Investing in startups and emerging companies is the process of identifying and backing the entrepreneurs and executives with the best ability to move efficiently and profitably from ideas to execution, and then from execution back to ideas and then back to re-focused execution. And finding those that do so on all aspects of their businesses -- marketing and sales, operations and finance.
The entrepreneurs to avoid are those overly focused only on ideas or only on execution. Those focused only on ideas often let the desire for the perfect negate the doable. They don’t quickly and rigorously subject their ideas to the rumble and tumble of the marketplace. Here we are referring to the great idea person that never gets around to actually executing upon an action plan.
On the other hand, those entrepreneurs focused on just execution, while at some levels far more effective than the ideas set, are often too slow to react to changing technological, marketplace or competitive conditions. They often define their value offerings so narrowly that they miss adjacent opportunities. Classic examples of this include IBM defining themselves as a computer hardware as opposed to a technology solutions company in the 1980s, thereby ceding the operating system software market opportunity to Microsoft. Or the traditional phone companies in the 1990’s not leveraging their huge patent portfolios to profit in the emerging mobile communications and Internet marketplaces.
Contrastingly, the best entrepreneurs and successful executives are constantly finding the balance between ideas and execution. They are masters at what we at Growthink like to call, “The Business of Ideas.” They are both creative and task-focused, but not too little or too much of either. They make plans and they work them, but they are not slaves to them. They understand that great businesses are inspired by ideas, but their success is counted in cash. They are, in essence, “idealistic capitalists,” believing that the best ideas, the best products, and the best services make the most money.
Entrepreneurs running businesses like these are few and far between for sure. But when it all comes together, legends are born and fortunes are made.Categories:
Stanford psychology professor Carol Dweck in her book "Mindset: The New Psychology of Success," addresses the fascinating issue of why some people and companies achieve their potential while others equally talented and positioned don't.
The key, interestingly, is not ability.
Rather it is whether ability is viewed as something inherent that needs to be demonstrated or as something that can be developed and increased over time, through persistence and experience. Incredibly important for entrepreneurs is the corollary idea to this -- namely that if you take on the belief that ability can and must be developed (as opposed to being something that you either are or are not born with) that great strides in performance are possible.
This "effort effect" is really a key success metric for emerging and middle market companies. In today's globally competitive, fast-changing marketplace, great companies are built not simply via aggregating talented teams, but via aggregating talented teams and creating a corporate culture that rewards thoughtful risk-taking and "learning on the fly" -- thoughtfully incorporating market and competitive feedback into managerial decision-making processes.
Another way to think of the Effort Effect is that business in the 21st century is not a place for resting on one's laurels, resume, or past successes. Rather, it is an increasingly global, level playing field where individuals and companies can rise from the humblest of circumstances, and via effort and imagination, rise to compete and win on the grandest of stages.
And make themselves and their investors a lot of money in the process.
The overriding body of statistical research conducted over the past 30 years shows that the vast majority of all venture, private equity, hedge, and mutual fund manager's investment return performance is worse than that of the market averages.
Stepping back for a moment, one should really be struck by how absolutely amazing this fact really is.
Think about it - here are some of the highest-paid and theoretically smartest people in the world, and yet if you take their advice you will most likely have a below-average performing investment portfolio. A famous feature in the Wall Street Journal for many years had a cross-section of well-regarded investment analysts pick stocks head-to-head against a monkey and a dartboard.
And this randomly-generated portfolio did, on average, appreciably better than the portfolio assembled by the top-shelf analysts.
Now, once-upon-a-time in a more innocent age, these results could be taken in an almost light-hearted manner. Overall stock market performance was generally good enough to overlook the reality that the huge infrastructure of Wall Street brokerages, analysts, and commentators essentially added no value. Over the past 25 years, there was so much money to be had by all as the investment management industry grew from a relatively quiet backwater to the behemoth that it is today, institutional and individual investors did "well enough" to not rock the boat on this issue.
As an aside, I think the main reason for the relative quiet has been that the investment industry has always been truly the ultimate old boy's club. Pension fund managers, the family office guys, the analysts at the big wirehouses and those that ran mutual and hedge and venture and private equity funds all traveled (and still do) in the same social circles. They all went to the same Ivy League colleges. Same golf clubs. Same charity banquets. It has been, for a long time, a nice, lucrative, relatively low stress, insider's game.
But the event of the last 6 months have taught us that those days are over. And from the perspective of believing that entrepreneurs and the operators of companies, and not financial intermediaries, should get the lion's share of a capitalistic economy’s financial rewards, it is about time.
We here at Growthink, as any regular reader of our contributor columns know, are not interested in being sideline commentators or market prognosticators. We'll leave that to the talking heads. Rather, we focus our effort in identifying, in investing in, and in helping startups and emerging companies grow and prosper. Why? First, because we believe that entrepreneurship is by far the greatest force for positive social and economic change in the world today. And second, because in modern, efficient markets, it is ONLY via investing in these companies that investors can consistently earn alpha returns.
Startup and emerging company investing, when done right, offers a unique combination of both value and trading-based fundamentals. Value-based because entrepreneurial companies, on average, offer a far higher probability of revenue, asset, brand, and cash flow growth than larger enterprises.
And trading-based because the equity in these companies can be bought in highly inefficient markets. These inefficiencies are two-fold. First, these companies trade in inherently lopsided markets - there are always a lot more sellers of startup and emerging company equity than there are buyers of it.
Second, because there are so MANY of them - more than 500,000 new companies in the U.S. coming on-line every month (startups) and more than 2.2 million firms with between 5-100 employees (emerging companies), the savvy, hard-working investor can consistently achieve significant information advantage in diligencing these deals.
So, to seek alpha, turn off CNBC. Put down the Wall Street Journal. Or, chuckle-chuckle, tune out Washington. Entrepreneurial America has, and will continue to be, your best bet. And in the process of making a lot of money, you just make help change the world for the better. Enough said.
I recently read a great blog post, from a company called The Name Inspector, about how to name your company or product. Whether your goal is to raise capital or gain the interest of partners or customers, the names of your company and products are critical.
In fact, when we first launched Growthink a decade ago, we started with the name BestBizPlan since we initially focused just on developing business plans. Realizing that we would expand beyond business planning, we changed the name to Growthink to reflect our desire and skill sets in helping entrepreneurs and business owners in growing their businesses via planning, capital raising, marketing, strategy and more.
The Growthink name has a better connotation and helps client, prospective clients, partners and employees better understand and relate to our mission. While I cannot attribute our company's success solely to our name, it certainly has helped us.
So, here are the ten ways for you to create great company (and/or product) names as suggested by The Name Inspector:
1. Use Real Words: These are names that are simply repurposed words. (e.g., Adobe, Amazon, Fox, Yelp)
This category also includes misspelled words (e.g., Digg (dig), flickr (flicker)) and foreign words (e.g., Vox (Latin 'voice').
2. Use Compounds: These names consist of two words put together (e.g., Firefox, Facebook).
3. Phrases: These names follow normal rules for combining words (but are not compounds) (e.g., MySpace, StumbleUpon).
4. Use Blends: Blended names have two parts, at least one of which can be recognized as a part of a real word (e.g., Netscape (net + landscape); Wikipedia (wiki + encyclopedia)).
5. Use Tweaked Words: Tweaked word names are derived from words that have been slightly changed in pronunciation and spelling - commonly derived from adding or replacing a letter (e.g., ebay, iTunes).
6. Use Affixed Words: These are unique names that result from taking a real word and adding a suffix or prefix (e.g., Friendster, Omnidrive).
7. Use Made Up or Obscure Origin Words: These names are generally short names that are either completely made up, or, since their origins are so obscure, they may as well have been made up (e.g., Bebo, Plaxo).
8. Use Puns: Puns are names that modify words/phrases to suggest a different meaning (e.g., Farecast (forecast, fore -> fare), Writely (rightly, right -> write))
9. Use People's Names: using a general name or the name from a personal connection (e.g., Ning (a Chinese name), Wendy's (founder Dave Thomas' daughter's nickname)).
10. Use Initials and Acronyms: names derived from the first letter of each word in the longer, more official name (e.g., AOL (America Online), FIM (Fox Interactive Media)).
This is the first article in our “Bottom Line” series focused on the $787 billion plan, where we analyze the spending bill's significance as a stimulus for U.S. entrepreneurs and emerging businesses.
The figures are mind boggling. A few billion dollars there, $50 billion there. And how about the $165 million from the Troubled Asset Relief Program (TARP) that made its way to the executives of bailed-out AIG in the form of bonuses? The unprecedented amount of public funds being spent to save and spur the economy through recent programs certainly includes a bunch of life vests for those failed companies that are “too big to fail,” but what about for the Entrepreneurial Economy?
The American Entrepreneurial Economy includes 550,000 new businesses started every month. It includes the emerging market: the 2.2 million firms in the US with between 5 and 100 employees. These are almost all private companies and most are less than 15 years old. According to the US Small Business Administration (SBA), small businesses (those with fewer than 500 employees) make up 99.7% of all US businesses, account for 50 percent of the gross national product and create between 60 and 80% of the net new jobs each year. Entrepreneurs are confident – often stubborn – risk takers who take on personal debt so they can follow their dreams of launching new businesses. They collectively make up the American business engine that largely drives innovation, invents new products, and creates new jobs.
We at Growthink work with these companies and business owners everyday and have assisted almost 2,000 in the past 10 years. Due to their impact on the US economy, we sure expect to see incentives for entrepreneurial companies in the stimulus plan, in addition to the $200 billion doled out to some of the largest financial institutions in the US. As a country, we don’t need to “bail out” emerging businesses in the sectors that will drive the economy – young firms that are working to improve healthcare, producing energy efficient products and developing environmentally-friendly pesticides – we need to spur them on.
We are following the distribution of stimulus funding closely. This means we’ve had to spend countless hours trying to figure out what’s in the plan and who’s getting what – the plan is about eight inches thick and leaves most of the funding details to the various governmental agencies that oversee specific sectors. It’s been no easy task. Just because the federal government is giving away an unprecedented amount of money in a record amount of time to save the economy doesn’t mean that it’s not being given away by the same bureaucratic system that existed before the stimulus plan.
In our “Bottom Line” series on the stimulus plan, we’ll focus on just that: What’s the plan's bottom line for the Entrepreneurial Economy? During the Series, we’ll provide concise descriptions of the business opportunities in various sectors and provide insight into how to receive funding. We’ll also provide honest feedback on the results of the program from the perspective of the entrepreneurial community.
So far, we’ve come across reasons to be optimistic. The plan includes programs for entrepreneurial sectors and includes promising opportunities for innovative, growth-oriented firms, such as:
We’ve also seen some early outcomes that give us cause for concern. Of course, there were those AIG bonuses, luxurious private jets flown by executives from failing automakers to beg Congress for bail-out money, and the hundreds of billions of dollars given to the firms that helped get us in this mess in the first place. And hucksters, of course, have recently populated email spam folders with promises of stimulus funding in return for credit card information.
But we’ve also seen frustration on the front lines when we’ve spoken and worked directly with leaders of promising businesses in those targeted sectors. How do I apply for the funding? Am I eligible? Where do I even find the information?
Of course, part of the confusion and a lack of clear information are inevitable – current systems to notify businesses of the methods to access these funds are inadequate for such a surge in new programs. But the confusion is largely due to the same complaints that start-ups and small businesses have expressed about government “support” programs for decades: It’s difficult to even figure out what’s available and how to apply for the resources, and continues to be in the age of the Internet.
During the next two weeks, we will provide those answers on a sector by sector basis. No fluff, no platitudes, just the Bottom Line for your business.
The next article in our Bottom Line Series will focus on stimulus funds available for entrepreneurial companies in the healthcare sector.