Tag Archives: practical entrepreneurship

Maps to Real Life

I know a guy that has moved his family to Italy, so his children would grow up with a bit of culture in them. The driver was his increasing belief that his kids were evolving into something he’d like to shoo off his lawn. And no, he’s not of Italian descent and neither’s his wife. He just thought that spending a couple of years in Europe would do the family the world of good. He occasionally posts on line to Tumlbr, with a blog called “Shit I Learned – things you pick up on the way” I like the title, because it reflects how I feel about my journey.

Anyway, one of the things I reckon I have learnt along the way – is that the closer a solution maps to real life, the less problems you find you have. I use this as a guide for when coming up with solutions. Whenever a process or proposed solution starts to feel a bit too abstract or too complex or too removed from people’s actual motivations – I ask myself what’s really happening here? Is this how real life works? Are the general steps the same, and the motivations and goals aligned?

For instance, in one of Flinders Pacific projects, we get bonuses paid on our assessment of what is the likely outcome of our marketing efforts, at both one and three years in the future. The bonus gets paid today, but the auditing of our performance won’t happen for several years – by which time we are likely to be long gone. This arrangement doesn’t particularly well “map to real life”. Although unsurprisingly, I don’t complain.

However this belief in arrangements being more effective and robust when they “map to real life” made me excited when I heard about some arrangements in the innovation area in Finland. Göran Roos, who’s currently in Australia, is the chair of the VTT which a bit like Finland’s version of the CSIRO. It employs around 3,000 researchers to come up with cool ideas in a variety of domains. The VTT’s underlying purpose is one that I find highly attractive. Its objective is to come up with technical innovations to improve the competitive performance of Finnish industry.

But the bit I love, the bit that maps to real life so much better than our arrangements, is that is performance is not judged by itself, Government Ministers or their staff – its performance is actually judged by Finnish industry, its customers! Who better to assess your performance than the customer.

Despite the fact that we consider ourselves to be a clever country, it kinds of makes me wish that our government had learnt this along the way. CSIRO, NICTA, the CRC’s and in fact any government funded research agency would surely benefit by being judged by their customers.

Venture Design

venture designOver the last 25 years I have started one commercial lighting retailer, three IT businesses, one marketing business and a social venture. Unfortunately, I’m no where near as wise, clever or as wealthy as I aspired to be, but the again I do reckon I have learnt a thing or two along the way. One of these things is that there is a critical topic missing off the table when most new ventures are started, or when business schools or “expert”s teach you how to write a business plan.

I call it Venture Design. Its the META level discussion about a new venture, the bits and pieces that successful serial entrepreneurs seem to be unconsciously good at and the rest of us tend to ignore as we get excited about the proposed opportunity.

At this stage, and my ideas are always evolving, I think Venture Design has to cover 4 fundamental areas – which form a major part of any Heads of Agreement for a new venture. Its kind of like these components create the rules that you will play by as founders before you launch and build a shareholders agreement. The four areas are:

The Lifespan
You need to agree on when the venture will start, how long you expect to run it for and when it will finish. Remember nothing lasts forever so its better to plan a couple of different endings. But if you do intend to try and run the business indefinitely, you should agree when you will be reviewing your activity, and what failure looks like.

Your different endings could include; buying a partner out, bringing in a new partner, swapping a partner, selling some equity, selling part of the business or selling the entire business. You may be wise enough to event include a formula for pricing, but remember your ideas on value at day one are almost certain to be wrong. Don’t forget that you should review this issue at least annually, as market conditions change. And if you are going to identify an exit such as Trade Sale – at least have an insight into who would buy and whether they are in the market.

The Founders
All to often a co-founder is simply someone who was in the room when a decision was made. You need to identify exactly who are the founders of the business, what roles they will play today and tomorrow, and whether they are the best person to play that role. Once you have done this, you can determine their ownership and proposed remuneration in the venture. Its also worthwhile to examine what rights they will have if they choose to exit. Will they keep their equity? Do they have any rights to the idea if the business never launches? Understanding what their rights should be if they exit at different milestones is critical to avoid punch ups that will take your eye off the ball.

The Validation Milestones
Milestones that business celebrate are tend to be very arbitrary (e.g. our 100th customer) when they don’t have to be. The critical early stage milestones are the validation of:
The Idea – Is it viable, can we actually make this happen in terms of our resources and talent?
The Solution – Can the solution actually be created?
The Customers – Will real customers actually pay for the solution?
The Business Model – Can you actually create sustainable profits from the idea?
Identifying these milestones, which are the critical decision points in your early stage plan, is one of the most important things you can do when designing a successful venture. You should clearly identify success, failure and that murky middle-ground that means you need to tweak your plan.

The Investment
The fact of the matter is that most start-up business will never receive investment from a third party in their first year. However investment isn’t just about cash, its also about the resources you need to tap into such as skills or expertise, time that needs to be committed and other resources that need to be put on the table such as office space or IT equipment. This is also a great time to identify what “smart money” looks like. For example they don’t just have cash, they have free services you could access, a customer base you could tap into, or relationships that can be leveraged.

Combined all this with an overarching objective and a quick overview of the proposed business model means you have practically written the H.O.A for the founders of a successful venture. I wish I knew that 25 years ago.

Do you have a brilliant idea?

Picture this:

  1. I am approached by “John” who has been recommended to talk to me about his new venture – but it turns out he wants me to sign an NDA before he can discuss it. I refuse to sign unless he can give me an outline of what he is proposing, so we agree to meet at a cafe for coffee and a chat.
  2. When he arrives, he explains his  venture is still at the idea stage – but it turns out he hasn’t done much research.
  3. He has a manilla folder with him – which turns out to be empty, I’m not kidding!
  4. He is convinced he is on a winner and doesn’t want advice, just investors – but it turns out I have to pay for the coffee as in his excitement he has forgotten his wallet.

This has happened to me more than once (more fool me). The problem is that everyone has some great product ideas, as well as some completely rubbish one. Only they can’t differentiate, they think all their ideas are good.

Since I try to get smarter as I get older, I now demand a high level overview to be sent to me in the mail, before I will commit to investing any time at all. However I also recently noticed a new service on the landscape, that specifically deals with peoples ideas for products.

Its called Quirky. What Quirky does is get you to to submit your idea to their community. The crowd then decides whether your idea has legs, and if so they they then get their paid team to evaluate the product, doing research, design, branding and engineering. If everything looks a go, they then manufacture and market your product.

If your idea doesn’t make it, it only costs you $10 to submit plus you get a whole lot of feedback.

If your idea does make it, you get paid, the crowd gets paid, and of course Quirky gets paid.

Its as close as I have seen to getting real life product validation, without you needing to invest. It could save a lot of time in coffee shop’s listening to people assert their idea is brilliant.

Good blocking technique

I met with “John” at a coffee ship where we were to discuss his business idea that involved sports sponsorship and the internet.  John put down his crisp manila folder down on the table and we introduced ourselves as we ordered coffee.  John spent probably 10 minutes explaining his idea and I spent another 20 minutes asking him questions.  Finally I asked him what was in the manila folder.

Embarrassingly, it was empty.

It turned out that John’s idea was no more than that.  He hadn’t actually conducted any researched or validated anything he had said.  He just thought it was a really good idea and hoped I would make it happen for him. I tried really hard  not to be angry with John for wasting my time (not completely successfully) as I like to be responsible for myself.  I was the one who let him waste my time.

This coffee with John occurred about 7 years ago and I vowed I would never have my time wasted like that gain.  And I haven’t since developing a really simple technique.  I have shared this technique with others on occasion who have enjoyed it and I got reminded of it the other day, so I though I would write it down.

The Lesson – If someone wants you to do something for them, get them to do something first.

It almost doesn’t matter how small the task is.  The world is full of wannabees who aren’t prepared to step over the smallest barrier to make their “dream” come true.

eg.  Email me a one page briefing note first.  I will then get my assistant to tee up the meeting.

eg. Can you email me names of the two businesses that people are currently spending money with to solve the problem today?

eg. Can you register the business name, and send me the registration number?

It doesn’t matter how good their idea is, if they are fail at the first hurdle, you can never do business with them.

My experience to date is around 90% of people that want to catch up for a coffee to discuss their idea cannot cross the first hurdle.  My pay off is that I remain calm and simply don’t waste time with dreamers.

John’s killer idea never made it to the one page brief.