The Scalable Entrepreneur

Posted on April 30, 2023 by anentrepreneurswords

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 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 smart approach. Maybe we even hire team members who we believe can handle scaling when the time comes. In other words, we take preparatory steps toward scale. But we don’t 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 riskier 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 fast 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. If 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 because of accessible capital.

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 Wall-Building Entrepreneur

Posted on April 23, 2023 by anentrepreneurswords

I’m shaking my head right now. Call it confusion, a lack of understanding or maybe even bewilderment. I’m really puzzled about something that I’ve been observing with more frequency. I’ve noticed several entrepreneurs building walls. Not necessarily in the physical sense but metaphorically. And the walls that are being built are designed to keep customers OUT! Huh? Why would any entrepreneur want to build a wall that keeps a customer out? You got it – that’s what has me scratching my head.

Let’s start with a sign I saw on the door of a shop in a resort town in northern California. The sign requested that customers NOT bring their dogs into the store because the store owner had dogs of her own inside that were “nervous” around other dogs. I’m truly not making this up. It’s become fairly common in many communities across the country to see people taking their dogs into stores, restaurants and other places of business. And it’s become a generally accepted practice for such businesses to welcome dogs. Rather than leave her dogs at home, this store owner basically told all customers with dogs to stay out of her store. I wonder how many sales she’s lost by building such an unfriendly wall.

Next, let’s talk about credit cards. I know American Express charges fees on credit card transactions that are much higher than Visa, Mastercard and some of the other cards used by consumers. What puzzles me is the fact that some businesses won’t take the American Express card. Costco is the worst large-scale offender. In 2017 the company dumped American Express in favor of Visa – not Mastercard or any other card. In this case Costco made the move to enhance its profitability and not to benefit the customer. I’ve spoken to several entrepreneurs who offer the explanation that the fees are just too high and that’s why they won’t accept AMEX. What they fail to understand is that they are also building a wall to keep customers out when they make decisions like this that ignore customer convenience.

It’s Friday night and my wife and I are dining at a restaurant that we really enjoy. Our mouths have been watering all day in anticipation of the Panko-crusted calamari strips on the appetizer menu. But wait – we are informed that the restaurant is “sold out” of the calamari. On a Friday night! How does this happen? I’ve ranted before about restaurants that run out of a particular menu item and I’m going to do it again. Except this time, I’ll expand the idea to encompass other products as well. In this day and age of technology, businesses that don’t effectively manage their inventory are really missing the boat. I realize in non-restaurant settings, it may be impossible to carry an inventory so complete that every SKU is always in stock. But care must be taken not to advertise specials on items that are sold out; and floor displays should be pulled when the items are out of stock. I went into a major national pharmacy every other day for a week looking for a particular item that was missing from the shelf. More walls being built . . . my solution – order it from Amazon.

Everyone will be able to identify with this next “wall” and sometimes it can be so huge that there’s no getting over, under or around it. You walk into a public restroom in a store or restaurant and it’s gross beyond belief. There’s an unidentifiable crusty substance in the corners where the wall meets the floor. The trash bin is overflowing; pipes are corroding; soap dispensers are empty; toilets and/or urinals are disgusting; only one dispenser has paper towels, and the list goes on. When we start looking around at the public space outside the restroom, we notice that it’s far from sparkling clean. This “wall” has been built so high that we can’t even see the top of it (and we probably wouldn’t want to touch it even if we could see it)!

I’m sure you have your own examples of Wall-Building Entrepreneurs. Hopefully this will serve as a wake-up call to all entrepreneurs to take a hard look at every aspect of our operations and identify any “walls” we may have erected that keep customers out. Then in the immortal words of Ronald Reagan on June 12, 1987, in a speech given at the Berlin Wall, “Mr. Gorbachev, tear down this wall!”

The Existentially Threatened Entrepreneur

Posted on April 16, 2023 by anentrepreneurswords

That’s an ominous sounding title for this blog – right? But not necessarily for reasons you might be thinking. When most entrepreneurs think about what can “kill them” – in a metaphorical sense – they might list undercapitalization, the inability to hire a qualified and competent workforce, or chronic issues with their product. While these can be serious problems, they are much less severe than the existential threats I’m going to discuss.

I believe that the most menacing threat to an entrepreneur’s existence is his or her own mindset. Do we truly believe we can succeed, or do we feel victimized and constantly under siege? Great entrepreneurs are eternal optimists. We know we can win – there’s no doubt about it. We will pivot when we must, but we are absolutely convinced that we will reach the Promised Land – whatever that might represent for our endeavors. Entrepreneurs who are too skeptical or pessimistic are destined to fail. They become tentative and can be paralyzed when making important decisions. Negative Nellies will usually crash and burn. They live in a world of lack and limitation. They can’t escape the negative energy that always surrounds them and eventually impacts their team.

Together with the negative mindset is another existential threat – that of low resilience. Look, we entrepreneurs get beaten up a lot. We make a ton of mistakes. We hear from plenty of people who don’t like us or what we are doing. If we can’t get up off the ground when we’re knocked down, then we’ll die lying there – again, metaphorically speaking. And it’s not just the ability to bounce back that’s critical. We do so with a smile on our face and a new resolve that we have taken a step toward success with our setback. Does that sound contradictory? It’s this kind of thinking – that we’re moving forward when it seems that we’re failing – that is the real definition of resilience. The existential threat melts away when we are always tougher than the problems we encounter.

The next existential threat is that of a lack of vision. Entrepreneurs absolutely must be able to see into the future. The ability to be a visionary also leads us to think more strategically and work on our business more than in our business. An entrepreneur who is a good operator but lacks vision will eventually “die.” It may be a slow death, but death, nonetheless. Why? Because without a vision – especially one that inspires our team – we are simply stirring the pot. Over time, things begin to unravel. Key people leave because the future is unclear. Important customers leave because a competitor (with vision) has offered a more innovative product or service. Rather than create a clear vision, the operator-entrepreneur takes tactical actions to try and solve the problem. This may include belt-tightening measures or price increases, neither of which addresses the underlying issue. R.I.P.

Poor communications skills are another existential threat to entrepreneurs. This encompasses many elements. The entrepreneur who can’t persuade through artful communications won’t be able to sell his or her ideas to customers, team members or anyone else. The entrepreneur who is unable to communicate effectively will have difficulty building important relationships. When communications are non-existent or garbled at best, misunderstandings will occur, and feelings are hurt. I have found that a very large percentage of challenges that we encounter are the result of inadequate communication. Entrepreneurial leaders must communicate clearly, concisely, and constantly to eliminate this existential threat.

There’s one more existential threat that’s a biggie. Entrepreneurs who operate without integrity will eventually die. Our stock in trade is our integrity. It matters not how positive and optimistic we are, how strong our ability to bounce back, how grand our vision might be, and how well we communicate, if we lack integrity, we’re dead as a doornail. Customers want to do business with entrepreneurs who are honest and forthright. Team members want to work for entrepreneurs who always do the right thing. Of course, there are examples abound of CEOs and companies that seem to have “gotten away” with underhanded behavior. It may take a month, a year or even longer, but eventually the jig is up. Maybe it’s karma or there’s some other explanation, but the entrepreneurs who don’t play it straight will lose in the end.

There are many existential threats to entrepreneurship. A negative mindset, low resilience, a lack of vision, poor communications skills and a deficiency in the integrity department, top the list.

The “Terminator” Entrepreneur

Posted on April 9, 2023 by anentrepreneurswords

A few years ago, I was listening to an entrepreneur talk about a period in his career where he was firing lots of people. His manufacturing company had many employees and sometimes he would fire as many as five in a day. It appeared that he kind of enjoyed this task. He liked to make a public spectacle of a termination. He’d yell at someone in front of their co-workers and then tell them they were through. And I quote, “There was none of this ‘you’re just not a good fit for this job’ nonsense. Very simply – you’re fired!” Whoa! This sounds cold – maybe even cruel. I don’t agree at all with his approach, but the conversation was positive from the standpoint that it crystallized a concept for me.

Firing equals failure. You may think this is an obvious thing to say – of course the employee who is fired has failed. But I’m looking at it as a failure on the part of the employer. This is a critical distinction for entrepreneurs. The reasons for terminations are numerous. Poor performance, lying, misappropriation of company property, behavior that is contrary to company policy, insubordination, being tardy or excessively absent, drug (or alcohol) abuse during the workday – the list goes on and on. Still, failure mostly falls on us as entrepreneurs when an involuntary separation occurs.

For starters, it’s quite possible that we hired the right person for the wrong job. The current labor market is very difficult for employers, and there can be a tendency to hire job candidates that simply aren’t the right fit. We resolve not to fall into this trap, but weeks later we’re hearing the rumblings from our team that they are overworked as they are covering the vacant position. Productivity is suffering and we finally hire someone who we know is probably “iffy.” We rationalize that we can make this person a project, and with a little mentoring they’ll be fine. The outcome is predictable. It seldom works out – both the mentoring and the new employee.

Hiring the right folks is hard work. Our company needs to at least have a neutral to positive reputation if we expect to attract the kind of talent we need. A negative reputation will likely result in driving away quality talent. A strong positive culture supported by authentic core values will bolster our reputation. Creating comprehensive roles and accountabilities is an absolute must. Actively recruiting new team members is mandatory. Simply posting a position on an online recruiting website isn’t enough anymore. We must do everything in our power to create a large pool of qualified candidates from which to choose.

Once we have prospects for a vacant position, we need to pull out the stops to find the sparkling diamond that adds value to our organization. Testing, psychological profiling and multiple interviews with different members of the management team are standard fare. Background checks and drug screening are also part of the process. Interviews must be carefully crafted to develop the full picture of an individual – strengths, weaknesses, traits, tendencies and even danger signals. Here’s the bottom line. It’s on us if we don’t hire the right person to begin with. And if we must fire someone because they weren’t the right person, that firing is our failure.

When we terminate someone’s employment, we must also take an introspective look at our own performance. We may have hired the right person for the right job, but did we do our part? How well did we train our new team member? Or was it the famous, “here’s your desk, here’s your phone, lots of luck, you’re on your own?” Another common rationalization for lack of solid training goes like this, “John Doe was in a similar position at Company X. We’re a fast-paced organization and we don’t have time to train people who ought to already know what to do based upon their level of experience.” There may be a grain of truth to this but for the most part, every new team member needs to be trained. The training may be less focused on the mechanics of doing the job and more centered around our company’s way of serving the customer, maintaining efficiency, being safe and increasing productivity. If we must fire someone because they weren’t sufficiently trained, that firing is our failure.

Finally, we must ask ourselves whether the team member we are terminating had the proper tools and/or resources to do their job. How unfair is it to fire someone when we haven’t provided such basic elements to ensure his or her success? You probably wouldn’t be surprised to know how often this happens due to budgetary constraints. We expect someone to do their job perfectly, but then we hold the purse strings so tightly that they can’t even meet minimum standards. If we must fire someone because they didn’t have the necessary tools and resources, that firing is our failure.

Firing a member of our team is nothing to celebrate. In fact it is often a failure of our leadership and can be prevented by putting the right person in the right job; providing sufficient training, and making sure to provide the proper tools and/or resources.

The Hyperbolic Entrepreneur

Posted on April 2, 2023 by anentrepreneurswords

Harkening back to my childhood days, I remember a wonderful Aesop’s Fable called The Boy Who Cried Wolf. As the story goes, a little boy tended to sound a false alarm that a wolf was attacking a flock of sheep. After doing this repeatedly, the villagers eventually stopped taking him seriously. Then when the wolf did eat the sheep, the little boy’s cries fell on deaf ears. In some versions of this story, the wolf also eats the boy. I believe that this fable is more apropos for our society today than perhaps at any time in recent memory. The current state of political affairs comes to mind as a perfect example of how over-the-top proclamations about how our country is doomed are being bandied about daily.

We can expand a modern-day Aesop’s Fable to include entrepreneurs – more specifically, entrepreneurs who engage in lying and distortion. There’s a distinction between puffery and lying. Puffery involves hyperbole which is “obvious and intentional exaggeration not intended to be taken literally.” For example, if we say that our widgets are the “best,” there’s no objective way to measure this claim and the public generally understands the context to contain a degree of hyperbole. On the other hand, if we say that 99% of all our customers agree that our widgets are the “best,” then this is a factual claim that can be verified. And it becomes a lie if this fact is manufactured, or we can’t prove that 99% of all our customers agree with our statement.

Where this gets dicey for entrepreneurs is when the integrity line is crossed. Alex is the CEO of a start-up company and is pitching a group of investors for funding. During an interview with the investor group, he says, “Our firm has 35 customers and we’ve generated $500,000 in revenue.” What he doesn’t reveal is that he doesn’t really have 35 paying customers. He has 25 prospective customers that are using a beta version of his product for free; five current customers that are currently paying for his product, and five former customers that quit because they had issues with the product. What he also neglected to say is that his company has been in business for three years and $500,000 is the cumulative revenue generated during that time. Did Alex lie about his company’s progress, or did he engage in a form of puffery? While it’s not quite the false cry that a wolf is eating the sheep, Alex has crossed the line through omission of key facts. Any savvy investor will drill down and quickly learn that Alex has misrepresented his situation – which will probably cost him the investment.

As entrepreneurs our integrity is our most valuable currency. When we go to the bank for a loan, it’s important that we put our best foot forward, but in an honest manner. We should be fact-based with our approach and present a true picture of our operations. At the same time, there is nothing wrong with sharing data trends that portray our company in a growth-mode. When we are reporting to our investors, we share the true, unvarnished facts. If things aren’t as rosy as we’d like, we provide an explanation about the issues we are experiencing. We have a real estate fund and write a quarterly report for our investors. Periodically I like to include a section called, “What’s Not Working.” In it, we discuss some of the challenges we are facing and what we are doing to overcome them. We’ve had feedback from investors who appreciate the fact that we’re not always trying to sell them on unicorns and rainbows.

Another problem area for entrepreneurs is that of overpromising and under-delivering. In fact, we would be much better off doing the opposite. We would do well to find one of the most skeptical members of our team and have him or her help set expectations. It’s likely that our optimism would be dialed back to a more realistic degree. Overpromising once may be forgivable. But if it happens over and over then we’re probably moving past the realm of hyperbole and into the arena of deception.

We all want to win, which is a critical element of entrepreneurship. Doing so in an honest and forthright manner may not be the easiest path to take, but it will likely keep us from being eaten by the wolf.

An Entrepreneur's Words to Live By

Lifechanging Ideas for Entrepreneurs

Monthly Archives: April 2023