The Fundamentals to Start-Up Business Success: A Complete Guide

Start-up and early stage businesses will determine whether or not the US economy makes any progress in 2013.  Though there is a great deal of advice offered to help entrepreneurs succeed, most of it is redundant and ineffective; just look at the historical record of new venture failure if you have any doubts about this.

In this multi-part series, I will identify the key ingredients for building a successful start-up/early-stage enterprise that have been proven to work in all industries.

Part One

1.  It’s a For-Profit Business, Not an Offspring:  Understandably, entrepreneurs get emotionally wrapped up in their business.  Though the deep attachment has its benefits, like any other strength when left unchecked it becomes a weakness.  Leading a business requires consistently excellent judgment; emotion is the enemy of sound decision-making.

2.  Maintain Proper Roles and Responsibilities:  Arguably the most expansive and challenging aspect for successfully growing a business.  In many instances executive management rewards early hires through promotions to bigger roles.  For example, a loyal hardworking bookkeeper is rarely equipped to become a CFO.  More urgently, entrepreneurs should set very specific ground rules for investors who become board members.  Venture capitalists, private equity professionals and the like are far more experienced in business analytics than they usually are in business operations.  I have seen more businesses harmed by amateurs with money pretending to be experts at strategy or organizational design than any other single factor.

3.  Successful Disruption Comes From Outsiders:  Hiring senior management from within the industry a start-up business intends to compete in defies logic.  Industry veterans are rarely ever able to conceive anything other than an industry’s status-quo.  Captive to convention, “that’s not how this industry works” is both the industry veteran’s favorite saying and the entrepreneur’s motivation.  Early stage companies must offer superior alternative value to the way things have been and are.  This simply can’t be achieved by those who know only those rules.

4.  The Curiosity Imperative:  Regret only the meetings you didn’t have and the people you didn’t meet.  For early stage executives, working on the business is more important than working in the business yet too often leaders claim to be too busy to do anything but work in the business, consumed by tasks.  Your bright ideas will be validated and even further illuminated by those you meet.

5. Resources are Precious:  One of the great big lies is “we need fancy office space to impress prospects and customers.” Emerging companies spending too much for swanky offices do so for their own ego, not because the customer expects it.  For every $1 fully loaded expense you had better be able to generate at least $7 in revenue.  If you can’t then expect each $1 spent will destroy your company’s value by at least $10.  And above all remember this: your most precious asset is time because you can never get that minute back you lost.  Therefore, if you do not run the business through and by meaningful plans you’re wasting too much of your time.

Despite the popular advice, there are neither short-cuts nor fairy tales for building a successful business from scratch.  If you are a start-up/early-stage business executive, I urge you to evaluate your company on each of these 5 basic fundamentals and if you don’t like what you come up with you should be encouraged!  The first step to fixing a problem is recognizing it.

Part Two

Instead of looking to politicians in DC, business leaders must control their destiny. Part One in this series identified matters executives can take into their own hands. Part 2 features NFIB’s troubling survey.

Part 3

Leaders control their own destiny, the best leaders distinguish themselves when faced with adversity. Earlier this month (December 11 – The Fundamentals of Start-Up Business Success–Part 1), I established five (5) necessary qualities for building and sustaining success. These qualities are brought to life, through consistent action, starting with these 3 primary fundamentals:

1.  Ensure Alignment Through Plans: Every company’s highest ranking officer must set the tone by delivering a strategic and tactical plan to all direct reports.  Within one week each direct report must create the same for her functional responsibilities.  These plans must cascade throughout the organization and progress against established goals becomes the focal point for internal weekly meetings. The process must be guided by honesty; it is incumbent on every manager to challenge presented plans, 360 degrees.

For example, I worked with one CEO whose primary if not sole objective was to earn as large a bonus for himself as he could.  At the other end of the chain-of-command spectrum a VP reporting to me was singularly focused on getting promoted.  Of course neither openly admitted to this, which is why the former groused every year about not making enough money in his role while the latter never got that promotion.  Neither the CEO nor VP were able to constructively work with others because they defined success purely through their own personal agendas, where co-workers, supervisors and direct reports were all adversaries. Simply put, it was impossible to align the organization which kept the company from generating reasonable results years on end. Within 6 months of implementing this process, both the CEO and VP were out of their positions as they were unable to support their words with consistent deeds or actions.

2.  Meaningful Customer Mapping and Segmentation:  You undoubtedly know the percentage of revenue your top 5 and top 10 customers represent.  How does this list compare to prior years, both the names on the list and their impact on your business?  What do you attribute any changes to?  More critically, unless you’ve previously implemented business plans and disciplined reviews you can’t honestly say if any changes are positive.  Though one can build a business by simultaneously growing customer share and market share there must be a driving strategy to manage your business against.  I’m too often called into companies when they’ve fallen into the last stage of desperation because they misread what was really happening in their business, fooling themselves that “I don’t care how we made the number as long as we made the number” is sustainable.  For example, if you expected to grow in 2012 by adding new customers but at year’s end you satisfied your revenue target strictly by growing existing customer revenues you should be concerned.

I believe the most important aspect of customer mapping is to identify the degrees and strength of mutual touch points.  How many people from your organization regularly interface with each customer and how wide and deep are your contacts in each customer’s organization?  Expecting “relationships” will prevail ignores the competitive global environment and hinging your revenue on a singular (customer) executive contact ignores the reality that C-level executives and senior managers are turning over at faster rates than ever before.

Meaningful customer mapping and segmentation does not merely protect your existing base. When I first did this exercise I discovered that my organization had deep ties to our best customers’ Accounts Payable departments.   Following through on this data, I quickly discovered that virtually every AP department in every company hated our industry because our high-volume low-dollar invoices were a pain in the neck to process.  Within a year we added over $100 million in new business by selling streamlined billing while our competitors never knew what hit them.

3.  Competition is Broadly Defined:  Whenever I ask “who is your competition?” I get the same stock answer: like-companies producing like-products for like-customers. Wrong!  Your competition is everyone selling every conceivable product in the world because in building your business what you are first competing for is mind share: engaging a prospect in conversation that may eventually create a customer.  No buying influence can make time to meet with or review materials from every company trying to sell them something. As practical people they will entertain only meetings with prospective suppliers most likely to help them meet objectives where high tech and low tech are lumped into one schedule dictated by (perceived) impact.

The typically narrow view of competition is best evidenced by the myopic sales pitch I now hear in my sleep, those droning promises to save me time and money.  A business, let alone an entire economy based solely on the promise of reducing costs cannot sustain growth.  I can assure you any prospective supplier suggesting they can help my business make money will get serious mind share and if these initial promises prove to be true that conversation will become a fast-tracked priority.

In industries that are often dismissed as commodities I’ve had particular success positioning the company to help its customers convert a cost center into a profit center.  This is surprisingly easy to implement as long as your company manages to plans and has a firm grasp of its customer base.

Part 3 of this series features the three (3) effective steps for controlling your own destiny while others fret over fiscal cliffs and things they can’t control. Like all fundamentals, they build on one another and are dependent.

Part 4

Though the road to sustained success is paved by consistent execution it is lit by the leader’s clear vision.  As a fundamental, vision is not some starry-eyed sound bite intended to inspire but more often than not, confuses.

Clear vision is a necessary fundamental because it allows leaders to see things as the are so they can chart the right kind of action.

1.  Separate Activities from Actions.

I am always most wary of any employee with an unchallenged reputation for being a hard worker.  More often than not these employees actually create their own hard working urban legend and then propel it by “being too busy” for pretty much anything thrown at them during the business day. I’ve seen too many managers mishandle these extremely busy hard workers to the point they do serious damage to a business. In the most extreme cases, mismanaged hard workers become their own renegade operation within a greater company.

Hard work and staying busy are, at best, means to an end and not objectives. When properly channeled, they are activities that certainly contribute to any company’s success and are also positive cultural attributes.  The only useful measurements are (a) activities that make money, and/or (b) activities that save a company money.   Unless activities can be tied to these tangible actions they are counterproductive. Activities that correlate to positive actions then must be further measured by Time + Expense/Return analysis. The lessons of confusing activities with actions tend to be the costliest and in many instances are the most difficult to undo.

2.  Manage By The Decision-Making Tree.

At all levels, as it relates internally or externally, a disciplined approach to processing and making decisions is necessary for successfully managing to meaningful business plans.  Emerging businesses do not have an abundance of time or resources; decision-making proficiency is essential.

I’ve adopted “The Decision Making Tree” as my best method for mastering the process:
  • The lowest, sturdiest, and easiest to reach branch is mindsharetaking time to evaluate information.
  • A stretch, but within reach for a fit climber who sees the potential, the next branch is priority.When presented with something that makes sense and has the potential, grab that priority branch and pull yourself up.
  • The view from priority is usually rather spectacular, but also a bit scary so before going any further you want to make sure it’s a worthwhile climb. Research, consider, take input, and just to be sure you are not setting yourself up for a great big fall as the branches get thinner and harder to grab, make proper resource allocation. This could come in the form of a pilot program, trial, or some other controlled study that will validate whether you should keep climbing or shimmy down this tree.
  • Like any tree, the highest branch is the most perilous to reach.  Because it is also the weakest and thinnest, you must give it proper support before perching yourself on it. However, when you are there, the view is as sublime as the achievement is great!The highest branch is commitment and in this decision making tree, commitment means an absolute, unyielding come-hell-or-high-water commitment to seeing the endeavor through to success.

This orderly process allows one to make go/no-go decisions at natural break points, while obligating participants to drive an initiative to goal once that final decision has been made. In far too many tragic instances I get called into companies that had the right ideas, but lacked the resolve to see good decisions through. Rarely does anything even happen in one natural straight line, there will always be challenges and setbacks to anything new.

The Decision-Making Tree allows us to move forward through confidence based on each prior step so that when we get to the top we have the confidence to conquer.

Yes, I use this method to also evaluate sales funnels for the purposes of improving close ratios and sales cycle times.  Using The Decision-Making Tree criteria analyze where you stand with each of your prospects.  Chances are you will find many of the prospects you think “look good” have never progressed past mindshare.

3.  Growth is a Leading Indicator.

Most management tools and even perspectives follow lagging indicators. We all know why historical data is important, but an over-reliance on history and obsessive reviews of last month and last quarter makes absolutely no sense unless you possess the power to change history.  Since we do not possess these superhuman qualities, let’s out our mortal capabilities to best use.

What we learn from last month or last quarter is important, but how we apply it to meet our objectives is everything. Therefore, the leading indicators smart growth businesses run the business by put the greater emphasis on setting realistic yet aggressive short and longer range objectives and then recognizing/rewarding employees based on performance.

When combined with the other easy-to-implement and highly integrated fundamentals outlined in this series your business will have a record 2013.

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