Archive for July, 2011

Quotes For Entrepreneurs–July 2011

Written by Sean Murphy. Posted in Quotes, skmurphy

You can follow @skmurphy to get these hot off the mojo wire or wait until the end of the month when they are collected on the blog. Enter your E-mail if you would like Feedburner to deliver new blog posts to your inbox.

+ + +

“We improve ourselves by victories over our self. There must be contests and we must win.”
Edward Gibbon

+ + +

“Diogenes once begged alms of a statue. When asked why he replied, “To get practice in being refused.”
Diogenes Laertius

+ + +

“Those who set out to serve both God and Mammon soon discover that there is no God.”
Logan Pearsall Smith in “After Thoughts”

+ + +

“Quality is not what the supplier puts in. It is what the customer gets out and is willing to pay for.”
Peter Drucker

+ + +

Marketing Physics:

  1. Overt Benefit
  2. Real Reason to Believe.
  3. Dramatic Difference

Doug Hall in “Jumpstart Your Business Brain”

+ + +

“Reading a scientific article isn’t the same as reading a detective story. We want to know from the start that the butler did it.”
O.D. Ratnoff

+ + +

“Civilization advances by extending the number of operations we can perform without thinking about them.” Alfred North Whitehead in An Introduction to Mathematics

quoted in Tony Schwartz’s “The Only Way to Get Important Things Done” via Attention Management blog. More context:

It is a profoundly erroneous truism, repeated by all copy books and by eminent people when they are making speeches, that we should cultivate the habit of thinking of what we are doing. The precise opposite is the case. Civilization advances by extending the number of important operations which we can perform without thinking about them.
Alfred North Whitehead in An Introduction to Mathematics

+ + +

“You’re competing against people in a state of flow, people who are truly committed, people who care deeply about the outcome.”
Seth Godin in “Texting While Working

+ + +

“The brain processes meaning before detail.”
John Medina in “Brain Rules

More context:

The brain processes meaning before detail. Providing the gist, the core concept, first was like giving a thirsty person a tall glass of water. And the brain likes hierarchy. Starting with general concepts naturally leads to explaining information in a hierarchical fashion. You have to do the general idea first. And then you will see that 40 percent improvement in understanding.

+ + +

“Attack the differentiation problem at the right layer, reinventing from the bottom may be more effort than is necessary.”
Sean Murphy

Discovered in an old e-mail.

+ + +

“Solvency is entirely a matter of temperament.”
Logan Pearsall Smith

One of the six quotes in “Six Afterthoughts for Entrepreneurs by Logan Pearsall Smith

+ + +

“Best strategy used to be ready, aim, fire. Now the best strategy is ready, fire, steer.”
Paul Saffo in How To Mobilize The New Players on the Field by Richard Edelman

I used this quote in “Paul Saffo: Best Strategy is Ready Fire Steer

+ + +

“Why would I invite my friends to sign-up, when I haven’t even tested it out first?”
Takara Swoopes Bullock in “I’ve Notice a Major Flaw in Coming Soon Pages

+ + +

Permission marketing: anticipated, personal and relevant messages delivered to people who actually want to get them.
Seth Godin in “E-Mail Checklist, Maybe This Time It Will Work

+ + +

What’s scarce? Good ideas, not just fast ones. Shipping the good ideas. Finding the spot where uncomfortable meets important.
Seth Godin “Has the Speed Shortage Been Averted?

+ + +

Marketing encompasses the entire business. It is the whole business seen from the point of view of the customer.
Peter Drucker

More context (suggested in a comment from Brad Pierce on “The Deformation Professionelle of the Software Entrepreneur):

“Marketing is not only much broader than selling, it is not a specialized activity at all. It encompasses the entire business. It is the whole business seen from the point of view of the final result, that is, from the customer’s point of view. Concern and responsibility for marketing must therefore permeate all areas of the enterprise.”

It’s from Drucker’s “The Practice of Management,” Pierce offered it as context for Drucker’s definition of the basic functions of a business in “Management: Tasks, Responsibilities, and Practices” :

“Because the purpose of business is to create and keep a customer, the business enterprise has two–and only two–basic functions: marketing and innovation. Marketing and innovation produce results; all the rest are costs. Marketing is the distinguishing, unique function of the business.”

I Heard You Went to Stanford

Written by Sean Murphy. Posted in skmurphy

In my first “real job” out of college (not counting a startup that failed) I worked as a “Staff Consultant” doing statistical loss forecasting and risk analysis. The man who had hired me was fired a few days before I started but his attorney had negotiated a settlement that left him in place for about nine months. It made for a certain amount of tension in the office.

When I showed up for work the first day he greeted me warmly and said “There’s been a change in plan. You will be working for Dennis.” And over the next two or three days the full situation became clear to me.

I remember coming back into the office at the end of the day my first week and the receptionist said to me “Someone told me that you went to Stanford, is that true?”

Drawing myself up to my full height I say “Why yes, yes I did.”

She looked a little puzzled and said “But I thought you had to be really smart to go to Stanford.”

I thought about it for a few seconds and decided my best answer was, “Well..in my case they decided to make an exception. “

Len Sklar: Be Clear About Payment Terms And Consequences

Written by Sean Murphy. Posted in 2 Open for Business Stage, 3 Early Customer Stage, Consulting Business, Rules of Thumb, skmurphy, Video

Len Sklar, author “The Check is NOT in the Mail“  has spoken several times at Bootstrapper Breakfasts.  Here is a recent talk he gave where he stresses the importance of putting payments terms and the consequences on non-payment in writing, and communicating them in advance, and ensuring that they are understood.

It all seems so obvious but have you actually done this?

The Search for Validation is Baggage, and You Need to Travel Light

Written by Sean Murphy. Posted in Rules of Thumb, skmurphy

Jon Carroll wrote a wonderful column on July 5, 2000 titled “As You Get Older.” The whole thing is worth reading but there is a section that begins “This is your challenge…” that reads like poetry. So I have re-formatted it as blank verse, it contains a number of observations on advice and influence that I try to bear on mind as I get older.

This Is Your Challenge

You have to be so smart
that no one knows how smart you are.
You are playing a different game now.
The game is called “Who was that masked man?”
The masked man was you.
You have left behind the silver epiphany.
You have said the thing that will make it better.
People will get it or they won’t.
As Maimonides teaches,
the best gifts are anonymous.
You can get so much more done
if you don’t worry about credit.
If you haven’t gotten credit already,
you’re not going to get it.
The search for validation is baggage,
and you need to travel light.
You need to remember what you don’t know
and not think of it as a failure.
Think of what you do know.
What you know is not a weapon; it’s a gift.

From “As You Get Older” by Jon Carroll


A note on “As Maimonides teaches, the best gifts are anonymous.”

When I first read this I was unfamiliar with Maimonides, a medieval Jewish scholar who authored “A Guide For the Perplexed” and “The Mishneh Torah” among other works. In his Laws of Charity, 10:7–14 he defines “Eight Levels of Charity.” The highest level is to strengthen a poor person in a manner they are no longer dependent upon charity. The next three levels involve some level of anonymity:

  • giving in a way that donor and recipient are not know to each other, relying on a trusted intermediary,
  • giving in a way that the recipient does not know who the donor is, but the donor knows who the recipient is,
  • giving in a way that donor does not know the recipient but the recipient knows who the donor is

Erecting Barriers to Competition That Are Difficult to Duplicate

Written by Sean Murphy. Posted in 4 Finding your Niche, Rules of Thumb, skmurphy

Competition is inevitable, that is why it’s wise to prepare for it and immunize yourself with difficult to copy differentiation where possible. A pure focus on implementing new features as fast as possible in an effort to outrun the competition is unlikely by itself to be enough. Here are some barriers you can erect that are often difficult to duplicate, or at least duplicate rapidly:

  • Customer satisfaction: customer relationships with a track record of support and evolution in services. Focusing on customer satisfaction erects a barrier an is always a good idea.
  • Proprietary data, info, or know-how that complements functionality
    • Beyond user data, e.g. link data for user relationships that’s “owned” by both users but maintained by the service, for example a LinkedIn Recommendation.
    • Other examples: a custom dictionary or taxonomy, a proprietary set of business rules/logic
    • Partner relationships: Developing key partnerships or other third party relationships that are either explicitly exclusive or effectively exclusive can be both a source of unique value and further differentiation against competitors.
    • Knowledge of  a customer’s future plans and needs:  jointly committed private roadmap helps to maintain alignment. Taking the time to do joint planning with key customers makes you much harder to displace.
    • Network size in network driven businesses: Metcalfe’s Law works in your favor if you are larger (and against you if you are not).

    There are many more: only commodities–products with a fixed spec or non-evolving feature set–are purchased purely on price (and delivery).

    Tangible Costs, Time, and Pricing to Value

    Written by Sean Murphy. Posted in 2 Open for Business Stage

    Amazon’s S3 and AWS platforms, and similar on demand storage and computing services, are becoming increasing popular as core infrastructure for software startups. There is a tendency, because the costs are well defined, to base pricing on “margining up” these services. There are three problems with that:

    1. Does Not Price to Value: you normally want to price to value and use your costs a test for how inviting your pricing will be to the competition.
    2. Ignores Opportunity Cost of Your Time:  in an early stage startup most of your real costs are the opportunity cost of your time and the need to move down the learning curve on a number of key processes (principally sales and new customer bring up).
    3. Immediately Positions You As a Commodity: pricing by margining up commodity services immediately positions you as a commodity and may prematurely shut off your search for creating more value for your customers. Reframe “I cannot charge that much” to “what could I do to create enough value for my customers that they would pay that much.”

    The remedies:

    1. Price to Value:  If you are going to launch a new SaaS product based on Amazon or a similar hosting service I would try and determine what your customers value about your service that is otherwise difficult to obtain or unique (differentiated):
      • What are they doing now to solve the problem? How much is it costing them in time and money?
      • How much risk is there in alternatives? Can you substantially lower the risk (or the variance in outcome)?
    2. Calculate The People Time Needed for Key Tasks:  you need to build a full model of the service that includes the time needed and costs for:
      • executing all the relevant activities needed to make prospects aware of your offering,
      • supporting prospects evaluating your offering,
      • bringing them onboard as customers
      • supporting them as customers,
      • retaining them,
      • turning them into a reference.
    3. Focus on a Niche Where You Offer Premium Value: instead of thinking about charging a lot of people a little, think about who would pay dearly for your service. Focus on them. Targeting a smaller group normally lowers your marketing expense and allows you to laser your message (examples, key benefits, terminology,…) on their situation and benefits.

    Two good books on this issue:

    • Free, Perfect, and Now” by Rob Rodin  which details some of the challenges of competing against others with access to the same basic technologies (somewhat similar to the challenges of margining S3 & AWS:  anyone with a credit card can take a look at your website and decide to leverage Amazon for a similar business.
    • The Strategy and Tactics of Pricing” by Thomas Nagle is the best book that I have read on pricing issues.

    Six From Buster Benson’s “A Few Rules That I Try To Live By”

    Written by Sean Murphy. Posted in Rules of Thumb

    on  Buster Benson’s home page he lists “A few rules that I try to live by.” Here are my top six picks from his list of 17 (the bold wording is Buster’s) with some commentary

    • (2) You must be your word.
      You can’t believe how much time this saves in the long run and how much more carefully you make commitments and keep them.
    • (6) You must have a vision that you are striving for.
      Strangely this was easier when I was younger.  I used to be much more effective at setting nine to 18 month goals that would provide a context for quarterly, weekly, and daily goals. I still believe in the importance of vision, it just seems much much harder.
    • (7) You must tie creativity and experimentation with survival.
      I would phrase this, at least for myself, as “remember that creativity and experimentation are required for survival.” I sometimes fall into the trap that I am just one more change away from “Easy Street” or that next year will be easier. I think you have to keep raising the bar against yourself before someone else raises it while you are resting.
    • (8) You must be the change you want to see.
      Whether it’s meeting with prospects, serving customers, taking part in your community, raising children, your example speaks louder than anything you can say.
    • (11) You must be comfortable with the consequences of being who you are.
      Or you have to change who you are to avoid the logical consequences of your decisions, habits, and character.
    • (15) You must study your mistakes.
      For “thoughtful mistakes” I think this starts with writing down the expected outcomes of your decisions and admitting when things didn’t work out as you planned. Thoughtless mistakes should encourage you to be more thoughtful. The flip side to this, which I think is equally important, is to count your blessings and write thank you notes. Correct the wrongs you have done others and focus on the good that has come from past interactions.

    Hat tip to Charlie Parks for pointing this out to me.

    Rehearsal

    Written by Sean Murphy. Posted in Rules of Thumb, skmurphy

    “Proper Prior Preparation Prevents Poor Performance”
    A variation on the 7P British Army Adage

    Clients are surprised at the amount of rehearsal we encourage.  It’s because we have learned the hard way how rare and difficult a thing it is to successfully recover from a poor public presentation or a poorly delivered sales pitch.

    A couple of things tend to get in the way of rehearsal:

    • Time management: you need to make time not only to get the presentation ready but additional time to rehearse and revise. Go ugly early, start well in advance from a rough outline and talk it through. You can revise and improve as you go.
    • I know the material, rehearsal a waste of time: this can be valid if you have given the talk before and gotten satisfactory or better results.  One dry run is probably still advisable if it’s an important opportunity.
    • I like to wing it, I am better at improvising: even here role playing the Q&A portion as well as possible objections to a sales pitch can pay big dividends.
    • Worry: I know it’s not going to go well and I just want to get it over with.  Take a break, go for a walk, consider if there are deeper concerns than the presentation. If you cannot rehearse because you are convinced it’s not going to go well then cancel the presentation and save everyone’s time.

    Obviously you can have too much of a good thing, but at least one or two rehearsals of an important presentation can pay huge dividends.

    Venkatesh Rao Thought Provoking on Tempo at Bootstrapper Breakfast

    Written by Sean Murphy. Posted in Books, Events, skmurphy

    Tempo Book
    We had Venkatesh Rao, author of “Tempo“, and blogger at RibbonFarm as  guest at today’s Bootstrapper Breakfast.

    He has had an eclectic career: between 1997 and 2011, he pursued a traditional research/entrepreneurial career (a PhD, a postdoc, a startup, and an industrial R&D lab where among other things, he founded trailmeme.com as Entrenrepeur-in-Residence at Xerox).

    He gave  a shorter and more interactive version of his recent SoCAL Lean Meetup Talk.

    He made an interesting point about the OODA Loop that I hope he will elaborate on in the Book Club panel next week. Disruption is related to the concept of operating inside an opponents tempo. It’s not about moving faster or iterating faster. He used an analogy Mr. Miyagi from the Karate Kid movie, one of his moves was as powerful as 10 of Daniel’s moves, because he took the right action at the right time.

    Related


    Catch Venkat on our “OODA Loop”  Wednesday July 27 at Noon: Register with Ribbonfarm discount

    Why We Like Trade Shows

    Written by Sean Murphy. Posted in 2 Open for Business Stage

    If your prospects are accustomed to attending industry trade shows and conferences it’s normally worth exhibiting.

    Trade shows  are one of the few venues where you can sell directly and explicitly and it’s accepted by prospects. If they walk up to your trade show booth they expect a sales pitch. If you give a talk to a group, leave a comment on a forum or someone else’s blog, write an article for a trade publication, or take part in a networking event the normal expectation is that there will be a very low “sales pitch” content.

    We take different bootstrapping startups to tradeshows several time a year because it generates both awareness (attendance at the right shows demonstrates that you are part of an industry) and leads. This awareness will normally echo for a six to twelve months and help to support your credibility as a viable vendor. Your ability to attend appropriate conferences (in markets that rely on trade shows) is a significant health marker in this economy. That does not mean that you have to spend a lot of money on your booth.

    The leads are the results of  face to face conversation where your team can make an active assessment of the prospect. Face to face conversation is the fastest way to build trust and credibility (provided obviously that what you say is true and you follow up on commitments).

    There is a temptation to save money and just to walk the show floor:  treating it as a large networking event. We have done this with clients but they are normally not particularly happy with the results. It allows you to get a sense of the show and the attendees, but it normally doesn’t generate too many leads. It’s hard to be taken seriously in an environment where other vendors are setup in booths.

    If you have a speaking slot on the conference program you should definitely get a booth  so that people can find you before and after the talk.  Otherwise you only have a few minutes immediately before and after the talk to engage in conversation and exchange cards.

    A smaller more targeted conference is often more appropriate and cost effective. Another benefit to a smaller  trade shows is that the booths tend to be all the same size or a large booth may only be 2-3x the basic booth, so the differences between small and large firms are minimized.

    The conference selling environment is very different from the phone or a customer’s office and it’s better to cut your teeth in a smaller venue. Also, one of the most effective things you can display as a young startup is a customer testimonial.

    Another key tool is an engagement checklist and timeline so that if you get asked how much will this cost and when can we be operational you look like you bring customers up all of the time.  Nothing undercuts a successful presentation where a customer says “Wow, when can I have it?” when you answer with a short silence followed by “we are not sure, no one else has ever said yes.” Practice your presentation all the way to implementation planning and bring up or have a next step (e.g. pilot project, on-site visit) that is clearly on the way to finalizing a plan for production use. It also allows you to ask a number of questions to see how serious a prospect is (e.g. if they cannot answer “how are you currently doing X, Y, Z” they may be less serious than they appear).

    Six Afterthoughts From Logan Pearsall Smith For Entrepreneurs

    Written by Sean Murphy. Posted in Quotes

    Logan Pearsall Smith wrote “Afterthoughts” in 1931 but I find his aphorisms timeless.  I selected these six as good advice or perspective for entrepreneurs:

    “The future looms a dark fog before us;  but through it we see the dark eyes of Posterity gazing at us coldly”

    “There are two things to aim at in life: first, to get what you want; and, after that,  to enjoy it. Only the wisest of mankind achieve the second.”

    “Solvency is entirely a matter of temperament.”

    “Only those who get into scrapes with their eyes open can find the safe way out.”

    “Charming people live up to the very edge of their charm, and behave as outrageously as the world will let them.”

    “The test of a vocation is a love of the drudgery it involves.”

    Tony Schwartz’s Principles For Fiercely Complex Times

    Written by Sean Murphy. Posted in skmurphy

    Tony Schwartz offers “Ten Principles For Living in Fiercely Complex Times” that  you can “rely on to make choices that reflect openness, integrity and authenticity.” Here are the top three for me:

    Emotions are contagious, so it pays to know what you’re feeling.

    One of the balancing acts of entrepreneurship is control vs. creative delegation. A commitment to taking personal responsibility and controlling your destiny is essential to getting a startup off the ground. But later on, growth requires effective delegation, which entails a risk of the loss of control.  We talk to entrepreneurs who say they want to grow, but as the conversation progresses it’s clear that they only want to grow their business to the point that they remain in complete control.  A fear of a loss of control, like a fear of heights, is essential to get started.  But it has to be complemented with an ability to trust–business partners, customer feedback, employees, channel partners—or you can only grow the business to  a certain size.

    If you do what you love, the money may or may not follow, but you’ll love what you do.

    The value of what you are able to do determines how much money will follow. Sometimes “do what you love” has become “do what you know” and you find that you have allowed your fears to construct a prison that prevents you from learning new things. New things that you would love  and that would provide more value.

    You can’t change what you don’t notice and not noticing won’t make it go away.

    Here is where good friends, spouses, and outside advisors can help.  Sometimes you know at one level but can’t really admit it to yourself. Other times you don’t know but are glad once you do. And sometimes you don’t want to face the consequences of knowing. If someone is having trouble learning something or facing a situation, don’t offer advice, ask questions and listen to their answers to help them come to terms with what they have to change.

    Narrative Rationality: Be Mindful Of Your Self-Description

    Written by Sean Murphy. Posted in 3 Early Customer Stage, 4 Finding your Niche, skmurphy

    “It is a profoundly erroneous truism, repeated by all copy books and by eminent people when they are making speeches, that we should cultivate the habit of thinking of what we are doing. The precise opposite is the case. Civilization advances by extending the number of important operations which we can perform without thinking about them.”
    Alfred North Whitehead in An Introduction to Mathematics

    Tony Schwartz builds on this in “The Only Way to Get Important Things Done

    The counterintuitive secret to getting things done is to make them more automatic, so they require less energy. It turns out we each have one reservoir of will and discipline, and it gets progressively depleted by any act of conscious self-regulation. [...]

    The proper role for your pre-frontal cortex is to decide what behavior you want to change, design the ritual you’ll undertake, and then get out of the way.  Indeed many great performers aren’t even consciously aware that’s what they’ve done. They’ve built their rituals intuitively.

    I have blogged about the importance of monitoring the story that you tell yourself, suggesting in “Be Careful of How You Tell Yourself ‘The Story So Far’” that an entrepreneur who called himself stubborn and a frequently failing as “persevering and continuing to experiment.”

    To be able to see yourself as persevering it’s useful to remember Eric Hoffer’s advice:

    “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.”


    Related blog posts

    It’s Not Bootstrapped vs. VC

    Written by Sean Murphy. Posted in 2 Open for Business Stage, 5 Scaling Up Stage

    From Hillel Cooperman‘s  “Bootstrapped vs. VC Funded–Who is Likely to Make the Most Money?

    I bet that founders of bootstraps end up earning more money over the long haul out of their businesses than founders of venture-backed firms. The rare IPO may spike the numbers in the other direction, but I’d love to see the reality.

    The question is, at a startup’s formation, is it better to focus on VC or revenue as the way to fund the business. That’s the first choice you get to make.

    I think the odds favor bootstrapping since something like 1 in 200 firms are funded that seek funding without revenue, while somewhere between ten and thirty percent survive five years.

    The next question is: if  you have successfully bootstrapped the firm to a reasonable plateau that’s sustainable, do you spend time seeking outside investment or continue to grow based on revenue. Here there are a number of factors that make it a much more case by case decision:

    • competitive landscape
    • addressable market size
    • use of funds (do you have a reliable model for generating demand)
    • do the founders have the desire to grow the business to be able offer investors an acceptable return

    A Simple Sales Schema

    Written by Sean Murphy. Posted in skmurphy

    A schema is a conceptual model that offers an organizing principle for how business buyers evaluate and purchase. The challenge is to match your sales effort to where they are in the process.

    Doug Hall’s
    Three Laws of
    Marketing Physics
    Jerry Weissman’s
    Power Presentations
    John Boyd’s
    OODA Loop
    Simple Schema
    1. Overt Benefit Understand Observe (Orient) Ensure prospect has a problem you can address, explain the benefits of your solution.
    2. Real Reason to Believe Believe Decide Offer testimonials, references, other proof of your benefits.
    3. Dramatic Difference Act Act Identify a trigger or event, explain a substantial difference from status quo.

    See also

    Reminder: Book Club July 13 Community of Practice

    Written by Sean Murphy. Posted in skmurphy

    Book Club For Business ImpactThe Book Club for Business Impact looks at “Communities of Practice” Wed-Jul-13 from Noon to 1pm PDT. I think the key difference between social networks, communities of interest, and communities of practice is that a community of practice has a focus on shared learning. Entrepreneurs of all sorts should consider taking part in communities of practice devoted to entrepreneurship like the Bootstrappers Breakfast.

    B2B entrepreneurs will often find that early adopters for their product are often members of the same community of practice or that there is an informal community of practice overlaid on the formal hierarchy of a prospect business, and they they need to take part in that community to be effective at customer discovery, customer validation, or customer creation depending upon where their startup is in its life cycle.

    “Communities of practice are groups of people who share a concern or passion for something they do and learn how to do it better as they interact regularly.”
    Etienne Wenger

    Cultivating Communities of Practice We will be discussing  “Principles for Cultivating Communities of Practice” (an excerpt from the book “Cultivating Communities of Practice“) with the following panel:

    • Dave Horner, CEO Silicon Ridge, Inc.
    • Matt Childs, CEO DreamSimplicity, Inc.
    • Francis Adanza, Leadformix, Inc.
    • Sean Murphy, SKMurphy, Inc.

    Background reading

    I think it will be an interesting discussion; I hope you can take part.


    Update July 14: We covered a number of useful tips for entrepreneurs. Dave Horner  made the most memorable point for me, reminding entrepreneurs of with a quote from Bill Joy that “the smartest people work somewhere else” that you need to join and become active in the right communities if you want to take advantage of their knowledge and insights for your startup.

    signupView the recorded session
    Complete SKMurphy’s book club list
    Remind me of upcoming events

    A Nicely Furnished Room In A House That’s Burning Down

    Written by Sean Murphy. Posted in 2 Open for Business Stage, Silicon Valley, skmurphy

    Silicon Valley is a nicely furnished room in a house that’s burning down, the state of California.

    From Joseph Vranich‘s blog “CA Business Departures Increasing–Now 5x 2009” June 20, 2011.

    • From Jan. 1 of this year through this morning, June 16, we have had 129 disinvestment events occur, an average of 5.4 per week.
    • For all of last year, we saw an average of 3.9 events per week.
    • Comparing this year thus far with 2009, when the total was 51 events, essentially averaging 1 per week, our rate today is more than 5 times what it was then.

    The same tracking system has been in place throughout the three-year period.

    The top five destinations are (1) Texas, (2) Arizona, (3) Colorado, (4) Nevada and Utah tied; and (5) Virginia and North Carolina tied.

    Our losses are occurring at an accelerated rate. Also, no one knows the real level of activity because smaller companies are not required to file layoff notices with the state. A conservative estimate is that only 1 out of 5 company departures becomes public knowledge, which means California may suffer more than 1,000 disinvestment events this year. The capital directed to out-of-state or out-of-country, while difficult to calculate, is nonetheless in the billions of dollars.

    From Joel Kotkin’s “The Golden State’s War on Itself” in  the Summer 2010 issue of  City Journal:

    California has long been a destination for those seeking a better place to live. For most of its history, the state enacted sensible policies that created one of the wealthiest and most innovative economies in human history.  [...]

    Recently, though, the dream has been evaporating. Between 2003 and 2007, California state and local government spending grew 31 percent, even as the state’s population grew just 5 percent. [...]

    Since the financial crisis began in 2008, the state has fared even worse. Last year, California personal income fell 2.5 percent, the first such fall since the Great Depression and well below the 1.7 percent drop for the rest of the country. Unemployment may be starting to ebb nationwide, but not in California, where it approaches 13 percent, among the highest rates in the nation. [...]

    Silicon Valley, for instance—despite the celebrated success of Google and Apple—has 130,000 fewer jobs now than it had a decade ago, with office vacancy above 20 percent. [...]

    And Cisco, whose fortunes rose supplying the “picks and shovels” of the Internet revolution plans to shed 10,000 employees, or about 14% of its workforce by laying off 7,000 and getting 3,000 to accept early retirement according to a report by Ashlee Vance “Cisco said to plan cutting up to 10,000 to buoy profit

    Cisco Systems Inc. (CSCO), the largest networking-equipment company, may cut as many as 10,000 jobs, or about 14 percent of its workforce, to revive profit growth, according to two people familiar with the plans.

    The cuts include as many as 7,000 jobs that would be eliminated by the end of August, said the people, who asked not to be identified because the plans aren’t final. Cisco is also providing early-retirement packages to about 3,000 workers who accepted buyouts, the people said.

    And Joint Venture Silicon Valley noted on Valentines Day 2011 that “Structural flaws in local government budget threaten to sabotage the regions gains.

    A growing crisis in state and local government finance is undermining the economic recovery in Silicon Valley, according to the 2011 Silicon Valley Index released today by Joint Venture: Silicon Valley Network and Silicon Valley Community Foundation.

    The comprehensive yearly study on the economic strength and overall health of Silicon Valley shows signs of a slow comeback from the deep recession, but it also reveals a precarious road ahead for cities, towns and counties in the region as public revenue drops while the demand for services climbs.

    “Silicon Valley’s economy is making slow but noticeable progress recovering from the major blow delivered by the recession,” said Russell Hancock, CEO of Joint Venture, “but unless we address the fundamental structural issues in our local governments we cannot sustain continued growth.”

    As entrepreneurs we have to identify and pursue the opportunities that are available, not lament the loss of earlier ones we may not have taken full advantage of.   But I wonder if we paid a  little more attention to local and state government policies and decisions, it might pay a significant dividend in improvements to the economic environment that is the necessary platform for our new business efforts.


    Update July 14: I have reflected on this post and realized how difficult it can be to restrict your focus to those issues you can control or at least affect. As Stephen Covey points in “7 Habits of Highly Effective People” under the first habit of “Be Proactive” your circle of awareness is much larger than your circle of influence.

    It’s not my intent to start a political discussion or to to start a round of “Ain’t it Awful” but I worry that these structural issues were identified by independent observers with a stake in California’s ongoing economic prosperity, not people trying to complain or generate page views. I take them very seriously. I worry that the challenges they have identified will not be easy to address much less fix, and that for the most part the situation continues to deteriorate. Without thoughtful and concerted action a new equilibrium may be reached that looks closer to today’s Michigan than the California of the last few decades.

    Update Sep-24-2012: a report from the Manhattan Institute,  “The Great California Exodus: A Closer Look“, by Tom Gray and Robert Scardamalia documents a migration of 3.4 million residents out of the state since 1990. Some excerpts:

    Executive Summary

    For decades after World War II, California was a destination for Americans in search of a better life. In many people’s minds, it was the state with more jobs, more space, more sunlight, and more opportunity. They voted with their feet, and California grew spectacularly (its population increased by 137 percent between 1960 and 2010). However, this golden age of migration into the state is over. For the past two decades, California has been sending more people to other American states than it receives from them. Since 1990, the state has lost nearly 3.4 million residents through this migration.

    This study describes the great ongoing California exodus, using data from the Census, the Internal Revenue Service, the state’s Department of Finance, the Bureau of Labor Statistics, the Federal Housing Finance Agency, and other sources. We map in detail where in California the migrants come from, and where they go when they leave the state. We then analyze the data to determine the likely causes of California’s decline and the lessons that its decline holds for other states.

    The data show a pattern of movement over the past decade from California mainly to states in the western and southern U.S.: Texas, Nevada, and Arizona, in that order, are the top magnet states. Oregon, Washington, Colorado, Idaho, and Utah follow. Rounding out the top ten are two southern states: Georgia and South Carolina.

    Conclusion

    California has an opportunity deficit that shows up in its employment data and its migration statistics. We can understand the nature of that deficit clearly when we compare the Golden State with those that lure its residents away. In such a comparison, as we have seen, one fact leaps out: living and doing business in California are more expensive than in the states that draw Californians to migrate. Taxes are not the only reason for this, but we have highlighted their effect because taxes—unlike rents, home prices, wages, or electric bills—can be changed through sheer political willpower.

    California has cut taxes in the past, most dramatically with 1978’s Proposition 13, and when it has done so, prosperity has followed. Ballot propositions this November aim to do the reverse, raising taxes on business owners while the state is still struggling to hold its own against more aggressive, confident rivals. The results will send a strong signal, whichever way they go: the state’s voters will be deciding to continue on the path of high taxes and high costs—or to make a break with the recent trend of decline.

    In the meantime, California’s leaders are not powerless to stem the state’s declining appeal. For example, they certainly can do something about the instability of public-sector finances, which is likely one of the key factors pushing businesses and people toward other states. They can also rethink regulations that hold back business expansion and cost employers time and money. And though there is no changing the fact that California is more crowded than it used to be and is no longer as cheap a place to live as it once was, policies can make the state more livable. One reason that land is costly now is that much of it is placed off-limits to development. Spending on transportation projects where they are really needed—in congested cities—can ease life on freeways that now resemble parking lots.

    California’s economy remains diverse and dynamic; it has not yet gone the way of Detroit. It still produces plenty of wealth that can be tapped by state and local governments. Tapping that private wealth more wisely and frugally can go far to keep more of it from leaving.

    What Are Your Stable Browser Tabs?

    Written by Sean Murphy. Posted in Tools for Startups

    I was rummaging around in Mr. Google’s basement–you can get lost done there in a maze of bright and shiny objects if you are not careful–and I came across this quote by Justin Rosenstein in “How is Asana’s Beta Going” (I am not using nor contemplating using Asana but it’s the next part you should pay attention to):

    While getting there sometimes requires a learning curve, once users fully adopt Asana, they really love it, use it every day, devote a stable browser tab to it alongside their email and calendars, and are very disgruntled if it goes down even briefly.  We’ve taken this as strong validation for the product’s vision and early direction.

    I think that’s a great test for a category of product: does it become so important that you launch it when you start your browser and leave it logged in all day.  Here are my stable browser tabs:

    • GMAIL
    • Central Desktop
    • Webex Office
    • LinkedIn
    • News.Ycombinator

    What are yours?

    How Long is a Piece of String

    Written by Sean Murphy. Posted in skmurphy

    Q: How long is a piece of string?
    A: It depends.

    If you are asking for help

    • Be clear on the problem you are trying to solve.
    • Outline what you have done to date to attempt to solve it.
    • Explain the context of your situation, any constraints, outcomes to be avoided, or other relevant background information.

    When I started out at Cisco in 1990 it was a part of the culture that a request for help or question that was too vague or poorly specified would be answered with “How long is a piece of string?”

    A more polite, and more directly useful, response is “What is the problem you are trying to solve?”

    But “How long is a piece of string” has a Zen koan like quality that can be more useful in some instances.  A similar answer is “Mu“, meaning “unask the question” where questioner is clearly on the wrong track and needs to back up a few steps and reconsider their approach to the root problem.

    “The past is rich in lessons from which we would greatly profit except that the present is always so full of Special Circumstances.”
    Mignon McLaughlin

    When Do I Need a Model? I am Bootstrapping

    Written by Sean Murphy. Posted in 1 Idea Stage, 2 Open for Business Stage, skmurphy

    Open For Business I have condensed this from a recent series of conversation with bootstrapping entrepreneur. I thought it captured many of the key questions that you need to be consider once you are “open for business.”

    Bootstrapping  Entrepreneur: I am just getting started on a new project. I have several advisors and one has suggested that I build a complete financial model to get a good idea of my cost structure. He supplied me with a list of questions that look to me like an A round presentation checklist. I am not sure that I agree with this approach, I would prefer to get launched and see what I can learn.

    Sean Murphy: Your advisor may be on auto-pilot giving you “eat your beets” guidance about the need for a rigorous financial model, in which case you should defer 90% of the effort until you have more proof of interest. It’s possible that he has already reached the conclusion that you do have a market and are likely fundable. Ask him directly and if it’s the second case ask him what data, events, or indications he is looking at. 

    Bootstrapping  Entrepreneur: I understand that it’s useful to think things through but I should be clear what stage we are:  the fundamental question of whether people will pay for our solution has not yet been answered. We are bootstrapping and building a prototype to see if anybody cares.

    Sean Murphy: Building a prototype and getting feedback on it is a great idea. What model are you using to keep your team–and spouses and significant others–in the loop as to the state of the business. The startup deathclock is probably a little too simplistic.

    Bootstrapping Entrepreneur: We are using QuickBooks to keep track of expenses. We are at the “no salaries, no office, just founders putting time in ” stage.

    Sean Murphy: Are you “open for business?” If someone likes the prototype can you take their money? Also, it sounds like you are steering by looking in your rear view mirror, what kind of plan are you working to?

    Bootstrapping Entrepreneur:  We are incorporated, we have a bank account. The founders have kicked in seed funding to cover expenses. But I’ve never seen an early financial model whose projections were worth anything  when compared with actual numbers. It bothers me to make stuff up.

    Sean Murphy: Are you able to set goals and hit them? Do you have a list of what everyone needs to get done this week? This month? It sounds like how folks are spending their time is the most significant resource allocation issue over the next few months. I am not talking about time sheets and hourly accounting, but you have to be able to scope efforts and hit intermediate milestones. How well are you tracking against your expectations?

    Bootstrapping Entrepreneur: coding and release milestones are on track, whether anyone will pay for the product is what is keeping me up at nights.

    Sean Murphy: How many folks have you talked to in the last week or so? What has their reaction been? Do you have a list of twenty to thirty people you can approach and get their feedback? If you don’t: call in some favors and find prospects to talk to. Or last least talk to people who are knowledgeable about the problem you are attempting to solve.

    Bootstrapping Entrepreneur: We have only talked to one person in the last two weeks. I plan to E-Mail  a woman I used to work with and see if she can help us clarify whether our solution is going to be able to help.

    Sean Murphy: That’s a start. I think you have to talk a few people each work, some old friends and some who are friends of friends, perhaps even a few strangers who have been recommended to you.  I would try and build a very simple model that identifies the critical numbers driving the health of your business. Here are a couple of suggestions but yours but it’s a function of your unique business needs:

    • First time sales calls
    • Active prospects
    • Revenue
    • References – Every customer should be a reference.
    Thanks for you time.

    Quick Links

    Bootstrappers Breakfast Link Startup Stages Clients In the News Upcoming Events Office Hours Button