So you want to launch a business...

My sentiments, exactly

2012-08-27T09:18:46-04:00

I was truly impressed...

A friend recently sent me a link to a powerful essay on the state of the world of start-ups. It is so powerful, and so carefully crafted, that I prefer not to offer you sound-bite tidbits from it. Instead, I urge you to read it yourself - HERE.

There is value in it for everybody in the start-up world: entrepreneurs, investors, dreamers, coders, and commentators.

And when you finish with that, you may want to re-visit "boring stuff that people actually need."

I personally find no reason to admire nor desire to emulate fortunes made in mindless electronic time-wasting and heartless financial arbitrage. They are both selfish drains on the social and economic fabric of the entire globe.

I prefer enterprises with actual hearts, rather than cheesy red icons.

A new option - recreational entrepreneurship

2011-09-26T14:22:17-04:00

They are everywhere - in dorm rooms, coffee houses, family rooms, basements, and even corporate cubicles. They enjoy regular meals and have a pleasant place to sleep, courtesy of a paying job or loving parents. But they read Techcrunch and dream of financial independence. Have laptop, can code.

They are the recreational entrepreneurs, and they are all participating in the web/mobile app lottery.

Recreational? Lottery?

Let's examine this phenomenon more closely. The cost of entry is low. The range of payoff is broad, from nothing to millions. Hundreds of thousands, perhaps millions, of people are playing. That really does sound like a lottery, doesn't it? And most of the players are not being paid for the time they spend camped in front of the computers with which they have a passionate relationship.That sounds like recreation.

Hobby farmers have no delusions about making any money, except perhaps on the appreciation of their land. It's a way to re-connect with the earth. Beach-combers with metal detectors don't really expect to turn up any pirate treasures. It's a pleasant way to stay "in the moment." But part-time app developers tend to harbor the strong belief that their brain-child will be the next multi-million dollar acquisition announced by Google. They are inventing something of presumed value, in anticipation of a significant financial payoff. In that sense, they are definitely behaving in an entrepreneurial manner.

Before the 21st century and the internet, the closest thing we had to this form of behavior was exhibited by writers, poets, and graphic artists, all passionate, most toiling at some other profession in order to eat regularly while they waited to be discovered and published. But even when they did "make it," the payoff was relatively modest by comparison to those we see today. The "reach" was simply insufficient to generate millions of dollars in value; and they all knew it. They were working for their own satisfaction, not with dreams of financial independence.

My, how times have changed.

Who really likes Silicon Valley?

2011-08-19T15:27:19-04:00

Attention economic development professionals!!

I encourage you to abandon talk of your town becoming another Silicon Valley.

There is grave danger to be considered when attempting to emulate an anomaly. First of all, it won't work anyway. The convergence of forces that created the icon cannot be replicated.

As if that wasn't reason enough, it also turns out that companies that make investors obscenely wealthy do not necessarily create livable cities and towns, even for the people who work in those go-go high-profile enterprises.

According to focus.com, the lifestyle provided by a $92,000 high-tech compensation package in Silicon Valley can be had for $47,000 in Philadelphia, and only $38,000 in Knoxville, Tennessee. Home prices in Silicon Valley run 191% of the national average. Just imagine what it must be like to earn only a "normal" wage in that technological tinsel town.

Now it is true that the weather is good around San Francisco. So is the wine. But the overall socio-economic situation is far from blissful - unless you like urban congestion and think $500,000 for a 1000 square-foot fixer-upper is a great real estate deal.

If you are a budding techno-entrepreneur looking for a cool place to live and grow a company, you might want to take a closer look at Knoxville, TN, and Madison, WI, and Blacksburg, VA and Columbia, MO, and Fort Collins, CO, and all the other out-of-the-way university towns with great lifestyle features and low costs of living. You can make your investment dollars go more than twice as far in any one of those very pleasant, high-culture, family-friendly spots.

Oh, and by the way, they all have high-speed internet access, too. And no earthquakes.

I'm just sayin'...

There's real money in beans and shovels

2011-08-10T10:50:37-04:00

When I think about the vast investment of talent and energy currently concentrated on social media, I immediately think about the great California gold rush of 1849. An army of energetic, determined dreamers rushed to the Sierras with the common purpose of striking it rich. They bet what meager savings they might have had on beans and shovels, so they could stand shoulder to shoulder digging for seductive, but elusive, wealth. Anybody who could dig and pan could give it a shot.

A few made some real money. A few more escaped healthy, having only lost the year or two they invested. Most were financially ruined. And many died in the quest for instant riches.

The ones who profited most from the gold rush fell roughly into two categories: speculators who financed a stable of prospectors, providing a "grub stake" for a large share of any profits; and those who supplied the beans and shovels.

Today an army of bright, talented young people are searching for gold in the social media craze. It doesn't seem to matter to them that only a very few of the thousands of start-ups actually manage to sell out to Google or Yahoo for a few million dollars. They have what the old-timers called gold fever. And, as before, it's an open field. Anybody who can code a little can launch a website or create an app.

The parallel is inescapable. Wealthy angel and venture investors speculate via subsistence-level grub stakes to a highly filtered minority of the prospectors, well aware that only a very few of them will even survive as businesses, let alone prosper. Cloud hosts, developmental software suppliers, and pizza parlors provide the modern equivalents of beans and shovels.

Perhaps, once this latest bubble has burst, all those brains and all that energy can be focused on "boring stuff that people actually need."

The Winner's Circle - Stuart Zimmerman

2011-08-02T12:08:54-04:00

I first met Stuart Zimmerman in Miss Waite's third grade class at the Flynn Park School in University City, Missouri. That was a long, long time ago. We have history. More recently, he and his partners have actually made history. From a 1994 start with four friends, no clients and no assets under management, they have built two substantial businesses that manage over $14 billion for satisfied investors all over the world.

I recently asked my old friend the same question I always ask obvious winners. "What was the most important strategic decision you ever made?" Here is his answer.

We decided to follow the academic evidence showing that passive management, rather than active management, was the right way to invest our clients’ assets. For us, it was simply doing what was right for our clients. When we saw all the evidence showing passive as the clearly better strategy for investing, we actually felt like we would be doing our clients a disservice if we followed anything else.

Instead of spending considerable time and money trying to time the market and pick winning stocks and mutual funds, we would be doing the best we could for our clients by simply capturing the returns the market provide in a low-cost, tax-efficient manner. In effect, we skip looking for needles in the haystack by simply owning the whole haystack.

Sticking to this strategy helped Buckingham Asset Management grow to have more than $3 billion in assets under management. And when we saw the difference it made to our clients (not having to worry about what the market was doing, allowing them to spend more time on other pursuits, etc.), it also helped us realize that we could help other firms across the country do the same thing for their clients.

We started BAM Advisor Services to provide other firms with back-office services adhering to the same investing beliefs. Today, BAM has grown into the leading network of practitioners combining the science of investing with true wealth management, with our firms totaling more than $11 billion in assets under administration.

For us, this is simply proof that doing the right thing for your clients — even and especially when others aren’t — is simply good business. We continue to grow rapidly. Now, we have 110 associates in our family, building our role as the center of passive investing. Stay tuned!

One more confirmation of the obvious truth of core strategies:

What you are doing must truly matter to your clients, and it must set you apart from your competition.

Nice work, Stuart!

Beware of MOXIE goggles!

2011-06-27T12:34:54-04:00

"Consult your friend on all things, especially on those which respect yourself. His counsel may then be useful where your own self-love might impair your judgment."

- Seneca

A few months ago Anne Clelland asked me how an aspiring entrepreneur might tell when it's time to quit, when the handwriting on the wall has reached billboard proportions.

"How, indeed?" I replied via her blog. "What if they stop too soon? What if they continue, for apparently valid, but faulty reasons?" [Read more at Handshake 2.0.]

Here's a related question, connected to one of the most common entrepreneurial mistakes. "Is my enthusiasm clouding my judgment?"

Unfortunately, I regularly meet people for whom the answer to that question is a resounding "YES!"

Inventors really love their inventions. In fact, they often love them so much that they cannot recognize apathetic responses from their intended buyers. It's not just that they don't believe negative feedback. They cannot process it at all. Their beliefs are so strong that they exclude from consideration any and all information that might generate doubt.

A Market is an identifiable population of individuals or organizations that shares some compelling situation - a need or want. Yes, it's that simple. A population with a situation.

The MOXIE-blinded inventor sees a population where none exists, or a situation that is anything but compelling.

That's why Mentors are one of the Four Fundmental Factors common to successful entrepreneurs. Honest Mentors can/should improve clarity of vision for the over-enthusiastic inventor.

So, if you are the inventor, find yourself a mentor who is not MOXIE-blind.

If you meet an entrepreneur on the street, check for MOXIE goggles. If they are in evidence, smash them!

The Winner's Circle - Jim Scapa

2011-05-26T15:57:32-04:00

I first met Jim Scapa way back in 1986. He was pushing the envelope back then, and continued to do so over the following 25 years. Back then Altair had about 20 employees. Now they have over 1300. Back then they had only a handful of clients. Now they serve over 3,000 businesses world-wide. As with our other Winner's Circle contributors, I asked Jim a single question: what was the single most important strategic decision that you have made? His answer follows below, and it is a truly classic example of a fundamental entrepreneurial rule of thumb.

What you are doing must truly matter to your clients, and it must set you apart from your competition.

Here is Jim's story.

To me, the most important strategic decision I have made was to invest in the HyperWorks business model back in 1999. At the time, most of my organization was opposed to this direction as they saw the short term risk of cannibalizing existing revenue streams. Since most of my team are engineers and extremely analytical, many developed impressive spreadsheets to demonstrate to me the weaknesses of my model and argued strongly in our open, dialogue rich culture. After one year of hand wringing and listening to all points of view, I went against the common wisdom and rolled out HyperWorks units.

The HyperWorks Unit (HWU) licensing concept was the first in our industry to utilize a pay-per-usage system, drawing units (tokens) from a central pool served globally. It was quite a revolution in the engineering software sector where licensing was typically restrictive; often geographically limited or hard-coded to machine ID’s. In addition, the clever “leveling” vs. “stacking” concept – assigning a unit value to each product in the suite and charging only for the highest priced product - offered tremendous value and flexibility in using products within the suite.

Today this model is the backbone of our value proposition. Customers recognize Altair’s commitment to deliver a broad solution set of best in class technology, backed by best in class engineering know-how and service for a very fair price. We continue to increase the value by adding new products and paying attention to evolving technology and business trends. We also continue to tune the model to adjust to the trends as we see them.

We see our business model as a fundamental advantage. With that in mind, we applied for, received and have periodically extended patents on it. We also invest in the technology to make the model work well for customers and for ourselves.

Exceptional products. Responsive service. Breakthrough, exclusive pricing model. And the MOXIE to make it real.

Result: remarkable success!

Going Global? Observe the Customs!

2011-05-19T12:17:57-04:00

Question from an entrepreneur...

My business plans include exporting and importing products from and to the US. How do I avoid a big mistake of some sort?

My friend, Jim Loux, is customs broker and President of Allegheny Brokerage. He knows all about this stuff. Here's Jim's reply.

In a practical sense, almost all products exported from the US, and all products being imported to the US are controlled by the Departments of State, Commerce, Treasury or Justice (permanent defense imports). These export and import transactions are subject to regulations that are monitored and enforced by US Customs & Border Protection Service (USCBP). As the exporter or importer, you are obligated to comply with those regulations or be subject to significant fines and penalties (including but not limited to suspension of your export or import privileges) if you fail to do so. Additionally, USCBP enforces the regulations of 50+ government agencies such as FDA, FCC and others. The regulations are vast, complex and are constantly changing due to heightened security issues.The traditional Customs broker is a specialist licensed by USCBP and trained in the field of importation and often, exportation of goods. As such they are thoroughly familiar with the applicable regulations, processes and documentation needed by the importer or exporter (You) to comply with those regulations. A Customs broker can be a key advisor to you and should be a critical part of your export/import planning. Many Customs brokers also perform air, ocean and truck freight forwarding services either directly or indirectly and can provide these services to you to facilitate your international freight movement needs. In summary, if you plan to do business internationally and hope to export or import or both, it will be in your best interests to seek guidance from a Customs broker early in the process.

Thanks, Jim!

The winner's circle - Ed Williams

2011-04-01T11:51:02-04:00

This is the second post in a series featuring successful entrepreneurs. The question I posed was this: "What is the single most important strategic decision you ever made?" Here is the answer from Ed Williams, co-founder and President of Blue Ridge Numerics.

This is a fairly easy one for me. It comes down to the fact that no one is good at everything. As entrepreneurs, we tend to have deep skills in some particular areas, but we often do not want to recognize the areas where we are weak. In our case, that was sales. We were a strong technical team, but we had almost no skills in sales.

We had built a new product from the ground up over a 5 year period and that product had one sales channel which was an OEM relationship. That was a critical revenue stream in the early days, but our OEM partner knew that they were our only source of revenue and they wanted to drive the price down. We were adding lots of capabilities and functionality that was adding much more customer value so we felt like we could be driving the price higher.

The strategic solution was to find an experienced, passionate, and ambitious sales leader who could help us begin to build and drive our own sales channel. That would reduce our dependency on the single OEM sales channel and also allow us to begin lifting the product price and selling the high value proposition that out product was delivering.

As many entrepreneurs have learned, knowing what to do and doing it are two different issues. We knew we needed a top notch sales leader who had the experience and expertise that we did not have, but cash flow was limited. That was not a good combination!

The first attempt was a complete failure. We hired someone we could afford and had some potential; but he did not have the right experience and expertise. That lasted only a few months. The next attempt, we tried not to let the cash barrier stand in our way. This allowed us to begin to engage with some people with more experience. Trying to come up with a compensation plan that was acceptable to these candidates and affordable for us was tough. What we had to offer was opportunity. We needed to find someone who saw it - and believed in it. We structured a plan that had a much lower base than a typical sales compensation plan but offered far more upside for someone who could deliver the revenue. This worked as a very nice filter to qualify candidates who were confident that they could do the job.

In the end we came across Kevin O’Shea. He had the right experience and expertise; and he also had serious passion for our chosen mission. After some negotiations we included an ownership stake in the company, and we were able to land a key sales leader. This was a big turning point for our company.

We went on the grow revenue at ~100%/year for the first 2-3 years after Kevin joined the team. We were an Inc 500 Company in 2003; and we were on the Deloitte Technology Fast 50 in Virginia from 2002-2008. Only three other companies have made that list for 6 years running.

This was not only our best strategic decision, but also the best investment that we have made!

Editor's note: On March 11, 2011, Autodesk, Inc. (NASDAQ:ADSK), a leader in 3D design, engineering and entertainment software, announced that it had completed the acquisition of Blue Ridge Numerics, Inc., a leading simulation software provider, for approximately $39 million in cash.

The winner's circle - Pat Matthews

2011-03-15T12:41:38-04:00

I have asked some successful entrepreneurs to tell me about "the best strategic decision they ever made."

Pat Matthews is the Senior Vice President of Cloud Computing at Rackspace. Here's his story.

One of the greatest challenges entrepreneurs face is that they are capable of doing lots of things. So, they try to do lots of things. That’s where I was ten years ago.

I had co-founded a dot-com that we turned into a tech company, offering a wide range of services—from software services to email hosting. We wanted to solve every problem and make every customer happy, so we tried to do everything. The only problem was, we weren’t good at anything.

Eventually we came to realize that, in order to really grow and succeed, we needed to get focused. We needed to do one thing - and do it better than anyone else. Our customers guided us in the right direction: again and again, they were asking us to host their email. They were tired of other email service providers, who had terrible customer service and unreliable uptime, and who couldn’t keep spam and viruses out of their inboxes. Not surprisingly, none of our competitors were focused.

Right there, we had our answer: we needed to focus on email hosting.

It wasn’t sexy or glamorous, but there was a void in the market and we were committed to filling it. So, one by one, we got rid of our other product lines and helped our customers find better “homes.” And we started building our email hosting business.

By 2005, we were hosting 100,000 mailboxes, and we were making a name for ourselves in the email hosting industry. We became known for our commitment to customer support, reliable service, and spam and virus protection - and more than anything, our focus. (We marketed the heck out of being a specialist).

Make no mistake about it—temptation was around every corner. We were always tempted to do more in order to drive more “ARPU,” (Average Revenue Per User) by adding web hosting or email marketing or some other “incremental” service. But, for the most part, we resisted. We stayed focused, and we grew... a lot. In 2007 we were recognized by Inc. Magazine as the 217th fastest growing company in America. Later that year we were acquired by Rackspace, the world’s leader in hosting and cloud computing. Shortly after the acquisition we crossed the million mailbox mark. Today, albeit as part of Rackspace, we host more than 2 million mailboxes for businesses all over the world.

My advice is simple: get focused and stay focused. It was the most difficult yet rewarding strategic decision I’ve ever made.