When and Why to Withdraw Money From a Start-up

Working with entrepreneurs all day every day produces a certain fixation with what is most important to their survival. Unfourtunately, what is best for the business may not (in the short run) be what is best for its founders. Constantly, with existing operating businesses, there is the challenge of how much to compensate the owners and be fair about it. With start-ups, the goal is to get to the place that one can get paid at all. 

Recently, I ran across the story of Vinyl Me, Please. This new business is seeking to capitalize on the revived appreciation of vinyl records. While the number of records sold nationally has increased each of the past five years andby over 17% in 2012, the co-founders are trying to realize the benefit of the trend in their own business and wallets. They still are not earning a living from their efforts, though the prospects of doing so are better than at any prior point.

Vinyl recordsJeff Cornwall at Belmont University writes that, “The niche that Vinyl Me, Please fills is to bring new and interesting music to a new generation of vinyl record enthusiasts.  Each month the subscribers to Vinyl Me, Please are sent a brand new, hand-wrapped vinyl album from a relatively undiscovered artist. In addition to the monthly vinyl record, subscribers are assigned a personal music consultant who gets to know their musical tastes and preferences.  Every month the consultant creates a personalized playlist specific to each subscriber. Vinyl Me, Please brings together in one service what today’s young music enthusiasts want.  Their customers love the sound of vinyl, they like to interact on social media with friends about new music to try, and they like the surprise factor they get from services like Pandora.”

As a daily user of Pandora (and demographic that grew up with LPs), I can truly appreciate this business concept. Interesting to every new venture is how to make the most of market trends to create customer experiences that are profitably delivered and fun to pursue. Cornwall observes of the Vinyl Me Please business model that, “although they have identified what their market wants, their model has proven to be a challenge to scale to a large enough size to pay the founders a consistent salary.  They need to grow to at least 700 subscribers to reach this important milestone.”

He goes on to provide an account of his interaction with one of the co-founders, Matt Fiedler, and what he feels needs to occur next in their business development:

“The biggest challenge we face is keeping the personal touch,” says Fiedler.  “We think this is what makes the experience unique to a lot of people and is something we’re going to have to fight through in order to achieve true scalability.  We need to find a way to maintain a personal touch but be able to bring a massive number of customers into the system without it straining the resources of the company.”

They have recognized that it will not be possible to continue to hand wrap the albums as the business grows.  They also are looking at ways to make the personal consulting more efficient.

“We have plans to set up an internal database that allows us to categorize and sort music to create a more efficient process around creating playlists,” explains Fiedler.  “We are also looking at rolling out a playlist-only offering that will help us capture more users and, at the same time, start paying our consultants without dipping into the revenue that comes in from standard, full-membership subscribers.”

This commentary demonstrates the need for business launches to be very iterative, flexible, and responsive. Finding some group who will purchase your product or services is not enough; sustainability comes with staying attuned to original and ensuing target market needs.

 

Advertisements

Gorillas Ask 7 Questions in Marketing: Do You?

Rediscovering a classic book is such a treat. Business books can, however, become outdated. New editions containing updates for changing market conditions can ensure a timeless and informative experience for the reader. In the field of marketing, Jay Conrad Levinson and his wife and business partner, Jeannie wrote a quintessential work on small business marketing, the Guerrilla Marketing Field Guide. They have released a new and updated version, serving the needs of a new generation of guerilla marketers.

Guerilla marketingToday, marketing seems very complicated. In a blog post last month for Entrepreneur.com, the Levinson’s argued that a marketing strategy, however,  doesn’t have to be complex. They believe that a comprehensive strategy can be articulated in seven brief sentences:

  • The first sentence tells the physical act your marketing should motivate.
  • The second sentence spells out the prime benefit you offer.
  • The third sentence states your target audience or audiences.
  • The fourth sentence states what marketing weapons you plan to use.
  • In your fifth sentence, you define your niche or what you stand for: economy, service, quality, price, uniqueness, anything.
  • The sixth sentence states the personality of your company.
  • The seventh sentence states your marketing budget, expressed as a percentage of your projected gross sales.

They describe in the book how such a strategy highlights the prospective buyers targeted by the marketing. They recommend starting with the people and then working backward to the offering. By organizing this way, results become more easy to attain, planning to obtain the results has meaning, and a specific call to action can be developed without much additional work. By doing this “blocking and tackling,” your team is able to anticipate market shifts over the long haul. The Levinson’s suggest the following:

The strategy must be expressed in writing, and it should not contain headlines, theme lines or copy. The strategy is devoid of specific marketing copy because it must be solid, yet flexible. Specific words and phrases pin you down. A strategy should be developed as your guide, not as your master.

After you’ve written all seven steps, read it a couple of times, then put it away for 24 hours. It’s just too important to be accepted — or rejected — hastily. Look at your strategy from a fresh perspective on a different day. See if you still love it and believe in it.

When is the best time to change that strategy? The first time you see it — before you’ve invested any money in it. After you’ve finalized it, don’t change it again for at least six months; then do a review and see if you need to tweak your strategy. If you have it right, you may not need to make any changes for several years.

Your approved strategy should be pinned up on bulletin boards and emblazoned in the minds of everyone who creates marketing for you. Keep the strategy handy in a drawer, on your desktop, or in an accessible file so you can reach for it the moment anyone presents even a tiny opportunity for marketing to you . . . or when you have a killer idea yourself.

Now that you know what we mean by marketing strategy, it’s time for you to create one for yourself.

Ask yourself these questions so you can create your seven-sentence marketing strategy:

  1. What physical act do I want people to take after being exposed to my marketing (click here, call a phone number, complete this coupon, or look for my product next time they’re at the store)?

  2. What prime benefit do I offer? What competitive advantage do I want to stress?

  3. Who is my target audience?

  4. What marketing weapons will I use?

  5. What will my market niche be?

  6. What identity do I want my business to have

  7. My marketing budget will be _______% of our projected gross sales.

Following this outline will help organize your small business around what’s really important. Good luck!

 

 

Risk a Mistake; Earn a Valuable Lesson

 

Entrepreneurship is about taking risks. With risk taking comes the chance for failure. Failures, however, need not be a detriment to success. Quite often, they can be the building block. Matthew Turner is currently writing a book called The Successful Mistake: inspiring tips, tricks & tales from 250 successful entrepreneurs. The premise, he writes, is to interview business people and discuss their mistakes and how they turned them around. In a blog post for under30ceo.com, he shared some of the thoughts that will be in the book and a story of struggle from Richard Branson:

Mistake Or Valuable Lesson?

Having interviewed dozens of inspiring individuals I’m beginning to connect some rather important dots. Often the difference between a successful person and everyone else is how they react to adversity.

Bad things happen from time-to-time, and we’re often left with a rather simple decision: Fight or Flight

Yes, that natural instinct of fighting or fleeing comes to mind, and those successful entrepreneurs that build empires are often those that fight…fight…and fight some more. Success is rarely handed on a plate, and I’d like to share (a) Famous Entrepreneur who had to find success the hard way:Mistakes

Richard Branson

In 1971 Richard Branson was just starting to grow Virgin Records, and although things were going rather well, money was tight and tough times lay ahead.

His mistake began when he won a contract to export records to Belgium, and after a few things went wrong, he realised he could avoid certain UK taxes by appearing to export but never actually doing so. His debts would soon be cleared and all would be well, but this little idea was illegal, and as with all illegal matters, the risk is high.

As you can imagine the Tax Man came knocking and Richard Branson spent a night in jail and was forced to pay a rather hefty fine. Yes, the same Richard Branson that so many people idolise (including me).

What Richard learned was that his reputation is his biggest attribute, and no amount of fame or fortune can replace it. He vowed in that jail cell that he would never return, and this mistake helped him build a certain set of values that he’s since lived to. As with most wealthy people he’s no doubt faced occasions where bribes and ‘loopholes’ could have been taken, but he’s learned his lesson from a rather large and potentially devastating mistake. This error in judgement could not only have ended his business, but tainted his entire life.

Mistakes can shape our destiny. As you can see in Branson’s story, there are people who can take the proverbial lemon and turn it into lemonade. Clearly, his experience has shaped his drive to become the dynamo businessman esteemed by many today. Think about your own experience…what have you done that, when it happened, you wished you hadn’t, but in retrospect would not trade the lesson learned for anything?

Moving beyond mistakes in the past, think about your current situation. Does fear of being wrong or making a mistake hold you back in a key decision that you are considering? Are you paralyzed with apprehension about what may go wrong with a pending strategic move? There must be a balance between due diligence and postponing risk taking for fear of failure. We can overcome most failures and become better for the experience. Are you willing to risk it?

Does Your Company Have an Innovation Identity Crisis?

 

Intrapreneurship – some would argue it to be a subcomponent of innovation; others, an outgrowth of; still others, a precursor to. Regardless your perspective, the concept that some organizations lack the culture to innovate effectively begets the question of how to change said culture. Many wonder what makes the greatest difference in an organization’s ability to innovate. Matthew May is a blogger on innovation and consultant at EDIT Innovation. He wrote recently of the”things that prevent a company from cultivating a companywide culture of innovation:”Corporate culture

1. Innovation identity crisis. If you assume that the consultants at Booz & Co are correct, there are perhaps three distinct approaches to innovation: needs-based, market-driven, and tech-centered. The first is the “humanist” approach good designers take.  The second is the “capitalist” approach…the fast followers that optimize…like a Hyundai, or in many respects Toyota. They capitalize on Clayton Christensen’s “innovator’s dilemma,” quickly copying and even improving on game-changing innovations as they hit the market. The third is the “technologist” approach, like an Apple. Many big companies simply don’t know or can’t easily conceptualize which of these categories they fall into, or should fall into, given their bench strength. 

2. Unclear innovation strategy. Roger Martin, dean of the Rotman School and coauthor of Playing to Win, likes to ask “given your chosen approach, where will you play and how will you win?.” It’s a question of focus, which is something different (albeit a nuanced difference) than prioritization. It’s the ability to identify what you’re going to say NO to. Steve Jobs was great at this, and you’re now seeing the clear picture under his rule become blurry. 

3. Inaccessible definition of innovation. People hear innovation and think: gizmo. Or app. Or code. Or product. Or service. Or feature. JetBlue’s founder David Neeleman said,  “Innovation is figuring how to do something better than it’s ever been done before.” 

4. No common methodology. We’re not taught in school to innovate. We lose our natural born capacity to learn and create new knowledge. Unlearn the ways of business execution and (learn to) define a problem by observing or experiencing it, guessing how to solve it, creating a solution based on that guess, and quickly seeing if what you assumed might work actually does. 

5. Methodology doesn’t feature experimentation. The mindset has to be “I think this may work so let me try it out.” Scientists work on hypotheses, which is a fancy term for guesswork. If people aren’t getting their hands dirty out in the field with users and customers, testing early low-fidelity prototypes and adjusting a solution, they won’t be able to truly innovate. 

6. Mismatched talent-to-task fit. Innovation is about divergence, rapid prototyping, testing and failure. Big outfits might go to school on Lockheed’s Skunk Works. Kelly Johnson, Lockheed’s maverick Chief Engineer (broke) away from the main operation, (stole) away the hip thinkers many consider the lunatic fringe, and set up shop in secrecy to essentially get back to the garage, with the charge being to design a working prototype under a few intelligent constraints. 

May’s points are well-taken. Companies that haven’t worked through their internal language of innovation find it hard to have productive conversations about how to go about improving their ability to “do something better than it’s ever been done.” Being able to have clear definitions provides the basis for shared goals, methodology, and talent strategies.  The sharing of desired outcomes, coupled with high level commitment to venturing, is the starting point for cultural fitness. 

 

Entrepreneurial Twists and Misfortune

Anyone who has read my blog for more than one sitting knows that I began my career doing turnarounds, mixed in some strategy added to marketing and nonprofit, started some businesses, and now help startups and SMEs. Invariably, some of the companies I run across or that you may read about in an epitaph simply do not pan out. Megan Kauffman posted a blog entry today that features the thoughts of Wen-Szu Lin, a Wharton grad whose entrepreneurial venture in China was unsuccessful. Lin’s thoughts are below:

When our business in China did not work out as hoped, I could not believe that I failed at something I set out to achieve.  Four years of my life were gone.  The emotional scars and physical ailments resulting from the stress were real enough.  I couldn’t believe that I had lost money for my investors (who were friends and family).

Few people discuss the details about such periods in their lives.  Most entrepreneurs that we hear about succeed.  Or else they fade into oblivion.  Older entrepreneurs occasionally discuss the multiple failures that they experienced to reach success.  Yet, those painful memories are long past.  The younger a successful entrepreneur is, the more he or she is featured and sought after in stories.Venture failure

So, what happens with the majority of the entrepreneurs who, like myself, have experienced a major setback?  By far, this period was the most challenging in my life, and I was the most unprepared for the moment.  All of the business cases that I had studied in school, read in books, and heard first hand from entrepreneurs focused on how to handle business success.  How would I deal with failure emotionally and mentally?

Range of Initial Reactions

In China, I saw a lot of failed businesses, both from local Chinese and foreign entrepreneurs.  Through my years in Beijing, I have met many entrepreneurs and witnessed their responses when their businesses fail.

Based on my un-scientific observations, initial reactions fall into a few categories:

  • Reflect and move on
  • Disappearing Act
  • Denial (negative energy)
  • Oblivious (optimistic)

There are probably many other common responses to a failed business venture, but these were the ones that I encountered most often.

What happens now?

My foolish pride was quickly replaced by an immediate concern:  I needed to support my family, as my wife had just given birth to our first child.  Perhaps this urgency snapped me out of a potential downward spiral into depression. I had to quickly figure out how to generate an income for my family.

I experienced many mixed emotions as I evaluated my options and next steps.  Here were some of my main take-aways:

  • Personal reflection:  I started writing anecdotes, detailing each of the memorable stories from our four years.  I relived them in my mind and tried my best to put them on paper with the same intensity as I experienced them.  That was how I learned to move on from my experience.

Bottom line, I wrote a book (The China Twist) that reflected my experience.  The book contains the most vulnerable moments in my career, so I am facing my fears and my ‘shame’ head-on.  I am proud of what I wrote and what I have experienced. 

  • Job opportunities:  I did not realize that my degrees and background experience in consulting and technology were such a strong security blanket.  My options were actually quite varied and better than I had expected when the business ended.  
  • Another shot at entrepreneurship:  Growing up, I could think of nothing else I wanted to do except start something from the ground up.  My priorities definitely have changed but my dreams have not. One thing I know for sure is that I will be back in the entrepreneurship game sooner or later.

Some great advice from someone else who has lived the highs and lows. Take it to heart…stick a copy of it in a file and read his book –“just in case” you ever need the encouragement!