BLOCKBUSTER IDEAS NOT REQUIRED

The starting point for any new venture or product is the idea. What product or service will our business offer that will be a winner?

A great many people can’t get past this idea phase. It seems to me that many of them stall out because they are waiting to hit upon some kind of revolutionary new idea – a concept of such power that it will appeal to everyone. They want bells to go off in their heads. They want brilliance. They want a blockbuster idea.

The fact is, there’s not a lot that’s new under the sun. Most businesses, even highly successful businesses, are founded on a very ordinary, very mundane idea, pretty far removed from brilliance. It’s luck, timing, and execution that transforms a ho-hum idea into a good business. Key chains, mugs, corkscrews, backpacks, chairs, sunglasses, shoes, etc. are established ordinary products, yet new companies are entering the market place with them, and many succeed.

All of us would like to come up with a show-stopper of an idea that will cause customers to flock to us when they recognize the brilliance of our creation. This scenario is rare. You can take comfort in the fact that most new businesses and products are based on an existing, well known, and possibly boring entity. Their success is founded on new and better executions. Higher quality, value added features, new areas of distribution, outworking competition, better timing, superior service, license added, etc.

Think of Scrabble where you add one letter to an existing word, and you get full credit for the other person’s word. You don’t have to reinvent the wheel.

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Passion Required To Start and Grow a Business

PASSION−A key attribute to overcome adversity and build a business. Every attribute and skill can be learned except passion. I would not recommend that anyone start a business unless they have a passion to do so. Passion is the wild card in overcoming many obstacles facing fledgling companies. To name a few: inexperience, knowledge shortfalls, lack of resources, unproven company concept, no customers yet, etc. Enough?

Your passion for your new baby can overcome and ameliorate some of these obstacles. Your potential customers, employees, suppliers, money sources, etc., are much more inclined to help you if they witness your passion. Passion is generated internally. No one can teach it to you. It will also help you rebound from the setbacks that are sure to come, help you rationalize the ridiculous amount of hours you will work, and the sacrifices incurred in your private life.

Many who have already been in their businesses for some time start to lose their passion. Their challenge is to restore it. This can take many forms. They need to remember why they originally started the venture. I find that a three-day weekend once a month works wonders for my juices as well as daily workouts that take place at many weird hours. Look for what works for you.

RISK: IDENTIFY, PRIORITIZE, AND MANAGE IT (Part 3)

(Third in a 3 part installment)

A Google alert steered me to an article called “Beating the Odds When You Launch a New Venture” that had just come out in the May issue of Harvard Business Review, authored by Clark G. Gilbert and Matthew J. Eyring. It was one of the best pieces Iʼve ever read about entrepreneurs, their attitudes, and management of risk. They said that entrepreneurs arenʼt cowboys—theyʼre methodical managers of risk.

I thought their concepts applied equally to small and big business. I contacted one of the authors, Clark Gilbert, to discuss his ideas and decided I wanted to share his thoughts with my small business friends. The result is my interview (below) with Clark.

My comments follow his answers and are primarily addressed to small business owners.

Clark Gilbert (gilbert@deseretdigital.com) is the president and CEO of Deseret Digital Media and was formerly a professor at Harvard Business School.

10.BR: What advice can you give a resource challenged new Entrepreneur on where to get advice or the process of going about resolving the ventureʼs risks that he has correctly identified?

CG: Learn from others. Get a group of people around you who are willing to tell you where you are wrong. Do not reinvest until you have learned and adjusted to the market.

BR: You can learn from others by utilizing mentors, a board of advisors, or the free advice of organizations like SCORE, SBDC, and incubators whose missions are to help small businesses start and grow.

11.BR: Why arenʼt experiments good for confirming that your initial ideas are correct as well as to redirect a venture?

CG: Too many people run a test to “prove” they are right, rather than to adjust and learn. The power of experiments is to learn. Thatʼs why I keep coming back to the theme of scarce capital. It forces you to adjust and prevents you from perpetuating a pattern that is not working.

BR: We ran our tests to determine whether we were right or wrong, and the result dictated our next moves regardless of prior beliefs.

12.BR: Do you find managers reluctant to shut down their venture when the evidence shows it wonʼt succeed?

CG: Hope springs eternal for good entrepreneurs. That is a good thing, but it needs to be tempered with forcing mechanisms that help you adapt. You might hold on for pride/ego, because of financial commitments you have made, or from sheer cognitive blindness. Thatʼs why structured experiments and staged capital can be such powerful forcing mechanisms. They enable you to step-back and adjust.

BR: Many managers get a false sense of their products worthiness because they fall in love with their idea instead of in like. They rely too heavily on opinions of family, friends, or employees, who usually are overly supportive and reluctant to express negativity, even if itʼs called for. Often their ego interferes with their objectivity. Better to change course and admit you were wrong, than fail.

13.BR: Could you compare a New Ventures Development between a large company and a bootstrapping entrepreneur, based on their financial resources?

CG: Two things probably stand out. First many large company settings donʼt really treat resources as scarce, and the venture managers receive more resources on average. Second, the resources are not the venture managers, but the corporations so some individuals in large companies donʼt treat the resources with the same sensitivity.

BR: There truly is a difference when itʼs your money or someone elseʼs. The bootstrappers with their money at stake are more dedicated to taking less risks and managing those that they do to reduce or eliminate them.

14.BR: Is it safe to say that from reading your article that you believe that risks do not produce the intended rewards?

CG: Risks in themselves do not produce rewards, risk reduction does. Those who are better at this skill are better at generating returns.

BR: This should put to rest, the publicʼs perception that good entrepreneurs love and seek risk.

BR: Some additional thoughts on risk:

Risk is not absolute. Two people in identical circumstances can have dramatically opposing risks. The one with the experience in running a company with industry knowledge, with a good and experienced team, and a strong rolodex is facing minor risks compared to the person with little industry knowledge, experience, and relationships whose risk may be too much. The former is an insider and the latter an outsider. Risk is a little like beauty—it varies in the eyes of the beholder. The insider sees more beauty than the outsider. No matter which camp you fall into, your assessments and managing of risk must be analyzed and prioritized in light of your assets. Sometimes the best decision one can make is deciding to abort the venture because the deal killer risk canʼt be successfully managed.

RISK: IDENTIFY, PRIORITIZE, AND MANAGE IT (Part 1)

(First in a 3 part installment)

A Google alert steered me to an article called “Beating the Odds When You Launch a New Venture” that had just come out in the May issue of Harvard Business Review, authored by Clark G. Gilbert and Matthew J. Eyring. It was one of the best pieces Iʼve ever read about entrepreneurs, their attitudes, and management of risk. They said that entrepreneurs arenʼt cowboys—theyʼre methodical managers of risk.

I thought their concepts applied equally to small and big business. I contacted one of the authors, Clark Gilbert, to discuss his ideas and decided I wanted to share his thoughts with my small business friends. The result is my interview (below) with Clark.

My comments follow his answers and are primarily addressed to small business owners.

Clark Gilbert (gilbert@deseretdigital.com) is the president and CEO of Deseret Digital Media and was formerly a professor at Harvard Business School.

1. BR: Do you think Small Businesses spend enough time identifying their risks and planning on how to deal with them?

CG: Because capital is scarce, start-ups are not likely to get very far without having to adjust to data from the market. In this sense risk identification is almost “imposed” on a start-up. The scarcity of capital forces discipline. That said, entrepreneurs who think more carefully about the risks they face, systematically target the most critical risks, and remove them will be more successful that those who do not. When you start a new venture, you donʼt have all the data to make the right decisions. You just have to wade into the venture process and learn from the data that comes out. For example, you might have a hypothesis about the pricing structure and you can do things to test it, but until you actually close a sale, you donʼt have the data as to the price people are really willing to pay.

BR: I have found that in start-ups and small businesses, so much time and energy is spent on putting out fires and surviving, that risk management gets short changed. Periodic time outs for reflection are needed.

2. BR: Does this differ between start-ups and established companies?

CG: Believe it or not, one advantage start-ups often have vs. established companies is the lack of available capital. This forces start-ups to be more disciplined with their at-risk capital either because it is scarce or it will cost them equity. Too often, big companies had an overabundance of capital, which makes them less responsive to changes they need to make while the venture is being formatively developed.

BR: To bolster this point and no. 1, I would like to tell you about an interview I had with Stephen Gordon, the founder of Restoration Hardware. In response to my asking, “What were the factors that most contributed to your success?” He answered, “If sufficient capital had been available to me in the companyʼs early stages, I might not have been as successful as I was.” I myself learned that Bootstrapping out of necessity helps you form good habits that stand you in good stead even when you are in a healthy cash position.

3. BR: Do you think Entrepreneurs go into their own business with the idea that they must take risks to be successful and therefore accept more risk than they are comfortable with or capable of overcoming?

CG: Good entrepreneurs donʼt take risks, they manage them. Of course you can manage them completely away, but what I find differentiates good entrepreneurs from others is the ability to not to take risks, but to manage them.

BR: I believe the media has promoted the idea that to be successful, entrepreneurs must see and take on risk. (Think of reality shows like the Apprentice and Shark Tank.) Those that buy into this and donʼt identify risks, no less manage them, will find themselves a statistic in the long list of failed companies. It is surely a myth that good entrepreneurs love risk.

4. BR: In your recent article for Harvard Business Review titled “Beating the Odds When You Launch a New Venture,” you refer to the R&R case to illustrate some of your premises. As I have an intimate knowledge of this case, I was wondering if you thought its lessons apply to service companies as well as to product ones, which R&R is? Also if they apply to large companies, which R&R was not?

CG: I have used the R&R case with non-profit leaders, Fortune 500 companies, and more traditional entrepreneurs. Its lesson applies universally and grows from the idea that entrepreneurship is a way of managing, not a type of company. I remember teaching the case to the new venture group of a major U.S. media company when the lights went on for everyone. They had initially looked at the case as something for a small business owner. But as they got in and looked at how you used risk reduction not just to save money, but to fundamentally increase the prospects of the venture, their perspective began to change. Ironically, the scarcity of capital imposed on the start-up entrepreneur gives him an advantage over big corporations with all of their resources. One executive finally realized: “We need to manage like we donʼt have capital, not to save money, but to raise the probability that we find a winning strategy.”

BR: When the Harvard Business School case was written, R&R was my one person company in a small office in New York City. The case was about my venture to ride the coattails of the rapidly rising Trivial Pursuit game. To give R&R credibility, we obtained a license form TV Guide to use their name and create the 6,000 questions that were needed. It was a time sensitive project as we knew the large toy companies were developing their own Trivia games. Briefly, we outsourced the manufacturing, selling, shipping, and financing of the game. Our major RISK was that we wouldnʼt get the purchase orders we wanted because the large toy companies, who promote their games on TV and Trivial Pursuit reorders would come ahead of us in the order chain. To combat this risk, we asked for and received 5 free ads in TV Guide in exchange for increased royalties. We then promised major retailers their names in these expensive ads at no cost to them. This translated into immediate purchase orders of $3,000,000 prior to our first shipments and eliminated our risk. (This case and all the Bootstrapping tactics employed are spelled out in my book, Bootstrapping 101.)

Part 2 Continued Next Week…

FALL IN LIKE—NOT IN LOVE

I am all for entrepreneurs and would-be ones to be enthusiastic, compassionate, and believe in their new product, ideas, or company. However, these emotions and the actions they elicit need to be tempered by the reality of the situation. For many, it is hard to objectively evaluate their new venture. Their enthusiasm is often reinforced by the encouragement of their family and friends who find it difficult to voice an objective opinion, particularly if it is negative.

This all leads to the entrepreneur falling in love with their idea. The expression that “love is blind” can be very apropos in these instances. It paralyzes the rational part of your brain to operate and you can’t recognize the risks involved in your plans to execute your idea. It feeds your feeling of infallibility.

In order to prevent failure and its severe consequences, you need to test your idea thoroughly before you commit your hard earned resources in its implementation. Run it by experienced entrepreneurs and industry experts. Best of all, talk to potential customers or sellers of your product. Try testing in small doses, all to determine if there is a market for it and if your plan is the right one to capture a profitable share of it.

Most often, successful products and companies go through many plan changes in their journey.

Being in like and not in love makes it easier to recognize the course corrections required. Sometimes abandoning an idea based on the evidence is the most profitable decision you can make.

BLOCKBUSTER IDEAS NOT REQUIRED

The starting point for any new venture or product is the idea. What product or service will our business offer that will be a winner?

A great many people can’t get past this idea phase. It seems to me that many of them stall out because they are waiting to hit upon some kind of revolutionary new idea–a concept of such power that it will appeal to everyone. They want bells to go off in their heads. They want brilliance. They want a blockbuster idea.

The fact is, there’s not a lot that’s new under the sun. Most businesses, even highly successful businesses, are founded on a very ordinary, very mundane idea, pretty far removed from brilliance. It’s luck, timing, and execution that transforms a ho-hum idea into a good business.

All of us would like to come up with a show-stopper of an idea that will cause customers to flock to us when they recognize the brilliance of our creation. This scenario is rare. You can take comfort in the fact that most new businesses and products are based on an existing, well known, and possibly boring entity. Their success is founded on new and better executions. Higher quality, value added features, new areas of distribution, outworking competition, better timing, superior service, license added, etc.

Think of Scrabble where you add one letter to an existing word, and you get full credit for the other person’s word. You don’t have to reinvent the wheel.

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