All posts by Matt Hottle

18 Feb 2016
Sticky Post By Posted in Entrepreneurship, Funding, Start-ups With No Comments Permalink

5 Things Startup Competitions Get Wrong

Sticky Post By On February 18, 2016 With No Comments

Every city seems to be hosting startup contests where founders pitch their companies to a dais of “experts” live on stage in an effort to win some funding. Sometimes these competitions are massive and worth millions but many are much smaller; awarding $5k to $20k. It’s within these newer and smaller competitions that I have noticed a recurring series of mistakes.

1. The judges are not experts in entrepreneurial businesses

You see this when sponsors become the judges or the panel includes commercial bankers who are really not business-builders. I love bankers and many of my friends are a part of that industry but they are institutionally bad at valuating and understanding start-up businesses. They tend to judge a business idea in terms of if they would give them a loan and for how much.

2. Contestants are often post-funded companies that have been in business for a year or more

When you are awarding $10k to a company that already has employees and overhead, you have given them 6 weeks of operating costs. That $10k could have launched a prefunded company’s business plan and allowed them to get a credible pitch together to secure additional funds. Instead, you have floated an established company’s payroll for a few weeks. You’ve created almost zero value. If the contest is awarding $100k or more, that’s a different story but when you are giving away small amounts of prize money, focus on those for whom it has the greatest impact.

3. The best idea almost never wins

Based on the sponsors, the event’s host, the constituency of the audience and other non-business-related factors, the least deserving of companies often win these events. There are always ulterior motives at play and when those are allowed to propagate, you see some truly awful business models walking away with money that would have served a greater purpose being set on fire in the parking lot. Nobody wants to admit this happens- but it does.

4. The event tries to be “like” Shark Tank

As soon as one of these competitions invokes the Shark Tank name in its promotional materials, it immediately loses credibility with me. Mark Cuban is not coming to your event. It is a TV show that is 50% substance and 50% manufactured drama. The best contests hold non-public and lengthy discovery sessions between the companies and the judges. Financial details are poured over and every assumption is challenged. By the end of that process, a business plan has been credibly reviewed and vetted. When those judges name a winner, it’s a very carefully considered verdict. The contestants come away with invaluable insight and advice from experts that will benefit them in perpetuity.

5. Read the fine print for the award money

More needs to be done to explain to contestants any requirements that will be imposed on claiming the prize money after it is “awarded.” This includes details around benchmarking or timing thresholds required before the money will be made available. What tax implications exist and was that explained to them? One competition I watched closely actually had a very short window where the winners could claim their award and it required hours of drafting financial reports and updating the business plan. At one point, the 2nd place winner decided the $6k they won wasn’t worth the effort and forfeited the money.

It is truly outstanding that more of these competitions are popping up all over the country. These events can be future-altering opportunities for start-up businesses or they can be thinly-disguised advertising events for the paying sponsors.

As with most innovative ideas, the shift toward commercialization happens at some point and the original altruistic motivations are supplanted by the attraction to revenue and marketability. We’ve seen this shift happen with the best events. If you think that AOL purchasing TechCrunch won’t turn Disrupt into an event where sponsors look to sticker-up everything that moves like a NASCAR, you may be sincerely disappointed.

If organizers can focus on creating the best possible value for their sponsors while maintaining the worth of the experience for contestants, these competitions can help launch the next big idea.

25 Jan 2016
Sticky Post By Posted in HR & Recruiting With No Comments Permalink

Why You Should Share Your Profits with Millennials

Sticky Post By On January 25, 2016 With No Comments

Like two warring factions, there is a pro-millennial camp and an anti-millennial camp who rigorously debate the benefits and challenges of a growing Gen Y workforce. On the pro side, millennials are celebrated for their ideals and stubborn vision of disrupting the status quo. On the con side, they are viewed as narcissistic, lazy and entitled neophytes who almost refuse to work a meaningful 40 hours per week.

I have wrestled with these opposing perspectives in real-world applications. Many of my clients have owners that struggle with this emerging workforce as they feel “forced” to hire increasing numbers of millennials. This collision of establishment and new order mentalities leads to strife in almost everything they try to accomplish as an organization. Even office parties can become a blood-letting as opposing views on the importance of cultural sensitivity, dietary considerations and inclusionary activities battle for dominance.

Once you spend some time working in this push and pull between the old guard and new workforce, you start to see where common ground may exist.

Money.

Regardless of age or the corporate cultures you cut your teeth on, money still creates a bridge between the two sides. Despite the popular notion that millennials aren’t driven to acquire material possessions, that just isn’t the statistical truth.

According to Goldman Sachs’ survey of millennials in 2015, 30% said they have little interest in buying a home and 33% said they have no plans to buy a car. For a minute, let’s consider the counterpoint of those numbers. With the inverse nature of percentages, this survey also shows 70% of millennials want to buy a house and 66% plan to buy a car. Additionally, many millennials are carrying crippling student debt and entering an employment market that is increasingly tight as the sharing economy grows without a correlating growth in job creation. Even if millennials don’t want to focus on the accumulation of money or wealth, they are bound by the same economic realities as people twice their age. Even if money may be motivating for Generation X and seen as a necessary evil by Generation Y, they both understand it’s role.

I worked with a client who rolled out a performance plan for all employees that paid an additional 15% of their current salaries as a bonus at year end€”provided they met revenue and profit margin goals. This company is comprised almost 100% of Gen X management and 100% of Gen Y front line employees. Previously, they had not published strategic goals and had no meaningful monetary incentive for reaching specific performance levels. This straight-forward program created a 26% increase in top line revenue, and net income grew 135% in one year.

What we found was a millennial workforce that still had enough need wrapped around money that they worked hard to make this bonus. I also believe the very nature of working toward a common goal provided a sense of purpose and community. For the first time, there was some consensus between the Gen Y and Gen X populations.

Even with some massive checks being written by the owners of the company to pay those bonuses, there was little pain in signing them. The program was a massive success for them personally and professionally. After backing out the bonuses, they still had one of their highest profit margins ever.

I’m not suggesting to simply throw money at a millennial workforce and consider the problem solved. I am suggesting that a thoughtful approach to using it as starting point has merit. Here are some things to think through when considering a profit-sharing program.

Tie the Money to Performance Goals
The business should benefit from the program and the program actually gains meaning when it is tied to some achievement. It helps to create alignment and shared purpose. Without goals to reach, the bonus becomes the corporate version of a participation trophy.

Pick 3 Goals that Everyone Impacts
Don’t pick 12 metrics to hit. That’s just wasting your time. Pick 3 that really matter and that everyone in the organization can impact.

Measure and Share Constantly
Progress toward a goal or series of metrics should be measured and shared as often as possible. Remember, you are working with millennials who are used to information being available on-demand and in real time. Publish the results or progress with the highest frequency possible. Internal social media programs are great conduits for this.

Create Meaning Behind the Goals
Use the opportunity to explain why these goals are important to the employees as well as the company. Revenue improvement can mean expansion and more opportunities for the employees. Excellent profit margins represent ownership’s ability to reinvest in the business which can mean growth in a number of ways. If you spend some time explaining the what’s-in-it-for-me (WIIFM) components to the program, you can maximize the motivation.

It’s important to recognize that many of us Gen X’rs wanted the same things as these “millennials.” We wanted our work to matter, to be recognized for our achievements and have the opportunity for rapid advancement. The only difference is we folded like cheap shirts when our parent’s generation said no. I admire that Gen Y is being so hard-headed. I think many of us old curmudgeons are envious of their resolve.

Again, I don’t believe this is some magic bullet to solve all disconnects between a millennial workforce and Gen X management but it provides one bridge between the two. If you are an owner or manager currently ignoring this dynamic or believe it will go away, consider there are 50% more millennials than Gen X’rs. At some point, if it hasn’t happened already, your workforce will be more Y than X so you need to focus on how you can engage and motivate them.

20 Jan 2016
Sticky Post By Posted in Consulting, Redhawk Permalink

When a Consultant Adds Real Value

Sticky Post By On January 20, 2016

I recently engaged in a Quora discussion with someone about the “real” value consultants provide to businesses. I often get asked when a consultant should be hired. Until now, I have avoided writing about it because I fear it will read like some thinly-veiled endorsement of consulting as a business practice or of Redhawk Consulting itself.

After watching a few of my colleagues succeed in misusing consultants and people getting paid for consulting who provide zero value, I figured it was worth taking that risk.

This article is aimed at entrepreneurial companies and not larger organizations. Big companies hire consultants for far different reasons than SMBs. For some publically-traded companies, MBB (McKinsey, Boston Consulting Group and Bain) add a level of credibility to management from the perspective of board members and shareholders. The quality of research and mental horsepower the MBB companies can provide are world-beating. Nothing signals you are taking something seriously more than dropping $2 million in fees with one of the big three firms.

Instead, I want to focus on the specific circumstances entrepreneurs face.

I have engaged several founders who recoil purely out of fear or ego at the idea of using a consultant. They argue that a consultant couldn’t possibly understand the complexity of their business, would cause too much disruption or will tell them things they already know. The juice isn’t worth the squeeze.

In reality, founders are often just scared a consultant is going to call their baby ugly. They know their (fill in the blank) process or system is fundamentally broken and that (fill in the blank) was a terrible hire six months ago. They aren’t excited about someone else seeing the growing pile of stuff that’s been strategically ignored. These entrepreneurs have invested the blood, sweat and tears; they know it’s not perfect but they are pouring their very soul into this endeavor every day. It’s easy to see why working with a consultant could seem almost insulting.

Professional service firms can descend on entrepreneurial businesses like vultures so founders become wary of anyone trying to “help” them. It’s unfortunate but completely understandable. One of the challenges owners face is separating the worthwhile partners from the succubae. That gauntlet can produce some mental calluses where even valuable consultants are assumed to be another parasite.

Consultants working with SMBs should return almost immediate value. The work they do should be deadline-oriented and revolve around specific deliverables. Most of the value from consultants for entrepreneurial businesses comes in one or more of the following three forms.

Expertise

It’s not feasible to hire people for every possible skillset and talent. Most organizations are better off finding contractors for specific projects where their expertise can be “rented” rather than owned in the form of full-time employment.

Perspective

This is a well-worn concept but there is legitimate value in having someone come in to look at processes and systems within your business who don’t carry the baggage of office politics or institutional inertia. This can be especially helpful to founders or owners when they are deadlocked in opposing views of how to move through or past an obstacle in their operation. Good consultants don’t care which owner owns 55% of the company.

Resource

Founders and owners who also act as chief executives run out of time far sooner than they run out of ambition. A trusted consultant can act as a plug-in resource, get projects done or design solutions on behalf of those founders. This creates a force-multiplier and while those consultants cost far more per hour than a typical employee, they should only be there until the engagement has been successfully completed. Meanwhile, the leadership has continued to tackle other opportunities.

There is, of course, the flip side where consultants should be avoided. Engagements that have no deadlines, metrics to measure success or timelines should be avoided like a virus. Unfortunately, there are consulting firms that act like ticks. They make their home in the company by digging under the skin and “uncovering” more and more projects that need their attention. The hours keep getting billed and they end up as an over-priced de facto employee. Firms that focus on working with entrepreneurs should always be working themselves out of job.

The other type of engagement to avoid are those where the consultant or firm must provide ongoing facilitation of the process or system they are introducing to your organization. Entrepreneurs need programs that can be internally perpetuated. The client should own a functional work product that doesn’t require further billing hours.

Be aware of the recently unemployed “consultant.” There is a troubling trend on LinkedIn where people are listing their current position as “Consultant” rather than “Currently Looking.” I understand that consulting offers income for someone while they find their new job but it dilutes the effort and reputation of dedicated consultants. Remember that an LLC costs less than $500 to set up and can be completed online in just a few hours. The barrier of entry to start a consulting firm is really low so check for references.

My firm was started like many where I was able to secure my first customer by deeply discounting my rates to create credibility and work product. I bartered services with other startups and volunteered my time with non-profit economic development programs. If you are considering a new firm, check for these things because that’s how many legitimate startup consulting practices pay their dues.

Consider what you can get out of engaging a firm and have a clear expectation of what a successful project will create. Any consultant worth their salt will be happy to engage in conversation even about potential projects so if you are willing to have an open-minded conversation with a well-respected firm, have one us buy you a cup of coffee and figure out it its worthwhile to work together.

All babies are beautiful, even the ugly ones.

28 Dec 2015
Sticky Post By Posted in Entrepreneurship, Funding, Strategy With No Comments Permalink

2016 Will be the Year Successful Startups Get Real

Sticky Post By On December 28, 2015 With No Comments

Growing up in the ’80s and ’90s, I got a front row seat to the explosion of pop-culture as entertainment. Not the least of which was MTV’s first season of The Real World. That show can be blamed for the proliferation of reality TV with its promise of high viewership, low production cost and questionable entertainment. It also created a pop-culture meme of its time with the tagline, in part, being “What happens when people stop being polite and start getting real?”

For years, it seems, we have collectively gone out of our way to be polite when discussing startups that have spent millions and returned little profits. We have excused companies who have clearly focused more on their planned exits than building an actual enterprise. Company perks like free food, ping-pong tables and dedicated napping stations were celebrated as signals of an organization’s greatness.

For those who work within or closely follow the startup community, you can see increasing calls for companies to get real. While startup companies still hold a highly desirable reputation among the media, venture capitalists and the millennial workforce, there were some warning signs that all was not well. We started to see some high-profile examples of how the promise and excitement of some companies may be more sizzle than steak.

Theranos was very publically lanced (pun intended) by the Wall Street Journal when it cited some research showing questionable reliability in the screening tech it promotes. It also cited what could be called revisionist story telling on the part of their founder Elizabeth Holmes. Both the WSJ and Theranos have doubled-down on their versions of the story.

Because Theranos is trying to make health care screening and monitoring less costly and more widely available, they have been appropriately celebrated for years. Unfortunately, the actual application of their efforts is drawing worthwhile scrutiny and the intoxication with their story is starting to transition into a nasty hangover.

Twitter laid off 336 people this year; about 8% of its workforce at that time. This number is dwarfed by the thousands of people laid off in heavy industries like steel production and coal mining but it sent shivers through the tech world as people realized even a brand behemoth like Twitter had to accept a certain level of financial and market reality.

Layoffs, in general, are on the rise among tech companies of all sizes. The number of people hired and fired in the same fiscal year is growing and those recently short-termed employees are less likely to accept tales of explosive growth and dedicated investors at face value when considering employment at that “next” startup.

Square has demonstrated the ability to lose hundreds of millions of dollars in the last few years as burn rates in the tech sector continue to expand even as investor money starts to tighten. I’m not intentionally targeting Jack Dorsey by using two of his companies as example in this article but Jack is now trying to perform two turnarounds simultaneously at companies that are supposed to be in growth mode, not survival mode. By all accounts, Jack is just as capable of pulling this off as anyone and is certainly showing the dedication needed to get it done.

There are currently 140 companies with a valuation of $1 billion or more. The key word here is valuation. The simple way of illustrating how ridiculous valuations have become is to remind everyone there are only 51 US companies currently listed by Inc Magazine generating $1 billion in annual revenue. Before you send me a bunch of hate mail for comparing revenue and valuation without considering exit values, assets or goodwill payments, recognize that valuations are largely a conspiracy between start-ups looking for cash and VCs looking to attract more Limited Partners. VCs with a paltry 10% success rate routinely attract more private money every year. Valuations are works of fiction.

Whether its inflated valuations or global instability in public markets, private investment money is drying up at a statistically-material rate. VCs saw a decline in funds raised by 34% in Q3 when compared to Q2 this year. It also represented the slowest period for raising money since 2013. IPOs also under-delivered in 2015. As published by the International Business Times, “According to PitchBook, this money (IPOs) amounted to about $64 billion on 860 deals during the first 11 months of this year and about $94 billion on 994 deals over all of last year.”

As we close out 2015, it has become increasingly important for the tech and startup communities to become more self-aware, transparent and start getting real with everyone. Whether those communities are willing to pull back the proverbial kimono or not, there will be a reckoning with investors, employees and customers if they continue to paint their worth in endless streams of run-rates and growth trajectories.

Employees who were once more attracted to the name or promise of a startup are now more inclined to consider how stable a company is and whether they will be back on the job market within a few months chasing the next unicorn-in-valuation-only. Many of the Twitter employees laid off were rehired within literal minutes of becoming unemployed but that not likely to happen in perpetuity.

Investors who became VC LPs because they were tired of the 7% – 8% annual return for their public stocks and equities are now reassessing their risk-tolerance as the public markets have fluctuated significantly in Q4. The play-money investors were spending on longshot startup seed investments just won’t be as plentiful in the next 18-24 months as most pundits believe we have passed the peak of private investing for the current cycle.

People have already started to stop being polite about the performance of startups and established tech companies. Questions about profitability and long term viability are being asked with less guarded phrasing and with expectations they can be credibly answered by founders who have taken millions in private funding.

The companies that get real and are willing to not only tell us about the warts in their startup business but actively work on solutions for those imperfections will stand out from the crowd and attract the best employees, most dedicated investors, highest-value board members and loyal customers. When they make a mistake, they will own it immediately and without equivocation. They will build a company more focused on growth and durability than maximizing its exit offers. In 2016, the companies that are willing to get real will win while their competitors hope everyone continues to be polite about their lack of success.

14 Dec 2015
Sticky Post By Posted in Entrepreneurship, Redhawk, Start-ups With No Comments Permalink

Who are you Rooting for in 2016?

Sticky Post By On December 14, 2015 With No Comments

Last year, I posed the same question for 2015 and the response was far greater than I expected, so I decided to do it again this year. After spending the last year with entrepreneurial companies all over the country, this list was hard to create. For the sake of brevity, I had to intentionally leave people out who should be celebrated here. Here is my very abbreviated list for 2016.

Jason Provonsha, Warble

Jason is a founding partner of Warble, a beacon technology start-up within the Lamppost Group of companies. Their tech allows marketers to reach audiences and engage them based on physical locations that range from several thousand feet to a single square foot. As marketers double down on the logic that where someone see your message is as important as how it’s seen, Warble is already on the leading edge of this tech.

Jason is as pragmatic as he is hard-working so he is easy to like immediately. He will describe the tick-tock he hears in his head as he focuses on generating revenue to replace the seed investment Warble received. This practicality, coupled with some very compelling usage cases, creates the sense that Warble is already started on the “I knew them when” trajectory. There are many challenges in front of them but when you spend time with Jason and his team, you feel their commitment to winning.

Adeeba Kahn and Jason Templin, Shu Shop

I had the pleasure to serve as Adeeba and Jason’s mentor during their recent entry in Rev Birmingham’s Big Pitch Competition. Their collaboration will create Birmingham’s first ramen shop and izakaya (Japanese-style pub) in the downtown theater district. Renovating a space that has been empty for more than 30 years and creating a concept that fosters regular patrons driving a sense of community in a once derelict part of town, the anticipation surrounding the opening of Shu Shop is incredible.

Adeeba does not currently possess a filter between her brain and her mouth in the most entertaining and endearing manner possible. Jason is chasing a dream and the passion he has for the food, the izakaya concept and creating a neighborhood space near the Alabama Theater comes across immediately. The difficulty of succeeding in the restaurant business is well-documented but they are tapping into an unmet need and creating a market in Birmingham. Their brilliance might be in the simplicity and sincerity of what Shu Shop will become.

Sam Eskildsen, Main Street Family Urgent Care

As private health care in the US becomes exceedingly challenging for providers and patients alike, there is a growing need for urgent care facilities. The concept of these purpose-built facilities is nothing new in urban and suburban areas but Sam is building a chain of Urgent Care facilities in rural markets. These areas have been underserved for decades and as rural private medical practices fold under the difficulty created by the Medicare/Medicaid and Affordable Health Care Acts, patients no longer have access to quality health care in these areas.

Make no mistake, Sam is a capitalist. The model he has created will generate some healthy returns and allow them to grow from the facilities they currently have into additional markets. Sam opted to go out and solicit his investors one by one without brokers or other institutional funders. He raised a significant amount of capital in 18 months based on the strength of the model. His tireless work ethic led to Main Street opening its first fully functional location within 2 years of creating his business plan draft. Public and private health care will continue to create a myriad of hurdles to overcome for Sam and his team but if there is anyone capable of pulling it off, its Sam.

Paul Hottle, Nature’s Art Studio

This mention has been in the making for at least 20 years. My father, who spent the better part of his professional career as an entrepreneur and organizational development professional, recently followed his heart and did something truly for himself. Dad started Nature’s Art Studio to combine his love for the natural world and carpentry. Taking discarded materials from sawmills and material suppliers and repurposing them into pieces that range from functional to why not, he creates things as he imagines them- without commercial concern for their ability to generate revenue. This near-blatant disregard of the economic viability of each piece is probably why most of them sell within hours of posting them to his own website or Etsy.

After years of supporting our family as an OD consultant and spending more time in hotels rooms and rental cars than in his own home, Dad finally gets to spend some time doing what he wants to do. He taught me and my brother that luck and fortune are a byproduct of hard work. Thinking of him finally enjoying the fruits of his labor drives me to succeed as an entrepreneur, dad and husband. This is my feeble attempt to recognize what he gave me over the years by saying that I’m rooting for him in 2016. The truth is, I’ve always rooted for him.

This is certainly a partial list and I’m not excited about having to exclude others- but now it’s your turn. Will you take the time to think about who you are rooting for in 2016? Will you tell them you are rooting for them?

Few things are more powerful than knowing someone is pulling for you simply because they appreciate who you are and what you are trying to accomplish. So, who are you rooting for in 2016?

30 Nov 2015
Sticky Post By Posted in Entrepreneurship, Operations With No Comments Permalink

Johnny Cash and the Necessity of Holistic Operational Design

Sticky Post By On November 30, 2015 With No Comments

Entrepreneurs are often fortunate to effectively deal with the recurring issues immediately in front of them. The exercises of forethought and long-term planning are luxuries in most cases. The problem comes when this condition persists for a meaningful period of time. Without taking the time to try and create a 10,000 foot view of their business, many entrepreneurs end up implementing processes meant only to serve a single purpose or solve an immediate problem. This condition is usually not intentional and it likely evolved into its current state because of one or more of the following.

  1. Business processes were built on top of each other. Like Lego pieces, the leadership kept piling up business rules, tech and resources. This happens many times as a firm starts to grow faster or the product lines become broader than originally anticipated. As these new processes and systems are added, the old ones are not dismantled or modified and this creates confusion as the old rules and new rules often contradict each other.
  2. People are added to fill narrow responsibilities- not compliment the whole. New tasks and responsibilities are regularly created in a growing company and when all the current roles are considered “maxed out,” the go-to response for many companies is to hire more people.The problem here is that we fail to look at how existing positions or responsibilities should change to create a more efficient team. Instead, the new position is assigned one core task with several ancillary low value activities to create a complete position. Repeating this cycle a few times creates a bloated and under-utilized workforce.
  3. Organizations kill their effectiveness by creating a “Strategy Du Jour.” I love working with entrepreneurial clients because they are, by their very nature, dreamers and strive to chase new opportunities every day. Unfortunately, this phenomenon may be the most value-destroying thing an owner or C-Suite leader can do. You have seen it (or done it yourself) before. Owner/ CEO/ Senior Leader calls a meeting and lays out a half-baked thought on the latest (fill in the blank) opportunity. Very little detail is communicated about how this will be implemented, what will be de-prioritized as a result or how resources should be utilized. Conversely, expectations for flawless execution are clearly conveyed. In a matter of minutes, everyone in the room now has multiple top priorities with almost no idea of how to actually pull off this new ask. It is tough to commit to a shared, all-encompassing and durable strategy but when you are constantly asking the majority of available resources to chase the latest whim, you create incredible conflict between the various priorities.

Before you realize it, the whole operation is being held together by a series of systems and processes that may have nothing to do with each other. If you think this is nuts, consider your own organization:

  • Could you ask three different people to map out how your product moves from creation through customer delivery and have all three maps resemble each other?
  • Can you point to the specific business case for each of your processes?
  • Do have at least a handful of processes that contradict each other?

Chances are, your organization experiences one or more of these every day.

One of my favorite Johnny Cash songs is “One Piece at a Time” where he describes stealing individual parts from a Cadillac assembly line over several years in order to build a whole car. Once he has all the pieces needed, he starts to put the car together.

“Now, up to now my plan went all right
‘Til we tried to put it all together one night
And that’s when we noticed that something was definitely wrong.

The transmission was a fifty three
And the motor turned out to be a seventy three
And when we tried to put in the bolts all the holes were gone.

The back end looked kinda funny too
But we put it together and when we got through
Well, that’s when we noticed that we only had one tail-fin…”

“One Piece at a Time”- Johnny Cash

Notwithstanding the obvious value of quoting Johnny Cash in any form, the song illustrates what happens when we only consider individual pieces and not the “whole” of the organization. In Johnny’s case, he got a really ugly Cadillac. In your case, you may have ended up with a really ugly operational model.

18 Nov 2015
Sticky Post By Posted in Entrepreneurship, Redhawk, Start-ups Permalink

Solvency in Year One: Our First Anniversary!

Sticky Post By On November 18, 2015

I’d like to take the opportunity to reflect on surviving my first year as a new business. True, 80% of businesses survive the first year, but I’m proud that I didn’t have to dip into savings, borrow money from family, or suffer irreparable damage to my marriage. (That last item is one I’m especially proud of.) Most important, we got to partner with truly great companies and work with them to accomplish some great things.

Passing this milestone has made me contemplative. Rather than craft a bunch of high-minded platitudes, I thought I’d write a brief list of what I learned and the hypotheses confirmed in the first year of operating Redhawk.

  • Confirmed: Making money is hard.
  • Learned: Your first customer will always be your favorite and the most valuable.
  • Confirmed: There are no more “normal hours of operation.”
  • Learned: I am even more frugal than I thought.
  • Confirmed: Operating in a small market is all about networking.
  • Learned: Mental exhaustion is very real.
  • Confirmed: A supportive family and understanding wife are the cornerstones of any success.
  • Learned: Time seems to compress at rates previously believed to be physically impossible.
  • Confirmed: Fortune favors the bold (ok—so one platitude).
  • Learned: I became a better person after starting my own business. I’m trying harder now to be a good dad, husband and friend.
  • Confirmed: If you do great work, the rest starts to take care of itself.
  • Learned: What we do is important. The work we get to do improves the balance sheet AND the quality of life for clients. Hearing a near-neurotic client tell you they slept for 6 consecutive hours for the first time in 9 months is pretty throat-lump-inducing stuff.

The list could be longer and more inclusive but, at some point, it becomes completely self-serving and no one wants to read that. It would be a mistake not to acknowledge all the support and love from my friends, family, clients and colleagues. I only hope I can repay their kindness over time.

26 Oct 2015
Sticky Post By Posted in Strategy With No Comments Permalink

Get off the Innovation Hamster Wheel

Sticky Post By On October 26, 2015 With No Comments

Innovation, long ago, became a term as ubiquitous in entrepreneurial circles as “Co-Founder” or “Unicorn.” When companies like Snapchat create a brilliant but singular idea and ride that to billion dollar valuations in less than 18 months, innovation looks like a very attractive path to success.

We can run through a laundry list of companies whose very existence is based on an innovative concept, service or product. Uber, Fitbit, GoPro, Netflix—the list is long and distinguished.

What fascinates me is the perpetual motion required when a company’s core strategy and value proposition are based on innovation itself. To offer a definition here, a company’s value proposition is what it offers to consumers through its product or service; usually represented in a unique set of features that help it stand out from competing products.

If you attend any tech industry conferences, the speakers almost always focus on the new whiz-bang features they are working to create. With investors clamoring to fund the next big thing in tech, this makes perfect sense. Often, this isn’t just posturing for potential investors- this IS the actual strategy.

If innovation is the strategy to deliver value, a firm needs to be prepared to fully commit to the demands of that approach.

For illustrative purposes, let’s compare Amazon and MySpace. They both successfully launched due to an innovative service that allowed them to gain initial traction. Where Amazon pivoted several times from an online bookstore to product marketplace and then to content and cloud services, MySpace traded on its original concept until it was completely supplanted by Facebook.

Innovation, as a value proposition, is flawed because people assume that innovation is far more durable than it actually is. If you insist on creating value through innovation, accept the hamster wheel that creates and be prepared to dedicate your resources to that endeavor. If you are creating no other durable value for consumers, you cannot innovate some of the time.

Now Facebook is watching an exodus of its younger users to Instagram, Snapchat will soon be considered “old-school” because of Periscope and Twitter’s business model seems to be completely tethered to its original platform.

When the biggest new launch from Twitter is “Moments,” you may wonder how they plan to create new value for their customers.

All of these companies went through a period in their product/ platform cycles where they were no longer innovating. Some haven’t innovated much at all beyond their initial concept. In the case of Twitter, that period may have lasted too long to regain their growth trajectory.

How will Apple continue to create value where it has traded on innovation for the last 20 years? It recently launched the iPhone 6s which is just a repackaged iPhone 6 with a few new features. In that same launch, they has the audacity to showcase the Apple Pencil- something that addressed near-zero demand. With more than $200 billion in cash on hand, will Apple start to create new value or trade on its cult following until Samsung or LG finally produces an iPhone killer? I still haven’t seen that TV we were promised a handful of years ago so I’m not holding my breath for the Apple iCar.

My point is that value creation is what separates a meaningful company built to last from those who will serve as a brilliant flash of light before being quickly forgotten as the next supernova tech company takes its place. If a company’s value creation only happens through innovation, there is no opportunity to stop or slow down.

19 Oct 2015
Sticky Post By Posted in Marketing & PR, Operations, Sales With No Comments Permalink

Your Customer Experience may be Killing your Company

Sticky Post By On October 19, 2015 With No Comments

Recently, I had some web development work I needed to complete as part of a larger product launch. Not having any resources in house, I started talking with several companies who specialized in the work I needed done. Each of the four companies I engaged was a referral from a trusted source and their work product was exceptional.

After creating a specifications document and scope of work, I scheduled and met with all four companies in person or virtually. Three of the four companies asked a few questions, agreed to get me a proposal and we ended the conversation.

The customer experience to follow was appalling.

Company A: They never called into our scheduled conference call to discuss the project scope or specifications. Ten minutes past the scheduled start time, I emailed them to ask if they were unable to make it. Three hours later I received a short email saying they had been tied up and asking if I could call them now. No apology. No explanation. Nothing.

Company B: After a productive conversation about the project, they agreed to provide a proposal within the next 4-5 days. On the 6th day, I received an email saying they were not going to be quoting the work because another big project they were waiting on called them right after our initial meeting to tell them they won the bid. They sat on this information for 5 DAYS before telling us they weren’t going to bid on the work.

Company C: These folks were probably the most comprehensive in all of our initial meetings. They asked quite a few questions and took the time to understand all the input and outputs and the relationships between them. I was quite impressed. Leaving the meeting, I was told we should expect to see a proposal in the next “few” days. Five days later I received their proposal. It was three times as expensive as the next quote and would take 4 times longer to complete than the next longest timeframe proposed.

Company D: Similarly to the B and C conversations, we had a good initial meeting but I received an actual number for the cost of the project. It was presented as a “minimum” they charged for any project. The cost was reasonable even if it was perceived as a confrontational way of approaching pricing. Ultimately, we chose this company to complete the project. We made the decision around 5:00pm on a Friday and asked if we could meet them somewhere to deliver a check so they could start work on it the following Monday. No one was at their office. After another 90 minutes of texting and emailing to see if they could agree on a spot to meet, the founder finally agreed to meet me so I could give them a check. They took on the project, delivered it on time and within budget. Their project/ account manager could not have been more professional.

Unfortunately, there was not an encore performance… Based on the initial project, we asked Company D to quote ongoing development we have in the pipeline and, again, we had a productive conversation and an agreement that a proposal would be sent in a few days.

Eleven days later, I received a text asking if I could talk with their sales guy again before he sent the proposal.

Eleven days…

During an industry meeting a few weeks later, I was discussing my experience with a friend of mine who works in a successful SAAS company and he was surprised these were the only issues I had. He then regaled me with tales of a dozen other companies committing similar or worse gaffes. Apparently, this was somewhat of a norm. It was appalling.

All of the companies we approached for this project are technically proficient and represent some of the best in web development shops. Their founders are fully engaged and they are, for the most part, growing their business at a more than respectable pace. However, it was clear that each of them lacked any real focus on creating a strong customer experience. No matter how good a company’s product or service, the customer must have a great experience buying and working with them. Here are a couple of things to consider when looking at the customer experience you have created.

  1. Communication: What are your expectations for communicating with a customer? How fast should an email or voicemail be returned? What happens when a deadline is going to be missed? Who takes responsibility for deliverables that aren’t met? Does everyone know what these expectations are?
  2. Reliability: Nothing makes me want to fire a vendor or partner faster than flakiness. Do what you say you are going to do. Meet deadlines. Satisfy expectations. Be accountable.
  3. Take their Money: Never, ever make it difficult for someone to give you money. Blow up any obstacles in the way of their money making it into your bank accounts.
  4. Know your Market: Don’t send proposals with pricing that is completely out of whack with your market and potential customer base. Not only will you not be seriously considered, you also wasted a lot of time putting it together.
  5. Communicate Bad News Fast: Company B knew they weren’t going to be able to take on my project 10 minutes after our first meeting but didn’t communicate that with us until 6 days later. Bad news is bad news but dragging your feet in communicating with a client only makes it worse. They wasted our time and time is a precious commodity.
  6. Integrity: None of the companies we spoke with appeared to do anything that wasn’t completely above board but it is worth mentioning here that this is fundamentally important. Great reputations take a lifetime to build but only a moment to destroy.

If you are debating the merits of this list or why you should spend time worrying about how your customers feel about working with you, consider that the development we are exploring represents about $250k worth of work at the current billable rate. Three of the four companies we spoke to will never have another opportunity to bid on that work simply because their initial delivery and behaviors were so poor.

Every company can audit their own experience using a myriad of processes and hire external firms to do it for theme. Since I work with a lot of startups and entrepreneurs, I might suggest a couple of simple actions.

  1. Ask three different people in your org who are responsible for customer deliverables what happens when a deadline is missed. If you get three different answers, you have a problem.
  2. Have a friend or colleague mystery shop your company. Have them fill out a web form or send an unsolicited email and ask them how long each step took and what they thought of their experience. Choose someone you know will be honest with you and let them provide a critique.
  3. Talk to your customers and ask them what they think. This doesn’t have to be overly formal- just a conversation. If you can talk to customers who fired you, do it. They can offer incredibly valuable feedback.

Lastly, don’t be scared and don’t let your ego get in the way. Ask your people and yourself some hard questions. Your product may be the absolute best but if your customers are having a dismal experience working with you, the product can’t carry you forever.

15 Oct 2015
Sticky Post By Posted in HR & Recruiting With No Comments Permalink

Millennials aren’t bad, you’re just old

Sticky Post By On October 15, 2015 With No Comments

Maybe more than any other topic that keeps coming up for older founders and business owners is how to “deal” with a Millennial workforce. Here is the definition of a Millennial according to Urban Dictionary:

“Special little snowflake. Born between 1982 and 1994 this generation is something special, ’cause Mom and Dad and their 5th grade teacher Mrs. Winotsky told them so. Plus they have a whole shelf of participation trophies sitting at home so it has to be true.”

Terms like entitled, self-important, lazy and narcissistic have been used when referring to millennials. Even the preceding definition nods to the pervasive belief that Millennials are some kind of malfunctioning adult.

Participate in the bashing long enough and you start to sound a little like your mom or dad who just couldn’t fathom hip-hop music, those dirty plaid shirts (that seem to be back in style) or why everyone is fascinated with that “interweb” thing.

I barely fall outside this birth range but started my professional career early enough to have been indoctrinated into the “old” business model. In my first job, the salespeople had to print everything for our boss to read because he refused to learn how email worked and Office Managers were still referred to as “Secretaries.”

Millennials frustrate and anger people who are used to the old way of doing business. Andy White, Founder of City as a Startup, brilliantly speaks about the shift in business culture from our previous generation’s manufacturing model. This manufacturing model relied on organizational charts, finely written manuals, individual contributors and deference to corporate dogma where the new workplace replaces those with shared goals, shared accomplishments and shared experiences.

Here is a great article from Fast Company that explains what Millennials want and don’t want. It also speaks to some strategies to draw the best out of them.

Before you disregard all of this, consider a couple of things.

  • Millennials will be 75% of the workforce in the next 10 years.
  • There are far more millennials in the workforce than owners of companies.
  • Organizations need these young professionals and they better help them be successful.

Millennials represent a significant change in how businesses are managed and that scares the hell out of some people. In a true reflection of poor human behavior, this fear translates into the dismissal of Millennial’s motivations as frivolous or selfish.

Being the proverbial grumpy old man or woman starting every discussion about your young employees with “Back in my day…” has grown tiresome and is as worthless now as it was the first time you muttered it.

There is little reason to believe businesses can’t thrive by embracing this shift and engaging their employees in more meaningful ways.
If you are struggling with all of this- get over it. You need to realize you have an opportunity to hire people who will care more deeply about their work than ever before. If you can’t make that transition, maybe it’s time to stop blaming “lazy” Millennials and start considering your “lazy” leadership.

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