Passing with surprisingly little fanfare, today is the 20th anniversary of the fall of the Berlin Wall.
One of my most enduring memories of my college days (I was an International Relations Major at Stanford, Class of 1990) was a class that I took from an extremely engaging and charismatic young professor on Soviet Foreign Policy.
One statement that my professor made stayed with me - that probably none of us in our lifetimes would see the Berlin Wall fall.
a) The inevitable brain and talent drain that an opening of the wall would bring about
b) The more that people in the old Soviet republics and in Eastern Europe were allowed to see with their own eyes the freedom and prosperity that liberal capitalism creates, the more likely they would be to rebel against their masters.
Thus, the Soviet leadership, out of pure and obvious self-interest, would never allow it to happen.
Well, the rest is history. Six months after this perhaps off-hand classroom statement, the Berlin Wall came down. And 15 years later, my young and charismatic professor - Condoleezza Rice - was named the 66th United States Secretary of State.
I am not exaggerating when I say that of all of my college experiences and memories (at least the ones I can remember..:), that that day and that class and Professor Rice's statement stayed with me. Why?
1. It inculcated in me at a very early age that the future is very, very uncertain, and that there is often little correlation between the depth of one's understanding of a topic and the ability to PREDICT about it.
Professor Rice KNEW the Soviet Union - even then she was considered one of the nation's most knowledgeable and versed thinkers and commentators on topic. And yet she, like so many others, was wildly wrong here.
2. While I could not put it into words until last year when my good friend and perhaps best thinker on "systems of prediction" I know - Rafe Furst - introduced me to Nicholas Taleb's masterpiece "The Black Swan," I and many others intuitively felt that something VERY, VERY, VERY outside of the realm of prediction took place the day the wall fell.
3. And more deeply, BECAUSE it fell outside the realm of prediction, it MATTERED. The "smell test" on these kinds of moments are simple - they are the ones we remember where we were when we first heard about them.
For my generation - The Space Shuttle Disaster (and Reagan's incredible speech that night), The 1987 Stock Market Crash, the fall of the Berlin Wall, Clinton's impeachment, September 11th, the capture of Saddam, and the fall of Lehman (for those of more business/financially-minded) fall into this category.
My friend Rafe and Taleb tie this core life insight to business and investing.
How? By only wagering on the unpredictable. Raynor in the Strategy Paradox makes the same point. BIG success and BIG money are only made on the BIG outliers - everything else is just transom.
In a strange way, the fall of the Berlin Wall was a seminal event in my youth that pointed me to my life's work. It affirmed by belief in liberal capitalism and in the "way of the West" as the right and proper end of history.
And in business, it led me to entrepreneurship and to private equity.
Why? Because it is in the aspirations of the entrepreneur and of their backers that the power of the unpredictable is made most real in business.
Those that grasp it - the Bezos, the Brins, the Pages, the Josh James of Omniture, the Aaron Patzers of Mint.com, the Kevin Planks of Under Armour, MAKE history.
And hopefully take the rest of us along for the ride.
This past Sunday, CIT Group Inc., the 101-year-old commercial lender, filed for bankruptcy.
This filing is NOT good for American businesses, as CIT Group funds, via providing loans and working capital, about 1 million businesses.
CIT's bankruptcy will not only prove difficult for the small and medium-sized businesses that rely on CIT's working capital loans. But, it hurts the thousands of startups who planned to approach CIT for startup business financing; with the bankruptcy, it is highly unlikely that CIT will be able to make the same number of new loans as before.
It is for reasons such as this, that I frequently preach that businesses leverage multiple forms of capital. In fact, you've probably heard me talk of companies like Google, who leveraged credit cards, angel capital, venture capital and bank loans in its early days.
One form of startup business financing is never enough. It's the classic "putting all of your eggs in one basket." In addition to the risk involved in this strategy, it is also typically less expensive to diversify your financing. For example, bank loans used for the purchasing of equipment is almost definitely less expensive than using equity financing for the same expenditure.
Personally, my favorite forms of capital are creative/alternative financing (since it is easy to raise if you know what to look for), angel financing (also easy to raise if you know how to do it) and bank financing (easy to raise if your business is a good fit for it).
I'm also a big fan of venture capital and grant financing, but these forms of capital take a little longer to raise and are more challenging (but the rewards are significant if you are successful).
Google. Omniture. Mint.com. All massive private company investing success stories and all shared some critical characteristics:
1. They all took a while to blossom. In the case of Omniture, it was 13 long years from company founding to exit last week via sale to Adobe for $1.8 billion.
2. Those that made the most money by far were those that got in early. Sure, it would have been great to have owned Google at its 2004 IPO price of $85/share, but some of the FIRST investors in Google in 1998 bought their shares - on a split-adjusted basis - at eight CENTS/share.
3. All had/have great leaders. Josh James, founder and CEO of Omniture, has led his company through a failed acquisition, through having to lay off 3/4 of the company's employees a week before Christmas, an IPO, and attracting the best software talent far from Silicon Valley (in Omniture's case, suburban Utah).
4. Lady luck smiled on them. In the case of Mint.com, Intuit's inability to move their key personal financial software apps to the "cloud" (in spite of having 100 x more software developers working on it than Mint) was the key stroke of luck that led to Intuit buying them in September for $170 million.
The key question with luck, always, is how we can make it work for us. And the stories of Google's, Omniture's, and Mint.com's success point the way.
Entrepreneurs must have many skills. They must be able to spot opportunities. They must be able to create plans to seize those opportunities. And they must execute on those plans.
And, for most opportunities, and clearly for those opportunities that are really big, execution involves hiring and managing employees. Because no single entrepreneur can do everything themselves.
But you just can't have any employees. Companies that succeed have employees that are highly motivated.
So how do you ensure that your employees are motivated to succeed?
Clearly, giving them fair salaries helps. And clearly, stock options that allow employees to benefit when the company benefits are good practice.
But, there is an even better way. In fact, authors Adrian Gostick and Chester Elton in their book, The Carrot Principle, found a better way.
Where did they come up with this better way? Well, they conducted a study involving 200,000 people over a ten-year period.
Importantly, their study showed that the key characteristic of the most successful entrepreneurial managers is that they provide their employees with frequent and effective recognition.
That's right, significantly better business results were realized when managers offered recognition in the form of constructive praise and meaningful rewards (typically non-monetary).
The authors found that recognition is most effective when it is:
Positive (don't mention any negatives when giving praise)
Immediate (comes soon after the job well done)
Close (presented to employee(s) with their peers in attendance)
Specific (precisely recognizes why the task/job they performed merited recognition)
Shared (allows employee's peers to also comment during the recognition presentation)
Carrots are needed to motivate employees. But what I found most interesting about the author's findings was that recognition is more effective than monetary rewards. This is a critical finding for all managers, and particularly entrepreneurial managers who typically operate in cash-restrained environments.
Knowing how to motivate your employees will allow you to build a team that is as passionate about success as you are. And this will ultimately lead to your company achieving its goals. So, while it may not seem like a mission-critical focus today, it's definitely worth your time and effort. So don't delay...
Do you remember the Faberge Shampoo television commercial from the 1980s?
The one in which the woman says, "I told two friends about Faberge Shampoo, and they told two friends, and they told two friends and so on, and so on..."
Now imagine this happened to your product or service....that one buyer told two more buyers, who told two more buyers, and so on, and so on. Your revenues would go through the roof, and with virtually no marketing expense.
Ah, the entrepreneur's dream.
Unfortunately, I actually categorize this as a "dream" because I don't think any company can count on this type of viral marketing. Even if your product or service is that great, there's no guarantee that people will refer it to their friends.
But you CAN change that.
You can maximize the chance that people will refer your product or service if 1) you make it really easy for them, and 2) you give them the right incentives. In fact, employing a proven referral marketing program can be your most cost-effective marketing tool.
To learn more about referral marketing programs and other cool, cutting-edge marketing techniques, I interviewed Trevor Shanski, the founder of eWORDofMOUTH Inc.
I was not only interested in interviewing Trevor because eWORDofMOUTH seemed so cool, but because I knew Trevor was such a great executor. Specifically, in his previous position as COO of Warehouse One Ltd., he helped grow the company from 13 local stores to 108 national stores, and grew revenues to nearly $100 million in sales.
In the interview, Trevor provided some great tips on referral marketing including:
- What you need before you generate referrals: all you need are current customer and/or prospects
- The key requirement to get people to refer your business to them: they must be satisfied with you or they will not refer you
- How to reward people for giving you referrals: give them something of value; but that something doesn't necessarily have to cost you anything
- Tips to generate the most possible revenues via referrals: give rewards that encourage them to buy even more from you; for example, if you give them discount coupons, redeeming them would increase your sales
Trevor also gave some great tips on improving your email marketing success including citing the importance of personalizing your emails to recipients and to keep an eye on your open rates in order to determine the right frequency of your emails.
Importantly, Trevor gave me a private demo of the eWORDofMOUTH platform which combines email marketing with referral marketing into one, simple-to-use system. The system also allows for text messaging and multi-location emailing (i.e., if you have multiple business locations, you can centrally manage and customize emails to customers of each location) making it extremely powerful.
As you can imagine, by using eWORDofMOUTH, you can generate a significantly higher ROI on your marketing dollars than traditional marketing methods.
Not only does the interview cover referral marketing, email marketing and mobile media marketing, but I got Trevor to reveal his secrets to operational success (as mentioned, as COO of his last company, he grew it to nearly $100 million in revenues) and how he developed a highly-impressive, nine-person Board of Advisors.
To hear a short clip of the interview, click the blue triangle in the player below:
"Dave, thank you very much for your review of lessons learned these past 10 years and thanks to everyone for attending tonight and sharing this milestone accomplishment with us. Particularly want to thank Rocio Melgar and Melissa Welch for all of their hard work and energy in putting this event together.
Before I dive into my “Where Will be in 2019 predictions, I would like to share a couple of stories with you. First one about a very, very famous and successful entrepreneur and angel investor and secondly, the story of how I got involved with Growthink.
As many of you know, Jeff Bezos was one of the early investors in Google. Yes, that Jeff Bezos. Founder of Amazon.com. #33 on last year’s Forbes’ 400 with a net worth of over $8.7 billion.
Here is the backdrop:
In 1998 when Google’s offices were a Menlo Park, California garage - Bezos invested $250,000 of personal funds into the fledgling search engine.
When Google went public in 2004, that $250,000 investment translated into 3.3 million shares of Google stock. And a stock share position worth over $280 million!
While he does not disclose how many of those shares he still holds, at the current price of Google stock they would represent an investment position of over $1.5 billion.
So why did Bezos invest in Google? In his words, “…There was no business plan…They had a vision. It was a customer-focused point of view.” And he adds, “I just fell in love with Larry and Sergey.”
So, now my story. Before business school and before Growthink I owned an ice cream business on Cape Cod in Massachusetts. It was a very nice life. I worked 4-5 months out of the year, lived in a beautiful place (Cape Cod), and did work that was heck a lot of fun. At age 30, I was all set. I had a business, a car, a house, and a girlfriend.
But then, in the summer of 1999, my MBA classmate Dave Lavinsky called me with this idea for a company at the height of the Internet boom. If I just worked with him for a few short months, we would be able to aggregate positions in a bunch of rocket ship gazelle companies – soon to be know as “the next Googles.”
Seemed like a great deal, So, I sold the business, the car, the house, broke up with the girlfriend, packed my bags and headed, Jed Clampett-style – not to Beverly Hills, but to Venice to start Growthink with Dave.
And here I am, 10 years later. With an amazing wife and 2 beautiful children!
And timeless truths remain:
First of All, Think Long Term. Even though Google has been the fastest growth company in the history of capitalism, it was still SIX YEARS from Bezo’s original investment in the company to liquidity. Overnight entrepreneurial successes simply do not exist. While certainly all of us would have liked to have had a Google in our lives by now, as Saint Augustine once said, Patience is the companion of wisdom.
Secondly, Get in Early. Sure, it would have been great to get into Google in 2004 at its IPO price of $85/share, as the shares are up over 500% since then. But Bezos, after adjusting for stock splits, got in at EIGHT CENTS PER SHARE!
The beauty and the allure of entrepreneurship is the opportunity to be a part of something VERY, VERY big very, very early. This is how great fortunes are made.
Third, Invest in People. At the time of Bezo’s investment, there were a large number of very well-funded and successful search engines already on the market. Remember this was 1998 not 1994. Yahoo, Alta Vista, Lycos, Excite, Infoseek to name just a few.
But Bezos was attracted to Page and Brin as people, as technologists, as leaders.
Lesson – we overcomplicate business. Great, talented leaders drive and build businesses. Everything else is secondary.
Fourth, Take Your Shot. For every Jeff Bezos who invested in Google, there are stories of dozens that were presented with the opportunity that did not.
This of course does not mean that the probability of having a Google-like success is anything but very low, but it does mean that it is far greater than the ZERO percent likelihood of success of those that don’t swing the bat.
And Finally, Get Lucky. As hard as it is for many to accept, having fantastic, great luck is a key variable in success.
Success IS assured with thoughtful, disciplined, day-in, day-out hard work. And with hard work as the given, magical success sometimes blooms.
And in the spirit of great luck, let me make my 2019 predictions:
PROBABILITY of 100% - On October 22nd, 2019, if Jay Turo is still of this earth and of animate form, he will be 51 years old.
His 2 sons, Jay Jay and Teddy, now 3 and 2, will be entering their teenage years. Dave Lavinsky’s son Max, whose conception at that particular time and place in 1999 was the magically unpredictable act that led to the founding of Growthink, will be entering his senior year in college.
Growthinker Tristan Sigerson, who started as an intern from UCLA and whose youthful cheer and spirit lifts us daily, will be 36.
Growthinker Jeff Jones, our VP of Business Development, who loves to flaunt his youth and athleticism at us 40-somethings, will be 40 himself.
Only my mother, who traveled here from West Boylston, Massachusetts to be with us tonight, will fight this trend, as she will still be celebrating, as she has for as long as I can remember, her 39th birthday.
Let’s all take a short pause here and reflect on how old YOU will be in 10 years. Does it impart you with a sense of urgency? Of dread? Of disbelief?
PROBABILITY of 90% - The NASDAQ and Dow will be trading at, respectively, above 10,000 and above 30,000.
Why – really quite simple – even getting to those levels will mean a return of less than 5% annually from 1999 to 2019. It points to how poorly the investment markets have performed in the last 10 years. The NASDAQ in particular has performed terribly, down almost 50% from where it was 10 years ago.
In short, all of us in the worlds of technology and entrepreneurship must have a deep and abiding FAITH that in the next 10 years all of the amazing technological progress we have seen and are sure to see more of will result in investment return.
PROBABILITY of 90% - The Fear of the Rise of China Will Be a Thing of the Past – America Will Still Lead the World.
Are you as tired of me as hearing about how China will catch the United States and then surpass it? There is very, very little chance that a society with no free press, with a monolithic educational system, with a totalitarian government, will EVER lead the modern world.
Lest we forget – we live in the information age. This is the age of software. All GREAT software companies – have you noticed – are AMERICAN companies? This is not by accident. Our freedom-loving, creative society is BUILT to birth great technology and great idea companies. Sure, America has problems, but compared to the problems and limitations of every other country and society in the world, we are still by far the most likely place for the companies and ideas that will shape the 21st century to be born and to grow.
PROBABILITY of 90% - The Cloud, The Cloud, The Cloud
Following up on the above, cloud computing will transition from not just being a business model or a business sector, but will become business itself. Even today there really isn’t such a thing as a technology company and a non-technology company – it is a 20th century legacy misnomer. Everything is technology and soon all of it will be run on the ether.
And we will interact with it with via devices and implants and virtual reality machines that today we can only imagine.
PROBABILITY of 100% - Growthink will be a publicly traded company and will have a market capitalization of greater than $1 billion.*
Let me put this bravado in perspective – as a grizzled consultant, as an MBA, as a risk-taker that has been well-trained to see sell all sides of the story, I am very much aware of the challenges and the probabilities.
But as a CEO, as an entrepreneur, I know the power of faith and commitment, that positive momentum is simply force positively applied. Quite simply, by sticking to our original principles – thinking long term, getting in early with charismatic and dynamic entrepreneurs, taking a LOT of shots, and being open to magic in our lives and our professional endeavors, success is assured.
Thank you, enjoy the rest of your evening, and see you in 2019!"
*Do note that as much as all of us would like it to be this is not an investment guarantee. It is, however, a statement of great confidence in the Growthink business model, in our team, and in our growth prospects.
I just finished conducting an interview on how to be an entrepreneur.
And near the end of the interview I asked an interesting question.
I wasn't sure regarding the response I would get, but I was pleasantly surprised.
The question I asked was, "What do you think makes the difference between a good and a great entrepreneur?"
I was expecting a list of qualities that the great entrepreneurs have.
But instead, entrepreneurship expert Dr. Bruce Barringer, gave a really great answer.
He said, "A great entrepreneur makes a difference in your life."
He went on to explain that the founders of Google have changed his life as he spends so much time on Google these days. But you don't have to be the next Google to be a great entrepreneur.
The founders of the local coffee shop have also changed his life. As have the companies that created the podcasting technologies that he employs every day.
The point is that great entrepreneurs are those that create products and services that truly benefit their customers in such a way that the customers integrate them into their lives.
When I think about my life, I can concur. The entrepreneurs who started the gym I go to, the gasoline station I frequent, and the supermarket where I buy my lunch have done a great job creating products and services that meet my needs. If they didn't, I'd patronize their competitors.
So, as you start and/or grow your business, you should make all of your key decisions with this question in mind: "will this decision allow my company to better serve customers and make a bigger difference in their lives?" As Dr. Barringer pointed out, if you solve the customer need, the money will follow.
To hear Dr. Barringer's answers to all of my questions on how to be a more successful entrepreneur, listen to the full interview on Growthink University here:
Most entrepreneurs fail to raise
venture capital because they
make a really BIG mistake when
approaching investors. And on
the other hand, the entrepreneurs
who get funding all have one thing
in common. What makes the difference?