Entrepreneur’s Journey

Am I Remarkable?

scardinale — Mon, 24 Nov 2008 08:09:24 -0800

Am I Remarkable? That is a very interesting question, from a personal as well as a business point of view. One of the marketing pundits out there (Seth Godin) has an entire blog post about it. Really the question is:

"Am I being valuable to others?"

Valuable enough for them to remark on me (hence the "remarkable" part).

This post is about business value (I have a similar post on my personal blog). I believe that all human relationships must provide value from both sides of the relationship, otherwise very quickly (and I'm talking hours/days/weeks ... not months/years/decades), the relationship will wither and die. And this value must constantly be provided. You must constantly be valuable ... be remarkable ... but WHY?

Why? Because the person on the other side of the relationship is spending time, energy, value, on you to maintain the relationship, and if you don't offer value in return, they will spend that time, energy, value somewhere else where they can receive something in return. It is self-centered and self-deceptive not to do so, and very few relationships will survive when one side is giving most of the value. Business partners give value in their ideas and time, business alliances in the form of shared brand equity, customers in the form of loyalty and purchases. What remarkable/unique value are you providing? You see this in business partners, employers, customers ... all human relationships.

And when you don't pay attention to the value you provide you see the downside in business dissolution's, terminations, lost customers.

The first part of the previous sentence is important: "when you don't pay attention." Attention to how the other person sees your value. You must be valuable, be remarkable, to the other person, not to yourself ... that is where the self-delusion comes in. When you say "I thought I was remarkable" is when you are in trouble. You need to say "I know I am remarkable because the other person ... "

So here's my 3 step plan to being remarkable and keeping those important relationships:

1.) Pay attention to how other people react to you. - Do they react the same to you as they do to everyone else? If so, then you are not remarkable.

2.) Assume you are easily replaceable. - This is a tough one, because it requires you to look in the mirror and find your flaws. But the truth is, you probably are not the only one who could create this product, provide this service, or do this task for this customer

3.) Do one thing every day/week/month that makes you irreplaceable. - Figure out how to provide some value that makes you different. Makes you remarkable. And the more value the other person provides, the more remarkable you'll have to be to keep the relationship alive (eg. just think about how good looking you'd have to be to stay on Brad Pitt or Angelina Jolie's radar)

Attention/Assumption/Activation - (the activation part is point 3 above).

Simple to understand - Hard to do ... but if you do it ... do it well ... do it in all your relationships ... you will be ... well ... remarkable

See you on the wire

- Steven Cardinale

Logos and brands

scardinale — Sat, 25 Oct 2008 14:03:56 -0700

I recently read Seth Godin's blog entry entitled "Your Brand Is Not Your Logo." Seth has got it right, the logo is not the brand; the story is the brand, the feeling customers get is the brand, the logo is just an emblem to help you remember the feel you get from the brand.

Look at Nike's swish; one of the simplest emblems possible ... I mean come on it is just a swish; but it is easy to recognize and connect with and it provides a great emblem to reconnect with the brand.

I think Pepsi or Best Buy or any of the large brand corporations out there are having a hard time trying to figure out why people connect with their product and consequently they simply spin their wheels working on the external facing components of their brand. And since they have these huge budgets they have the resources to expend chasing non-core branding tasks.

We are launching a new company (see the edgi blog to take a look at the birthing process) and we had to decide on our logo. But instead of thinking about pure aesthetics (I did want it to look good), I thought of the story. What is edgi about? It is about getting to a place where you don't know the outcome (see the definition on urban dictionary). It is about being on the edge. It is about igniting conversations. Once I had our story (and the story can go on); once I understood what tribe will be interested in connecting with us, we could quickly devise a logo:

Is it the perfect logo ... no. But is it a good emblem that will be easy to remember and associate a story with as we grow our brand ... I believe so.

So the question is ... as you create a new anything (division, product, company, brand, personal persona ... think about Seth's head on his books and web sites, that is definitely a recognizable logo) think about your story. The story should drive the logo. But just remember the logo is only an token, a take away, a talisman that your customers can use to quickly connect to the feeling your brand ... your story gives them.

See you on the wire

- Steven Cardinale

Help me I'm not creative ...

scardinale — Mon, 25 Sep 2006 00:22:56 -0700

Recently Seth Godin asked the following question on his blog:

"I'm not asking your advice because I need help coming up with a tried and true, predictable, safe or proven idea. No, I've already tried all of those and they didn't work. I'm asking your help in finding something creative, untested, unproven, off the wall, risky, fashionable and challenging. Don't let me down. Don't hesitate to share your crazy idea... it might just be the one."

That's a great question/statement ... "help me be original." My question is "have you setup your organization to allow such creativity?"

Most groups I've seen not only don't ask this type of question but actively discourage thinking out of the box, and the bigger the group the stronger the "do what we've always done" culture (just try getting something new done in a big corporation ... and yes, I know there are a few exceptions such as Apple; but only a few).

As a company, especially a company trying to be innovative you need to develop a "culture of creativity." You need to put in place a process where not only are people allowed to think out of the box but are actively encouraged to think out of the box and given a process to do so. Look at Google with their 1 day per week do whatever you want program, for example.

You will need a couple of institutionalized processes to accomplish this:

1.) You'll need to figure out who should be doing what.

There are two types of personalities when it comes to thinking different (ok, there are more; check out "The Ten Faces of Innovation" to get the full picture): Creators and Problem Solvers.

Creators just think about new ways of doing things. Most of what they come up with is crap. At times they don't think about what matters to the customer (i.e. all the useless items that no one would ever buy), or they only think of what is cool (see all the features in new products that almost no one but the gadget elite would ever use), or create a solution in search of a problem (witness WebVan).

But they do come up with NEW stuff. They throw caution to the wind, think up new ideas regardless of the past (and in fact some times in spite of the past) and either help solve real problems or give the customer something truly unique and valuable.

Then there are the Problem Solvers. These are folks who couldn't come up with a new idea if their lives depended on it (I'm being a bit sarcastic here, because Creators can problem solve and Problem Solvers can create, but in general the Creator and Problem Solver personality are very distinct).

What Problem Solvers can do is to quickly pick out the fatal flaws in an idea.

You'll need both personality types in your organization. And if you don't have them, or don't know who is who then your innovation/next-big-idea process will stall out. Make sure you give your Creators plenty of room to create without the bars of having to make things practical (i.e. keep Problem Solvers away during the brainstorming process), and make sure Problem Solvers have the freedom to pick apart things without Creators as back-seat drivers.

In the next few posts I’ll explore the other components of being creative, including:

2.) You'll need a creative idea / innovation process

3.) You'll need a innovation funnel

4.) You'll need to learn the three F's: Fail, Forward, Fast

See you on the wire

Steven Cardinale

Entrepreneurship As Venture Capital - Part 1

scardinale — Sun, 25 Jun 2006 19:55:02 -0700

Musing

How many friends do you know who have received venture capital in the past 12 months? In the past 24 months? Ever in their entire careers? I'll bet you the number is small. Most entrepreneurs don't get the chance to receive VC or professional funding. Why? Well there are a couple of reasons:

The idea doesn't fit within the VC's requirements - VC's have very specific needs (i.e. size of deal, requirements for capital, timing and space, etc) and most entrepreneurial ideas don't match their requirements. That doesn't mean that the idea is bad, just that it has to be financed another way.
The entrepreneur doesn't have the right access - If you are not introduced or referred into a VC source, you probably won't get in. VC's say they read blind business plans sent in over the web, but jut think about how many plans they get from their referrals, much less blind over the web. They just don't have the man power. So most entrepreneurs either don't have the right attorney/accountant/etc to get the referral or they don't have any connections.

The odds are that you won't get VC funding for you next profitable venture.

So, let's look at VC and funding from a different angle.

What do VC's do that is so important?

I put that in a slightly sarcastic way, but it is true. What value does the VC community provide. There are two answers to that question.

They provide their investors a way to invest in multiple start-up companies (i.e. diversify their capital across many opportunities).
They provide a way for investors to have professional oversight over the management of these start-ups.

And as an entrepreneur you should do that as well. You should think like a VC and put your most important asset (your time, intellectual horsepower, and execution skills) into as many ventures as possible. Using the Organic Cash Cow philosophy you should:

Stop Thinking Like An Entrepreneur And Start Thinking Like A Venture Capitalist

To keep with my mindset of publishing more often, I will continue this discussion in several parts over the next few weeks. Look forward to Part 2 ...

See you on the wire

Steven Cardinale

Hiatus

scardinale — Sun, 25 Jun 2006 19:40:09 -0700

I'm back ...

OK, so I needed a 6 month hiatus to get my schedule worked out so I can start blogging again. Man, it is tough to find the time. I think the problem is with the size of my posts. They can sometimes take 2-3 hours to draft, edit, modify, re-edit, post, ... (you get the idea).

And although I still think the long articles are very valuable I don't have time to get a couple out per week.

So what I thought I'd do instead is post short blogs about what I read a couple of times a week (more traditional blog format) and try to get a long post up once or twice a month.

And since I spend a large amount of my time learning, implementing and thinking through strategy and innovation I setup another blog called Smart Innovation (yes, I guess I just don't have enough on my plate). The conversations are already up on Smart Innovation so please join in.

See you on the wire.

Steven Cardinale

Disposable Starups & Organic Cash Cows

scardinale — Sun, 15 Jan 2006 18:04:15 -0800

Musing:
I’ve been reading a lot about how it is currently a great time to be an entrepreneur. Joe Kraus has an interesting post about how this is the right time. Basically he argues that the cost of getting something off the ground is so dirt cheap that it is almost imperative to start a company. Jeff Clavier’s post “The era of the disposable startup” makes one think about whether or not this type of Disposable Execution is really possible and some of the barriers.

In working through all this, the Disposable Startup doesn’t seems like a workable model, however a close second cousin: the Organic Cash Cow, might just be worth pursuing.

Problem:
The issues I’ve seen regarding launching a startup are two fold:

1. How do I get quality equity supported labor?
2. Do I really need to be acquired for many $MM?

These seem to be the two pressing problems at hand. With infrastructure, hardware, and software costs being driven down to $0, what does it take to create a successful startup from the entrepreneur’s perspective: People and exit are certainly the two top issues.

Solution:
There does seem to be an alternative to the Disposable Startup and I would call that the Organic Cash Cow (OCC). The goal with the Organic Cash Cow is to get a project off the ground with as little outside free labor as possible while creating a cash flow plan that doesn’t require Google to acquire you for $100MM to make it worth your while.

How do I get quality equity supported labor?

Getting people to work for equity (and I mean quality people who probably already have jobs, families, mortgages, etc) is much more difficult than it seems. Startups at the will-work-for-equity stage are very similar to a garage band: lots of passion and enthusiasm, but everyone doesn’t always show up for practice (i.e. poor execution). The amount of time you spend organizing the free-for-now labor and extracting actual value from their work hours can easily rival their contribution (you know: can’t work tonight, the kids are sick/the project is late/my brain hurts, etc).

In order to counteract this, get good at delivering alpha or beta version products, services, web sites with a minimal amount of outside labor as possible. This means a core group of engineers (2-4 at most) or develop the prototype yourself. Stop looking for venture capital, angel capital, 10 engineers, etc. Just get the first version on its feet. That means doing exactly what Guy Kawasaki says in his “Rules for Revolutionaries” book: “Don’t Worry Be Crappy.” This doesn’t mean you can put out buggy software, web sites that don’t work, and concepts that will lose customers their data … because you’ll lose your reputation.

What it does mean is fall OUT of love with your idea and strip it to its bear essential functionality and get that functionality out the door … quickly, solid, in beta form, but get it out the door with you and a couple of guys at most.

You can think about outsourcing strategies in India/China/wherever after you have launched your first beta version. The seed execution and differentiation is your ability to find passionate people (even if that is only you), fall out of love with technology for technology's sake, and deliver to customers a necessary product that will fulfill a need.

That last paragraph is quite a mouthful, because there are too many entrepreneurs out there who have no idea of what problem they are solving for the customer and are simply doing something cool … especially software and high tech entrepreneurs.

Do I really need to be acquired for many $MM?

The second question of the Disposable Startup vs. the Organic Cash Cow is an exit strategy. Yes, if you are getting investors, and have a bunch of employee stock options, equity supported engineers, and require a staff of 50 just to get dollar 1 in the door, you will need a big acquisition/exit to support the initial investment. And this is the thesis of the VCs/Angels and it is what they are looking for in the Disposable Startup. But it doesn’t have to be what you are looking for as an entrepreneur.

The Organic Cash Cow is exactly the type of problem you are trying to solve. Build an idea into a cash generating machine that can grow organically. Then you don’t have to worry about short-term or even intermediate-term exits you can worry about adding those customer satisfying features you left out in beta.

So the question is how can you build the cash generating machine. You need to leave the technology on the back porch and focus on the business model. And this is tough for most of the technology guys / CTOs out there trying to start a business. You need to focus (and I mean hyper-focus) on the following:

1. Customer acquisition cost
2. Short-term life-time value of the customer
3. Revenue model
4. Cash-flow breakeven

None of these concepts are technology based. They are all business issues that need to be worked out in detail before you start your Organic Cash Cow or Disposable Startup.

1. Customer acquisition cost – Don’t assume you know what it will cost to get your customers. Become a virtual customer yourself and figure it out to the penny. Go to Google, look at the costs of keywords, figure out the number of clicks and the conversion rate and then get your customer acquisition costs down. Or do whatever research it takes to figure out how much it will cost to acquire your customer … to the penny.

I guarantee it will be more than you expected and your research will be off significantly (I tend to double the number I get from research).

2. Short-term life-time value of the customer – The customer will provide a certain amount of cash flow (not profit but cash … cash is king) over their lifetime, but that is only important to a company with lots of cash to wait for the customer’s purchases. As an Organic Cow, you need to look at how much cash the customer will bring in now … in the first 30 days of their experience with you. That is the important number. That is the number that will help you grow without the need for investors, and that is the number that you can use to build the other technology features.

3. Revenue model – Figure out exactly what your cash revenue model will be. How much can you charge customers for your product. You will probably have to give away many features before a customer will be willing to pay. You need to get as many users as possible as quickly as possible to generate the viral marketing needed to grow. So come up with a revenue model that maximizes your customer base. Look at Skype … free for most everything except the most professional features (the premium revenue model). Or look at SalesForce.com (the per drink model), let users signup for something themselves at a very low cost. Whatever your model, don’t guess, and make sure it provides quick revenue with high customer trial. And understand your conversion rates (50% of everyone who tries your product will not become a paying customer … be realistic).

4. Cash-flow breakeven – Notice I did not say traditional breakeven (profit and loss), I said cash-flow breakeven. How much did it cost you this month to stay in business … actual cash … and how much did you make. No accruing of fees, allocating yearly costs across 12 months, etc. Cash-on-cash breakeven.

Once you know your cash-on-cash breakeven number, your customer acquisition costs, your revenue conversion model and your value of the customer, you can get a good picture as to how long it will take to get to a point where your Organic Cash Cow is generating monthly income.

And that is the goal of the startup. Not to dispose of it if it doesn’t hit a home run, but rather to create as many cash generating businesses as possible.

For most entrepreneurs a business that is generating $5K-$10K per month consistently is a win. And if it gets bought for $2-5MM, well that is a win as well. Especially for the founder who is looking for his first win. Don’t dispose of it, create ideas that can quickly turn profitable and then expand on their own.

Good luck in creating Organic Cash Cows.

See you on the wire

Steven Cardinale

I Can’t Believe It’s Not Advertising

scardinale — Mon, 02 Jan 2006 19:15:31 -0800

Musing:

I was reading an article about Google and the writer was fawning over how wonderful the Google business model is and how fantastic the whole advertising supported world is and how great the Google boys look … and I almost threw up.

The problem with the Internet is that people still expect things for free (see the open source software, advertising supported games, etc, movements for examples of this), and the problem with this notion is that you can’t support innovation in a capitalistic society by giving away things for free.

This post deals with the advertising sponsored world and movement toward advertising based solutions as a whole while providing some insight into individual business models.

Now there is nothing wrong with expecting things for free, and in fact to get a viral customer adoption curve, setting your price point at $0 is often a very attractive offer to counteract initial customer inertia. Look at the initial foray into mass adopted television. You and I both know that TV isn’t free: it’s paid for by the increased product costs cause by advertising expenditures. However, free and advertising supported is exactly how the first networks got their foothold and customer base.

However, after a while, the folks who consume entertainment started getting tired of all the advertising and started moving to the subscriber cable networks where part of the draw was the lack of advertising. Just look at the Tivo phenomenon. Viewers are skipping commercials as quickly as they can press the fast forward button. In fact, I personally won’t watch anything not recorded on Tivo because I’ve become so accustomed to cutting out the commercials.

Problem:

With the above musing as a foundation, it is apparent that the problem is that advertising is an externality: a decision made by one group imposed upon another. And if you think about it, advertising really should not exist. Basically advertising is a transfer payment made by the consumer through the producer (in terms of higher product costs) to the marketing and aggregation/distribution channel for access to paying customers, supported by non-paying customers (people who don't buy the product).

If advertising is truly an externality and something that very, very few people want, then how can a company like Google make so much profit by being the delivery point for ads? Can advertising supported services (software, search, content) survive for long in the hyperactive world of the internet? Or will the natural progression towards value-added services quickly swallow this free-tv model? Can-we / should-we get rid of advertising?

Solution:

I believe the solution is to look beyond advertising supported models and create business models that charge fees for the value they add and not because they can impose an advertising externality.

This means that if you are building a business based on advertising, your core model is based on a rocky foundation. It doesn’t mean it won’t work, but it does mean that:

1.) Someone / anyone can take away your revenue stream quickly (look at the advertising revenue from TV that is being sucked away by Google and the internet).

2.) Your economic denominator / economic engine (as described in the book Good to Great) will be driven by forcing additional externalities on your customers and not on building better products (i.e. get more eyeballs at all costs vs. build a better product at all costs).

3.) Your competitive landscape will not be driven by capabilities, it will be driven by attention acquisition: Meaning you’ll be trying to outwit competitors who are in the entertainment/media space (competitors who may be much better suited at grabbing attention than you).

Although Google has been incredible successful using the advertising model, they are one of the exceptions and it remains to be seen how long they can hold out until someone comes up with a “just as good” search engine with no advertising (this gives you a clue as to one of the projects on my plate). And the founders of Google didn’t have the advertising model at the beginning, they decided upon it once they started needing revenue.

The solution to the advertising as an externality is to create a business using something similar to the Skype model. This could be the Trial/Purchase model (aka Schick razor … give away the low end handle – and charge for the additional necessary piece - the blade), or the Skype premium model (give away the basic model and charge for additional services).

Take Away:

* Stop trying to be Google and create an advertising based business, it probably won’t work.

* Create a business model that will provide plenty of revenue when only 5-10% of your customer base opt for the premium version of your product (i.e. Skype)

* Use a $0 entry price point to get as many people into your system as possible (the Trial/Purchase model)

* If you can create a model where you eliminate the externality of advertising, while your competitors require advertising to live you can outpace them quickly

Although this has been somewhat of a general post rather than an a specific entrepreneurial problem post, I hope it has been interesting.

See you on the wire.

Steven Cardinale

Thank You Sir May I have Another

scardinale — Sat, 12 Nov 2005 00:39:53 -0800

Musing:
Recently CurrentCo grew and we needed to fund that growth. And while we are a profitable enterprise, all companies that grow need some type of growth capital. In fact Inc magazine has an interesting article called "The Company That Grew Too Fast." I've heard these stories before and I've had personal knowledge of companies that couldn't meet payroll because a client promised to pay quick, but ended up paying slow. In fact we were in such a bind recently, and I had to come up with $100K to cover expenses from a mortgage line of credit. Lucky it was only for 8-10 days, but if I didn't have it available we would be in trouble. So I started looking around and asking banks how to fund things like receivables. And mostly what I got was a "you're not big enough" and "you're too much of a risk" answer. It took a while but our attorney eventually lead us to a bank that deals with start-ups and after we switch banks from our existing vendor, created a secure CD and equipment lease, and spent several months depositing our revenue (like clockwork), the bank finally gave us access to their structured financing department.

And boy did I feel privileged. They looked at my business, understood the quality of our cash flows, and created a customized proposal to fund operations ... significantly fund operations, albeit collateralized by our high quality receivables.

Then I started looking at the fine print. The bank's rate ... we'll let's just say that if I fund the company with credit cards I'll be paying less in interest. Of course the problem is that I don't have any where near available in credit as the bank is willing to offer. And this is the business's receivable line so it will build up the business credit. But the terms are quite heavy and expensive and in the end it may be a questionable deal ... the problem is ...

Problem:
How can a young company grow without having to pay very high fees? I'm sure Microsoft, Dell, and all the big players had this problem ... that's one of the reasons they went public (not the only one obviously). But they were growing at such a fast pace that their financing options were very different from a small company growing at 65%-100% per year. Still a good clip, but not the wunderkind type of company.

What is a good growth company to do when it needs expansion capital? And how can you get it without paying too much?

Solution:
Well I haven't found the perfect solution yet. And yes, I did take the revolving credit line. However, the terms are such that I don't have to use the line if it is not necessary (I still pay a hefty setup fee), and so I will try to make sure that I won't use it. Actually this is a typical problem in a first year MBA course (and yes we had this exact problem as a homework assignment).

The answer is simple ... well at least the academic answer is simple ... stop growing so fast. That means focus on accumulating cash to fund operations and don't outstrip your internal ability to have a bunch of cash for when you grow.

That works well in the text books. But my business is based around a few large customers. And when I win one of those customers I can't turn my back because the competition will grab them, and it may be years before I'll have the chance to get back in and re-win. And each new elephant customer can add 20%-75% to the top line. So, stop growing so fast works in text books, but not in real life (imagine telling Google, Dell or Microsoft to stop growing so fast).

My answer is four-fold

1.) Go out and start securing financing now for your needs 12+ months from now. You are going to get raked over the coals. You are a small business and unless you are the next Dell, or you have a great VC behind you who can push financing sources around, you will be viewed as a high risk and although you are the one most in need of cheap financing you will be the last one to get it. I know it's not fair, but that's the way of the world ... deal with it.

Start talking to banks, finance companies, debt originators, angels, etc. You probably will find that they are interested in talking to you if you have a realistic need for financing that will be collateralized with high quality customer orders. But that is the key. Don't just go out and try to find a $1MM line of credit secured against your good word. It won't work. Find out from your resources (accountant, attorney, consultants) who will start to work with you to build secured financing. Then start the process and be prepared to walk away several times because I am sure you will get some terrible proposal (both expensive and onerous) at the beginning. And it is going to take quite some time before you get what you need. Don't wait until the last minute. Last minute shopping is always much more expensive and this is definitely a place where you want to comparison shop.

2.) Keep expanding margins. This is something that unless you are trained in business you probably think you are doing but are not. Most entrepreneurs I've met look at revenue, and at operations, but rarely can tell me what their gross and net operating margins are on a monthly basis, by product line and by customer type.

But margins are where you are going to get the working capital you need to fund growth without going to outside sources. This is an exercise I learned in school, through books (including Running Money from Amazon), and through discussions with successful business people. What is amazing is that as we started looking at margins (about 12 months ago) we have successfully been able to raise prices to existing clients, re-price our services to increase margins, and apply technology to reduce costs that directly impact margins.

What this did mean was certain things that would have been allocated to growth (i.e. advertising, new sales reps, additional marketing literature) were put on hold, and that money was spent on technology or other systems to increase margins.

But it has paid off. Although I did get the credit line, I am now looking 12+ months out and I probably will only need it sporadically. Without the focus (and yes, we look to increase our margins around 5-10% per quarter, and we measure them monthly, per client, per product line) we would have spent a ton more money on financing costs.

3.) Run constant cash flow models. This is also something that I hear preached, but is not so practiced. Cash is king and the MBA courses prove it. You should be running 10 week rolling cash flow forecasts. These can be done in Excel or in your accounting tool. Whatever, you should be able to say where you expect your bank balance to be every week for the next 2 1/2 months. Don't be fooled into thinking you know, because if you are not projecting it, then comparing how real your projections are, you'll end up being surprised (i.e. the Christmas party required a $5K deposit that you didn't realize would drain the account).

Stop looking at profit ... look at cash flow first ... then margins (both gross and net), which should give you the P&L your looking for ... one you can fund.

4.) And yes, stop growing so fast. We'll this is the nasty one. If you didn't get your funding in order 12 months ago, and you didn't keep expanding your margins, then yes, you will need to reduce the spending on sales and start collecting more in the kitty. Otherwise you'll either lose the business (see the Inc article above), or go out of business, or some external force will slow it down for you (your suppliers, stock-outs, customers) and that type of external slowdown will be very expensive (either via moral, lost customers, reputation, late fees, etc).

See you on the wire.

Steven Cardinale

Voices in my head

scardinale — Sun, 06 Nov 2005 22:05:17 -0800

Musings:
It was an interesting day: I did not work at all, but I couldn't get work out of my mind. Everything from CurrentCo's sales pipeline (which is not nearly as full as I would like) to NewCo's new product line (that does not’t exist yet) and how everyone else seems to already have a product/web site/service that does something similar. I have these types of days every so often. Days in which my internal critic seems to switch on and tell me that everything is going to hell. I don't know if you have these types of days, but as an entrepreneur I get them and they are tough to shake.

Part of the problem (I guess) is the lack of certainty in an entrepreneur's life. Some days are great and everyone is buying, and other days suck; no one is buying and the competition is not only at the door, but they are at the dining room table having your P&L as a midnight snack.

Problem:
The internal critic. I'm sure we all have times in which our internal critic won’t shut-up. I tend to get these days when I see other people who are either further in their career than I am, have a more stable business or business plan (i.e. they have venture funding), or are further in a career that I'd like to have (at least the romantic version I have in my head, I'd like to have). And today is no different. I talked with a friend of mine who has a career that is very, very stable (although exceedingly time consuming) and will be making mid-six figures in 5-7 years ... almost absolutely. It is times like these that I think to myself I made the wrong choice being an entrepreneur. So the question is ... how do you get the internal critic to quiet down and when should you listen to him?

Solution: Uncertainty & Variability: I have found there are a couple of things that help me, although they didn't do much today, so I can't say they work all the time.

1.) Figure out how to become comfortable being uncomfortable. That is something I have told my father, but it is more difficult to execute than as it initially seems (isn't everything worthwhile that way). I've read and listened to all the self-help experts (and I would definitely recommend listening to Anthony Robbins and Wayne Dyer since they do have nuggets of gold in their teaching that help at these times).

The biggest thing I've learned is to embrace uncertainty and that internal critic when it comes my way. Basically I typically let my internal critic run wild for a couple of hours. This tends to be a very depressing couple of hours and by the end I am usually thinking I should quit what I'm doing, go get a job and climb the corporate ladder. Even then my internal voice tends to say that I couldn't get a job if I tried and that no one would hire me since I don't have ... or ... or ... (fill in the blanks with anything).

Basically I let myself get into a very negative space and then I write out what my internal critic says. This way I can go through the writings later on and either come up with good solutions, or throw away what I thought as pure negative ramblings.

So now that I've got the negativity out of my system (and sometimes it takes a couple of days, not a couple of hours, but I've got to get it out), I start thinking about the uncertainty of it all: Both from a negative and a positive side. This helps me focus on how to create more direction in my outcomes by coming up with actions that help close off the negatives (i.e. doing the "if this client left" exercise and basically doing what Benjamin Franklin used to do: plan for the worst and when the best happens be pleasantly surprised). This helps me get control of the uncertainty and let’s me anticipate and pre-plan for problems. And this takes some of the nervousness out of being uncertain.

From what I’ve seen there are many entrepreneurs out there that can only see the positive side of the business (i.e. every company is going to become the next Google). I find that the negative internal critic exercise and putting in place measures to prevent failure, counters the unbridled enthusiasm that cam accompany entrepreneurship. I’m sure investors (from angels to VC and beyond), employees, and partners want someone who can drive the enterprise through rough waters. The internal critic and becoming comfortable with being uncomfortable help drive this point home (as my sales coach says, “the veteran sales pro thinks he’s lost until he’s won, while the amateur thinks he won until he’s lost” – more on sales in a future post).

2.) Reduce variability (personally and professionally). This is not something I learned until much later in life. Being an entrepreneur is about taking risk, and risk is about the possibility of failure, and failure is about the amount of time and/or resources it takes to recover to the condition prior to failure. I didn’t used to think about risk in this way. I used to think that risk was basically external actions that would sink my new found idea (i.e. not getting the right funding, not landing the right clients, etc). But thinking about risk in terms of the time it takes to recover means that you must have enough resources in place to recover.

There are plenty of good books on risk (I’ll come up with a personal reading list later), but most of these books have either an academic bent to them or don’t give practical tools to help manage risk. So the following is what I’ve learned:

* Personal Risk Reduction: An entrepreneur can be more level headed and think clearly when less of his personal lifestyle is at stake in the daily decision making of the organization. When everything you have is tied up in the business you start thinking from a scarcity point of view (I’m an Econ guy so many of my mental models come from the world of Economics). The scarcity model is about hording as much as possible as quickly as possible. This is a real problem because it creates short sighted thinking and either makes the entrepreneur take cowboy style risks (i.e. let’s spend all our marketing money on the SuperBowl ad, then if we don’t get the response we projected we are sunk, but at least we tried). Or the entrepreneur becomes scared to take any risks and becomes paralyzed.

To counteract this problem, I recommend (at least it has worked for me) that every entrepreneur start immediately crafting income streams that are not dependent upon the business. Real Estate is great (yes it may sound like a cliché, but the Rich Dad Poor Dad model really works and I would recommend his book). The problem is that real estate takes precious time to manage. Basically what I have found that works for me is managed real estate (investment trusts, individually managed properties, such as NNN properties individual pieces of real estate, REITs are riskier and require more analysis than I am willing to take , etc, whatever, works for you) and I AM NOT ADVOCATING ANY PARTICULAR INVESTMENT, YOU NEED TO TALK TO AN INVESTMENT PROFESSIONAL BEFORE PUTTING ANY MONEY TO WORK.

But you need to get income coming into your personal pocket that does not change with the fortunes of your business. This lets you take a more balanced view of your business decisions.

This was never clearer in CurrentCo than when I had to fire a client. When it became apparent that keeping the client would harm our reputation, I had to make the tough decision to fire a $500K/year revenue stream. Very, very tough to do, and I would not have been able to do it if I didn’t have the security of at least some other personal revenue coming into my pocket (in the end it was the right decision, scary, but right).

* Professional Risk Reduction: This basically follows along the same lines as above, except that it is difficult for a start-up business to have multiple uncorrelated revenue streams. What I did to manage professional risk was to keep the company as flexible as possible. This means not investing in large facilities (either manufacturing or office space), maxing out the productivity of current employees rather than add new employees (i.e. basically keeping fixed costs as low as possible).

This “only buy what you absolutely need” / “stay as flexible as you can” / “make it easy to expand and contract” mentality has allowed CurrentCo (and hopefully NewCo) the ability to make mistakes, miss our mark and still recover (remember that is what this whole discussion is about … risk and recovery time).

I know this is a long post, and I probably need to break this up into several separate topics, but once I get going it’s hard to stop.

Hope some of the ideas are beneficial.

See you on the wire.

Steven Cardinale

Blog structure

scardinale — Sun, 06 Nov 2005 20:43:35 -0800

I'm trying to find my own voice for this blog. Basically something that feels more than just the ramblings of a madman. Unfortunately I haven't been able to come up with any good frameworks, yet ... except the following one. I'm not quite sure if it will work, but I'm going to try it for a while and see how it feels. I'll only use it once in a while and trade off with my standard stream-of-consciousness writing style to see what works best. For the structured blog, I propose the following:

Musings: Basically the back story that led me to post that day's entry

Problem: A description of the problem that I am encountering, be it from strategy, financing, sales, teamwork, internal.

Solution: An outline of the solution I have it upon. The solution(s) I'm trying, and input from others who have had the same problems (whether it be magazine articles, blogs, news articles, or books).

I hope this will make the blog more understandable and usable than just my stream-of-consciousness.

See you on the wire.

Steven Cardinale