrappers tend to be risk averse: they have all of their eggs in one basket so they have to guard the basket. Given that, attacking an existing expense stream makes a lot of sense, it’s much more tangible than identifying and attempting to exploit an opportunity. Cost management and accounting tools are more mature, especially for small businesses, than marketing and opportunity identification tools. What’s the marketing equivalent to QuickBooks for a small business or a VSB (very small business with less than 15 people, less than four million on revenue)? Please contact us if you know of or are using a good one.
I think for the most part cost saving requires less change in behavior (obviously there are exceptions like the lean model, which requires a fundamental re-think, and some well constructed re-engineering efforts) than going after new customers and so requires less “social cost” inside the business to implement. The negative side effects from a cost savings effort typically take a while to manifest, where the costs savings themselves are normally quickly available.
The place where the most successful business owners focus their energies is on raising the ceiling: growing revenues to the point where the business can stand up comfortably, and keeping it there. And, paradoxically, in many cases the path to a higher ceiling involves increasing expenses – for example, adding a new salesperson, upgrading equipment, or investing in marketing – so as to be able to attract more customers or increase sales to your existing customer base. (More about this in a later posting, but as the old saw goes, “You have to spend money to make money.”)
“What else can I do?” Give us a call.
Our promise is “early customers and early revenue” and our focus is on “raising the ceiling.” We work as virtual members of your team to build on your strengths: your current customers and current products. We help you to sell better what you have. We use low cost methods to explore current and potential markets for new customers. We gather feedback from your current customers, prospects, and lost opportunities, looking for ways to improve your offering to meet their needs more completely.
And we teach founders how to do all these things for themselves over time because we believe that this is the best way to build trust and a long term relationship. We started this firm in 2003, some of our early clients had barely survived the dotcom bust of 2001-2 and were concerned about how to add new customers: we’ve “seen this movie before” and understand how to help you spot the opportunities that are available.
November 19th, 2008
“Less is More.” Robert Browning
(often attributed to Ludwig Mies van der Rohe)
“Less is Often More.” Christoph Martin Wieland
I see so many blog posts lately about how to do more with less. I get announcements for events on how to do more with less. It’s always seems like a good idea.
I don’t think it’s possible in a downturn if you have already been paying attention to your personal and team productivity.
Startups survive because they can live on the scraps of a market (a niche) that larger competitors ignore or would be unable to pursue profitably. This is doing less with less.
The trick is to minimize the amount of wasted effort. The challenge is to launch new initiatives and projects that build on existing relationships, knowledge, and successes. I was not a huge fan of dogster as a business because I had felt that the founders had been fundamentally unserious. But I was extremely impressed by a post on their blog “10 Tips for Building a Profitable Business.” Some key points:
1. If being a business person is not your goal find a business partner immediately. Without someone on the team that relishes sourcing customers, closing revenue deals, perfecting sales messages, it will always be an afterthought.
I have seen it happen too many times that a technical team believes that they can invent their way out of a problem. If you have a customer you can be extremely inventive. But if you don’t have customer interest it’s difficult. Or it’s not yet the right time to give consideration to the business model. You can have a sequence of models you may want to try, but I think you have to have a plan for how you will make a profit before you found a firm.
2. Consult anyone you know that has run a earnings-based business (VC funded companies are rarely helpful here). The concerns of a restauranteur, law firm, or even landscapers are entirely applicable when it comes to long-term strategies for profitability. Anyone running a business for years will know volumes about hiring, cash flow, and compensation.
I think is overly broad, in particular software and Internet companies have a very different physics from manufacturing and retail businesses but have a lot in common with service businesses. But it always helps to compare notes on the nuts and bolts of running an earnings based business. This is one of the advantages of Bootstrappers Breakfasts as well you have a chance kibitz with other entrepreneurs who are focused on organic business growth based on customer revenue (vs. how to raise (another) investment round).
7. Don’t lie to yourself. We find a lot of entrepreneurs practice their elevator and investor pitches for so long they believe their rosy sounding forecasts are actually going to happen. The only thing you know is what you’ve proven. Everything else are items that still need to be proven or listed as false starts. While it’s important to strive for the big potential, it’s critical you protect yourself against the much more likely realities.
This is extremely difficult. Entrepreneurs are naturally optimistic. Russell Ackoff’s “decision record” methodology is a great way to calibrate you and your team’s ability to plan and forecast. When you make a decision have everyone write down what they believe the likely outcome will be in what time frame. Collect what they have written so that there is a record. Check back every week, month, or quarter depending upon the scope of the decision. When you compare what actually happened with your prediction it allows you to get better at appreciating the likely impact of decisions that don’t have fast feedback.
One of the real risks of “doing more with less” is that you are tempted to try new things–many new things–as the one roll of the dice that will solve this month’s problems (or this quarter’s or this years). I have seen a number of teams succumb to a plan based on an untried method or technology and embrace it by “testing the depth with both feet.”
Another variant of doing more with less is taking advice from venture capitalists about how to stretch your funding instead of raising another round. I blogged about this in “Save $189 On Your Next Breakfast”
When you are invited to a roundtable on “How to Manage the Downturn” that’s held at the Stanford Park Hotel in Menlo Park and put on by folks who until recently were focused on “get big fast” you have to wonder. It’s unusual to have to spend $189 to get advice from a VC in a crowded room.
That same $189 will pay for more than a year of breakfasts at the restaurants where we meet, and you can compare notes with other entrepreneurs who understood how to manage their cash flow before it was trendy.
One of the key pieces of advice John Doerr is reported to have offered at the event was
“Renegotiate any contracts that you can. Everything is negotiable.”
Doing less with less. That’s our plan for 2009-10. Kill the initiatives that aren’t working, experiment cautiously, and be as careful of our social capital as our fiscal capital.
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