Logic Must Manage Emotion

February 26th, 2009 by Sharon Larsen

Rich opens Chapter 4: Got Gas? by suggesting that would-be entrepreneurs let logic manage their emotions. 

 

 

Emotion, one of the greatest sources of success for an entrepreneur, can also seriously hinder performance. As excited as you are to take off on your new adventure, you have to do the logical things first. Starting a well-fueled venture requires three steps. You have to file the flight plan, make sure the runway is long enough, and, most important, check your gas tank.

 

I recall speaking with a young entrepreneur who planned to launch a new, progressive technology. Talk about excited—he was like caffeine on steroids! On the verge of quitting his current job, he had convinced one of his best friends to do the same and jump on a plane ride to…well, where was unknown. This new technology needed a year to eighteen months of development time, followed by an intensive, costly marketing effort. I listened patiently, admiring his passion for this venture, and then started poking at him a bit.

 

“What funding do you have available?”

 

“How are you going to pay your salaries?”

 

“How much have you allocated for market penetration?”

 

My questions came like a dagger to his heart. He had not made the effort to measure the required runway, check his gas tank, or even file a flight plan. He and his would-be parachute pal had earnestly worked themselves into an emotional lather, saying, “Let’s do this thing,” and left logic behind. Sadly, the dagger was neither sharp nor penetrating enough. He disregarded my counsel to create even a simple pro forma, figure the cash requirements, or take a quicker path to profitability. Three and a half months later, I received a call from him:

 

“Rich, my family is starving. What can I do?”

 

It was one of the saddest things I have ever heard.

 

Let’s take a moment and pick this story apart. What, specifically, is the flight plan? What is the gas? And what is the runway?

 

  • The flight plan—your basic business plan—includes your pro forma, or your financial projections of what you expect to happen. (This does not need to be a six-month exercise in futility, but a document that fleshes out the basics.)
  • The gas is your cash reserve, used to execute your business plan.
  • The runway is the time needed to realize your business plan, to get profitable, or, at the very least, to stabilize.

 

The flight plan, the gas, and the runway are interrelated and equally important.

 

The pro forma seems to scare the most people. A pro forma is a simple document that projects cash flow, balances, and income statements. You do not need a CPA to create one. Use a basic Excel spreadsheet and simply begin outlining your monthly projected incomes and expenses. Keep it simple, but make sure it is thorough.

 

Here is a sample of a pro forma I have found incredibly useful in my ventures. Generally, I draft three versions: a conservative, a realistic, and an aggressive model of my cash flow. I then operate based on the conservative model. Once you have written a one-year pro forma, do the same thing for three years. You don’t need to spend too much time on this exercise, just enough to get a sense of where you can and want to go financially. Focus on your cash flow. Income statements and balance sheets come in handy for later reviews, but cash is your gas. Track it carefully. Once you begin operating the business, compare your performance against the projections of the pro forma each month (or each week, if necessary) and adjust accordingly.

 

Pro Forma Income Statements – By Month – 1 Year

 

 

 

 

 

 

Jul

Aug

Sep

 

 

 

 

Licenses

 $   -

 $   -

 $   -

Maintenance

   -

    -

    -

Sales

   -

    -

    -

Cost of Goods Sold

   -

    -

    -

Gross Profit

   -

    -

    -

 

 

 

 

Software Development

   -

    -

    -

Salaries

   -

    -

    -

Selling Expense

   -

    -

    -

Office Expense

   -

    -

    -

Other

   -

    -

    -

Total SG & A Expense

   -

    -

    -

Operating Profit

   -

    -

    -

 

 

 

 

Interest Income

   -

    -

    -

Earnings Before Taxes

   -

    -

    -

Income Taxes

   -

    -

    -

Extraord. Item: Tax Refund

   -

    -

    -

Net Income

 $   -

 $   -

 $   -

 

Once you have gone through this exercise, you will have a better idea of how much gas and how much runway you actually need. After all, even the best logic doesn’t do much good without a solid cash reserve and financial plan.

 

Porter’s Points: Logic Must Manage Emotion

 

  • The same drive you need to start your business can run you right into a wall if you forget to meet the requirements of logic.
  • A pro forma is a simple statement that predicts cash flow for one to three years. It doesn’t have to be very in-depth, but it should cover your bases and give you a good overview of your income statements, balances, and cash flow.
  • Draft the pro forma and direct your drive toward that. Rather than a fluffy goal, shoot for something tangible and hold yourself to it.

 

 

The next principle is “numbers don’t lie” – we’ll start next week with that concept. 

 

Porter’s Preface: Got Gas?

February 25th, 2009 by Sharon Larsen

Today we launch into Chapter 4: Got Gas?  We begin with Ron’s preface to the chapter.

 

 

Imagine yourself sitting in the captain’s seat of a commercial airliner. As you wait for the ground crew to finish the preflight checklist, you check the instrument panel and chat with your copilot. As you wait to push back, your headphones buzz and you hear a voice from the control tower:

 

“Captain, we’re cleared for takeoff; let’s push back and get you in the air. We don’t have a flight plan for you, but we know how excited you are for this trip. We know you can probably figure out the details once you’re airborne.

 

“By the way, we haven’t checked your fuel. We hope you have enough to make it to the Big Island—anyway, let’s give it a shot. And one more thing, you’re taking off on the short runway, so you’re going to have to give it some extra throttle. We know you’re in a hurry to get going, so cross your fingers and good luck!”

 

You may think that scenario is ridiculous—and it is. No airline captain would even consider taking off, much less flying, under those circumstances. Unfortunately, many would-be entrepreneurs launch their businesses with a cinch of their seatbelt, a glance toward heaven, and a push of the pedal. These small businesses never arrive at their destinations because they ignore basic startup necessities. No plane can fly without fuel, and getting your venture off the ground is just the same. You have to get gas.

 

There are three maxims Rich considers faithfully when fueling his ventures: logic must manage emotion, numbers don’t lie, and find how to fund the runway.

 

Cruising at an altitude of well over six miles, watching patchwork farms, tall mountains, sprawling forests, and glittering oceans pass beneath you, your plane may feel invincible. Emotions run high when you start a venture, but reality hits if the gas runs out. Keep logic in mind, line up the numbers, and find the right funding to ensure as smooth a flight as possible.

 

 

Tomorrow we’ll begin talking about how logic must manage emotion and what that means for starting a business.

 

 

Play. Compete. Win.

February 24th, 2009 by Sharon Larsen

Now that you have these power tools to use as you analyze your business ideas, Rich discusses three final questions to use as a stress test before you start a business.

 

 

Over the years I’ve created dozens of products and services. In the process, I’ve realized that it can be a chore to decide where to place your resources. I’ve learned to ask myself three basic questions:

 

·         What is mandatory to play?

·         What is necessary to compete?

·         What is required to win?

 

The exercise is wonderfully simple: identify the various functional pieces or features of your product or service and filter each one of them through these three questions. This short but powerful exercise puts you in a position to very specifically understand what you need to do to succeed—and when.

 

First things first, what actions do you need to take to get into the space? What is mandatory to play? You can’t win a game you’re not in. Once you’re playing, though, you can focus your remaining resources on the next steps. How do you stick around and compete? Finally, with your foot in the door and your feature set growing, what do you need to do to win? What differentiates you and your product from the competition? This line of questioning will help you stay focused and keep you from exerting energy on activities that don’t give you direct value.

 

Let’s look at GRB.

 

1)      What is mandatory to play?

 

Your brother-in-law is your channel connection, but it’s time to lock it down. Get the contract signed and ready to go. Where will you keep your inventory and make your product? And are you sure it tastes good?

 

2)      What is necessary to compete?

 

Look at what it will take to finalize your pricing, create inventory, get shelf space, and establish a sales force. And then, watch your timing.

 

3)      What is required to win?

 

Now it’s time to concentrate on the shape of the bottle, the colors on the label, personal endorsements, and value proposition (vitamins and minerals, remember?). Buy billboard space! Set up magazine ads! Get on Oprah!

 

Don’t let the simplicity of this test fool you. You really don’t need to overanalyze your idea or over-engineer your product. Stick with the essentials to play, compete, and win.

 

Porter’s Points – Play, Compete, Win

 

  • Your resources are valuable to you and the success of your venture – at any stage of the game. Thoughtfully determine where you will expend them.
  • First things first—ALWAYS!

 

 

That does it for Chapter 3: Power Tools.  Next we move to Chapter 4: Got Gas? 

 

Rich’s Four Filter Rules List

February 23rd, 2009 by Sharon Larsen

As you evaluate your business ideas, it’s important to set rules for yourself about the kind of business you would like to be involved in.  Rich shares his four rules today.

 

 

The following is a list of questions I’ve developed to assess an opportunity. These questions have, as a result of my experience, taken on the form of rules; and in order for me to act on an idea, it must conform to all or most of my four fundamental rules. Over the last 20-some years and 27 startups, I’ve assimilated a lot of knowledge from colleagues and partnerships, and each of my rules has come as a result of trial and error. Stated another way, life works best when I don’t break my rules:

 

  • Is the business opportunity transactional?
  • Will I own the customer?
  • Is the opportunity digital in nature?
  • Does the opportunity ride a wave?

 

Let’s evaluate my GRB idea against this tool and see how it stacks up.

 

Is selling gourmet root beer transactional in nature?

 

GRB is not a transactional business. You will manufacture your product and sell it to a distributor.

 

Don’t confuse this idea of a transactional business with the traditional understanding of business transactions. Credit card companies are a great example of a transactional business. They sit between you and a vendor. You use the credit card to buy a product. The credit card company pays the vendor for the product. You pay the credit card company a premium to use its money. The credit card company carries no inventory. It collects interest and fees from all parties 24 hours a day, 7 days a week, 365 days a year.

 

Will you own the customer?

 

GRB can own the customer, if it chooses to. Owning the customer is paramount. It allows you to do the following:

 

1)      Create an enduring business opportunity.

2)      Fix problems that may arise.

3)      Market directly to your customer.

4)      Offer services and support to a customer that will greatly differentiate your product.

 

Your ability to get face-to-face with your customer and establish a bond beyond the merits of your product is critical. In keeping with our GRB example, you could potentially own the customer (retail stores) if you choose to bypass the distributor and sell directly to the end user. Is owning the customer important enough for your business to go direct?

 

Is the opportunity digital in nature?

               

No. Root beer is digestive in nature. Yes, that was an easy shot, but the fact is, root beer requires warehouse space. Root beer requires inventory. At this point in my entrepreneurial career, I’m not interested in running a store. I prefer digital assets, for example: software development, services (like web hosting and SEO work), and, my favorite, websites. But that’s my rule. What’s yours?

 

Is root beer at the front end of a wave?

 

No. Root beer and other soft drinks have been around for years. However, a healthful, all-natural gourmet root beer could ride the baby boomer health craze wave. Keep in mind, sometimes waves exist, and sometimes you make them.

 

It took me years to distill my experiences into four simple rules. They are by no means an-end all or catch-all. There have been times when I have broken my rules. Case in point, Cyclone Trading Co.—a golf equipment exporting company. While it wasn’t digital, Cyclone was incredibly transactional, I owned the customer, and I was riding a wave. The company was a success.

 

In the end, my rules cannot be your rules. You need to discover your own criteria for success. The important point is to make the rules yours, and make them work for you.

 

Porter’s Points –Rich’s Four Filter Rules List

 

  • Create your own list of rules. They will evolve as you gain experience.
  • Stick with these rules as closely as possible. You may need to revise them or ignore them along the way–but always do so with forethought and purpose.
  • Tapping into the expertise and experience of others as you consider your rules is a valuable resource. But at the end of the day, they’ve got to be yours.

 

 

Tomorrow we’ll learn how to play, compete, and win when starting a business. 

 

 

The Competitive Matrix

February 19th, 2009 by Sharon Larsen

Along with Porter’s Five Forces Model, Rich uses the Competitive Matrix to analyze business ideas. 

 

 

This tool is exceptionally helpful when it comes to determining the gaps your gourmet root beer can fill in the marketplace. Below I’ve shared a hypothetical example of GRB’s regional analysis for the U.S. market. The clouds are your competitors. Their placement on the chart corresponds with their geographic location and price point. The analysis indicates GRB has a great opportunity for product sales in the Southwest across the price spectrum and a solid opportunity for product sales in the Northwest at the lower end of the price spectrum. You can run this analysis for a number of different areas of interest, including but not restricted to:

 

·         Location

·         Demographic

·         Price

·         Distribution method

 

I typically run the model three or four times with relevant pairs; for example, distribution method and price or demographic and price. Do your research online or on foot–any way you can. Learn about your competitors, and then apply what you learn to the matrix.

 

After running your idea through this process, the answers will tell you if you need to tweak your product game plan. My strong recommendation is to fill a profitable niche or hole in the market and not go up against the big boys—at least not yet. If your goal is to be purchased by a larger competitor, try not to overlap with what they are doing. Rather, complement their products and services and give them a reason to purchase your company. (We flesh this idea out more completely in chapter 19, “No Exit Strategy?”.)

 

Porter’s Points – The Competitive Matrix

 

  • Do not overlap your product or services with competitors if your target is a sale. Overlapping invites them to stomp you out; complementing invites them to buy you out.
  • Depending on your product, conduct a regional, price range, distribution, or demographic analysis of your competitors. Find where you can fit in, map it, and plan on it.
  • Run this model three or four times with different pairs of indicators. Go out and do research!

 

Porter’s Points: The Five Forces Model

February 18th, 2009 by Sharon Larsen

Today we finish analyzing Rich’s hypothetical root beer business with Porter’s Five Forces Model.  Yesterday we examined the impact of industry competitors, suppliers, and buyers. 

 

 

#4—Substitutes

This category deals with the threat of substitute products or services.

 

Q: Is there a feature of your root beer that will compel consumers to drink yours over other soft drinks?

 

                A: GRB includes vitamins and minerals, and tastes great! (+)

 

Q: Can your customers drink something other than root beer?

 

                A: Yes. There are gallons of other options. (-)

 

Although this seems to even out, it’s not quite as cut-and-dried as that. The truth is there are thousands of substitutes for your product: other root beer, other soda, juice, milk, water, or even nothing at all. Because of the weight of this negative aspect, the overall score for this force is negative as well. (-)

 

#5—Potential Entrants

How difficult is it to enter the space? Do you have an advantage over the competition? Once in, how do you plan to keep others out? Of all the factors to consider, this is the most important. I call it “Barriers to Entry.” Also, when I draw the model I include another box: “Channel.” I always pay particular attention to the power of the distribution channel, or lack thereof. The following questions will help you understand the concept more fully.

               

Q: Can anyone make root beer?

 

A: Yes.

 

Q: How expensive is it for someone else to enter the GRB space?

 

A: Not expensive at all. (-)

 

Q: Is it expensive for your buyers to switch from GRB to another brand?

 

A: No. The store just has to clear the shelf and replace my brand with my competitors’ product. (-)

 

Q: Do you have access to an established distribution channel?

 

A: Yes, I have an exclusive agreement with all distribution channels in my target region. In fact, my brother-in-law controls the beverage distribution for all the food chains in my area. (+)

 

The overall score for this force is a negative. (-) But you must take into consideration your exclusive channel agreement. The power of this positive may be enough to convince you to enter anyway.

 

On your whiteboard diagram, write a “+” next to Potential Entrants.

 

Tallying up the overall scores, we come up with a grand score of 2 positive, 3 negative. Do these results mean you should avoid the venture? Not necessarily. The information you’ve gained from this exercise is a valuable assessment of the competitive landscape–you know where you are vulnerable, where you need to apply focus, and what your strengths are. You now have a wide variety of things to consider. Perhaps your assessment ended up all negatives except for one area: but if that one area is powerful enough, your idea may still be worth the effort! 

 

I have colleagues who have made millions on a venture that scored all negatives. They had to work very hard and very long before they were able to make a profit, but they did it! If you look at your whiteboard and see a plethora of pluses scattered across the boxes, it’s indicative of a wave! It will be easier and faster to get the venture up and running. Conversely, the more negatives you have, the more time it will take to make a profit.

 

Porter’s Points – The Five Forces Model

 

  • The Five Forces Model is fast. Use it during your idea stage to test what you plan.
  • Just because an idea scores mostly negatives doesn’t make it a bad idea. Negatives mean you will have to work harder, smarter, and longer. Decide if you are up to it; if not, test some other ideas to find a wave.
  • Use the Five Forces Model with the Competitive Matrix in the next section to really get a grip on your market and make plans for success.

 

 

Now that you know how powerful, yet simple, this model is, try using it to analyze your own business idea. 

 

The Five Forces Model

February 18th, 2009 by Sharon Larsen

Today we begin learning about Rich’s favorite power tool – Porter’s Five Forces Model.  We’ll walk through a hypothetical example to give you an idea of how the model is used in starting a business.

 

 

The Five Forces Model[1] is one of very few things I learned in MBA school that I still use frequently. Michael E. Porter is a professor at Harvard Business School, and is considered a leading authority on competitive strategy. His model can look a bit intimidating, but it is the first tool I use to do a quick evaluation of a business idea. It provides an overview of how viable and profitable the venture could be. Running this model should not be a laborious process. I will demonstrate how simple it is.

 

First, here’s a quick rating system that helps when using this tool. For each force, you will come up with several questions. The answer to each question will receive a positive (+), negative (-), or neutral (o) result, ending in a final, overall score for each force. To further clarify, I’ll create a fictional company, GRB—in honor of the gourmet root beer that I love!

 

Porter’s model include five forces:

·         Industry competitors

·         Suppliers

·         Buyers

·         Potential entrants

·         Substitutes 

 

#1—Industry Competitors

The first step is to ask some specific questions regarding the competition that occupy the space you want to enter. It’s important to remember that every venture will require different questions, but this will give you a good place to start.

 

        Q: Who is competing for market share in the Gourmet Root Beer space?

 

A: Four other companies, but they are all in geographies other than my target sales region. This results in a positive (+) score for this question. Place a plus on your diagram next to “Industry Competitors.”

 

Q: Is there a tenacious rivalry among competitors in the industry?

 

A: No. It seems to be a friendly and cooperative rivalry. No one is bristling at the mention of another company’s name, and the advertising hasn’t become intense. Place another + next to “Industry Competitors.”

 

As a side note, I find that too many people don’t really understand competition. At first glance, you might think two companies have a spiteful rivalry, but it’s actually friendly banter. Make sure you do your research here. Take a second look. Is the competition in your industry being fruitful or involving vicious catfights? Competition is good, as long as it isn’t so brutal as to squash your chances of entering the market. (See Chapter 18, “Dancing with the Devil” for more on quality competition.)

 

Q: How much will you need to spend on shelf space or advertising to differentiate your product?

 

A: Focused advertising within a target market will help the product take hold and gain popularity. (+)

 

Q: Is the market growing rapidly or is it dog-eat-dog?

 

A: A surge of interest in specialty drinks has provided more than enough market to go around. (+)

 

Four positive ratings result in an overall rating for this force of (+).

 

#2—Suppliers

In this category the model refers to the bargaining power of suppliers and how they will impact the cost of material required to develop your product. Put another way, how much power do I have over the suppliers?

 

Q: Are there multiple suppliers available?

 

A: Yes. (+)

 

Q: Can you exert influence over the sugar supplier to get a better price?

 

A: No. Sugar is a commodity: unless you are able to lock in a long-term contract for huge quantities, the price will remain the same. (-)

 

Q: Can you negotiate a better price than the competition for sugar?

 

A: No. You’re not going to buy enough product to get a better price. (-)

 

The overall score for this force is a (-).

 

#3—Buyers

Now analyze the bargaining power of the buyers. In this instance, the buyers are the stores and other vendors that will buy your root beer.

 

Q: Do your target buyers have the power to force the price of your product down?

 

A: Yes. If you don’t lower your price, they will likely buy a competitor’s product. (-)

 

                Q: Can you command a premium for your product?

 

                A: No. Buyers will take their business elsewhere.

 

The overall score for this force is a (-).

 

 

We’ll cover the remaining two forces tomorrow!

 


[1] Porter, M.E. “How Competitive Forces Shape Strategy,” Harvard Business Review, 57.2 (1979): 141.

Porter’s Preface: Power Tools

February 16th, 2009 by Sharon Larsen

So now that we’ve talked about how to come up with great business ideas, Rich and Ron introduce us to some helpful tools that you’ll need as you begin to build a business.

 

 

In our offices we keep a drill brace manufactured in the 1950s like what Rich and I both used as kids. It’s one of those hand crank jobs you don’t see around very often nowadays. It’s a functional invention and eventually gets the job done – but it is painfully slow compared to today’s cordless power drills.

 

In this chapter, Rich will provide you with several power tools to help you build your business. Rich and I have used these tools over and over again. They are the basics, tried and true. And although they can be a little “academic,” the Five Forces Model and the Competitive Matrix are both effective when you are weighing the pros and cons of a new venture. In addition, Rich will provide some additional power tools—handy processes that have worked repeatedly for him. With all of his startups, Rich has used them as quick sanity checks to help determine the viability of an idea. They have become part of the way we think and act. Taking a practical approach to the models, Rich will walk you step-by-step through a hypothetical business in an effort to help you grasp how to use the tools to analyze the opportunity you’re considering.

 

 

We’ll start tomorrow with Rich’s hypothetical business and the Five Forces Model to give us an idea of the process.

 

How Did I Get Here?

February 12th, 2009 by Sharon Larsen

Once you’ve got your great business idea and you’re on your way, is all done?  Not so fast, says Rich; be prepared to zigzag through your journey as an entrepreneur. 

 

 

Entrepreneurship often requires you to take detours and make new plans. I have gone through this process many times. At first, I felt dismay and confusion, but found that those feelings quickly changed to delight and confidence.

 

When I worked at Novell I met three individuals who took detours to their ultimate success; Jan Newman, the vice-president of Worldwide Services; J.D. Brisk, a director at Novell Labs; and Kevin Turpin, a senior software engineer. They were all Novell lifers who became disenchanted with the direction the company was taking and who decided to set off on their own. Each of them had worked with Novell labs and saw a tremendous opportunity for an Independent lab that could work with Novell, Microsoft, Sun and others. In keeping with the mark of true entrepreneurs—they responded to a need and opportunity and created KeyLabs.

 

Kevin wrote a piece of software that made it possible for him to sit at one station and run tests on thousands of computers at a time. Customers were amazed at the new feature and wanted it for their own use. All of a sudden, there was great demand, not only for their service but for their software! Two of the partners moved on to manage the new venture, leaving the other to keep the lab running. KeyLabs was fruitfully sold to a corporation called Exodus, and their new software business, Altiris, went public. It was the top-performing stock on Wall Street in 2005. Jan, J.D., and Kevin couldn’t have predicted where they would end up when they left Novell, but they kept their eyes open and were ready to zig and zag forward with each new opportunity. Their huge success was due in large part to their willingness to embrace the journey, with detours, starts and stops along the way.

 

Starting a business with limited financial resources requires you to chase cash immediately. Rarely are you able to chase your ultimate goal directly. You have to zigzag back and forth toward your ultimate destination, step-laddering the opportunities bit-by-bit as you go. This is actually a very good thing. It slows you down and allows you to trip into all sorts of great little opportunities and nuggets of gold. From my experience, you end up building your successful business on a concept completely different from where you initially set out.

 

When I was in college, my wife and I mapped out our ultimate career destination. We thought that the ideal job would be to go to Seattle and work for Boeing. There is no ink bold enough to emphasis how grateful I am that my original life plan did not come to fruition. My life has been full of rich and vibrant opportunities due to the zigging and zagging I have done.

 

You must have a dual mindset. On the one hand, you have to emphasize a “never say die,” “work ‘til you drop,” “do it or die” devotion to your venture. And then on the other, with the speed of a changing market, you have to be willing to jump ship and sail off in a new custom vessel, letting your old venture sink into the water.

 

Porter’s Points – How Did I Get Here?

 

·         Create your map to success and use it…just know that detours may take you to a place even better than the original destination.

·         Realize that markets change, and, as a result, you may need to change too. Do you need to tweak a few small things in order to take advantage of the change, or do you need to create a new venture to catch the forming wave?

·         No knee-jerk reactions here. Analyze and act.

 

 

That does it for Chapter 2: Juice to the Light Bulb!  Next week we’ll dive into Chapter 3: Power Tools.

 

A Higher Purpose

February 11th, 2009 by Sharon Larsen

Entrepreneurs often get excited to start a business because they know how profitable it can be.  Rich encourages having a higher purpose than creating wealth, though, when approaching a new business venture.

 

 

At this stage in my life I frequently find myself asking “Is what I am doing making a difference?” In 2003, as I left the corporate world, I recall I had a strong drive to do something that mattered. I wanted to conduct business in a humane and ethical manner. I am still the same. The approaches I use to get the win are as important as getting the win.

 

Why make millions of dollars in “flim-flam” scams or fly-by-night businesses? The victory is hollow, and the loss of your self-esteem and integrity is way too high a price to pay.

 

So what does all of this have to do with generating ideas? At one point in my career, I had a partner who was one of the most philanthropic individuals I have been associated with. Coincidentally—or not—he is also one of the best idea people I have ever met. One of his fundamental beliefs that I have also adopted and grown to love is the concept of “putting positive ions into the universe”: as you make positive contributions to the world around you, ideas and opportunities will naturally return.

 

He was one of the founders of Unitis. Unitis’s mission is to fight global poverty by increasing access to microfinance. He believes that as he puts good into the world, the good will return to him exponentially. I have seen this work for him on a personal and professional level. It never ceases to amaze me how just the right concept, just the right solution, or just the right idea will gravitate to him, completely unsolicited. I attribute this to his living the principle of a higher purpose. I’ll be the first to admit I have absolutely no idea how this principle works. But I know it does. I attribute many of my fortunate coincidences in business to this principle and to my aforementioned Higher Power.

 

I have also found that when things get really, really tough, having a purpose greater than money can provide intense fortitude. Shallow goals provide shallow support. Goals with depth, on the other hand, will give you a long-lasting well of strength and determination to draw from when times get tough.

 

Over the past several years, I have become fixated on helping young women in third world countries (specifically, Nepal) break the bonds of abuse and oppression. This is a goal so much greater than me, and I have struggled at times to even know where to start. As part of my efforts, I have set up an educational model and structure that has proven very powerful with my daughter Nawang, who is from Nepal. Bit by bit I have worked, built, and dreamed about the impact that I might have there. It has required me to be creative and use non-traditional approaches. The project consumes me. It motivates and inspires me. It is indeed my higher purpose. What is yours?

 

Porter’s Points—A Higher Purpose

 

·         Decide now that it is important to contribute to the greater good, to a higher purpose than building your bank account.

·         Create your plan and get started. Make it a priority. Do it now.

·         Read a biography of someone you admire and take note of the steps he or she took to find higher purpose.

 

 

Tomorrow we’ll finish out Chapter 2: Juice to the Light Bulb!

 

Porter’s Points: A.S.K.

February 10th, 2009 by Sharon Larsen

Today Rich continues to describe the positive results that inspiration and spiritual enlightenment can give an entrepreneur.

 

 

Don’t underestimate the power of spiritual energy and insight in helping you complete your tasks. Praying, meditating, and pondering are powerful tools to be used when you are attempting to determine viable business ideas. Once you have an idea that has merit, confirm that feeling with your Supreme Being, your Tao. When you start focusing and seeking help in this manner, you will be amazed at what comes your way. You may think it coincidental, but I prefer to call it Providential.

 

Inspiration has to be sought for. It may not come immediately, but it will come. The answer might not be what you expect or even perhaps what you would have chosen. But in my experience, it’s always been better than anything I could have planned for myself.

 

Sometimes, clarity of focus has come to me when I have been lying down to go to bed. Other times, it has come early in the morning hours after I have had a restful night’s sleep. I have found that it is wise for me to keep a paper and a pen by my bed so that I can write ideas down as they come. Aside from having trouble in deciphering my handwriting the next day, the system works. Another place I get inspiration and ideas is in a warm, soothing shower. Sometimes I find myself dripping across the room to my paper and pen to jot the idea down before I forget it.

 

Don’t put a solid line of demarcation between what you believe and your business ventures. It may not be a popular technique, or at least one not openly talked about, but I find that if I take the most important parts of my life—family, faith, entrepreneurship—and let them influence each other, I’m more receptive to good ideas, wherever they may come from. Whether you have spiritual roots or not, I encourage you to test the power of pondering and prayer.

 

Porter’s Points—A.S.K.

 

·         Don’t be afraid to include your own spiritual beliefs in the full circle of your life.

·         Whatever your source of Divine Inspiration, tap into it!

·         Recognize the pattern of when and how your inspiration comes. Doing so (a) creates the space required to hear it and feel it and (b) provides opportunity to record it and act upon it.

 

 

Not only is it helpful to seek inspiration when evaluating business ideas, you will also find it valuable to have a higher purpose in mind for your business than making millions.  We’ll talk more about that tomorrow!

 

 

A.S.K.

February 9th, 2009 by Sharon Larsen

What do you do when the business ideas start to flow and you need to make a decision about starting a business?  Rich shares what he does to help decide between different alternatives:

 

 

I pray daily. I am a Christian, but I count Jews, Buddhists, and Hindus among my dearest friends and associates. I also have personal and important relationships with people who do not believe in a Higher Power but instead place their beliefs and faith in ethics and humanity. I have taken great effort to study and attempt to understand each of these belief systems and have concluded that although we each address God or our Higher Power in a slightly different manner, the concept of prayer is the same. In each case, we respectfully request help, blessings, and inspiration from above.

 

One of my most highly valued moments in my life occurred in the Himalayas where I had an audience with the famous High Lama of Pangboche, the Gashilay. I had spent much of the year before studying and learning as much as I could about Buddhism. Sherpa climbers request blessings from the High Lama before attempting summit bids on Mt. Everest and the other 8,000-meter peaks in Nepal, and my climbing experience provided me with an introduction to the High Lama.

 

On the day we met, we had a lengthy conversation regarding our beliefs. Our time together was engaging and respectful, and before I left the monastery I was honored to receive a blessing from this Lama. After receiving my blessing, I asked if I could share a prayer with him. He agreed, and I prayed and asked God to bless him in return. When I stood, there were tears in both our eyes. Although very different prayers were offered that day, the intent and I believe the end result—enlightenment—was the same.

 

Most world religions have a tradition of prayer or meditation. The acronym ASK in traditional Christianity provides an effective model, no matter your spiritual beliefs. Ask and expect to receive an answer. Seek and expect to find a way. Knock and expect doors to open for you.

 

What should you ask for? Well, honestly, that’s up to you. In the 1500s, Ignatius of Loyola, founder of the Jesuit order, taught a procedure for decision-making. First, you must take time to meditate on the choice you have made or will make. Then, you must ask yourself: do you feel positive, energetic feelings, or stressful anxiety? Ignatius called these feelings “consolation and desolation.”[1] I call them confirmation or confusion. Feelings of confirmation urge you to move forward, knowing that you are in harmony with the Divine Will. Confused feelings are a warning to back off. Similar concepts are found in Buddhism, Taoism, Islam, Sikhism, and many other religious traditions.

 

One of my favorite examples on this topic is a story told about Gandhi. On one exceptionally busy morning, with many crucial tasks ahead, Gandhi made the following statement: “Today is such an important day. We have so much to do today; we must take an extra hour to pray.” (Attributed to Mahatma Gandhi. A similar quote attributed to Martin Luther may be another source: “…In fact, I have so much to do that I shall spend the first three hours in prayer.”)

 

 

We’ll finish out Rich’s thoughts on ASKing tomorrow. 

 


[1] St. Ignatius of Loyola, The Spiritual Exercises, trans. Father Elder Mullan, S. J. (New York: P. J. Kenedy & Sons, 1914), 88.

Passion or Poison?

February 5th, 2009 by Sharon Larsen

Today we get words of caution from Rich about mixing business and pleasure – not always a bad thing, but certainly something to approach carefully. 

 

 

Do any of your hobbies or pastimes match, support, or wrap around any of your venture ideas? If yes, they are worth a closer look. In this section, I want to simultaneously warn you and encourage you. Building a business around something you’re passionate about can be fun and fulfilling. It can also be torture. Before you turn your hobby into your livelihood, make sure to ask yourself these three important questions:

 

  1. Is this activity your release valve or primary escape?
  2. Would doing it full time cause conflict with your significant other?
  3. Will working in this field undermine your interest in your normal recreational activities?

 

If you answered yes to any of these questions, you may want to be wary about transforming your favorite hobby into your entrepreneurial venture. Maybe golfing helps you relax and adds invigorating downtime to your schedule. But how will it affect your nerves if all of a sudden you are not only working on your swing, but watching your business go up and down at the same time?

 

In the year 2000, Abi Hunter, a member of one of the technology teams I was leading, came to me expressing interest in starting a business together. I had tremendous confidence in her abilities and half-jokingly stated, “Great! As long as it deals with my passion for golf or mountain climbing, I’m in!” Sometime later Abi returned with a bootstrap proposal to launch a business that focused on international exporting of golfing and hiking equipment. Out of her proposal came the Cyclone Trading Company.

 

As I entered this business I thought that the local representatives of the manufacturers like Nike Golf and TaylorMade Golf had the ideal job. They got to go around promoting and selling the latest toys and tools available in the golf industry. In other words, they lived and breathed golf for a living! I couldn’t believe their good fortune. I soon discovered that the situation was not as I thought.

 

One day I was speaking with Phil, the area representative of TaylorMade, and we began talking about our last golf outings. I was shocked when Phil said he had not been out yet that year. Mind you, this was the first of July! As I queried Phil, he admitted that although he loves golf, after talking shop all day long and visiting all the golf courses, his passion had turned into labor. As a result, he doesn’t golf much for enjoyment any more. I saw this time and time again as I spoke with both golf and outdoor representatives. They had transformed their favorite sport into a dreaded job.

 

Maybe you really do enjoy an activity enough to have it be a part of your life Monday through Friday and over the weekend as well. Your passion and skill could really give you a leg up on your competitors. As I set up Cyclone, I followed the principles outlined in this book. As a result, it was one of the most fun and rewarding businesses I have ever owned. However, if you are not careful and do not approach your venture properly, a business based around your favorite sport or hobby could transform your passion into your poison.

 

Porter’s Points – Passion or Poison?

 

·         Create an “I’m passionate about…” list. Cross all the items off the list that are not potential wave items.

·         Remove from the list those items that you neither have the skill nor capital to pursue in a business setting.

·         Focus thought and energy on this process by employing the tools found in chapter 3, “Power Tools.”

 

 

We’ll get to Chapter 3: Power Tools in a few days, so until then, just focus on creating and editing your “I’m passionate about….” list. 

 

 

Catch a Wave

February 4th, 2009 by Sharon Larsen

When starting a new business, look to catch a wave!  Rich tells you how here:

 

 

Some years ago I found myself sitting on the North Shore of Hawaii watching twenty-five-foot breakers pound the shoreline. These waves started way off in the distance as tiny little ripples that would gain strength and speed as they raced to the beach. By the time they hit the reef near where I sat, the bone-crushing power was tremendous. I was mesmerized as I watched what I considered crazy surfers attempt to ride these beasts. Certainly, the exhilaration of riding one of these giants had to be beyond description, but a wipeout could literally mean death.

 

After this experience, I could not help but draw the parallel between the breakers on Sunset Beach and entrepreneurial efforts. One of the surefire recipes for success is to carefully watch the horizon and identify the ripples that are forming. If you get way out in front of an upcoming wave, the momentum generated will provide a sustained ride. And if the wave is big enough, just being in the right vicinity will generate enough power to propel you to your destination. If you catch it right, it will be the ride of a lifetime. If you catch it wrong, life can come crashing down around you. In both surfing and business, the key factor is the timing of getting on and off the wave. So, the question then becomes; how do I identify and time a wave? Like most skills, your ability to identify sustainable waves will grow with experience. My bet is that you already have a feel for it. Let’s look at an example.

 

In the year 2008, would you rather be starting a business in the cell phone sector or staffing a telemarketing center? Surely your gut will tell you that the telemarketing wave is slowing down and about to fizzle out. Look at the signs: do-not-call lists, litigation, annoyed people, and the movement away from home phone lines. With all the exciting possibilities and avenues with cell phones, however, there is no shortage of momentum. The wave is just starting to gather speed, and it will only get bigger.

 

CastleWave is riding the search engine wave. Anyone with a pulse is aware that the worldwide web and Google are generating this wave. Traditional, large companies are turning their focus to gaining a web presence, but their lack of understanding of how to successfully deploy their web initiatives has resulted in a huge disparity. CastleWave recognized this gap and is bridging it with the required expertise. The result? Large corporations are aggressively seeking our services. We recognized the wave and caught it!

 

I have successfully caught and ridden a number of waves in my career. Riding on top, there’s a feeling that nothing could possibly go wrong. There have also been times when I didn’t get set up for the wave and experienced the pain as huge breakers slammed me into the ocean floor.

 

In 2000 I learned the hard way that it was not a good time to build web-based companies. As the first wave of Internet business crashed, it didn’t matter how good your idea was, the riptide would suck it out to sea before it was even considered. Two years previously, however, an entrepreneur could get funding by scribbling a business plan on a napkin. PE ratios of publicly traded Internet stocks were insane, sometimes 200 percent! Most of these companies completely dried up and blew away when the bubble burst.

 

Let’s take another look at a contrasting example:

 

  • Bad day to start an airline: September 12, 2001.
  • Great day to start an anti-terrorist airline security business: September 12, 2001.

Same day, different waves.

 

Porter’s Points—Catch a Wave

 

·         Read what business analysts are saying about significant future growth industries. Are there opportunities within your skill set or your interests?

·         What major waves are occurring in areas of your expertise? What is everyone talking about? What are the hot topics online? Where do you see inefficiencies or weakness that you could fill?

·         Give your best estimate of how long you think the wave will last, and assess if you have time to get on and ride for a while.

 

 

As you look to catch a wave, be sure to keep in mind your hobbies – next time we’ll learn about the pros and cons of incorporating your pastimes into your business ventures. 

 

 

Pick a Brain

February 3rd, 2009 by Sharon Larsen

Besides finding uninterruptible time, another great way to generate business ideas is to pick a brain.

 

 

The “Buy you lunch?” offer is too seldom used. Several of my businesses have grown out of having lunch or casual conversations with business associates. I remember one such experience with a trusted friend and associate from New York, David Fishman. In December 2003, Dave and I had prearranged a call to catch up, as we had both been extremely busy during the year. During the course of the conversation, Dave mentioned that he was aware of several sources for telephone-generated mortgage leads, and asked if I knew of anyone who could use them. I happened to have a connection, and based on that discussion, a highly profitable business was created.

 

Personal connections are often a significant factor in success as an entrepreneur. Identify a few people associated with the area you are interested in pursuing and pick their brains. Take them to lunch, listen to what they say, and ask questions. I have found this to be most effective when I’m talking to someone face-to-face, but a telephone conversation can also produce positive results.

 

Another great way to pick a brain is going to an industry-specific trade show. For me, this has been a very successful method for not only coming up with ideas, but, more specifically, for validating concepts and quickly progressing through the learning curve of the industry.

 

Early in my time with Mitsubishi, we wanted to manufacture motherboards for video games, so we decided to attend a video game trade show in Las Vegas. As a result, we met several great contacts and spawned a successful division. I remember another trade show where we were considering developing motherboards for gambling machines. All indicators looked good. However, after asking some very pointed questions of the industry experts who were there, we became aware of very unfavorable government controls that would have made it difficult to move quickly and become viable. If I had not attended the trade show and picked those brains, I would have wasted hundreds of thousands of dollars. What type of questions should you ask in these “pick a brain” sessions? Here are a few of my favorites:

 

·         What are the services or needs in your industry that are not being met?

·         What are two or three things you would change about the products or services you rely on?

·         What do your customers like about the service or the product they are buying?

·         What do you think the next big opportunity or change will be in your industry?

 

Ask open-ended questions, but be sensitive to concerns with intellectual property and confidentiality. There have been times when I have had individuals come to me attempting to clone my business. This is not only brazen, but offensive.

 

Two other key secrets to success: first, make sure these relationships go both ways. And, second, thank everyone you talk to—everyone! You cannot expect to take and take from your friends and associates without giving up time, insight, and information helpful to their success. Life is not like Monopoly; there can be more than one winner. Casting some courteous bread across the waters will return in kind.

 

Porter’s Points – Pick a Brain

 

  • Call today and schedule lunch with one of your idea-generating friends.
  • The next time you attend a trade show, prepare relevant and direct questions for the experts. Ask, listen, record.
  • Thank everyone you talk with and consider ways you can contribute to their venture in return.

 

 

Rich and Ron’s next suggestion to come up with ideas is to catch a wave.  Sounds like more fun than picking a brain!  Stay tuned….