Tag Archives: start-ups

Mainstreet Business Demonstrates Strategy Execution

One of the interesting conversations that keeps coming up  revolved around the hyperfocus on technology based start-ups to the exclusion of virtually every category. When I attend networking events, many of the entrepreneurs that I encounter are articulating the value proposition of their high tech start-up. Almost every single one speaks of the next competition they plan to enter to secure financing to fund their idea.

What seems to be missing in these conversations is a focus on executing a business strategy rather then simply a funding strategy. In the hot pursuit of obtaining seed capital, entrepreneurs  can become blind to what’s happening around them with the other important facets of the business. From human resources to operations, marketing & sales, there are many other aspects of development besides the capital raise that warrant attention.

In companies that do not claim to have a technology focus, it is a little easier to talk to the entrepreneur about business basics. Professional development, personal finance, market research, proof of concept, branding, feasibility, organizational design, supply chain, & sales are front and center topics in most companies. Instead of intellectual property, securities and like topics du jour, most of the companies that contribute to our way of life and represent the fulfillment of the American Dream struggle with these topics.

I fear that, by giving so much attention and publicity to technology companies who may have the outside chance of selling at a favorable multiple, we are failing to give earnest heed to companies with issues that are easier to address and that have a higher likelihood of making it to the five years in business mark. Simultaneously, we become so enamored with the perfection of code or intellectual property that we fail to talk about business basics with the technology companies, though they need to think through all of these issues in addition to theunique issues they face.

Please do not misunderstand my intentions here. This blog post is not about bashing technology companies. Quite the contrary, it is suggesting that all companies are best served by focusing on fundamentally sound business principles. In the very next breath, however, I would argue that non-tech companies not be relegated to second tier/ugly stepsister status simply because the multiples they usually generate are lower. The upsides of a “mainstreet business” is that it has less inherent  risk, requires less capital, and can generate revenues sooner. 

How can we, as the American business community, more effectively support mainstreet businesses? (And not fail to challenge tech companies to also execute on key business fundamentals as well?)

 

Antarctic Innovation

If you didn’t have the opportunity to watch the IMAX movie about Sir Ernest Shackleton’s now-legendary 1914-1916 British expedition to Antarctica, you missed out on a big screen adventure. Yet, as can be the case, cinema leaves out key details in non-fiction stories. As it happened, Shackleton had a lot of difficulty recruiting a crew to accompany him in exploration. A LinkedIn acquaintance of mine, Gijs van Wulfen, found that an advertisement was run in a London paper in 1913. The ad could, as Gijs points out, just as easily be an appeal for those looking to become innovators:

Men wanted for hazardous journey. Small wages, bitter cold, long months of complete darkness, constant danger, safe return doubtful. Honour and recognition in case of success.

van Wulfen points out that there are numerous similarities between expeditions and innovation:

  • A promised land. Most people searched for the adventure only when it was really necessary and when they had nothing to lose. This is so familiar in our organisations today. Real urgency is only experienced when ‘old solutions’ do not work anymore and markets are saturated. And it is felt by people expecting big promising treasures.
  • The challenge of being 1st. Explorers strive being first. Amundsen discovering the North-West passage. Livingstone searching for the source of the Nile. Hillary climbing Mount Everest. Entrepreneurs have the same ambition: developing ‘new-to-the-world’ innovations to outsmart competition.
  • A group effort. Explorers almost never went alone. Hillary could not have conquered Everest if he wasn’t saved first by Tenzing Norgay from falling in a crevasse. You can invent a new product, service or business model alone. But within organizations you cannot innovate alone. You need people from every discipline to develop it, produce it, market it, sell it, bill it and service it.
  • A long journey. Discovery voyages lasted many years, due to unexpected setbacks such as an unknown illness, a tropical storm or mutiny by the crew. The average time for the development process of a new product, which takes 18 months from idea to introduction, follows similar patterns.
  • High risk of no return. Many ships perished along the way. On one of the voyages of Magelhaes, four of the five ships did not return. One ship survived and made the expedition worthwhile. It’s similar in innovation. From the seven new developed product ideas only one product enters the market successfully. The remaining six perish along the way.
  • Serendipity leads to even bigger rewards. Sometimes explorers thought they landed on a small island, which proved to be an enormous continent afterwards. As the Vikings did who discovered North America long before Columbus.  Compare this with the development of SMS-services. It was originally developed for the business market, but it did not take off. After young people caught on to the idea of SMS as a modern cheap way to contact each other, it became a worldwide market with more than three billion users.

Entrepreneurship, like innovation, is an expedition for the hearty. Those who aspire to start enterprises must be willing to take risks, have a clear vision of a better solution, work hard for a long time, recognize opportunity, and work through teams. 

 

Want Some Financing With That Seasonal Brew?

 

Jim Koch, who started the Boston Beer Co. in 1984, found that banks did not want to lend money to his or other start-ups. The inherent aversion to risk in the banker DNA means that they prefer to deal with businesses that have positive cash flows today rather than the promise of rosy returns in the future. Koch decided to start his own program, Brewing the American Dream, to help food, beverage, and hospitality entrepreneurs in the Boston area launch their businesses.

Koch comes form a long line of brew masters–six generations and counting–but is not what one may think of as a beer drinker with little training for running a company that features such a powerful brand as Sam Adams. With a bachelor’s degree, a law degree, and an MBA from Harvard, he has been groomed for this moment. He now wants to make sure that others get the right combination of instruction, mentoring, and capital to be successful in their own rights.

An article on businessweek.com last spring by Nick Leiber tells the story. Launched in 2008, the initiative aims to go beyond traditional corporate philanthropy to “leverage” Boston Beer employees’ expertise, “rather than just giving away money or time or beer,” says Koch. “I wish I could’ve had some loan money instead of having to raise equity, and I would’ve loved to have advice about the nuts and bolts of growing a business.”

Now the program, Brewing the American Dream, which has advised nearly 3,000 business owners and financed more than $1 million in small loans for about 150 businesses, is going national. Boston Beer, the largest craft brewer in the U.S., plans to lend at least $1 million this year, hold monthly speed-coaching events in major cities across the country, and curate an online-networking and education site for participants. The coaching events, at which beer flows freely, are meant to be informal and are open to any business owner, not just loan recipients. 

Lieber continues on to write,

Koch isn’t seeking a financial return from Boston Beer’s investment in the program—a tiny fraction of the $157 million the company says it spent in 2011 on advertising, promotions, and selling expenses. “There is a huge amount of coaching, hand-holding, advice to get the repayment [rate] up to 95 percent,” says Koch. “I know from the economics of our program; you lose money on it. It has to be philanthropic.”

Supporting small businesses through donations to nonprofit lenders has been catching on among prominent companies, which have created programs such as Goldman Sachs’s (GS) 10,000 Small Businesses andStarbucks’s (SBUX) Create Jobs for USA. “But [Boston Beer’s] combination of employee engagement, capital resources, and mentoring feels new to me—and very much a response driven by what’s been happening in the economy in the U.S. over the last several years,” says Harman. “It was a right time in the economy because lending had all but come to a halt and small businesses were really struggling.”

Notice the elements that are mentioned as hallmarks and critical success factors of the program.

  • Access to capital at reasonable rates
  • Coaching/mentoring
  • Networking

Every entrepreneur would benefit from this favorable combination. Unfortunately, many incubators and accelerators make capital expensive by taking an equity position in the companies they “help.” Non-profit organizations established to provide the coaching and mentoring often put a cap on the number of hours an entrepreneur can access assistance. The networking component is equally important. Instead of events where the beer flows and superficial conversations seldom lead to business plan execution, what is needed is more one-on-one opportunities. When start-up companies are housed in settings where the participants can pass one another in the halls, serve as peer counsel, and make key introductions for one another, success is far more likely.

 

Entrepreneurs Have Not Because They Ask Not

The world of entrepreneurship is becoming more divided almost daily between the “haves” and the “have nots.” In this context, we would be referring to technology. Whether a start-up is seen as a technology company or not is determining not only valuations, but access to resources. One of the more common resources available to tech companies that “have” what others presume it takes to cash out somewhere in their trajectory for a very favorable multiple is an incubator, increasingly referred to synonymously as an accelerator.

Until very recently, these accelerators extract an equity position in the start-up company’s cap table in order to justify the risk of helping them for very little compensation up front. Most tech entrepreneurs learn to play the game this way and progress through the angel–Series A–Series B–etc process if they hit their milestones. But…the “have nots” bristle at the model and try to create worthwhile businesses without giving up equity. Unfortunately, they also try to go without mentoring and systematic instruction–to their detriment.

There is an emerging trend toward fee-based offerings that is on the horizon. Organizations like EntreDot, with a fashion innovation center and an industry agnostic innovation center in downtown Cary, NC, prefer the fee-based “pay to play” model. The premise is that a Main Street entrepreneur (otherwise known as “have not”) needs access to resources just like a tech start-up. In order for the innovation centers to provide services like instruction, mentoring, and space, they charge the entrepreneur on a “pay-as-you-go” basis. While this may be an affront to the typical “have” start-up mentality, it meets with less resistance among “have nots.”

Leaders of accelerators around the country who are trying to convert to more of the fee-based services model point to the fact that competition is stiffer than ever to get into the top  accelerators and too many entrepreneurs are being left by the wayside, just as the “have nots” have been for a longer period of time. What the newly disenfranchised and ignored sectors of entrepreneurship have in common is that they are trying to figure out how to commercialize an idea.  They each need help to do so!

Alexander Taub, the director of business development at the Des Moines, Iowa-based mobile-payment network Dwolla, spoke recently with Lauren Cannon for an article on the topic for Young Entrepreneur. Really young companies that aren’t necessarily ready for the big time may not benefit from accelerators, he says. Still, Taub does use General Assembly’s offices, which serve as Dwolla’s NYC home base. The value from using the co-working space stems from connecting with other companies that are also being incubated there, he says. “That’s definitely worth it… We’re part of the community.”

Plus, the experience might be worth paying a little extra for. At the Cary Innovation Center, less than six months of involvement has lead to strong growth for its initial two residents, Shelten Media and the CaryCitizen. Shelten saw an increase in billings of over 60% in her first 60 days and is now looking for larger space at the Center. CaryCitizen has seen their staff grow from two to five people as advertising revenues have increased. Both companies appreciate the value of the mentoring, but are committed to the program due to the cross pollination occurring among the residents. While it is definitely a significant and personal choice to decide to become a part of an accelerator (or innovation center as EntreDot calls theirs), the proof is in the results. As long as those serving the participants help them achieve desirable results, they will enjoy helping both the “have nots” and some who would otherwise be in the “have” category.

 

From Think to Execute

“The ability to convert ideas to things is the secret of outward success.”
– Henry Ward Beecher

It is not enough to simply have a good–or even great–idea. Ideas are plentiful. I have them. You have them. The bum on the downtown street corner has them. People whose faces grace the covers of business magazines have them. Why are they on the cover and not us? Quite simply, they have become very proficient at executing their idea(s).

Brad Feld, of The Foundry Group and TechStars says that he gets emails all the time from would-be entrepreneurs with the latest software and internet ideas:

Often these entrepreneurs think their idea is brand new – that no one has ever thought of it before. Other times they ask me to sign a non-disclosure agreement to protect their idea. Occasionally the emails mysteriously allude to the idea without really saying what it is. These entrepreneurs think their idea is special and magic. And they are wrong.

The great entrepreneurs are already focused on the implementation of their idea. They send me links to their website or software. They describe the business they are in the process of creating (or have already created). They point me to what they’ve done to implement their idea and show real users who validate that the idea is important. And they quickly move past the idea to the execution of the idea.

Google? Not the first search engine. Facebook? Not the first social network. Groupon? Not the first deal site. Pandora? Not the first music site. The list goes on. Even when you go back in time to the origins of the software industry: MS-DOS – not the first operating system. Lotus 1-2-3 – not the first spreadsheet.

The products and their subsequent companies became great because of execution. First, they had to execute on building a great product. Next, they had to execute on building a great business. Finally, they had to execute on scaling, sustaining, and evolving a great business.

Notice what Feld says…

  1. Execute on building a great product. As you move from Ideation to Conceptualization, it is important to vet the commercial and market value of the idea. Determine whether the “back of the napkin” math shows that the idea has promise to anyone other than yourself.
  2. Execute on building a great business. Creation is the process of doing one’s initial research and development, followed by producing a prototype or beta version of the product or service. The work done here will reveal what not to do and what to do as you go about determining what you plan to take to market.
  3. Execute on scaling a great business. Evaluation of your strategic plan and markets, validating them and building a strong team around you will allow you to grow with less problems down the road.
  4. Execute on sustaining a great business. Preparation for the launch and Commercialization of your product or service require thinking through what you plan to do with a systems and process mentality so that procedures can be developed that help the business to run itself.
  5. Execute on evolving a great business. Commercialization looks differently at later stages of business growth. Sales organizations and operations must change and  as market data is analyzed and new opportunities for competitiveness emerge.

Be someone known for execution rather than ideas–even if you are not trying to impress a venture capitalist, you will meet with greater success in all that you undertake!