Sunday, January 27, 2008

When the Dream is Over

Every day is a rollercoaster for any entrepreneur, but for those who are in it for the big exit, except for the very lucky few, there comes a time when you realize that its just not going to happen. Predicting and planning for the death of the dream can be difficult, but here are a few things that entrepreneurs should consider:

  • Reformulate, reformulate, reformulate – when Starbucks had more than five locations, they didn’t even sell hot coffee. It took them years to get it right, and when they did, they really got it right. Companies don’t really fail, strategies fail, so you’ve got to reformulate.
  • Rewind your clock – it’s likely that the company you’re leading today looks nothing like what you thought it would. This is probably because you didn’t really have a clue when you got started, but it may also be because you had to compromise your dream at different time. If you made smart changes, fine, but if you compromised, go back to that original dream and see if its still worth pursuing.
  • Plan your next move – When you’ve reached your psychological failure point, there’s no turning back. You’ve either got to shut it down or move on to something else. Even if your partners think there is something there, they’ll never be able to convince you otherwise, so there’s not reason to pursue something just can’t believe.
  • Change your appetite for risk – If you’re failing, you might as well do something dramatic or crazy to see if it works. Many companies have little to lose, and this is a perfect time to try that crazy idea you dreamed up months ago but never thought anyone would go for it.
  • Consider salvage value – if you’re company is going to sink, consider how you might salvage some of the value. Mega corporations pay big bucks to people who can minimize losses, and there’s no reason that you can’t do the same.

Entrepreneurs don’t give up easily, so I know that dying dreams are contradictory to a small subset of these people—which is a great thing. Yet still, most hit a point where they know that their business is going to be only average and that they aren’t going to get that bix exit they were shooting for. Tread carefully if and when you get there, because this is where an average leader gets their opportunity to obtain hero status by planning and executing an excellent backup plan.

Thursday, January 24, 2008

Burn Rate

If there’s one thing that an entrepreneur needs to watch, it’s their burn rate. This is not only good for business, but its good for investors. There’s nothing that kills an investment like poor fiscal management.

If you don’t watch your cash, investors are going to think one of three things: you don’t care about their money, you think you’re going to get more money when you run out, or you don’t have a clue what’s going on with your money. Any or all of these scenarios will sour a leadership team and potentially tank a company.

Most entrepreneurs actually care about their cash burn but miscalculate an investor reaction to unexpected shortages. First off, everyone has shortages so you should feel at ease about this. Secondly, when there are shortages, one should recalibrate the financial models and make sure that your plan is up to snuff, because investors don’t like to invest twice in the same inaccurate game plan. Thirdly, most investors actually care about your business and want to help where they can, so a little openness in the finances can elicit valuable feedback.

All in all, you gotta watch the burn and you gotta make it clear that you care about your burn much more than your investors do. So before they ask the question, break the news and chase it with a refreshed plan.

Wednesday, January 23, 2008

Value-based Pricing

Value-based pricing sets selling prices on the perceived value to the customer, rather than on the actual cost of the product, the market price, competitor’s prices, or the historical price. It’s a great pricing strategy in an oligopoly or monopoly, but not in commoditized markets.

My MBA professor called this baguette pricing to cut the loaf at the production cost for a floor price and the perceived value as the ceiling price. So long as one doesn’t try and take more bread that is reasonable, a deal is likely to occur.

But what happens if you want to do a second deal? One could argue that value-based pricing is still the right way to go, and one could also argue that as long as you don’t surpass the perceived value to the customer, you’ll be okay. The problem with this thinking is that it assumes that the client in unaware of your costs—something that occurs only rarely—and that you can continue to take a bigger piece of the loaf. This approach breeds neither trust nor loyalty, which means that your customer is going to keep shopping around for a better deal.

An alternative approach is to push the selling price down the loaf a little so you’re splitting the difference a bit more. This way, the client knows that they’re getting a great deal, they quickly understand that you’re sacrificing margins, and they’ll trust you enough to do a second deal. In fact, they’ll become a loyal partner, because they know that you’re looking out for them.

Extracting the maximum margins is a great thought, but these decisions should always be considered in conjunction to the message that you send your client. Good values mean happy customers, and happy customers make good clients.

Tuesday, January 22, 2008

Digital You: The Last Frontier

Forget everything you know about you. The past is irrelevant, because you can now become digital. You started to notice things changing when you sent your first email. You logged your first thoughts with email, and now you’ve begun creating avatars, photos, videos, and blogs that begin to form a rudimentary digital you.

You’ve noticed a shift away from the physical you, because the digital you can do so many new and exciting things. For starters, you can meet just about anyone you want to. You can also learn about (or just link to) an unlimited amount of information. And you can create a slightly better you.

Trend the digital you out a few more years from today and you see someone who is playing by a new set of digital laws. You can be whomever you want—even partitioning your identity as you see fit—and hide behind a mask. In fact, anonymity and pseudonymity completely uncouple the digital you from the physical you that you know today.

The digital you will retain relevance only to the extent that you exert your physical identity in the social graph. A world where identity is not anchored in some portion of static identity can never achieve greatness because it can never trust itself.

Monday, January 21, 2008


Anything worth doing at all is going to be tough. It’ll be tough not only because it isn’t proven, but because people will not believe you or believe in you.

Now there are two types of opposition: doubtful opposition and absolute opposition. The first is simply not believing that someone can actually do things differently. Doubtful opposers are people that entrepreneurs need to keep in their rolodex just because everyone needs a devils advocate once in a while…especially when you prove them wrong and make that delightful little call to suggest that you did it and it worked.

The second kind of opposition, absolute opposition, tends to be more of a structural opposition. Unfortunately you cannot call anyone up and tell them that they were wrong, but this kind of opposition will actually make you a hero if you can overcome it. Structural opposition is almost always more difficult, because it involves changing a system, not an opinion.

Someone once told me that entrepreneurship is absolute optimism in the face of total rejection. Don’t let this total rejection get you down. Embrace it, engage it, and eliminate it.

Thursday, January 17, 2008


If you ever find a passion for anything in life, stick with it.

No amount of pay or perquisites can buy the results that passion produces. Sure, you can buy somebody’s time, energy, and even loyalty, but none of that translates into world-class work.

Most people simply end up doing what made sense at some point in their life either because an opportunity came up or because someone they knew convinced them that they should do something. This is an okay strategy only because it’s what most people do and it generates average outcomes, but it’ll never produce world-class outcomes.

If you don’t love your job, your hobby, or who you are, change it. Make it something that is exciting and challenging. I’m not talking about become a professional athlete or driving your motorcycle across the country, I’m talking about finding something or becoming something that is real, valuable, and meaningful. Passion for these things will bring real happiness and you will see that your work becomes world-class.

Wednesday, January 9, 2008

Who Needs Customer Service Anyway?

I don’t understand why companies provide customer service when they don’t equip those people with the tools and resources to fix problems. It’s especially unnerving when unfixed problems don’t go away.

Take the example of a certain Wendy’s restaurant in Grand Junction, CO. Almost all of their customers are just passing through town and will probably never eat there again. As you can guess, their drive through lane is always backed up, and their employees rank up there with the worst of the worst. The customer experience stinks, and nobody really expects much from them. I don’t go there anymore, and I’m okay with that.

Now let’s take a look at Nordstrom's. They will bend over backwards to ensure that you have a good customer experience. Yes, you’ve got to pay for it, but it sure beats dealing with the hassle when issues arise. One expects a lot from these people, and one will always get a lot. People will always shop there.

Now, for yet another contrast, let’s look at HP’s consumer printer customer service arm. I just purchased a beautiful 4-in-1 printer with built-in wi-fi, and the software stinks. In fact, since installing the software on my computer and my wife’s computer, both have slowed down to a snail’s pace and neither even detects the wireless printer. I’ve spent no less than 15 hours trying to work out the problems, four of them with customer service, and they finally admitted that there were some bugs in the software. They promised to have an expert call me back within two days to fix the problem, but they broke their promise and I’m still waiting for a call back. Now I’m stuck with a problem and am left at the mercy of HP’s technical support team. As I’ve looked in to this problem on various tech support forums, I have seen countless others who tell my exact same story.

I don’t much care if Wendy’s of Grand Junction stinks, and I’m willing to pay a little extra at Nordstrom’s, but I’m appalled that I forked over $350 to HP for something that doesn’t even work and that I’m stuck with tech support who doesn’t keep their promises.

If customer service cannot or will not fix problems, just get rid of them. If however, you want to build a brand, reputation, or culture, hire people who can fix problems, equip them properly, and encourage them to fix problems.

Can anyone recommend a good printer for me?