Monthly Archives: August 2018

The Scalable Entrepreneur

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Many entrepreneurs have big dreams . . . really big dreams. We start a company; nurture it; live with it through thick and thin, and then someday it turns into a major enterprise. Perhaps we’re selling a product or service across the nation. Maybe we have hundreds or thousands of employees. Possibly our top line revenue and bottom line profits extend seven or eight digits (or more) to the left of the decimal point. At this point we’re thinking that the dream has come true. But how do we get to there from here?

Some entrepreneurs believe that they can achieve scale if only they had sufficient capital. I believe there’s more to it. There’s no question that capital is an ingredient to achieving scale. But I don’t think capital comes first. What comes first you ask? The customer. Here’s my theory. We scale to meet customer demand. We don’t scale to meet capital demand. As we grow our business we’re always looking for ways to design systems and processes that are scalable – that’s a really smart approach. Maybe we even hire team members who we believe can handle scaling when the time comes. In other words, we’re take preparatory steps toward scale. But we don’t actually pull the trigger and start moving to scale just yet.

Max started a premium t-shirt company three years ago. His t-shirts are unique in terms of design, material, construction and incredible artwork that feature the work of an up-and-coming artist. Sales have been steadily growing and the venture is now turning a small profit. Max has a wealthy uncle to whom he’s pitched the idea of providing capital that would allow for significant expansion. Uncle Frank has agreed to lend Max $5 million which would be used for a larger plant, equipment and raw materials. With this capacity, the company could produce five times the number of t-shirts as it can presently. In effect, Max has taken the “build it and they will come” approach to scaling his business. He is being capital-driven rather than customer-driven. There’s nothing wrong with what Max is doing, however it is inherently more risky than expanding to meet customer demand.

Here’s how the story might be told differently from a customer-driven standpoint. Max has customers beating down his doors to buy his product. He runs three-shifts 24/7 at his small manufacturing plant and has a six-month backlog. There’s just no way he can wring any more production out of the current facility. He has heard from eight distributors that they would double their already sizable orders if he could increase his production. Max finally decides to scale his business based upon the exponential increase in customer demand he is experiencing.

Now you might be thinking that this is all pretty obvious. But in practice we see entrepreneurs scaling their companies all the time because they have access to capital – customer demand is secondary. There’s often the belief that they need to get big really fast in order to beat the competition and succeed. There’s no question that bigger is better under certain circumstances. The unit economics may be more favorable at scale, and marketing, general and administrative costs may be more efficient. But what about the customer? Is the demand sufficient to meet the increase in supply? Or will the corporate balance sheet reflect ever growing inventory levels?

I understand the entrepreneur’s desire to grow and scale. We’re doing just that with our companies. However, the apartment-related businesses we operate are responding to an increasing demand for the apartment lifestyle due to some powerful demographics that are at work in our industry. Capital is abundant, but we’ve been driven by customer demand first and foremost. As long as customers want our product we will use the capital to scale our portfolio. We’ve seen other firms in our space that are awash with capital and are building apartments to soak up that capital. We’d like to think that our approach is less risky because we understand customer demand and are meeting it.

Scaling an entrepreneurial venture is exciting and can be very rewarding. Doing so by responding to customer demand is undoubtedly less risky than growing a business primarily as a result of accessible capital.

You can also listen to a weekly audio podcast of my blog. What you hear will be different than what you read in this blog. Subscribe on iTunes or wherever you get your podcasts. You can also click on this link – Click here to listen to Audio Episode 111 – Gut Check.

This blog is being written in tandem with my book, “An Entrepreneur’s Words to Live By,” available on Amazon.com in paperback and Kindle (My Book), as well as being available in all of the other major eBook formats.

The Reactionary Entrepreneur

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Entrepreneurship is all about innovation and being on the cutting edge. It’s about dreaming, creating and doing things our own way. Sound about right to you? Then what would you say if I told you that another aspect of entrepreneurship is being a reactionary? Actually I’m taking liberties with the term. When I was reaching adulthood in the late sixties and early seventies, a reactionary was usually associated with a person who was protesting the Vietnam War, and might use extreme measures to do so. To be sure, I’m not referring to entrepreneurs as this kind of reactionary. Entrepreneurs are reactionary in the sense that we are often reactive. What we react to can be make or break for our enterprise. Let’s look at two different aspects of being reactive.

Many entrepreneurs react to their competition. This is evident every day as we watch companies raise or lower prices based upon what they see their competitors doing. But there are many other examples of how this is being done. Company A produces a wearable device that measures the steps taken by a consumer. Company B produces a similar device that measures steps, but it also measures sleep patterns. Executives at Company A become concerned that it will lose market share, so they order the  production of an upgraded device that measures, steps, sleep and calories consumed. This is the additional “bells and whistles” approach. This arms race continues unabated – we’ve all seen it over and over.

While it’s important to know what our competition is doing, there’s something even more important to which we must react. Smart entrepreneurs react to their customers. Just because Company B produced a wearable device that measures steps, sleep, calories, plays music, allows the viewing of text messages AND counts the number of black cats that cross our path, it doesn’t mean that their customers actually want such features. Rather than participate in the aforementioned arms race with his/her competition, the smart entrepreneur drills down to understand what customers want and need, and then focuses on producing a product that responds accordingly.

Normally we say that we want to be proactive. We tend to think that being reactive is somehow “behind the curve.” In many areas of entrepreneurship this way of thinking is absolutely correct. We may equate being reactive to being unprepared, slow to respond or being a step or two behind. As entrepreneurs we need to be proactive when it comes to our production methods, marketing and sales ideas, and in all areas of human resources. But, being reactive to our customers is just plain good business.

Let’s break this down further. If we are totally and continuously connected to our customers, we are going to know immediately when they perceive issues with our products and services, giving us the opportunity to make the necessary adjustments. For example, maybe we make a thing-a-ma-jig that is blue. But we learn from some of our customers that they really want it to be red. We react and begin making a red version. This is good. Suppose that our delivery time used to be one week and now is two. Our customers begin telling us that two weeks is too long. So we react and tighten our delivery schedule. This is not good. Why? Because we should know that customers don’t want to wait two weeks for anything – everyone wants everything yesterday. We should have been proactive in this instance and never let the delivery schedule push out to two weeks. Instead, we should have been proactively trying to figure out how to shorten the timeframe from one week to a couple of days.

The entrepreneur who is constantly reacting to his/her competitors is the one who is behind the curve. Always trying to one-up the competition is a dangerous game to play unless it is done in concert with understanding the needs and wants of the customer. And then, the focus actually shifts from the competition to the customer. In the end, this may result in besting the other competitor in the space – but that wasn’t the primary objective.

Being an entrepreneurial reactionary makes sense when we are reacting to what we can do better for our customers. Then we can be proactive in all other aspects of our enterprise.

You can also listen to a weekly audio podcast of my blog. What you hear will be different than what you read in this blog. Subscribe on iTunes or wherever you get your podcasts. You can also click on this link – Click here to listen to Audio Episode 110 – Exciting Disappointment.

This blog is being written in tandem with my book, “An Entrepreneur’s Words to Live By,” available on Amazon.com in paperback and Kindle (My Book), as well as being available in all of the other major eBook formats.

Bedlam, Chaos and the Slammed Entrepreneur

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Tony owns a five-year old company that produces several different flavors of a healthy energy bar. Business is booming and the company is flirting with profitability. The business will soon reach a scale where profitability is consistent. Sales have been growing at 50% per year and the team has now expanded to 75 employees. The production facility runs two shifts and plans are in the works for a third. Sounds like a dream situation – right?

Here’s a look at the other side of Tony’s operation. A piece of machinery in the plant seems to be on its last legs with periodic breakdowns at the most inopportune times. Capital is needed to add two more pieces of equipment to accommodate the planned third shift. Tony’s not exactly sure what the source of those funds will be. His marketing director quit and the position hasn’t yet been filled. Also, the company needs to hire 15 new employees for the upcoming third shift – but it’s been very hard to find people that are willing to work all night long. On top of all that, a product recall may be in the offing due to a problem with the packaging. Tony has been working 12 to 14 hours a day, six days a week for months without a break. He’s stressed and badly needs some time off. But he’s worried that if he steps away – even for a long weekend – the business might go off the rails. Tony is experiencing bedlam, chaos and is overwhelmingly slammed.

If you are an entrepreneur can you relate to this not-so-hypothetical scenario? Everything is go-go-go and seems totally out of control. We find ourselves spending the vast majority of our time working “in” the business rather than “on” the business. We know we probably need to add another key staff position or two to allow us to work more strategically, but we worry that profitability and cash flow might be too tight if we do. We figure we can “muscle through” for a few more months and eventually the profit picture will improve to the point that bringing on the key personnel will be easier. Unfortunately, the “few more months” stretches out a big longer than expected (or desired).

What we are solving is not how to cope with the chaos, bedlam and stress, but how to move out of this mode as quickly as possible. Every minute we spend mired in this mess is another minute that is added to the ledger of total frustration and wheel-spinning. We all know the eventual outcome of this – a loss of passion, burnout, health issues and potentially much worse.

Step One – Stop the madness. Seriously, stop and step away for 24-hours. Without a clear head we can’t fix a thing. We don’t check our e-mail; we don’t call the office; we go dark and do something – anything – that will turn our attention away from the bedlam, the chaos and the stress.

Step Two – Assess. We catalog all of the pieces to this crazy jigsaw puzzle. What is working and what isn’t. What are the biggest issues we are facing? This is not a time to find solutions. We have a single focus and that is to take stock of our situation.

Step Three – Prioritize. Once we have identified all of our issues we next prioritize the swamp. In other words, which alligator is the largest and most likely to eat us and which is the smallest.

Step Four – Delegate. Look, we can’t do this all by ourselves. If we have key members of our team that can help, we bring them into the picture at this point. If we don’t have key people, we may need to turn to outside consultants to provide assistance.

Step Five – Plan. We take each issue and create a project plan in collaboration with our key team members or consultants. The plan needs to take a step-by-step approach that identifies what resources will be needed for successful implementation as well as a specific timeline to get there.

Step Six – Execute. With a plan in hand and the workload delegated, it’s the entrepreneur’s job to pull the trigger and turn everyone loose to execute. Then he or she must monitor the activity and hold people accountable for the desired results.

You may be thinking that this is a pretty obvious process. Except that it’s not. When we are stuck on the treadmill of bedlam, chaos and stress, it’s hard if not impossible, to rise above it all and take the six steps I just outlined. Discipline is needed to stay on course – that’s another responsibility of the entrepreneur. Gradually sanity will be restored and our enterprise will hum like a well-oiled machine.

You can also listen to a weekly audio podcast of my blog. What you hear will be different than what you read in this blog. Subscribe on iTunes or wherever you get your podcasts. You can also click on this link – Click here to listen to Audio Episode 109 – Super Powers.

This blog is being written in tandem with my book, “An Entrepreneur’s Words to Live By,” available on Amazon.com in paperback and Kindle (My Book), as well as being available in all of the other major eBook formats.

Just Figure It Out

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Recently my wife and I attended her high school class reunion. For her sake, I won’t say which one, but let’s just say that it’s been several decades since her high school days. The event was well planned and quite enjoyable. As we were eating dinner at the banquet, I learned that the restaurant originally scheduled to cater the food bailed out just two weeks earlier. I inquired as to how this possibly could have happened and it was explained that apparently a new manager had recently been hired and there may have been other staffing issues. The restaurant is well-known and long-established in the community and it’s shocking that it reneged on its commitment. Fortunately another restaurant was able to step up at the last minute and cater the class reunion.

I understand that things happen. Hiccups occur in the entrepreneurial world. However, it’s times like these where the real entrepreneurs shine. When we make commitments we do whatever it takes to honor them. Sometimes this requires a great deal of creativity. Sometimes we actually lose money. But no matter what, we always honor our commitments. In the case of the original caterer for my wife’s class reunion, I don’t know what prevented them from following through and providing the food for the event. I found it interesting that while the reunion was in full swing, this restaurant was open and serving dinner across the street from the reunion site.

Real entrepreneurs have a “we’ll figure it out” attitude. Our word is our bond and we’ll die trying to deliver what we promise. Since I don’t know the exact circumstances surrounding the failure of the caterer, let’s game out some scenarios. Perhaps the restaurant found itself with an unexpected labor shortage. The management may have felt that when understaffed, it could not deliver on the catering assignment. I happen to know that this restaurant has locations in other towns that aren’t too far away. One entrepreneurial approach might have been to pull staff from another town to make it possible to honor the catering commitment. I realize that this might have cost the restaurant an extra amount of money, but that shouldn’t enter the equation where a commitment is concerned.

A second scenario might have been one where the former manager made the commitment at a price that caused the restaurant to incur a loss. Maybe that’s why there’s a new manager! Regardless, if the commitment was made at the specified price, it should have been honored. A third scenario might have been one where there was a problem in the supply chain. I find this rather implausible because the cancellation occurred approximately two weeks before the event – more than enough time to resolve an issue with a supplier. However, should that have been the case the restaurant could easily have made other arrangements to procure the necessary ingredients even if it meant buying the items at the grocery store.

The point is that a real entrepreneur would just “figure it out.” Sometimes we do things with bubble gum and baling wire. At other times we deliver a result that is a work of art. The main thing is that the job gets done and the customer is thrilled. Welching on a commitment is simply unheard of to a real entrepreneur. In the case of the caterer, they are running a great risk as a result of their actions. I overheard some of my wife’s classmates who were so irritated that there was talk of boycotting the restaurant and writing negative reviews on social media. I’m sure the word will spread throughout the city and other high school classes will avoid using this restaurant for catering their reunions.

There is a caveat to all of this. It’s important to understand that “we’ll just figure it out” is a fine approach for entrepreneurs at the early stages of our ventures. Eventually we need to refine our systems and processes and create redundancy in every area of our operation. It’s not possible to reach a level of scale if “we’ll just figure it out” is our long-term strategy. While it may sound laughable that any entrepreneur would do this over the long haul, I can tell you from personal experience that I’ve seen many, many companies that are in this mode for years.

Real entrepreneurs always honor their commitments. And sometimes this requires them to “just figure it out” through unconventional means.

You can also listen to a weekly audio podcast of my blog. What you hear will be different than what you read in this blog. Subscribe on iTunes or wherever you get your podcasts. You can also click on this link – Click here to listen to Audio Episode 108 – Entrepreneurial Insecurities.

This blog is being written in tandem with my book, “An Entrepreneur’s Words to Live By,” available on Amazon.com in paperback and Kindle (My Book), as well as being available in all of the other major eBook formats.