The 80/20 Rule – Zig Zag Principle #37

September 9th, 2011 by Rich Christiansen

During this first zig it is important to remember that you are not going to have time to be perfect at everything.  Many people who are perfectionists or have a methodical personality type fail at this stage because they try to be great and have everything perfect and buttoned up.  You need to think, instead, about the 80/20 rule.  In general, 20 percent of the effort yields 80 percent of the results. The key to success is not to do anything that isn’t geared towards the 80 percent success ratio.  You’re not striving for perfection.  You’re striving for profitability.

I always say that competence and incompetence always rear their heads.  But it is important during this time to know those things where competency is a must.  If you produce a shoddy product, then your customers will never use you again. But, as you do so, you do not need the perfect organization or to micromanage all the details.  During this phase the important 20 percent is providing a quality product and getting to cash.  If your office is a mess or you haven’t taken the trash out in a week, take a deep breath and give yourself a break.  You can get to those things later.

On the other hand, it is imperative that you keep track of your books and know what your bottom line is, but don’t stress about the little things as you take care of the big ones.  I have a former business associate who had the mantra on his desk to “Strive for Mediocrity.” He was a perfectionist in every area of his life.  If he saw a “t” that needed to be crossed or an “i” that needed to be dotted, he would take whatever time it took to stress over minor details.  He soon found he could not be effective living this way.  He had to look at the bigger picture and choose which things he needed to focus on to succeed, and then let go of the minor things. He was trying to be more “mediocre” in the smaller details so that he could shine in the important aspects of the business.  One of my business partners used to call this “selective negligence.”  He would selectively neglect the less important things so that he could achieve the bigger goals.  Once we became profitable and got to the next zag of adding resources, we could hire someone to take care of those small details.

This can be applied whether you are an individual trying to accomplish an important project with your family, a small bootstrap company, or a large corporation.  You can apply this same principle to a new division you may be heading up, if you are launching a new product, or even launching a new service in a large corporation.  Your budget may be bigger, but the principles will make the division or large corporation even stronger.

How Much Cash Do I Need? – Zig Zag Principle #36

September 7th, 2011 by Rich Christiansen

 I define profitability as having enough money to cover “the nut” and having a buffer that will allow me to move on to the next zag.  Everyone has different needs, or “nuts,” so profitability will be different for each person or each business.  I am covering the nut in my personal life when I have enough money to pay all my expenses, such as housing, utilities, recreation, food, clothing, education needs, health insurance, and a little more to take care of those unexpected extras that always crop up.

  If a family makes a budget and keeps track of how much it costs to live each month, then that is the family’s monthly nut.  In business, the nut would include the building, utilities, the cost of doing business, payroll for any employees, and any other expenses it takes to run the business, including paying yourself.  (If you forget that, you’ll destroy the nut in your personal life.)  Any amount over these expenses is profit. You need to carefully calculate what it’s going to cost you to get to profitability.  This can’t be a number you guess at. It needs to be a firm number and one you write down.  Here is some help in coming up with that number.

Figure your nut

(what number do you have to make per month to hit profitability)

 

Gross Revenue 

$_______________ 

Minus Expenses:

_______________     $__________

_______________     $__________

_______________     $__________

_______________     $__________

           Total Expenses

Equals Net Income

$_(____________)  

$________________


Components of Zig Number 1 

 Because your first zig is so important, I want to dissect its components and look at each one individually:

  •   Financial Number – Zig number 1 is a financial number.  You have to have a financial target number specifying how much you want to bring in. Refer back to the nut you determined in the last section.
  •   Allocation of Time – How much time are you going to dedicate to getting to cash?  How long will you give yourself to achieve this financial target?  I will typically dedicate 65 percent of my resources toward getting to profitability, 30 percent toward zag number 2, and 5 percent toward zig number 3.  And, as I look ahead, I never plan beyond 3 zig zags.
  •   Duration of Time – How long are you willing to run at this pace?  Anyone can sprint for a block or two.  But what reserves do you have if you end up needing to run a marathon?
  •   Financial Target – What is your target for the profit you want to make? How and why is this different from the financial number above?  After you have covered the nut, what is your goal for how much profit you want to make?
  •   Financial Resources – How much in the way of financial resources are you willing to invest? How do you want to allocate your financial resources?  In the early days of entrepreneurship, I used to be more willing to mortgage my house or use my emergency buffer to help fund my businesses.  Now I have a policy that I absolutely will not mortgage my house or dip into my safety net.  We will talk more about this in chapter 7 when we talk about guardrails.
  •   Relationship Capital – We have already talked about relationship capital in Chapter 1.  Think carefully about how much relationship capital you want to use when driving to profitability.  One of the reasons I choose not to sell to my close family and friends is because I am not willing to expend all my relationship capital in one fell swoop.  It is important in the early stages of your business not to drain your whole relationship bank account.  Selectively choose a few key individuals who can help you, but carefully define and limit how much relationship capital you’re willing to spend.  Then make sure you give those people a “thank you” and put something back into their relationship bank account.  Gratitude goes a long way with relationship capital.
  •   Give Yourself Permission to be Miserable – I’ll be honest; this is not an easy stage. Sometimes, in getting to cash, I have to do a lot of things I really don’t like doing.  I have to do the books, answer the phone calls, and open the mail.  I do it all!  I can do it; I just don’t like to do it.  So I give myself permission to be miserable and endure—but only for so long.

Resource List

 To help you quantify your responses to these questions, here’s a worksheet that will help you see in black and white the road you’re considering heading down. Use the results from you Value Equation to help populate this worksheet.


1.  How much money do you have to put toward this project?

     $_____________________

2.  How much time each week are you able or willing to dedicate to this project?

     ______________________ hours

3.  How long of a time frame do you have to work with?

     ______________________ months/years

4.  Emotionally, how long can you give yourself to accomplish this goal?

     ______________________ months/years

5.  How much pain (emotional, financial, relationship, time) are you willing to endure?

     _________________________________________________________________

Meet Nathan Gwilliam – An Amazing Zig Zagger!

September 6th, 2011 by Rich Christiansen

We’d like to introduce you to one of our brave souls that will be joining Team Zig Zag down in St. George, Utah for the Triathalon. Nathan Gwilliam has taken on this challenge to join our team to swim, bike and run–all in the name of The Zig Zag Principle. Since his youth, Nathan has been a goal setter. In high school he read The Seven Habits of Highly Effective People by Stephen R. Covey, and it changed his life. Since then he’s set goals that have molded him into the successful entrepreneur he is today. He likes to say, “If you don’t know where you are going, you’ll never get there.” This attitude makes Nathan the perfect addition to the Zig Zag Principle Tri Team.

You’d think the finish line would be his favorite part of the triathalon, but it’s not. Nathan loves the training leading up to the big day. He really enjoys training as a team–especially when it’s a team of good friends. Also, Nathan said he enjoyed improving his time and working toward better health. But, if he had to pick a particular part of the race that’s his favorite, he says that he’s most comfortable with the running.

Nathan has quite an impressive resume on and off of the field. Currently he is the owner of Social Nexus, an organization that grows world-class Internet, mobile, and social ventures. Meaning he can help you with:
Digital Strategy
Design & Development
Social Marketing
Digital Monetization

He has zig zagged all over the place from founding Adoption.com and building it into the world’s most-used adoption service to developing the initial strategy and site for Law.com. He has built a variety of other ventures, such as Families.com, Ofertas.com.br (a Groupon competitor in Brazil), Viajamos.com.br (a Brazilian travel social network) and WeSpeak.com (a language-learning social network).

With such a varied and impressive background, Nathan has great advice for the apsiring entrepreneurs.

From an early business failure, Nathan learned that entrepreneurs can become very distracted on things that don’t matter. The best advice that he would give a new entrepreneur would be to focus on getting your product to market as quickly, inexpensively and effectively as you can. The power of stability comes from profitability.

Nathan said it’s important to understand a few business myths:

  • He believes in the rule of 3’s….It always costs 3 times more than what you think to get your business going and you end up with ? of the profit. Therefore Nathan strongly believes that bootstrapping a business is where it’s at. Do anything possible NOT to borrow investment money.
  • Another one is the myth about entrepreneurs ~ that they are risk takers. The reality of it is that they don’t take “more” risks, they just take “calculated” risks.
  • And lastly, that being an entrepreneur is unstable. The truth is, if you own your own business, you will be the last one to get fired! You have more stability working for yourself than working for a large company.

In conclusion, Nathan says “Life is so short, pick something you love and something that makes a difference. Not just something that makes you a buck, but something that makes a difference. You’ll have left the world a better place when you retire.”

Best of luck Nathan to you with your Zig Zagging during the race and with all your business adventures!

Recovering from Disasters

September 5th, 2011 by Rich Christiansen

Last week, I wrote about how to avoid hurricanes in your business. I talked about how important it is to get out of a storm’s way (both figurative and literal) when you know it’s coming, even if the skies look blue out your window.

But many businesses actually caught by hurricane Irene last weekend are now zig zagging their way to recovery. Less than a week has passed since cleanup began, and they are already letting everyone know they are open for businesses. They are looking to restart that all-important zig to profitability.

Disasters happen in life, both in business and out. No matter how well prepared you are or how closely you keep an eye on your business, you will one day get blindsided by a disaster. Resolving disasters is tricky business, but once you’ve faced the worst of the storm, remember to get back up and keep zig zagging!

After hugely disruptive moments like this, you may even need to revisit your entire zig zag plan. Your assets may have decreased significantly, or your beacon in the fog may have moved. Some of the processes you had well in place may now need changing, depending on the nature of your disaster. Also, keep an eye out for hidden opportunities. If something goes wrong in your business, it may be just what you need to help get you to an even better business.

No matter where you decide to go after a disaster, don’t forget to work on that essential profitability zig as soon as you know where you are headed.

Political Zig Zagger, Jon Huntsman, Tries Something New

September 3rd, 2011 by Rich Christiansen

Jon Huntsman Jr., a presidential candidate, is about to try something new. His current strategies have let him slip behind his opponents in national polls, keeping him away from political profitability. Now, he has some new messaging he hopes will get him more support.

Now, I don’t intend to criticize his exact plan here: this is a business blog, not a political one. However, businesses can learn from political maneuvers. Huntsman has had a successful career so far, and he definitely has his supporters. These people are sort of like his “Huntsman niche” politically speaking. But what would happen to his beacon in the fog if he decided he was happy just targeting that specific group of people and no one else? He would just fall further behind his opponents!

Likewise, some businesses focus on appealing to a specific niche to avoid getting stomped by competition. This is a great initial strategy, but you rarely see a successful business (or politician) stop with just one niche. Like Huntsman, once a business has a firm hold in a particular niche – or reaches profitability with processes and scale – it will often expand to add more profitability. And if the new zig to profitability doesn’t work, they try something else.

This is how zig zagging keeps with you even after you have hit a huge goal; it keeps you from stagnating as a business. You can’t stop zig zagging because you hit or miss one goal. Even when you’re adding scale, you need to think about how you’re going to add more profitability and how you’re going to add resources to that. This will keep you flexible enough to keep your business moving and growing, even if you have a dud strategy or two.

Getting Ideas for Your First Zig – Zig Zag Principle #35

September 2nd, 2011 by Rich Christiansen

The question that is asked of me as an entrepreneur more than any other question is; “Hey, I’ve got this really cool idea.  What do you think?  Is this viable?  Will it get me to cash?”  Coming up with an idea is the easy part.  The harder part is figuring out what is a good idea and what is a bad idea.  One of the first resources I use when I am vetting ideas is my modified version of a “Porter Model” based on Micheal E. Porter’s Five Forces Model. There is an excellent tool available on my website where you can use this tool hands-on! Check out the Zig Zag Principle Tools!

In my model there are six factors to look at.  These are:

  1. Barrier To Entry

    a.  How difficult is it to enter this  market space?
    b.  Do you have an advantage over the competition?
    c.  Once in, how do you keep others out of the space?

  1. Supplier

    a.  How much power do you have over the suppliers?
    b.  Are there multiple suppliers available?
    c.  Can you get a better price on your supplies than the competition?

  1. Substitutes

    a.  Is there a feature of your product or service that would compel customers to buy your product over the competition?
    b.  Is there a substitute that will compete with your product?

  1. Buyer

    a.  What is the bargaining power of the buyers? Do your target buyers have the power to force the price of your product down?
    b.  Can you command a premium price for your product?

  1. Competition

    a.  Who is competing for market share in your product? Is the market saturated?
    b.  Is there a rivalry among competitors in the industry? Not that competition can be a good thing unless is squashes your chances of entering the market.

  1. Channel

    a.  Do you have access to a distribution channel? Channel is probably the most important of all the factors. If there is not a market need for your product and a way to get ti to the customer, then your business will fail. In the businesses I create, I will not move forward until I have fully figured out the channel. Most people thing they will build the product, then try to sell it. The correct order is to ensure the market will buy your product, then determine how you will deliver it to your customers, and only then go ahead and build it.

For each factor you will come up with several questions similar to what I have posed above.  The answer to each question will receive a positive (+), a negative (-), or a neutral (o)  result, ending in a final overall score for each factor.  As you look at the positives and negatives of your business idea, you will be able to see rather clearly if it is a idea that works or just a pipe dream.

As you look for ideas, there are a couple of things you should remember to avoid. The first is what I refer to as “the rabbit syndrome.”  Some people see ideas popping out everywhere they look. They’ll spot a great idea or concept and proclaim,  “Look! A rabbit!”  Then they see another and another and another (if you’ve spent anytime in rabbit country, you know they’re everywhere).  They chase one rabbit after another and end up so busy chasing every rabbit that pops up that they never actually drive to profitability.  At some point you have to settle on one rabbit and chase it as hard as your can—hopefully to the successful end.

Another mistake you want to avoid is falling in love with an idea to the point where you can’t see its deficiencies. In 1989 I contributed my fair share to making my first $2 million business mistake. So what was it?

Rich Christiansen $2MM Channel Lesson

We did what so many eager engineering types do—we built a way cool, exciting, leading-edge product (in this case, a digital power line transmission device), and then tried to sell it.
In our engineering minds, we just knew customers would buy these boxes by the truckloads.  We had attended the trade shows and been mobbed by fellow engineers who thought our idea was awesome, which convinced us this product was going to be a barn-burner. Everyone told us we were so smart and this was the coooooolest technology ever.

Well, cool technology does not necessarily lead to actual customers, and in 1990 the company went belly up!  Why?  Because our product did exactly what a $20 power cable could do, only our box cost $995 apiece.  And, in our zeal, we engineers never stopped to consider that, if given the choice, people would opt for the $20 cable, even though our technology was “better.”

And, lest you think engineers are the only ones who can’t see beyond their great ideas, I have an associate who is passionate about building ultra-modern cement homes.  He has wanted to create a business around these buildings because he is passionate about the benefits they provide. The only problem is that he lives in a community where most homes are built using wood, bricks, stucco, and traditional architecture.  In spite of all his passion, the people in his community have not caught on to the idea of building cement homes.  You do not want to create a product in which consumers have no interest.  If you don’t have a channel to sell your products, your business will fail.