Monthly Archives: March 2013

Free is Costly and Cost is Freeing

As a consultant to small businesses, I have had to fight the trend of owners wanting something for nothing. In the start-up world, it is almost unheard of for something to not be free. Yet, I see organizations like EntreDot introduce business models that ask entrepreneurs to invest in themselves and wonder why that is not the norm. Mike McDerment, co-founder of FreshBooks, concurs in an article he recently wrote entitled, “Why Free is Bad: Businesses Should Be Happy to Pay For Key Services.”

McDerment noted that, late last year Google Apps for Business eliminated its free version (see Google Dares Businesses To Switch To Microsoft Office). He acknowledged that, while some may have thought the decision to be a bad thing for small business owners, he did not. In fact, McDerment lists several downsides to free:

1. Free things are never really free. When we don’t fork over dollars for products or services, we think of them as free. But we always give up something. When it comes to online services, that something is usually personal data or content you’ve created — think Facebook and Instagram, whose privacy policies obscure the line between what you own vs. what they own. For consumers, that might be an acceptable bargain. But for small businesses that trade may be unacceptable.

2. Free services don’t serve you. Free services can’t provide great customer service. You know this to be true if you’ve ever sent an email to a free service to get help. Imagine relying on one of those free services to run your business!. What happens when you need help, and you need it now?

3. Free services for small businesses don’t last. Free services for small businesses come and go. Google Apps used to be free, now it isn’t. Free services don’t last for the small businesses because the market is so challenging to reach and serve. My guess is that understanding the market challenges is the key to why Google Apps for Business going paid is a good thing for small businesses.

Google Apps For BusinessMcDerment also goes on to argue how “Free” stifles competition:

In the dot com era, companies were terrified to do anything that Microsoft might be interested in, and venture capitalists would stop a hundred businesses before they could start with one simple question: “Why won’t Microsoft do this?”

Similarly Google has scared people out of doing things, because thanks to the significant advantage created by its search business, the company can afford to lose money on other activities, starving the competition and limiting innovation.

Fact is, Google can always return to the free model, but it’s a good signal that it has started to charge for things. Wall Street will be happy, and small business owners should be too. That’s because I expect Google’s paid model to give entrepreneurs the confidence to step in and start innovating more for the small-business market.

This innovation will encourage services tailored for the long-underserved small businesses of the world. Sure, those services won’t be free, but they will be affordable, just as Google Apps remains affordable at $50/year.

Just as important, these new services won’t come with all the downsides of “free.” In exchange for services they need, businesses will trade dollars, not their data or their content.

I’m hoping this signals the start of a new era, one where for the first time ever, competition, innovation and choice are healthy in the small business market.

After discussing the competitive effects, McDerment then offers his insights into the upside of payments for services by small businesses:

…Why should small businesses care about their vendors’ problems? Why is it a good thing for them that Google Apps For Business went paid? How are small businesses going to benefit by paying for something they used to get for free?

The answer: innovation and the arrival of services tailored to meet their needs. Just think of how many things small business owners run on Word and Excel and you get a sense of how under-served this market really is. Google Apps for Business going paid makes serving the small business market more attractive – for everyone. As long as all Google Apps were free, smart entrepreneurs and competitors were inclined to avoid investing in innovation for small businesses for fear Google could step in and wipe them out with a free service.

Leadership Mindsets to Foster Innovation

When lively conversations abound on the subject of innovation, invariably, the matter of culture emerges. Does the organization have a suitable culture to nourish innovation? If not, why not? Often, management is held up as a scapegoat for the lack of innovation. Karl Ronn recently said, “Companies that think they have an innovation problem don’t have an innovation problem. They have a leadership problem.”

Scott Anthony, a regular contributor to the Harvard Business Review blog and managing partner of Innosight, took note of Ronn’s recent comment. Anthony  had featured Ronn in The Little Black Book of Innovation, and considers him to be “thoughtful, widely read, a seasoned practitioner, and a great communicator.” Anthony wrote of him in a recent HBR blog post:

Ronn’s basic idea was that four decades of academic research and two decades of conscious implementation of that work have provided robust, actionable answers to many pressing innovation questions. Practitioners have robust tools to discover opportunities to innovate, design, and execute experiments to address key strategic uncertainty; to create underlying systems to enable innovation in their organization; and to manage the tension between operating today’s business and creating tomorrow’s businesses. Large companies like IBM, Syngenta, Procter & Gamble, 3M, and Unilever show that innovation can be a repeatable discipline. Emerging upstarts like Google and Amazon.com show how innovation can be embedded into an organization’s culture from day one.

Pixar innovationIn Building a Growth Factory, David Duncan and Anthony suggested why many others have not been successful: too many companies use point solutions to address a systematic challenge. They may offer an idea challenge, ideation session, growth group, corporate venturing arm or incentives for innovation…

(writes Anthony,) “None of these is bad, but point solutions don’t solve system-level problems. Duncan and I suggest working on four systems — a growth blueprint, production systems, governance and controls, and leadership, talent, and culture. It isn’t easy to do all of that, but it is what is required to really make innovation work at scale.” (continuing:)

Ronn agrees, but notes that the responsibility for such systemic work ultimately rests with a company’s leadership team. And it’s absolutely necessary. Research by Clayton Christensen, Rita McGrath, Richard D’aveni, and Richard Foster make very clear that we are in a new era where competitive advantage is a transitory notion. (McGrath’s forthcoming book is provocatively titled The End of Competitive Advantage.) Any executive that doesn’t make innovation a strategic priority, ensure there is ample investment in it, and approach the problem strategically is committing corporate malfeasance.

Further, leaders can’t just set the context and hope that innovation happens. Innovation is enough of an unnatural act in most companies (which were built to scale yesterday’s business model, not discover tomorrow’s) that it requires the day-by-day attention of the company’s top leadership team or it simply won’t stick.

The leadership challenge facing executives today is to balance today’s needs versus tomorrow’s. In the current environment, productivity and risk management are priorities. In the longer run, being able to anticipate market needs and adjust one’s go-to-market strategy are critical. Leaders must now be good at both to create and sustain competitive advantage. 

Anthony acknowledges that, to justify why innovation is a struggle, leaders mention factors such as “short-term pressures from investors, talent deficiencies, the challenge of implementing innovation-friendly rewards structures, the still fuzzy nature of innovation, and, in candid moments, their own discomfort with the different mental frames required to lead innovation.”

Most importantly, the paradigm shift needs to occur whereby the goal moves from being most innovative among a peer group of companies to being cutting edge like some of the upstart organizations known for redefining the playing field. 

Entrepreneurs With Too Much Passion Are Challenged

Diana Ransom is a contributing editor to Entrepreneur.com and queried in an article today whether lack of focus is an issue in startup failure. She cites the usual suspects (inadequate capitalization, poor market timing, and “founder fatigue”), but then notes that there’s no plausible explanation in other situations. Ransom’s case in point is the decision by founder Campbell McKellar to close the doors of New York City based Loosecubes in November after what seemed to be an incredible run. While McKellar was praised as articulate and poised, Ransom went on to postulate that maybe she had too many passions and it became her undoing.

LoosecubesThe 2.5 year journey attracted 25,000 subscribers in 60+ countries in an office-sharing play that has been copied by Desktime in Chicago. Ransom said she felt the idea was taking off, as evidenced by $9 million in venture capital funding and a staff of 16, all run by a phenomenal young entrepreneur. The sudden decision to close up shop with no media interviews by the founder gives rise to Ransom’s observation that there must be an underlying cause such as too many competing interests:

Like novelists who write several books, entrepreneurs often harbor multiple business ideas, and they love all of them. This is where problems arise; rather than building and running one business for decades, they’re itching to give the next idea a try. In fact, selling or shutting down a business can serve as a form of catharsis.

Naturally, there’s a financial loss associated with failure, but there’s also a sense of closure that people in the career world don’t really ever get to feel. That business (aka your baby) is gone. And while employees who get laid off often look for a new job in the same field, entrepreneurs can consider something entirely different. They can break new ground, explore undiscovered territories. While fraught with uncertainty, it’s also exciting. It’s the thrill of the launch. I suspect this is what happened to McKellar.

Ransom has interviewed many entrepreneurs and has experience identifying with their motivations. She writes that, “If you can identify with these flights of fancy–and you’re aware that they’ve become an impediment to your business trajectory–let me offer a suggestion: Instead of seeking your bliss by creating specific products or services, fall for something that can work across any business. Tony Hsieh (the serial entrepreneur and CEO of Zappos) has a (well-known) major crush on customer service. That’s his thing no matter what business he’s in. His long-held belief that quality customer service will make or break consumer companies helped him create a beloved online retailer, which Amazon.com acquired in 2009 for an estimated $1.2 billion. Now, customer service may be Hsieh’s cup of tea, but yours may differ. And that’s OK. Just make sure there’s something in your entrepreneurial passion that will hold your focus well after your initial idea has matured. Your eventual success depends on it.”

While identifying a strong suit and core value like customer service that can transcend products and services ideas is a good idea. I would argue that there is nothing wrong with being the other kind of entrepreneur. One key proviso: find a way to build a superstar team around yourself sooner than later so that you can effectively delegate responsibilities that draw you into the doldrums of running a business instead of the excitement of launching an idea. 

Those who are able to build teams that function without their requisite involvement are freed to do more of what they wish–even becoming a serial entrepreneur like Tony Hsieh!

 

 

Nurture Networking Relationships and You Will Prosper

As a former business development executive, I miss my expense account. Seriously–it has always been a ton of fun to mingle with people and get paid to do it. Now running my own consulting firm, volunteering some time at a non-profit, and helping several other founders get their businesses off the ground, I have less time and budget to do one of the things I love: networking. Jeff Hoffman, a member of the founding teams at Priceline.com and uBid.com, and now launching ColorJar, gets this. In a blog post for Inc.com today, Jeff shares with other entrepreneurs what he has learned about the value of networking, as well as some tips to the uninitiated.Networking

Launching and growing a business is hard.  You need to find those relationships (that will help), and then cultivate and nourish them, to keep them alive and healthy.  When you are trying to go from point A to point D in business…people act as bridges from point B to point C, saving you valuable time and money.

… tips:

1. Identify people who could help you and your company. 

Make a list of potential relationships you’d like to forge, either by individual’s names, or by companies and positions.  You can’t pursue your targets until you know who and what they are…write down next to each name precisely what you think the person can do to help your business.

2. Contact these people on a regular basis, and stay in touch with them. 

The most important part of this regular communication is to make sure you are acutely aware of their needs, not just yours.  Ask them what they are trying to accomplish and how you can help.  And then do it when you can.

3. Find ways to give back to them. 

Make a list of the interests of the people on your go-to list…Let each individual know you remember and care about those interests.  Interesting article? Send it to the appropriate contact.  Meet a smart person in that field? Make an introduction.  (Cool, relevant) event? Invite (them) to attend.  Provide a value to your contacts, if you expect to receive it in return.

4. Acknowledge them in your social media. 

Discuss their work, congratulate their accomplishments, and keep them in your discussions.  Show them that you are not only aware of the importance of their work, but that you follow it and celebrate it.  

5. Schedule a time in your calendar to think about and research each contact. 

Once you make this relationship list, it needs maintenance and updating.  Set a periodic time to review the list, update it, and think again about how these people can help you and how you can help them.  Your needs have changed and so have theirs.

6. Make them feel 10 feet tall from time to time. 

Send out handwritten notes.  Or fruit baskets.  Make sure the people in your network know that you appreciate them and recognize their importance in your life.  A little gratitude goes a long way.

Great advice from someone who has obviously helped many other people along the way. Now that I am in the role of advising others, I frequently encourage them to “pay it forward,” helping someone else with their needs before asking for hep with your own. Go out of your way to make introductions for all kinds of solutions–that kind of capital is priceless! 

I also like Jeff’s suggestions on how to keep the conversation alive–good stuff! Remembering to do the personal touches mentioned above is not just good etiquette–it’s great business practice! Smart networking follows these best practices.

 

 

Leaders Instill Vision and Creativity

 

“Vision is the best manifestation of creative imagination and the primary motivation of human action. It’s the ability to see beyond our present reality, to create, to invent what does not yet exist, to become what we not yet are. It gives us capacity to live out of our imagination instead of our memory.” 

– Stephen Covey

Vision cogAs a management consultant of 25 years, I have had the opportunity to interact with a variety of companies, their leadership teams, and employees. What Covey describes above is the missing ingredient in many businesses and the critical success factor in others. Jeff Orr, who coaches executives and their organizations, has this to say about Covey’s quote:

Vision. A key component of leadership. The ability to see what doesn’t exist…yet. And then to communicate that vision, so compellingly, that anyone who hears it can’t help but jump on board. This is the stuff of great leadership.

I have found that one of the most challenging aspects of vision casting is not the actual speaking of the vision, but what the person receiving the message actually sees in their mind regarding that vision. I have discovered that I can verbally paint a vision for a group of people and, depending on their experience, upbringing, etc., each person can have a slightly different picture in their mind of what the vision looks like. They also have a particular view of how they play a part in that vision – which may or may not be what I had intended. This has led to miscommunication and missed expectations. So how do we as leaders cast a compelling vision that is caught by our audience as we intend it to be caught?

Know your audience-their background, personalities, language and culture; (then) you can (better) craft your message to connect with them. If your audience is diverse, you may need to use multiple word pictures to say the same thing to different people. This takes a bit more time, but can be an eye-opener for you. Learning how to convey your vision in multiple “languages” will make you a better communicator.

Once you feel enough of your audience has “gotten it,” you still need to continually cast that vision. As one great leader has said, “Vision leaks.” Imagine a bucket with small holes in the bottom. As you fill that bucket with water, some of it leaks out the bottom. If you don’t continually fill the bucket, all of the water will eventually empty out. People are no different. The concerns of their department, projects, and life in general, all compete for their attention, crowding out the vision. It’s up to you as their leader to keep “filling their bucket” with the vision so it stays top of mind. As you utilize various methods of delivering the same message, you will see your team gain energy, synergy, and momentum.

What applies to leadership applies to intrapreneurship especially well. Organizations that lack visionary leadership often stagnate in their business performance. As the followers sense that the leaders care about creative capacity and are doing something about it, they become very motivated to produce.

When the workers are unable to see beyond their current reality (and not encouraged to do so), they can become disheartened. Being able to envision a better day with more positive outcomes fuels the fires. Given the opportunity to be creative, to look for what lies beyond the obvious, most will work harder with less need for exterior reward because they are motivated by what they can contribute. Seek to be an organization that values vision!