Tag Archive for entrepreneur

Activity does not always equal Accomplishment

Never confuse Activty 
By Tom Fedro
 
John Wooden, the greatest basketball coach of all time, said it best, “Never confuse Activity with Accomplishment.” One of the most difficult aspects of managing a start-up company is dealing with the excitement level of the new venture and essentially reining in the tendency to believe that constant activity for activity’s sake is critical at all times. 18 years ago, led by an almost euphoric market and the ability to tack “dot com” at the end of anything, one could watch stock prices soar as investment capital flew in and companies filled giant break rooms with ping pong tables, arcades, snack bars, and more. Everything was exciting and fun, but in many cases the activity wasn’t anything approaching good business. (This isn’t to say that amenities for employees can’t help attract and keep good staff, it just illustrates the frenetic pace of business in emerging markets.) A few years later, the tech “bubble” imploded, and the net result was a great loss of shareholder value, layoffs, and paper millionaires realizing they had non-paper debts.

Technology itself has enabled a single person to create a great deal. In the time it takes me to write and post these words, I will likely have also checked my email, sent correspondence via instant messaging, and arranged travel for a business conference. If the average businessperson accurately listed the tasks undergone in a particular day, the results would be surprising. At first glance, the sheer number of items completed will tend to create a sense of accomplishment. Who wouldn’t be proud of checking off thirty or forty items on a list? Dig a little deeper, though. Take a look at the tasks and determine which of them actually resulted in a benefit to the company? How many of them helped to fill a day but really meant less to the success of the venture than the time spent with them?

Now, multiply that activity by the number of employees working for you. There are certainly hundreds of activities happening every day that likely don’t offer anything in the way of accomplishment. This doesn’t mean your employees are bad or shirking duties. They probably go to bed at night just as tired and just as overworked as you do. It does mean, however, that every employee ought to learn what tasks impact the company. For example, I have known salespersons who spend hours “preparing” to make phone calls and others who stay on the phone constantly but somehow can’t consistently close business. I’ve known programmers who can write beautiful code but spend their time on features that have little benefit. Ultimately, it’s the responsibility of management to take the best efforts of the employees and ensure that they are directed properly for maximum effect, to turn the activity into real accomplishment.

How much of what your company does is just activity?

Opportunity Knocks

Tom Fedro NewsOpportunity Knocks” is a collection of interesting, timely articles for the business and technology minded soul. Enjoy!

The Cost of Capital

Tom FedroIn any start-up, but especially in a technology start-up, the decision to seek capital from outside investors is often complicated. On one hand, companies can benefit from ready capital by rapidly ramping up research, development, and deployment of products and services. On the sales side the company can quickly add heads to an existing team or assemble a new sales organization to address new markets. The ability to use investment money for inorganic growth is another tempting possibility. Buying components of code can save a great deal of time and bring a product to market faster than the actual development. In addition, the breathing room that a hefty bank account affords is often priceless in the beginning stages of a business where oftentimes, poor decisions result directly from panic brought about by cash flow issues. Ongoing cash flow problems can lead to bankruptcy, dramatically scaled-down business goals or in worst cases a sale ahead of an acceptable valuation or complete dissolution.

Naturally, anyone who has invested time and energy into a venture wants to avoid the problems that shoestring boot-strapping can bring, and this is what makes investment capital seem so wonderful. When it comes in the form of equity, it even strengthens the balance sheet. (Debt, of course, doesn’t look as attractive, but it still provides the cash that helps a CEO sleep at night.)

There’s another side to using other people’s money, though. Ultimately, cash comes with strings. Sometimes the strings represent additional cash flow strains in the form of interest payments or preferred stock mandated dividend disbursement. In many cases, the level of oversight involved can be onerous. Company founders accustomed to complete dictatorial control over every aspect of the business suddenly find themselves answering to the sources of the money, and the money sources are primarily concerned with a return of capital and a return on investment; not necessarily with the company’s overall goals. This isn’t to say that venture capitalists (or other sources) are uninterested in the long-term success of the company. They are constrained, however, by their investment goals, and in many, if not most, cases, these goals involve a relatively quick and secure return of capital more than an ongoing interest in the continued success of the company. Let’s not forget that using external money can sometimes bring both oversight and expense. It’s not uncommon for a fund to require the hiring of a particular employee—salary paid by the company—in order to close the deal and provide an insider to keep them informed on the daily ups and downs in the business.

In my experience, try to grow and operate your company organically for as long as possible. That way, when the time comes for investment money, you’re positioned powerfully rather than weakly enabling you to maximize your valuation and fully embrace the benefits from the capital while minimizing the negatives.

Full Disclosure – Paragon Software Group Corporation was started with a loan from the company founders. Profitable within 3 months of incorporation, PSGC continues to grow organically and is currently the 3rd fastest growing private company in Orange County, California.