My Top 10 Entrepreneur CEO Lessons: 2000-2009

As we near the end of the decade, there have been several articles published about how bad the 2000's have been. For me, while this hasn't been the easiest decade, it is the one in which I learned what it means to be a CEO and, beyond that, an entrepreneur.  During this decade, I've weathered two crashes - the "dot com" bust in 2000 and the sub-prime meltdown in 2008.  I've learned to do turnarounds, startups, a leveraged buyout, mergers & acquisitions, and even one bankruptcy and in the process, I've managed to learn a few things, at the cost of a few gray hairs.

So looking back on the closing decade, here are my Top 10 lessons learned:

1. Cash is different from profits and more important - This is a well known truism, but it didn't really sink into my bones until the first time I had to delay vendor payment in order to make payroll.  For a startup, if it isn't directly related to gaining revenue, developing shippable product, or required to comply with the law, think twice about spending it.  Juggling insufficient cash is painful.
   
2. Technology is easy; customers are hard - Nothing is more important to a company than gaining repeat, paying customers, in sufficient volume to pay the bills. Customers are gold and it is much easier to keep and grow a customer than to win a new one.  Companies die from lack of revenue, not lack of technology.  As one who has had to mothball good technology, I wonder how much more is languishing in basements, public storage lockers, and warehouses from failed startups.
   
3. "Should we" is more important than "can we" - Because most entrepreneurs are technology people, their mindset tends to focus on whether something can be done.  But this is often less important than figuring out whether something should be done.  A well executed idea isn't of much use if it's tackling the wrong problem.  Like the time, when one of my companies developed a new process monitor for semiconductor fabs only to discover that the equipment makers had integrated their own versions into their latest generation equipment, wiping out the market for third party systems.
   
4. It's better not to hire than to hire the wrong person - Believe me, there is one thing worse than having an open position when you are buried in work, and that is to fill it with the wrong person.  The wrong person can cost you time, money, drag down morale, and even get you sued.  Not sure about that potential new hire?  Keep looking.
   
5. Job descriptions should just be a starting point - People are multi-faceted, yet once we hire them, we tend to restrict them to the narrow confines of their job description.  What a waste of talent, one that a startup or small company can't afford.  Once you've found the right person, learn about that person's hidden talents and engage the whole person.  For example, at one company, I had a lab technician who was also a skilled amateur photographer.  Our marketing person figured this out and saved thousands of dollars in photo shoots by letting this man play in her world.
   
6. During tough times, people need hope - People will endure a lot as long as they have hope. Not only hope in a future, but one in which their contributions matter in getting there.  Without hope, people stop caring.  And when no one cares, the company dies. As CEO, in tough times, your number one job is to give people real hope, not false hope.
7. When things are going badly, level with people - Giving people hope does not mean sugar coating things.  This is false hope.  And if your people are halfway intelligent they'll see right through it.  The basis of real hope comes from truth.  Calling a spade a spade gives people real hope when they realize that management and the CEO aren't living in some fantasy world and its not taboo to talk truth.  Having said that, being straight with bad news will cause some people to leave. Let them go; trying to keep these weak sisters around isn't worth the distraction in a crisis.  The resilient ones will stay and will contribute if you let them.
   
8. Most VCs are just bankers - I expect to take flack over this one, but in venture capital, as with many professions, the 80/20 rule applies.  Treat with skepticism the claims of VCs to add value to your startup in terms of their operational expertise, making introductions, hiring, and strategic advice. While the top 20% can add value in this way, the remaining 80% are as risk adverse and hands-off as a commercial banker.  At least the latter don't pretend to be risk takers and company builders.  Most of them are just supplying money and they need you to turn it into an economic entity that can generate a return on investment.
   
9. Every CEO needs a jester - The medieval court jester was more than an entertainer.  Originally, the jester's job was to deliver unpleasant truths to the king to keep him from losing touch with reality.  Of course, this could be quite hazardous to the jester's health, which is why they often became skilled at delivering unpleasant truths in an entertaining fashion.  As CEO, one of the greatest challenges you have is getting honest, information free of "spin".  People have a tendency to suppress bad news and exaggerate good news as it moves up the chain.  People working in the trenches with the willingness to confront the CEO with unpleasant truths are worth their weight in gold.
10. An entrepreneur is only as strong as his/her network - The heart of what an entrepreneur does is to create something from nothing.  He/she does this by marshaling resources and know-how from the network of people they know.  Their network is the source of knowledge, people, funds, customers, and counsel that an entrepreneur then turns into a product and economic entity that becomes a company.  Cultivate your network.
    

May you have a prosperous 2010 and start to the new decade!

Useful Startup Marketing Concepts: The Short List

In my post Myths About Marketing, I promised to present my short list of the most useful marketing concepts and framework for startups.  So here it is along with brief descriptions.  To put the evolution of ideas into context, I've listed the "inventor" and year of introduction, as best I've been able to determine.  Corrective comments are welcome.

Basic Marketing Concepts 

• 4Ps Marketing Mix (Neil Borden 1953, E. Jerome McCarthy 1960) - The foundation of all marketing strategy.  The 4Ps are product, price, promotion, and place (channel).
• Marketing Segmentation (Wendell Smith 1956) - The concept that markets are not homogeneous but are made up of distinct, separate niches.
• Positioning¹ (Al Ries & Jack Trout 1969) - The concept that a company or brand should have a distinct identity compelling to its target customers.

Competitive Strategy

• 3Cs (late-1950's/early-1960's?) - The 3Cs are customer, competition, and company.  Combined with the 4Ps, they form the basis for competitive strategy.  Consultants have since expanded this to 7Cs, but honestly, I haven't found the expansion to add much, except confusion, to the original.
• SWOT Analysis (Albert Humphrey 1960's) - A framework that analyzes a company's Strengths, Weaknesses, Opportunities, and Threats relative to the competition.
• Five Forces Analysis² (Michael Porter 1980) - A framework that looks at an industry's competitive dynamics and the implications for a company's strategy.  The five forces are rivalry, barriers to entry, threat of substitutes, supplier power, and buyer power.
• Value Disciplines³ (Michael Treacy & Fred Wiersema 1995) - A concept that asserts that for a company to dominate its industry, it must focus its resources to create unfair advantage in one of three areas:  product leadership, operational excellence, or customer intimacy.

Product Planning & Management

• Product Life Cycle Theory (Raymond Vernon 1966)  - The concept that new products progress through different life phases of introduction, growth, maturity, and decline.  The phase in which the product resides affects the competitive strategy.
• BCG Product Portfolio Matrix (Bruce Henderson 1968) - A framework developed by the Boston Consulting Group for looking at a portfolio of products.  Products are classified into a two-dimensional grid with relative market share on one axis and growth rate on the other as either cash cows, stars, dogs, and question marks.  Internal resources are supposed to be allocated between products in the portfolio in accordance with their classification.
• Gartner Hype Cycle (Jackie Fenn 1995) - A concept developed by the Gartner Group describing the technology adoption cycle in terms of awareness.  The hype cycle states that all technologies go through the stages of technology trigger, peak of inflated expectations, trough of disillusionment, slope of enlightenment, and plateau of productivity.  Where your industry is in the hype cycle has implications for strategy.

Product/Customer Fit

• Diffusion of Innovations⁴ (Everett Rogers 1962) - A framework categorizing customers by their willingness to adopt new ideas, technologies, and products.  Customers are classified as innovators, early adopters, early majority, late majority, and laggards with appropriate implications for strategy.
• Economic Buyer Model⁵ (Robert Miller & Stephen Heiman 1970's) - A framework that identifies buying roles in a complex selling situation such as that commonly found in business-to-business sales.  The roles are economic buyer, specifier, consultant, vetoer, and gatekeeper.
• Crossing the Chasm⁶ (Geoffrey Moore 1991) - A framework that focuses on the transition from early adopter to early majority customers per the Diffusion of Innovations framework.
• Customer Development⁷/Lean Startup (Steve Blank 2005, Eric Ries 2008?) - A methodology used to facilitate customer/product fit and the development of a repeatable sales process for acquiring customers via rapid, iterative prototyping and feedback.  The methodology focuses on the innovator and early adopter stages of the Diffusion of Innovations framework.

References:


1.  Ries, Al and Trout, Jack, Positioning:  The Battle for Your Mind, New York: McGraw-Hill, 1981.
2.  Porter, Michael, Competitive Strategy, New York: Free Press, 1980.
3.  Treacy, Michael and Wiersema, Fred, The Discipline of Market Leaders, New York: Harper Collins, 1995.
4.  Rogers, Everett, Diffusion of Innovations, New York: Free Press, 1962.
5.  Miller, Robert and Heiman, Stephen, Strategic Selling, William Morrow, 1985.
6.  Moore, Geoffrey, Crossing the Chasm, New York: Harper Collins, 1991.
7.  Blank, Steven, The Four Steps to the Epiphany, Cafepress.com, 1995.

Myths About Marketing

One of my pet peeves is the frequency with which marketing is declared dead or superceded by some "new marketing" as a result of some "paradigm shift" in technology, society, or realignment of the cosmos.  The declaration is usually made by some consultant who, of course, is then happy to peddle his or her flavor of the replacement, almost always a repackaged version of the basics.  And because marketing is one of those terms - like "quality" or "indecency" - that everyone understands but few define, the hype begins, to be followed by the inevitable backlash when the new marketing fails to deliver any better than the old.

This is not to say that there are no innovations in marketing.  But as one who has been in marketing since the mid-80s, I find that these innovations are not as frequent as the consultants would have us believe.  I actually traced back the history of marketing thought and what I consider to be true innovations only crop up about 2-3 times per decade.  (Maybe I'll post this timeline in the future.)

So as a back-to-basics technology marketing guy, here are some additional assertions I'd like to make (some of which I plan to expand on in the future).

• Marketing is the business function whose job it is to ensure that the products that a company delivers to its target customers are those that the customer needs when they need them - Others may disagree with this, but this is my definition of marketing with products, target customer,  and needs highlighted as requiring fuller definition.  I disagree with those who view marketing as demand creation or just about generating leads.  But these points require full posts of their own.
• Marketing effectiveness is ultimately determined by competition in the market as measured by market share and profitability over time - If one accepts my definition, then this is the logical measure of effectiveness, not lead count, or conversion rates.
• Marketing is not dead and never will be - Being a basic function like product development, manufacturing, or selling, it must get done or there is no business.  But because it's intangible, it can appear as if there is no marketing being done. True, a company may not have a marketing group, but somewhere in the business, someone is deciding what product to build, how to price it, and how to get it into customer hands, all marketing decisions.
• Marketing tactics change rapidly; strategic frameworks don't - There is a difference between marketing strategy and marketing tactics.  Marketing strategy involves the use of concepts and frameworks to figure out what should be done.  Marketing tactics involve the use of various vehicles like retail stores, the internet, radio, TV, social media, etc. to execute the strategy.  In most cases, when consultants trumpet "new marketing" they are talking about a shift in the relative cost effectiveness of one tactic over another (e.g. the use of the free demo).  Now don't get me wrong; a change in tactics definitely impacts strategy, but these rarely constitute a paradigm shift.
• Marketing basic concepts/frameworks still apply - Whether it's hardware, software, internet services, Web 2.0, cloud computing, cleantech, greentech, or mobile applications, basic marketing concepts, frameworks, and methodologies remain relevant tools for developing strategy.  Of course, as with any tool, the concept, framework, or methodology used must be appropriate to the situation.  In the same way you wouldn't use a saw to pound in nails, you wouldn't apply the Customer Development methodology used successfully by many internet startups to a medical device startup.

So what are these timeless concepts and frameworks?  And which of these are the most relevant to startups?  Stay tuned....

Fighting Idiotspeak

I just finished a long overdue re-reading of Why Business People Speak Like Idiots⁽¹⁾.  I hate jargon, yet find that it has a way of creeping into my writing and speech.  I find that a periodic re-reading of this book acts like an inoculation against idiotspeak.  Lately, I've spent a lot time with cloud computing people where jargon, acronyms, and superlatives buzz through the air like flies around a carcass.  The other day, I realized that I actually used the word "ecosystem" in one of my blog posts which had nothing to do with ecology. Shudder.

Not all jargon is bad.  In fact, technical jargon can serve as an effective shorthand for complex concepts and actually improve communication between experts ⁽²⁾. What distinguishes technical jargon from idiotspeak is that the former can be tied to a precise definition appropriate to a specific setting.  For example, the word paradigm might be technical jargon when used by epistemologists discussing modes of thought.  It becomes idiotspeak when used in advertising copy as a synonym for "new and different."

Idiotspeak, on the other hand, avoids precision.  The best is made up of vague nuances enabling repurposing of the terminology into unaffiliated contextual situations hallmarked by erudite sounding phraseology.  Acronyms are another form of idiotspeak ("ispeak").  Other forms include the high-novelty-concocted-superlative-laden ("HNCSL") compound words.

Idiotspeak is the enemy of startups where clarity is most needed.  Why?

• Clarity enables vision- In the beginning there is a vision which must be communicated to employees, customers, and partners for the startup to succeed.  But for some reason, idiotspeak is often thought to be more motivating, at least to the speaker.  I mean, I know I'd much rather be told that "we need to think outside the box to ensure we hit our Lighthouse's deployment window, or else we won't get buy in from our VCs on the bridge," than be told that "we need to figure out how to ship the product to Cisco on time, or else the VCs won't give us more money."  Not.
• Clarity stands out- One of the goals of any marketing campaign is to stand out.  That's tough to do when we're all striving to be "the leading provider of infrastructure virtualization software for large datacenters, today [announcing] an integration partnership to enable policy driven automation of server repurposing in the datacenter" (real example I kid you not).
• Clarity forces people to take a stand - Which is more likely to change an employee's behavior?  Telling said employee that "Your effectiveness would be accentuated if you were more cognizant of the potential negative ramifications of the use of certain colorful phrases in your speech" or "Stop swearing!  You're offending people so that they don't want to work with you and then we'll have to fire you!"  Now saying this might invoke some of those colorful phrases,  but there's no doubt about your point (which will be a point in your favor during a wrongful termination lawsuit).
• Clarity exposes posers - In my experience, real experts don't hide behind jargon;  true experts can make difficult concepts understandable.  And if they can't explain it in simple terms, you might want to reassess their level of expertise.

I'll do my best to avoid using idiotspeak and to define my technical jargon, especially terms that have been widely misused (e.g. paradigm, positioning).  But idiotspeak is insidious.  Please help me keep this blog jargon free; call me out when you find me using it.

References:

(1)  Fugere, Brian et.al., Why Business People Speak Like Idiots, New York: Free Press, 2005.
(2)  Cockburn, Alistair, Agile Software Development, Addison-Wesley, 2001.