Tag: entrepreneurs

Defaulting to transparency

Messaging startup Buffer seeks to be open in every aspect of business, will this help the startup grow?

Social media scheduling startup Buffer takes transparency seriously, will it help the business?

Many fine words have been written about openness, sharing and collaboration in recent years but few organisations really practice what’s been preached. An exception to this is social media service Buffer that takes openness to extreme levels.

Buffer keeps few secrets with the company sharing its monthly operating figures, internal emails and even its formula for calculating salaries.

The company’s CEO Joel Gascoigne believes this helps build trust in his startup, saying in his blog:

There are many reasons we default to transparency at Buffer, and perhaps the most important is that I genuinely believe it is the most effective way to build trust. This means trust amongst our team but also trust from users, customers, potential future customers and the wider public who encounter us in any way.

Building trust is one of the most important tasks of any business owner or manager; whether it’s with customers, staff, suppliers or investors and startups have a bigger task than most. So Joel is onto something with this approach although one wonders how long the philosophy will last as the company grows.

One thing that stands out in Buffer’s figures is how little Joel and his staff earn; while $158,000 is a good wage it isn’t the massive income that those who glamourize startups pretend founders earn.

Joel’s experiment with Buffer is an interesting experiment and it will be fascinating to see how long the company continues the philosophy of extreme transparency and how many others follow the example.

While it might not be necessary to be as open as Joel Gascoigne and Buffer, the idea of defaulting to transparency is one that many organisations – particularly governments – would benefit from adopting.

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Demand Media’s closed window of opportunity

Demand media’s downfall offers some hopeful lessons for those who want to see better quality content on the web.

A few years ago content farm Demand Media was being hailed in some quarters as the future of the media industry.

Today its stock is languishing, revenues are falling and any thought that the cheap, low quality writing that Demand Media delivered will be the future of media is laughable.

Variety magazine recently published a feature describing the of the fall of Demand Media  with a focus on how Google’s changes to its search engine algorithm undermined the content farm’s busines model. Variety’s story is an interesting case study on not relying on another company for your business plan and extends the hope that low quality writing is not the future of online media.

Dodgy business

Demand media evolved from the eHow and eNom businesses, both of which relied on dubious – if not downright dishonest – online practices.

eNom was particularly irritating, basically just registering domain names around popular search terms that led to   pages full of advertising that delivered nothing of value to someone searching the web for information on a topic.

It was very profitable for a while though, as Variety reports;

Early on, Demand used eNom’s 1 million generic domain names (such as “3dblurayplayers.com”) to serve up relevant ads to people searching for specific topics. These “domain parking” pages were immensely profitable, generating north of $100,000 per day, according to a former Demand exec who requested anonymity. “That’s $35 million-$40 million per year without doing any work,” the exec said.

The eHow business wasn’t any better, relying on low quality, cheap articles that only worked because they were stuffed full of the keywords that Google would base their search results on.

On January 26 2011 Demand Media went public and the criticism of both the newly listed company and Google became intense.

This story from Business Insider – which ha featured some gushing and dreadful analysis of Demand Media previously – illustrated the problem the company had of being overwhelming dependent on Google, although the writer believed Google were making too much money from content farms to really act against them.

Google’s problem with the content farms was real, the quality of search results was falling and users were finding their pages were full of low value rubbish rather than authoritative sources which opened the search giant’s core business  to disruption from Microsoft’s Bing and other search engines. Something had to be done.

Jason Calacanis, whose Mahalo was a competitor to Demand Media, flagged the risks to content farms in a presentation early in February 2011, “the one rule of working with Google is don’t make them look stupid. If you make ‘The Google’ look stupid, they’ll f- you up.” He said. “eHow makes Google look stupid.”

Eventually Google decided they were sick of looking stupid and changed their algorithms and the rules for getting a page one search result suddenly changed.

Demand Media’s business was doomed from the moment Google made that change, as Variety reports;

By April 2011, third-party measurement services were reporting that the Google changes had reduced traffic to Demand sites by as much as 40%. Demand issued a statement that the reports “significantly overstated the negative impact” of the change, but the stock took a dive — plummeting 38% over two weeks — from which it has not recovered.

As Demand Media was affected, so too was the entire Search Engine Optimisation (SEO) industry where thousands of consultants found their strategies of placing low quality pages and link rich website comments now damaged their clients’ businesses.

For web surfers, Google’s change was good news as suddenly search results were relevant again.

Demand Media was, in essence, a transition business that prospered during a brief windows of opportunity that quickly closed along with the company’s prospects.

That window of opportunity was also dependent on someone else’s business strategy, which is always a dangerous position to be in.

Demand Media’s lesson is that while there are opportunities to be had in markets that are being disrupted by new technologies, there’s no guarantees those opportunities will last. What works in SEO, digital media or social marketing today may not work tomorrow.

It’s also a hopeful lesson that websites regurgitating low quality content is only a transition phase in the development of online media and that providing good, original writing and video is the best long term strategy for survival on the net.

Should that lesson be true, then it’s good news for both writers and readers.

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Tuxedos and cocktail dresses — the real cost of being an entrepreneur

Correcting the myths about startups is the mission of venture capital investor Mark Suster

venture capital investor and blogger Mark Suster said at the Dreamforce 2013 conference yesterday.

Suster’s mission is based upon having seen the process of building business up close having been involved in two successful startups and trade sales before joining Salesforce as head of product development then branching out to the investor side of the business.

There’s also a personal reason for Suster wanting to tell the truth about starting your own venture, “the reason I’m on a personal mission to explain this is because a friend committed suicide.”

“His company had raised four million dollars but, by his standards, it wasn’t succeeding.”

Suster’s story resonates with anyone who has founded a business — it’s not something everyone is suited to and it’s a tough, demanding lifestyle.

Tuxedos and cocktail dresses

Part of the problem is public perceptions, Suster describes a conflict between “public persona and cognitive dissonance”; while an individual startup is struggling with their own flaws and failings, it appears that everyone else is doing well from their carefully crafted and placed publicity stories.

“Everyone else’s PR is their tuxedos and cocktail dresses,” Suster points out. “You on the other hand are seeing yourself naked in the mirror every morning.”

On being a marriage councilor

It’s often said that a business partnership is like a marriage and Suster finds much of his work as a venture capital investor involves counseling founders over their relationship.

“Sometimes one has to go,” Suster says. “It doesn’t matter what your preference is — and we all have our favourites — but the business cannot survive with the two of them.”

When two founders split, there is also the problem of equity, should both have equal shares then it becomes difficult to split the business; “should one partner leaves, it’s often easier to shut down the company and start again.”

Buy in your skills

A similar problem happens when there’s more than one partner and Suster cautions it’s better to employ people with the skills you need rather than offer equity in a new business.

“Having too many founders is the greatest dilution you’ll ever face,” Suster warns and his advice is to hire the skills required by the business rather than give away equity in your business.

Another benefit of hiring people is having a good team on the payroll is the validation good investors are looking for. “Having a good team proves you’re able to hire good people which is the most important skill an entrepreneur needs,” Suster explains.

Ultimately, Mark Suster sees the journey of building a business as a decade long process, the billion dollar startups are the exception rather than the rule.

The biggest advice Suster has is to understand your goals, “if you don’t define what success is, you’ll never achieve it.”

Building a business is tough, and not everybody is suited to doing it. Mark Suster’s advice isn’t just appropriate for technology startups, it’s also valid for anyone starting any type of business.

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The myth of celebrating failure

Embracing failure isn’t all it is cracked up to be

“We should celebrate failure!” One of my friends said over a beer. “If so, I have a lot to celebrate but don’t have a lot of money to dot it with.

Like many business mantras ‘celebrating failure’ is nice to say until you’ve actually experienced it.

Failure tastes pretty bitter and it isn’t pleasant when you encounter it. For some, it could kill their careers.

When you hear business gurus and snake oil merchants expounding the mantra of embracing failure it’s worth considering survivor bias when you hear the case studies

It’s also worth looking at the state of their suit and how desperately they are selling their box set of inspirational DVDx or books.

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Keeping sane in business

How can business owners and startup founders reduce stress and depression?

Last night some of Australia’s best small and medium businesses were celebrated at the 2013 Telstra Business Awards. There were lots of happy winners, particularly Tasmania’s Bruny Island Cheese Company who won the overall prize.

Speaking at the business awards, previous winner Jason Wyatt of Sydney’s Bike Exchange mentioned some the “stumbles on the way” and keynote speaker Mark Bouris described some of those ups and downs.

“Accept the downside and dream of the rewards on the upside” advised Bouris.

Sometimes though those upsides are hard to find, behind the glamour and glitz of having a successful enterprise the toll on proprietors’ mental health can be tough and this month’s Inc magazine looked at the psychological downside of running your own business.

Running your own business – whether it’s a plumbing service, cheese company or a tech start up – is hard work and risky with not everybody suited to the often demanding lifestyle.

If you aren’t suited to running a business, or you’re unprepared, then those mental health costs can be high.

My own experience is instructive, in fact it’s a case study of what not do as a business founder covering everything from being undercapitalised to choosing bad business partners.

 

Find good business partners

Running a business alone is a mistake, partly because few have the full range of skills required to successful run an enterprise and mainly for the fact being a sole trader or boss is a lonely, isolated experience.

A business partnership though is like a marriage and it’s just as important to choose those co-founders as carefully as you would a spouse.

Good business partners have the skills that complement yours – if you’re good at sales or the technical side of the business then you’ll probably need someone good at the administrative or accounts side. Business is a team effort.

What’s very important is that all the partners in the business respect each others’ strengths and understand their own weaknesses. This makes a powerful team.

Probably the most therapeutic thing about having trusted business partners is that you have a sympathetic sounding board. At the very least you kick back on a Friday afternoon and have a bitch about your customers, staff and the government. That in itself is very important in keeping sane.

Watch the money

One of the biggest problems in business, and one I’ve encountered many times, is that many people don’t understand the difference between cash flow and profit. They see the money in the bank and they spend it.

If your business partner has blown the company’s working capital on a flash car and an overseas ski trip for the family, you can bet the clients, staff and creditors won’t be expecting them to clean up the financial mess.

Should you find yourself in that situation with your partners, get out of the business early before it wrecks your relationships and sanity.

Have sufficient capital

Stories abound of the successful business that was founded in a garage by a couple of penniless college grads and bootstrapped from nothing but they are the exception, not the rule.

While it is possible to bootstrap a successful business – I did it with PC Rescue – it’s a tough, hard road and having insufficient capital exponentially increases the chance of failure. Get some money from family, friends or fools.

Don’t hold out though for the million dollar capital raising though, the Silicon Valley investment model is only suitable for a tiny subset of business and it is possible to be over capitalised as we saw in the dot com boom of the early 2000s.

Stressing about money is one of the greatest problems for business owners and founders, having a little bit of capital makes commercial life a lot more enjoyable.

Watch your business plan

It’s fashionable to say business plans are useless – that is bunk. A business plan gives you some idea of how you expect to spend your money and where the revenue will come from. It’s a good reality check.

However, the 19th Century German general Helmuth von Moltke said “no battle plan survives first contact with the enemy” and it’s true that even the best business plan won’t survive first contact with the customer.

That’s fine because tweaking your business plan in the early days will give you more understanding and control over your business. More control means less stress.

Pivot when necessary

Some of the world’s most successful businesses were started as something completely different, Microsoft being one of the best examples. When it turns out the market doesn’t like your original idea but there’s a similar but different opportunity, grab it.

Executing a business pivot can be time consuming and stressful, but it’s far better for your finances and mental health than riding a failed business plan into oblivion. If you’re the type that enjoys building businesses, then you’ll probably find a business pivot is fun.

Take a holiday

I cannot emphasise this enough. In PC Rescue I went ten years without a holiday. It was a stupid mistake and both my family and my own health suffered for this.

Create limits

Micheal McQueen points out that Baby Boomers are poor at creating limits to their worklives, for many it’s a matter of pride in working punishing long hours.  In small or startup businesses there’s no shortage of opportunities to work twenty-two hour days.

The difference with working 90 hour weeks for the law firm or bank is that managers have a nice salary, sick leave and workers compensation. As a proprietor you don’t and in doing so you’re putting undue on yourself, your business partners and your family by working too hard.

Delegate

One key to success is finding good employees – this is something I totally suck at. While I’ve had the privilege of hiring a few good people, I’m spectacular at finding duds.

Being able to delegate is one of the key skills to business survival, it allows you leave work at a decent hour, take that holiday and – most importantly – get time to think strategically. If the owners, founders or managers can’t delegate then the business potential is limited and the risk of burn out is far higher.

Sack the troublemakers

Something that always bemuses me is how small business owners constantly moan about staff. While it’s true one dud staff member can cause untold damage to a business, bad customers are far, far worse.

Pareto’s law – otherwise known as the 80/20 rule – comes into play here. 80% of your troubles will come from 20% of your customers and rarely will the slow playing, demanding troublemakers be your most profitable clients.

If you’re in business long enough you’ll eventually encounter the psychopaths who actually enjoy stringing out invoices or creating commercial disputes. It’s your duty to your own sanity to get these people out of your life as quickly as possible.

So sack them, write off their debts and get them out of your business. Your time on this earth is too short to be dealing with bad payers, the crazies or the one percenters who get their kicks from screwing other people around.

Watch the warning signs

“Five years in tech support will turn you into an axe murdered, I did twelve” is a joke I often make.

There’s a strong element of truth in that line though as IT support in particular is a stressful, thankless trade and running a business in that sector exposes you to a lot of negativity.

While I genuinely enjoy customer service, tech support and running a business I hadn’t realised just how that negativity and stress was affecting me.

It was only when I noticed the signs of stress in a couple of my good contractors that I started researching depression in the IT industry and did the Beyond Blue K-10 anxiety and depression checklist. The results weren’t pretty.

The exit from PC Rescue and IT support in general started shortly afterwards.

In retrospect I’d stopped enjoying the business and dealing with customers about five years earlier and that should have been the warning sign to get out.

“Love what you’re doing” was Jason Wyatt’s advice at the Telstra Business Awards and he’s absolutely right – the moment you stop loving your business is when it’s time to start looking for something else.

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Surviving in business by executing a pivot

One of the key skills in running a business is knowing when to change direction.

One of the key skills in running a business is knowing when to change direction, to ‘pivot’ in the language of Silicon Valley.

Yesterday I had the privilege of interviewing Jonathan Barouch, founder of social analysis company Local Measure about the service’s pivot from Roamz.

I’ll be writing that interview up in more detail in a few days, but Jonathon’s observations about pivoting businesses reflected my own business experiences.

PC Rescue was born out of a pivot and its ultimate demise was due to the failure of the company’s management, and my own, to move decisively when it was clear the business wasn’t working as planned.

The founding of PC Rescue happened out of a virtual assistant service my wife an I set up in 1995. We’d been victims of the curiously insular attitude of Australian managers towards employing expats and starting our own business seemed to be the right option.

So Office Magic was born.

Office Magic was a good business, but in talking to clients it became quickly apparent there was a bigger need for computer training and repairs. Most small businesses were struggling to find reliable techs to help them out with their IT services.

So Office Magic pivoted into PC Rescue.

For  the next ten years PC Rescue was a profitable business, the problem I had was the classic small business proprietor’s dilemma – I couldn’t get the right people.

The staff and contractors I had were good computer techs but I couldn’t find one with the skills or motivation to take over the day to day supervisor role so I could work on growing the business. I was stuck in the trap described by Michael Gerber in his book the e-myth.

Originally, PC Rescue’s business plan had been a five year strategy — two years validating, two years executing and one year exiting. The exit I particularly liked was creating a computer support franchise operation.

This didn’t happen because the company lacked the human capital required;  my wife and I lacked the management resources to move PC Rescue to the next stage.

When this became apparent we should have pivoted the business. We didn’t because I was too busy with the day to day stresses of keeping customers and staff happy.

Eventually we achieved an exit of sorts, ten years later than intended and not in a satisfactory way. The business remained under capitalised and the new partners turned out not to have the expertise or drive required to grow the operation.

Which make Jonathan’s pivot of Roamz so much more interesting. He listened to customers, looked at the direction of the industry and realised where the company’s strengths lay.

Rather that doubling down on a model which was struggling, he took the business in a new direction.

Having that flexibility is probably one of the greatest assets for small and startup businesses as larger corporations struggle with executing massive changes.

As markets evolve and the rate of economic change accelerates, having the skills and mindset to execute successful pivots could be the difference between survival and failure for many big and small businesses.

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Venture capital’s false jackpot

Thinking that raising capital is a jackpot prize misses the point of a much bigger business journey.

When a business run by a 22 year old raises 25 million dollars it certainly gets attention and Crinkle’s successful seed funding has provoked plenty of commentary.

Particularly notable are stories like the gush piece from the New Yorker magazine calling the fund raising “a $25 million jackpot.” Reading those, those, you’d think Crinkle’s Lucas Duplan had won the lottery.

The truth is, getting a fat cheque from investors is only the beginning of the business journey; the real work starts when you have a board and shareholders to answer to.

Where the real jackpot lies is in selling the business to a greater fool and the story of Bebo founder Michael Birch is a good example.

Bebo was bought by AOL, probably the greatest greater idiot buyer of all, in 2008 for $850 million. Five yearrs later Birch has bought it back for one million and promises to ‘reinvent” the social media service.

While Birch didn’t get all the $850 million AOL spent on Bebo, he and his investors did hit the jackpot. Whether Lucas Duplan and the backers of Crinkle do is for history to tell us.

Image courtesy of sgman through sxc.hu

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