RISK…and what to do about it


 

The four letter word in all conversations between entrepreneurs and investors is risk.

Investors are always interested in getting ownership stakes in high potential companies but are also always weary of the considerable risk-taking necessary to actually do so. 

The most successful investors and entrepreneurs I know take a dispassionate and detached approach. 

They don’t get caught up in all of the “drama” around thinking and talking about risk.

Rather, they view it for what it actually is - simply a measurement of the likelihood of a set of future outcomes.

In the context of evaluating whether or not a business will grow and be successful, risk has three main drivers:

1.  Technology Risk. Can the entrepreneur actually bring-to-market a product or service and on what timeframe?

2.    Market Risk. Once the product is in the market, will anyone care?

3.    Execution Risk. Can that entrepreneur lead and manage a growing enterprise?

Critically, this risk calculation is done not by adding, but rather by multiplying, these factors together.

As such, poor grades on any one of these factor has an exponential impact on the business' overall risk profile, and thus its overall attractiveness.

And as should be obvious, better led and better managed companies simply have better answers when queried regarding the above - their technology plans are better thought out, they understand their market and customers more deeply, and their people have better resumes and track records. 

But it goes deeper than that. 

Human beings – conservative by default - are disproportionately prejudiced against higher risk undertakings and strategies, even when their expected returns more than compensates for their higher risk.

As a result, higher risk deals are normally underpriced while the lower risk ones are usually over-priced. 

That is good knowledge for investors seeking alpha (and who isn’t?), but what about the entrepreneur?

Well, it should be to always remember that the real dialogue going through the mind of an investor when considering a deal is not really about technology, or market, or management, even when that is what they want to talk about…

No, it is almost always about risk - both its reality and its perception.

Address this concern above all others, head-on, thoughtfully, confidently, and candidly. 

And then risk will be put back where it belongs - as a factor to consider - and not something that just automatically stops a deal.

To Your Success,

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The 5 Biggest Outsourcing Blunders


 

The term "outsourcing" describes contracting out of a business process to a third-party, that is, someone or some firm outside of your core organization.

Outsourcing generally refers to ongoing processes versus one-time processes. For example, the development of your website is generally a one-time process. Conversely, the maintenance of your website is an ongoing process. However, some people consider both one-time and ongoing processes to be outsourcing when you select someone outside of your organization to complete them.

Regardless of your definition, outsourcing has many benefits, my favorite of which are these four:

1. Focus: Outsourcing allows you to focus on your core competencies and activities. For example, if you own a chain of restaurants, you generally don't have (nor should you) the skills to develop a cutting-edge website in-house.

2. Cost Savings: You can often outsource to individuals and firms in areas with lower costs of living and thus lower prices than you can attain in-house.

3. Expertise: When outsourcing to individuals and firms who specialize in a certain area, they will have expertise that you simply don't have.

4. Flexibility: Outsourcing allows you ramp up and/or ramp down more quickly than maintaining a full-time staff for all functions.

Unfortunately, when they start outsourcing, most entrepreneurs and small business owners make several mistakes. Below are the 5 most common ones to avoid.

Mistake #1: Failing to define tasks/projects clearly


If you don't clearly and comprehensively define the task or project you need fulfilled from the start, your project will inevitably fail. You might choose the wrong person for the job and/or they won't perform to your expectations if you haven't completed this crucial step.

Mistake #2: Failing to hire someone without enough experience


Nothing is worse than the blind leading the blind. When I hire someone to do something that I do not know how to do personally, they need to know how to do it. They need to educate you on their chosen skill set, not the other way around.

Your role is to describe the end result you want, ask for and listen to their suggestions, and rely on their expertise and talent to achieve it according to your description. Make sure you check their past work and references to ensure they have a track record of getting similar work completed on-time and to the satisfaction of those who've hired them.

Mistake #3: Failing to establish and abide by the timeframe

If you've ever provided services for a client in a rush, you know how stressful it can be to drop everything at the last minute and make their emergency yours. The people you outsource to are no different, and it will benefit you to plan and begin things in advance and not at the last minute.

So, map out by when you need to hire someone, when the work needs to commence, and when it must be completed. Create milestones within each of these processes, such as by when you will complete your project description, and when the contractor must complete the first draft, etc.

Mistake #4: Failing to adequately communicate

Just because you hired a great person, it doesn't mean the project will go smoothly. The key here is to effectively communicate with them.

Make sure you check-in with them and get status updates. Get them to send you drafts of their work, and then provide detailed comments regarding what you like and don't like.

The fact is that the more and more thoroughly you communicate with them, the better they will perform. This is true up to an extent of course; because if you micro-manage (or manage too aggressively) it will take up too much of your time and often aggravate the contractor.

Mistake #5: Failing to leverage talented outsourcers


Once in a while, when you outsource, you will find gems. Gems are those outsourcers who do a phenomenal job.

The key is this: once you find these gems, keep them. Give them additional projects. And if you don't have any, refer them to others you know. And keep in touch. At a minimum, email them every month or two to say hi.

In fact, I've had amazing success with just this. I hired an outsourced tech person on August 16, 2005. He did a phenomenal job. I've often kept in touch since then, and he's helped me with several projects. And even though he now has a full-time job (he's in India), he still helps me on the side a lot. And he still does a great job each time!

Knowing how to effectively outsource is a critical skill all entrepreneurs must have. It allows you to accomplish more, accomplish it with more expertise, accomplish it faster, and accomplish it with less money. These are key benefits you can't do without.

 

Suggested Resource: In today's competitive business environment, you must outsource to stay competitive. Outsource the right way using Growthink's Outsourcing Formula.

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Strategic Plans And Business Plans: 5 Key Differences


 

Over the past 15 years, I've helped over 500,000 entrepreneurs and business owners to develop their business and strategic plans.

And, as you might imagine, I've spent a lot of time discussing business plans and strategic plans internally. Enough so that among other things, I use the acronym "BP" for business plans and "SP" for strategic plans.

Now, because these terms are often used synonymously, let me explain the key difference as I see them. Business plans or BPs are plans created for the primary goal of convincing an investor or lender to fund you. Conversely, strategic plans or SPs are developed to determine and document your strategy so your company understands and can attain its objectives.

As you can see, both plans serve very different and very important purposes.

Below are the 5 key sections that a strategic plan must have that need not be included, or require much less focus, in a business plan.

1. Elevator Pitch

An elevator pitch is a brief description of your business.

It is included in your strategic plan since your elevator pitch is both important to your business' success, and should often be updated annually.

An elevator pitch got it's name because you need to be able to describe your business succinctly and within the time it takes to travel from the ground to the top floor in an elevator.

A quality elevator pitch:

  • Gets everyone in your company on the same page regarding what your business is and what the key objectives are.

  • Allows everyone in your company to give a concise and consistent explanation of your business which leads to more customers.


In a business plan, you do include your elevator pitch in the Executive Summary section to concisely explain your company to investors and lenders. In your strategic plan, it is used to ensure consensus within your organization.


2. Company Mission Statement


A mission statement explains what your business is trying to achieve.

For internal decision-making, it helps as key decisions should be made with regards to how well they help the company progress in achieving its mission.

Also, for internal (e.g., employees) audiences, the mission can inspire and get them excited to be part of what the company is doing.

While your mission statement is often also included in your business plan, investors and lenders are generally more concerned with your ability to earn them a return on investment. As such, it's not as heavily emphasized in your business plan.

Some great examples of mission statements include the following:

  • Google's mission is to organize the world's information and make it universally accessible and useful.

  • Kiva's mission is to connect people, through lending, for the sake of alleviating poverty.


3. Goal Specificity

Because your strategic plan focuses on setting your company's vision and getting your team to execute on that vision, your strategic plan must include a greater focus on your goals than your business plan.

While your business plan focuses more on your long-term goals, your strategic plan is more granular. Specifically, your strategic plan should lay out your company's 5 year goals, 1 year goals, and your upcoming quarterly and monthly goals.


4. Key Performance Indicators (KPIs)

As the name indicates, your "KPIs" or Key Performance Indicators are the metrics that judge your business' performance based on the success you'd like to succeed.

Identifying and measuring your KPIs is absolutely critical to ensuring you are effectively executing on your vision and plans. Conversely, if you don't measure your KPIs, you have no idea whether you are achieving the success you desire.

In your strategic plan, unlike in your business plan, you must identify the KPIs your business must track in order to achieve your goals.


5. Identification of Required Strengths


In your business plan, you should stress your existing strengths that make your business uniquely qualified to succeed. This helps convince investors and lenders to fund you.

Conversely, in your strategic plan, you must identify the strengths you need to develop. For example, how could you gain competitive advantage by modifying your products or services? Or by hiring and training certain personnel? Or by creating new operational systems? Etc.

By asking and answering these questions in your strategic plan, you can create a strategy for building a rock solid company that's the envy of your industry.

To summarize, the right business plan allows you to raise money to fund your business' growth. The right strategic plan gives you and your team the vision, goals and game plan to achieve this growth. Finally, using the right strategic plan template helps you create your strategic plan quickly and easily so you can start growing immediately.

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10 Real Profiles of Angel Investors


 

There are hundreds of thousands of individual or "angel" investors in the United States (and many more throughout the world). This is many, many times greater than the mere 6,000 members of angel investor groups.

And here's the key: the vast majority of these individual investors are what I call "latent angel investors." That is, they have the interest and ability to make an angel investment. But they don't actively seek to make angel investments.

Basically, you have to find them and pitch them, since they aren't actively seeking entrepreneurs to fund. And in most cases, they've never before invested in a private company.

So, who are these "latent angel investors?" The short answer is that they are people with money. I sat down this morning and wrote brief profiles of some the angel investors that have funded some of Growthink's clients. Here they are (I changed the people's names for privacy reasons).

1. Roger is a lawyer.

2. Alan is an executive at a large consulting firm.

3. Bill is the COO of the US branch of a multi-national corporation.

4. Allison is a restaurant owner.

5. Randy owns a small consulting firm.

6. Catherine is an executive at a large financial services company.

7. Robert used to run his own business and is now retired. He does some consulting on the side.

8. Victor is from Europe. He attended business school in the United States. He now has business ventures throughout the world including one in the United States.

9. Josh is a super successful entrepreneur in his early thirties. He had a lot of success in his first venture, and continues to launch new companies.

10. Richard is a retired executive from a Fortune 500 company.

Here's some additional info: All but two of these angel investors are between the ages of forty and sixty five. All but three of them live within 20 miles of the companies they funded. And of the three, two live within an hour's flight or 3 hour drive.

The key lesson here is this: potential angel investors are all around you. They are current and retired doctors, lawyers, executives, business owners and otherwise successful people with money (interestingly, none of my current clients have doctors as investors that I know of; although doctors are very common angel investors).

Yes, there are specific ways to contact and present your venture to these investors that I explain in my Angel Investor Formula, but the key is to network, network, network. Don't be shy. Rather, start telling people about your venture and get referrals to people with money that could invest in your company.

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5 Rookie Business Plan Mistakes to Avoid


 

When developing their business plans for investors and lenders, there are lots of mistakes that entrepreneurs make. Here are the 5 biggest:

1. Forgetting that Your Business Plan is a Marketing Document


On of the key goals of your business plan is to convince lenders and/or investors to fund you. As a result, you need to think of your business plan as a marketing document.

In brief, think of your business plan as a brochure versus a product manual. A brochure gives high level features and benefits and gets people excited. Conversely, a product manual provides tons of details (which are often boring) and is generally hard to read.

Use your brochure/business plan to excite the reader so they agree to meet with you. During the meeting, you can provide additional details they want to know.

2. Failing to Prove Your Case


The second common business plan mistake is not adequately proving your case. Just like a lawyer has to prove his or her case, your business plan should prove the case as to why an investor or lender should fund you. There are two key ways to do this.

First, show why you are uniquely qualified to succeed in your business. For example, maybe you and/or your management team have unique expertise and experience. Or you have a unique and patented product. Or maybe you are first to market. Or maybe you have already secured critical strategic partnerships. Identify these key reasons and include them in your plan.

Second, include market research that proves your ability to succeed. For example, show how big your market is. Show how market trends support (or at least don't hurt) your business' success prospects. Detail who your customers are and their needs. And show you understand who your competitors are and their strengths and weaknesses.

3. Not Clearly Describing Your Business at the Start


Too many business plans fail to clearly describe the business at the very beginning of the plan. This is a critical mistake, because if readers are confused after the first paragraph, they often won't continue reading.

So, rather than starting your plan with a long story, start by clearly describing what your business does so readers "get it." Then, you can explain why it will succeed, the origins of your idea, etc.

4. Using Lots of Superlatives

Using too many superlatives turns off most investors and readers, and when unsubstantiated, hurts your credibility.

Specifically, avoid superlatives like "best," "greatest," "most powerful," etc., unless you can back them up. For example, saying that you have the "best management team" will turn off many investors.

Rather, you should say something like, "our management team has the experience, skills and track record to successfully execute on our plan. Among other things, our management team has [and then list the credentials of your team]."

5. Trying to Answer Every Question

The final mistake that most entrepreneurs make in their business plans is trying to answer every question in them. The solution, rather, is to answer the key questions, but not all the questions.

Similar to the above mention of how your business plan should be like a brochure, your plan should not answer every conceivable question readers might pose.

Rather, answer the big questions that will get readers excited about your venture, proves you really understand it, and influences them to invest more time meeting with you to discuss further.

During the meeting you'll have the opportunity to fill in the details, which are often different for each potential funding source.

Avoid these five mistakes in developing your business plan and you will have much more success completing your plan and using it to positively influence funding sources.

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5 Situations That Kill Businesses and How to Avoid Them


 

Every successful business requires a lot of planning.  From market research to internal corporate structure, the planning stages of starting and growing a business can be quite extensive.  While this preparation is a key factor in the success of any company, there are a few things which far too many business owners neglect.  Planning for success and growth is important, but smart businesses are also prepared for the worst case scenario.

Situation #1: Disability

No matter what a business may do, if it has employees then it needs to consider disability insurance.  Accidents happen every day and they are not restricted to those jobs which would traditionally be considered dangerous.  Even in an office environment, for example, there is a potential for an employee to be injured (perhaps outside of their work activities).

When an employee is injured while on the job, the company may be personally liable for medical bills and worker's compensation payments.  This is why disability insurance is so vital.  If something like this should happen, the insurance will cover any bills and fees for which the company will be responsible.

In addition to insurance, a smart business owner will spend time on succession planning.  There is no telling who might be injured and it is entirely possible that this person is the business owner. 

What will you do if you cannot run your business - temporarily or longer term?  Do you have the right disability coverage to protect your income?  Do you have people who are trained and familiar with different parts of the business so they can be called upon to pick up where you left off?

Situation #2: Natural Disasters


One thing which can rarely be predicted is a natural disaster.  Regardless of where a business is located, there is the possibility of one natural disaster or another.  Whether it is earthquakes, floods, fires or tornados, these disasters can literally destroy a company.

This is why disaster insurance is so important.  It may seem unnecessary to pay for insurance for something which might never happen but, when it does, this insurance will be the difference between a temporary setback and total destruction.  Smart business owners need to know what types of disasters are possible and find insurance which covers them completely.

No, this article is not about promoting insurance. It's about making sure you have the protection you need to keep your business operating and your income flowing. 

While disaster insurance will help cover the financial aspect of such a catastrophe, contingency planning is equally as important.  Rebuilding a business can take months and work should not stop during that time.  A good business owner will have a contingency plan set up which allows the company to continue, even if an entire physical location was lost. 

When reasonable for the business model, redundant operations, back-up equipment, data back-up, and/or employees/contractors in other geographical areas are critical components to recovering from and/or minimizing the impact of a natural disaster.   

Situation #3: One Revenue Stream

One of the biggest mistakes many businesses make is relying too heavily on one customer or revenue stream.  Most companies will work with different clients and customers, but may rely on one specific client for the majority of their revenue.  The problem here is that the loss of this client can mean a sudden loss of the majority of a company's revenue.

Just as anything can happen to a business, the same can happen to clients and customers.  Relying too heavily on one specific source of revenue is a recipe for disaster.  Smart business owners will focus on diversifying their revenue sources and creating a situation where the loss of any one source only represents a small loss of overall income.

If you don't have the resources to handle more clients, create a client back-up plan.  What accounts or work-streams can you quickly put into action if you lose your main client? If diversifying pushes to outside of your production capacity, always have other work lined up to fill any vacuums.

Landing a big client may make you feel like you can take a break from marketing and customer acquisition.  But beware of this false sense of security.  Every day, dozens of businesses, from small to multi-national corporations, close their doors because they lost their main account.  Remember the old adage; don't put all your eggs in one basket.

Situation #4: Data Loss


We live in the information age and nearly every business relies heavily on stored data.  This can include, among others, payroll records, inventory systems, emails, documents, and even client contact information.  This data can be so important to the success of a company that the loss of it can be just as damaging as any natural disaster.  With technology constantly changing, this sort of data loss is a very real possibility.

Smart business owners plan for this problem.  Much of the stored information will be confidential and having it fall into the wrong hands can have far reaching consequences.  It can open a business to lawsuits from clients and make your business liable for paying damages to hundreds if not thousands of clients.

A business's data and information needs to be protected through proper security measures and backed up in multiple ways.  There are many online options from Google to specialty companies that can do this for you.  If you are in a regulated industry such as healthcare or real estate, you have a legal obligation to store documents in a specific way for certain number of years. 

Situation #5: Regulatory Changes

Speaking of regulations, most businesses have to follow certain laws and compliance guidelines.  These can govern nearly any aspect of what a business does.  The problem is that many of these regulations can change over time.  These changes can be unavoidable and are often unexpected.  As new politicians are voted into office and the economic climate changes, the rules for doing business will also change.

Smart business owners will familiarize themselves with the laws and regulations related to their business.  What many of them fail to do, however, is plan for changes in these regulations.  A business that refuses to be dynamic and able to adapt to such changes is one which is precariously close to disaster.

For example, in 2011 there were far reaching changes made by the FCC that drastically affected how a telemarketer could get access to calling lists and contact consumers.  Businesses that didn't adapt in time where shut down by the FCC.  Only those businesses that made sure their business model could survive the new operational restrictions survived to dial another number.

How to Protect Your Business

Planning for negative possibilities can be stressful.  And it is impossible to predict all of the threats facing any business.  Fortunately, there are a few simple steps any business owner can take to protect themselves from these problems.

Take the time to review your business model and assess your risk in these 5 categories.  Then start by mitigating your biggest risk.  Work your way down the list so that within 90 days, you are completely protected. 

  1. You need a plan to cover the potential loss of any vital employee, including yourself! Create and document systems that allow the business to run without current employees.  Insurance should also be purchased to cover the company in the event of an accident or injury, and a firm succession plan should be updated every six months.

  2. Business owners need to be familiar with any potential natural disaster in the area in which they have assets such as offices or warehouses.  Storm-proof your business as much as possible.  Create a business continuity plan (example: can employees work from home while the office is restored?).  Finally, get adequate insurance to protect your assets and income.

  3. Revenue sources need to be analyzed.  Clients and customers need to be diversified to help mitigate the trouble associated with losing any one of them.  If there is only one main source of revenue, its time put a client acquisition plan into action.  If you can't handle any more clients right now, have other sources of work lined up at all times.

  4. All data should be backed up on a secure server which, if possible, is located off site.  These days cloud storage makes backing up data easy and affordable.  Information such as contracts and other legal documents should be printed out and stored in a secure location.  Schedule a day each month or each week to back up all new data.  Start this immediately.

  5. Smart business owners need to keep an eye on the current state of laws and regulations relating to their business.  Make sure you have the systems in place to keep your business operational.  If you are not sure how things affect you, contact an attorney with expertise in your industry.  A consultation is a lot cheaper than losing your business.


These are relatively simple steps which any business owner can take.  While there may be no way to predict the future, proper planning can help turn a major problem into a minor inconvenience. 

You have the power to protect your business and your income.  Not only will these steps help protect your business; they will help you sleep a little more soundly.

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Chief Executives and Chief Shareholders: Never the Twain Shall Meet?


 

Small business owners lead the most efficient and effective organizations ever designed by human hands - profit-seeking businesses where the Chief Executive Officer also happens to be the Chief (as in largest) Shareholder, too.

Among many benefits, this business form fully addresses the Agency Problem - so often found in larger companies - where the interests of the professional managers do not always sync and align with those of the shareholders.

This can cause various (and nefarious!) effects like:

•    Managers seeking to maximize their shorter term "cash-out" - high salaries, bonuses and the like -  irrespective of their effect on / benefit to the organization as a whole

•    Managers not pursuing potentially high returns, but also higher risk strategies as the personal benefits to them when successful (i.e. a pat on the back) are far less than the penalties when not (i.e. getting fired)

•    In worst cases, managers committing out-and-out fraud, treating the companies they are entrusted to lead as personal piggy banks (see Enron), with their only strategic calculus being whether or not they will get caught

In contrast, in most circumstances, what is best for the managers of a small business is what is best for its shareholders, as they are normally one and the same.

But there are three scenarios where this is decidedly NOT the case:

1.    When Contemplating Raising Outside Capital. For far too many small business owners, when they think about raising capital, they think too much about "control."

As in "I don't want anyone looking over my shoulder." Or "telling me what to do."

When I hear comments like this, the first thought I usually have is that it might be a very good thing to have someone looking over your shoulder and telling you what to do!
 
Why? Because usually the advice given is in the interest of the businesses’ shareholders…which to reiterate the largest one of these is usually the entrepreneur resisting “control!”

2.    When Contemplating Selling a Business. More often than not owners of businesses capable of attracting a buyer and being sold LOVE what they do, and they especially love being the BOSS.

So the prospect of selling out and no longer being the BOSS can be emotionally difficult.

Now, from the perspective of the Chief Shareholder, the right response to this should be, “Who Cares!”

With the risk of sounding harsh, this decision should be made solely on the strategic and financial merits - lifestyle and heartstrings considerations be darned!

3.    Contemplating Investing More of One’s Own Money in One’s Own Business. When one is lucky enough to have capital to invest, the Chief Shareholder “Hat” needs to be worn far more tightly than the Chief Executive one.

Because as the Chief Executive, it is just too easy to overlook portfolio diversification considerations, as it is not possible to “diversify” from the huge time and energy investments necessary to be an effective CEO of a growing company.

From this perspective, the right decision is to almost always try to invest as much as one possibly can away from and outside of one's own business.

I know, this is extremely hard to do as more often than not every instinct screams out to just pour more time, energy and treasure into it to the exclusion of everything else.

That is the Chief Executive talking and is the kind of “irrational” commitment to success that is at the heart of what makes being a small business and an entrepreneur so intoxicating (and admirable)!

BUT when the three scenarios and opportunities above present themselves, take a pause and listen to Mr. and Ms. Chief Shareholder, too.

If nothing else, your wallet will thank you.

To Your Success,



This post is a based on a thought piece I wrote for Entrepreneur Magazine last year. The original article can be viewed here.

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Today’s B2B: Go Mobile or Go Home


 

How are the best business-to-business (B2B) companies and brands getting past the noise and the online clutter and connecting with their clients and customers?

Well, marketing research firm Motista recently surveyed 3,000 purchasers of 36 B2B brands to find out.

I encourage any executive whose business sells primarily to other businesses to read the full report here. It is chock full of fascinating and very high ROI B2B marketing and sales nuggets.

In it, I found three particularly prescient ideas as to the Mobile Internet Revolution we are all currently living through, and how smart entrepreneurs and investors are playing and winning with it. They are:

1. Mobile, Mobile, Mobile. Mobile browsing, shopping and buying is growing at such a rapid rate that it has become now virtually indistinguishable from the traditional, desktop-driven Internet.

This is obviously having a dramatic impact on not just consumer markets (i.e. tweeting and texting Millennials), but on B2B markets and interactions as well.

Which leads to takeaway number two…

2. Personalization. As well demonstrated by this awesome Grainger ad, even older line industrial companies and brands selling to other old line companies are now connecting their brands and messaging to the personalized needs, wants, fears, and aspirations of individual buyers.

In other words, it is no longer enough to just demonstrate business value (i.e. functional benefits and business outcomes), but personal benefits must be communicated as well.

Things like promotion, popularity, influence, and confidence.

AND do so in a way “that delights, inspires, and surprises…and makes a person want to own it, riff on it, and share with others…”

Yes, this is hard.

But when done right, the rewards can be the kind of word-of-mouth viral campaign effects that to date have only been available to consumer brands and marketing campaigns (see Old Spice, DollarShaveClub).

3. Multiple, Digital Touchpoints. From personalization of message follows multiplication of medium.

With B2B buyers porting their iPhones and Galaxies-trained “always on, at my fingertips” sensibilities to the work place, B2B sales cycles are now increasingly “multi-dimensional.”

These cycles involve not just in-person and on the telephone analog selling, but also multiple digital touchpoints and nudges - texts, tweets, LinkedIn connects, YouTube favorites, Facebook likes, Instragrams, and more.

These are the new rules of the B2B marketing and sales game.

And we either learn to play by them hard and well…

…or we consign ourselves to being left behind in our mobile, so very personalized, sometimes annoying, but also so often delightful and always opportunity-filled world.

To Your Success,

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The Rise of the Machines


 

Last week, I shared three themes percolating in the dynamic Internet of Things (IoT) movement: 1) Wearable Devices driving health and wellness breakthroughs 2) Embedded Sensors “incrementally” improving industrial productivity, and 3) The converging trends of miniaturization, affordability, and “de-wireization” driving energy efficiencies and cost reductions the world over.

These are big themes - breathtaking in their “macro” - but sometimes very difficult to translate to specific opportunities from which we as entrepreneurs and investors can individually benefit.

But try we must, both because of the sin that it is to see an opportunity and to not pursue it, and if we don't

…we run the very real risk of being overrun by transformations so profound and all-encompassing as to threaten to the point of obsolescence virtually every business and investment model.

Overly dramatic? I don't think so.

For if the last 20 years of technology advances have taught us anything, it is that global, online connectedness naturally creates conditions where choosing winning strategies don't just give companies a leg up, but allows them to capture all of the market (including its profits).

Examples of this phenomenon?

Think Google for search, Facebook and LinkedIn for social networking. Twitter for one-to-many communication.

And how about SpaceX for rocket technologies? WhatsApp for free SMS? EBay for online marketplaces? Craigslist for classifieds?

The list goes on and on.

And this coming Internet of Things - with estimates as high as 25 Billion devices being online in some form by 2025 - will provide far greater opportunities for new entrants to rapidly scale and for incumbents to be rudely displaced than your “Father's Internet” ever did.

The revolution here can be boiled down to one word.

Data.

And the need to manage and interpret the vast and ever-streaming treasure trove of it that will always be flowing from these billions of interconnected devices.

I thought General Electric's Head of Software Bill Ruh, explained it best at Kamal Ahmed’s and Ali Tabibian’s IoT event last month. The example he used was of the jet engines that GE makes for Boeing and other aircraft manufacturers that both create and allow for tracking on huge amounts of performance data.

Now when that data confirms the belief of the technicians managing those engines, it is used.

But, when it contradicts long held assumptions and beliefs, more often than not it is ignored.

In an IoT world, this belief system, this hubris, one’s qualitative judgments in contradiction with “the facts” needs to be quickly and ruthlessly discarded.

And it must be replaced by the conviction, faith, and sternly pursued managerial practice that these facts, this data above all else is king.

Sound harsh? Un-feeling?

A foreshadowing of a Rise of the Machines world where we humans are regulated to a feeble processing power second class?

Perhaps.

But the optimists among us see many examples of long-held human prejudices cracking and disintegrating in the face of impersonal yes but also agenda-free data.

And another point – quality data analytics drives efficiency which in business and in life ranks right up there with sound strategy and impeccable ethics as pillars of asset and profitability growth.

When looked at this way, that in an IoT world good data analytics and analysis no matter the business trumps all, what naturally follows is that the particular business that one intends to start, build or invest in is almost secondary.

More important is one's relationship, one's willingness to let the data - well collected, accurate, and regularly and properly analyzed data - guide ones business decisions, strategies and tactics.

This is very hard to do in practice, as old habits and ways of thinking and doing die very hard.

But, as the habit is built, the competitive cost, and positioning advantages - built up incrementally over time in a business’ product and service offerings, in its marketing and sales conversion funnel, in its operational efficiencies - become unassailable.

And then, in the eternal words of the great Charlie Munger - Warren Buffet's investment partner for over 50 years - a business approaches a Low Cost, Hiqh Quality nirvana where assets and profits build steadily and wildly over time.

Hail to the Machines.

To Your Success,

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The Internet of Things


 

I had the good fortune to attend GTK’s and Pillsbury’s amazing Internet of Things Private Executive Event in Palo Alto last week.

It was a star-studded, technocratic affair - drawn from Kamal Ahmed’s and Ali Tabibian’s amazing Silicon Valley network, by the high-profile speakers and panelists including Qualcomm’s chairman Paul Jacobs, General Electric's Head of Software Bill Ruh, Cisco's Vice President Tony Shakib, Splunk CTO Todd Papaiaonnou and by the incredibly exciting and timely topic itself.

Whatever name you want to call it - the Internet of Things (IoT), the Internet of Everything, Machine-to-Machine Computing, the Embedded Internet, Smart Services - the fundamental idea is that we are moving rapidly to a world where online connectedness exists not just on our desktops and smartphones, but rather is woven into the very fabric of our world (cars, planes, factories, our bodies and more).

This coming reality is scary to some for sure, but the myriad of productivity and efficiency gains an IoT world promises is as exciting as business gets.

And so the attendees - from Fortune 500 tech stalwarts like Intuit, Amazon, HP, and Oracle, to high-profile VCs like Andreessen Horowitz and Google Ventures, to some of the hottest IoT start-ups in the world (StreetLine, Jasper Wireless, Liquid Robotics) - listened as the speakers shared both the key IoT tech. advances (miniaturization, affordability, de-wireization) and the corresponding best areas of business opportunity.

My Three Takeaways:

Better Health and Wellness. Any fears of big brother and losses of privacy in an IoT world are well offset by the opportunities to save and prolong lives via inexpensive, unobtrusive, and accurate monitoring of “on the body” health data and events.

We can see the possibilities in the early successes of the quantified self-movement, pioneered by companies like FitBit and Jawbone that monitor sleep, exercise, diet, heart rate, and body temperature, and more.

As technology and the collective data sets naturally grow and improve, the opportunity to intervene quickly (and remotely!) in both catastrophic and chronic health events is incredibly exciting.

The Industrial Internet. General Electric’s Billion Dollar Bet to transform the 122 year old company from one based on building and selling large and complex machines - jet turbines, locomotives, and power plants - into one based on selling analytics and services to ensure that these machines run incrementally ever-more efficiently highlights the promise of the Industrial Internet.

Its decidedly low glamour goal? To apply a form of Moneyball to the gigantic Old Economy backbone of our modern world and “eek out” 1%, 2%, and 3% efficiency gains that in their aggregate represent trillions of dollars of increased productivity and profitability.

Energy. Energy is a HUGE area where converging and coalescing IoT tech advancements are starting to allow for massive reductions in our global carbon footprint while making the energy to power our cars, drive our factories, and light our homes cheaper and more accessible and reliable.

Great for those of us in America, but life-changing for the three billion people around the world without daily access to electricity, heat, clean water, and reliable food.
 
An overly optimistic take? Perhaps.

But even if only 1/10 of the productivity and efficiency promises shared in Palo Alto last week come to pass, IoT represents a business opportunity so large, multi-faceted, and all-encompassing as to make even the most grizzled and cynical market observers more than a little giddy.

And that about sums up my time in Palo Alto last week - a bunch of big, technologically literate kids talking and acting as if we all together are about to enter one of the biggest candy stores in any of our lifetimes.
   
To Your Success,

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