An entrepreneur who succumbs to the illusion of progress does a startup more self-inflicted damage than almost anything else. Working on the wrong things squanders effort and irreplaceable time without gaining the learning needed for the actual efforts required.
Just One More Thing–A True Story
The following is a true story. I have not given the name of the co-worker because it’s not germane. But the situation was a real one, Ogden Lilly did help him, and the email is quoted verbatim except for the removal of some identifying words and phrases.
A few years ago I met with a former co-worker who wanted to talk about an idea he had for a new business. He had strong experience in networking and customer service and he had an idea for an approach to dynamic provisioning of network services that was interesting and would likely address an emerging need. We had had lunch together and as we were wrapping up he said, “Oh, there’s just one more thing. The I am shutting down another startup I did and the IRS has challenged me on writing off my capital investment because they claim it was a hobby and not a business. They have filed paperwork to seize my house and other assets.”
We talked for another half hour and it was clear that he had been serious about the startup but unsuccessful and he had invested about $500,000 of his own money. He was a talented engineer but not much of a negotiator and he was having trouble presenting his situation accurately to the IRS auditors. I said, “I have just the guy you should talk to: Ogden Lilly at Boitano Sargent and Lilly. Let me call him and see if he has time this afternoon for a get acquainted conversation.”
I called Ogden and explained the situation and he said we could stop by toward the end of the day for a face to face. Ogden helped my former co-worker to organize a presentation of his business and reasons for his expenses and went with him to the next meeting with the IRS. They agreed it had been a business and stopped trying to take his house and empty his bank account, and he lost interest in doing another startup.
Don’t Reorganize Before You Have Flow
The core mistake that nearly bankrupted him was to worry not being able to meet demand profitably, but assuming the demand. He developed a basic product and then decided to develop a family of products around it and have inventory ready to ship before trying to go to market. There were similar products and so he felt that demand was assured. In the end he was holding several hundred thousand dollars of inventory and paying for storage and other related costs, but he had exhausted his funds could not pay for any kind of marketing. The underlying reality was that there might have been some demand for his basic offering but by not testing the market with just that, and instead polishing and expanding and reorganizing his family of products he suffered the illusion of progress.
I saw a similar thing happen with another startup that built 500 of a physical product and had them in inventory. They were managed by a very sharp MBA in with several decades of practical financial and cost management experience. I suggested she give two or three dozen away to see if she could determine real user feedback and where there might be the most uptake, but she was concerned that it would ruin her margins. But she was carrying about $40,000 in inventory and another $40,000 in design and one time startup costs that were all at sunk and at risk of being unrecoverable.
It’s an easy trap to fall into, especially with a first product where you have worked for very successful companies that had solved the early market exploration, value proposition, and demand generation problems before you arrived. It’s easy to optimize what you can see and challenging to represent–and therefore refine–your ignorance of where the market is if you started with a very clear vision of a solution to a problem you had.
The Illusion of Progress
A few years later my former co-worker sent me an e-mail out of the blue to let me know what he was up to.
You gave me a good number of pieces of utterly sound advice. And a few colorful and vivid expressions I’ll never forget.
- Don’t tell me your business plan if you’re pissing blood.
- You can’t get enough of what you don’t need.
- Re-organizing gives you the illusion of progress
It was a few years ago when we last spoke, and it didn’t end the way I was hoping it was going to end. Yet you helped me get my taxes straightened out, and my life straightened out. That’s a debt I can never really repay.
I may not have seemed to appreciate it at the time, yet over the years I have truly appreciated your advice and counsel more and more.
When he told me that he was facing bankruptcy–although he didn’t put it quite that way initially–I had been preparing to leave the table and get back to work. It took me a few seconds to realize what he had said and I asked him several different ways about the situation to make sure I had understood him correctly. We then spent about 30 minutes backtracking over his current business to walk around the cash flow and other aspects of his contractual commitments.
It was at that point I remarked, “Don’t tell me your business plan if you’re pissing blood.” It’s not a phrase I use often but I was pretty shocked we had spent more than an hour looking forward when he had serious problems today.
“The permanent misfits are those who because of a lack of talent or some irreparable defect in body or mind cannot do the one thing for which their whole being craves. No achievement, however spectacular, in other fields can give them a sense of fulfillment. Whatever they undertake becomes a passionate pursuit; but they never arrive, never pause. They demonstrate the fact that we can never have enough of that which we really do not want, and that we run fastest and farthest when we run from ourselves.”
Eric Hoffer in “The True Believer” (“Misfits” chapter)
I think this is spot on for some “builders” and “managers” who cannot talk to prospects to find out what they will pay for. A viable product is rarely like a work of art, the pure result of personal insight and expression. Instead it flows from conversation and negotiation and feedback from prospects and customers.
Charlton Ogburn on “Illusion of Progress”
I cannot actually take credit for the “illusion of progress” quote, I had seen a quote on a handmade poster (laser printed on an 8.5 x 11″ piece of paper pasted in landscape orientation on the side of an application engineer’s cubicle wall at Silvar-Lisco in the early 80’s) but credited to Petronius Arbiter.
“We trained hard, but it seemed that every time we were beginning to form up into teams we would be reorganized. Presumably the plans for our employment were being changed. I was to learn later in life that, perhaps because we are so good at organizing, we tend as a nation to meet any new situation by reorganizing; and a wonderful method it can be for creating the illusion of progress while producing confusion, inefficiency and demoralization.”
Charlton Ogburn (1911–1998) from “Merrill’s Marauders: The truth about an incredible adventure” in the January 1957 issue of Harper’s Magazine