By Tom Fedro
Most of us have the dream, right? We imagine taking our company public or selling it for a dramatic windfall. A great many of us saw at the height of the Internet boom when a successful exit didn’t necessarily require anything resembling fundamental business health. We watched companies that were giants merging with companies less than a decade old. We watched kids become millionaires with stock options and public offerings. In many ways fundamental business planning gave way to product development intended not for profit but for eventual sale to someone else.
There are still some examples of this kind of attitude, but the opportunities to sell non-monetized companies have faded significantly. The days of impossible valuations are numbered if not already gone. Take Bebo for example. It sold for $850 million to AOL and almost immediately tanked. AOL’s CFO lost his job and when the founders bought it back for 1/85th of its sales price, the fiasco finally ended. This isn’t to say AOL was cheated or that the founders of Bebo didn’t deserve an exit. However, it was AOL’s desperate attempt to remain relevant in the world of social media that led to overpayment and then a complete loss of more than three-quarters of a billion dollars’ worth of shareholder value.
If you’re looking at this and seeing an $850 million exit strategy, you’re looking wrong. For all intents and purposes, the purchase of Bebo signaled the end of insane valuations. The key to business is and always has been valuations, and the slap in the face to each of AOL’s shareholders illustrated that far more effectively than anything I could ever write. My advice? It’s absolutely appropriate to build a company with the intent to sell, but you have to be in for the long haul with genuine value creation and profitability over time because you never know if or when that buyer will actually show up with the big check.
By Tom Fedro
Jim Stengel is an author, business guru, and experienced global marketing executive. His branding expertise surpasses most, and I’ve enjoyed wisdom I’ve garnered from his writing, especially his new book. He focuses on consumer branding more than business to business, which is no surprise given he was the global marketing officer for Proctor and Gamble, a company legendary for its ability to brand consumer products. He came to mind a few days ago as I caught up on my various feeds and found him quoted in a post about great marketing quotes. Here’s his quote:
If you want to understand how a lion hunts don’t go to the zoo. Go to the jungle.
It was a bit strange to see that quote right in the middle of a list of quotes that spoke of customer awareness, product development, advertising, and response ratios. Each of the others was a somewhat pompous truism (and let’s face it, a lot of the “experts” can make even the most basic marketing statement in a completely pompous way—myself included.) I suppose that’s why it stuck with me, and I found myself realizing it had a lot of value in the world of B2B technology.
One of the problems with those of us in the tech sector—especially in tech startups—is that we tend to market our product as though our customers were caged. In a zoo, the lion gets what’s thrown through the bars of its cage. It’s docile. It’s reactive and not proactive. In short, it’s just waiting for the zookeeper to direct its behavior. How often do we market to our customers with the same perspective? We parcel our data and try to control the sale as though our targets lived in a cage and had no ability to see beyond the exhibit.
That’s not today’s customer for us. Today’s executive isn’t locked in a cage. We’re not zookeeper’s handing out controlled portions of information with which to make a buying decision. On the contrary, today’s executive is constantly on the hunt. Access to information is almost completely without barrier today and it doesn’t come from zookeepers in call centers. Our customers aren’t caged and we can’t control the sale. So what do we do? There’s a simple answer, though it’s by no means easy. We start exploring the jungle.
By Tom Fedro
What? Can I really write this post? I’m all about business and startups and suggest that the driving force of a multitude of entrepreneurs isn’t as important as every other blog on this subject suggests? What of all the stories? What of all the movies? What about all the inspirational books and the men and women just about to give up but hanging on because they accessed deep within themselves that last vestige of hope and passion that kept them motivated against all odds.
It makes for good storytelling, but I have to tell you that I’ve been in more than one startup. I’ve advised in more than one startup, and I’ve seen countless pitches from founders. I’ve spent my career focusing on startups. I’ve yet to find a single founder of a startup who wasn’t consumed by passion. Why in the world would anyone put in the kind of effort and sacrifice necessary to start a new venture if there wasn’t passion? Everyone has it. Everyone in this arena, anyway.
The bottom line is this. According to studies (and there seem to be a million of them) the failure rate for startups is staggering. Low estimates put it at about eighty percent, some suggest the rate is ninety-two percent. That means your brilliant new business has about an eight percent chance of success, no matter how passionate you are. In fact, there’s a good chance your passion, if not reined in, will be your undoing.
The Genome Project’s study of 3200 startups concluded that the number one reason for failure is self-destruction, primarily through premature scaling. In other words, passion makes us grow too quickly and get ahead of ourselves. Things get crazy and our dreams become nightmares. Our incredible idea is so incredible that we implement it faster than it can actually succeed, and the net result is failure.
I’m not suggesting passion isn’t important. I’m just trying to tell you that everyone attempting to start a business probably already has it. Don’t work on motivating yourself in this area. Don’t focus on the passion, focus on the business. Make good, fundamental business decisions. Those are the decisions that may seem dispassionate or even appear to show a lack of confidence in the idea about which you’re so passionate. Don’t worry about that. You worry about whether or not you’ll be one the eight percent that make it.
By Tom Fedro
I’ve always loved the work of W. Edwards Deming. I recall watching a brief clip of a video once where he relates his interactions with a group of middle managers. He asks how they’ll accomplish the company goals, and Deming’s response is perhaps the best description of the problem with most management. “Immediately, a hand shot up in the back. ‘By everyone doing his best.’ Sounds great! But you know, that won’t work. Everyone is already doing his best.”
In the startup world in particular, the response to difficulty is almost always a cry to work harder, and rarely do we interpret those difficulties as an indication of flaws in our procedures or our business plans. I can understand that. Our hearts are usually wrapped up in those plans, and our first inclination is to protect our hearts, right? A problem has to lie in the effort we’re expending, right?
I don’t think so. I don’t think the difference between a successful startup and a failed startup has much at all to do with the amount of effort put in to try to make the company work. In fact, although I’m certain startups would fail without effort, I don’t know of any that didn’t make it for that reason. In general, I believe people work hard and try their best.
Deming was pointing out that the success of a company is reliant on the direction given to the company by management. He wasn’t discounting the role of a worker at all. In fact, he said the workers already do the best they can. Management is responsible for the success or failure of a venture, and that means we need to step back when things aren’t proceeding as planned and evaluate our business before we decide more long hours and whip-cracking is the solution.
I thought about this recently when I read a quote from Jeremey Liew. His insight into startups is evidence by his success at Lightspeed Venture Partners. He said, “Working harder is usually not the solution (actually working harder is usually the solution for when things are going well). Doing something differently (up to and including giving up and trying something else) is usually the right answer…” It’s not what we want to hear, but it’s good advice.
You’re already doing your best.