It is hard not to laugh when I hear tired old refrains like "Nobody reads business plans anymore" or "In a world of lean startups, there is no time for strategic planning."
Why do otherwise intelligent and well-meaning businesspeople say and think things like this?
Well, for starters as human beings we all struggle to emotionally grasp the impact of the history not made, of the things that don't happen.
You see, poor strategy does not manifest itself as much in high profile flame-outs as perhaps it did in days of yore (see Pets.com, eToys, etc.) as it does in nothing of note ever being accomplished.
As in companies that grow slowly, if at all.
And make no profits.
And are led by entrepreneurs whose talent and work ethic doesn’t translate into the kind of pay and lifestyle they seemingly deserve.
Missed opportunities, lost years, unrewarded work.
These are the real but hidden costs of poor strategy.
Now, the other big misconception around strategic plans is confusing the “form of deliverable” with the process itself.
Again, this is a case where otherwise smart and well-meaning businesspeople make an obvious, but critical error: They equate the plan with a physical document.
And when done poorly, more often than not a document that is only tangentially connected to the “real business” it supposedly represents.
Now, the good news is that the literature is filled with great best practices - tested over thousands of businesses - as to how to lead strategic planning processes that are connected to the actual marketing, sales, operations, and finances of a company.
Even better news: Inexpensive, effective, and everywhere accessible business software-as-services are connecting the dots between “big” strategy and the “small” to do’s, tactics and action items at the living, breathing heart of a business.
Tools like CapitalIQ, Simplycast, The Resumator, Box, Grasshopper, Wufoo, Smarsh, IfByPhone, SnapEngage, Docusign, Hootsuite, Infusionsoft, and Interspire that automate traditionally laborious and repetitive business functions.
This is where 21st Century Strategy lives.
Now, as for those who prefer to cling to their tired clichés, well I guess they can always reminisce about how things were back in the 20th Century.
But for those who need more than nostalgia to sustain them, there has never been a better time to win by doing strategy right.
P.S. Like to demo our dashboard offering? Then Click Here to learn more.
I had a good fortune this past week to moderate a strategic planning session with the CEOs of seven of the largest and most well respected highway construction firms in the country.
These thoughtful executives meet on a regular basis to share strategies and best practices, to compare notes on equipment and technology systems, on asset and equipment management and perhaps more than anything else on leadership, management, and the “people” development within their organizations.
Above all else, it was the conversations around this last point that struck me as to why these executives led companies that, on average, had been in business for more than 60 years – pivoting and weathering various and multiple storms in their notoriously cyclical industry where the overwhelming majority of their competitors had not.
The discussion brought to mind one of the greatest and most under-rated business books of all time – Arie de Geus’ The Living Company, where the author shares a lifetime of research and study as to why some companies and organizations “live…through the upheaval of change and competition over the long haul.”
As de Geus’ so eloquently writes:
The idea of a living company isn't just a semantic or academic issue. It has enormous practical, day-to-day implications for managers. It means that, in a world that changes massively, many times…you need to involve people in the continued development of the company. The amount that people care, trust, and engage themselves at work has not only a direct effect on the bottom line, but the most direct effect, of any factor, on your company's expected lifespan. The fact that many managers ignore this imperative is one of the great tragedies of our times.
This inspirational and almost idealistic point may seem contestable in our age so dominated by tech high-flyers that seem to have gained their prominence through such a powerful combination of IP prowess, network effect, and first-mover advantage that really any company culture and any collection of reasonably talented individuals could run them well.
For a short time, maybe yes.
But to sustain themselves over periods measured in decades, to transition leadership and management through a generation (at the meeting I moderated, there were two third generation businesses, and one fourth generation one) requires a robust, flexible, and truly “living” culture.
And that in turn requires something we don't talk nearly enough about in business anymore – leadership.
The kind of leadership that once was the obvious expectation for persons granted the blessing and privilege of being at the head of an organization of any size.
The type of leadership that does not sacrifice the long-term for the sake of the short-term.
The type leadership whose goal is not “an exit,” but rather a contribution - to shareholders, to employees, to customers, to community.
Leadership that knows that a handshake and one's word is a far better and more appropriate form of agreement between gentlemen and gentlewomen than a contract can ever be.
And leadership that recognizes that to survive and prosper through four generations is both an amazing accomplishment, and a charge to keep.
The charge to not only match the good and hard work of those that have gone before us.
But given the opportunities afforded by our technological and global age, to far exceed them.
In growth and profits, absolutely.
But, in character, principle, and doing the right thing too.
In my posts over the past few weeks, I have talked about the power of business intelligence dashboards, and why companies that use them enjoy triple the revenue growth and double the profit growth of companies that don’t.
This is driven by the simple two facts that a) businesses today collect more data than ever before and b) wading through and making sense of it all is overwhelming as this data is collected and stored in multiple locations, including in CRM and ERP systems, in accounting software, in advertising and marketing platforms, in social media sites, and so on.
So it is the executives who quickly access this data - and connect the dots between it all - that incrementally but inexorably make better strategic and tactical decisions, gain competitive advantage, and win.
Intrigued, but not sure exactly how an executive dashboard would work for your business?
If so, you’ve come to the right place, because my team and I have created a special webinar where I share best practices as to how today’s best run companies use executive dashboards to:
• Identify the most important business metrics to track
• Develop real-time visibility into their organizations
• Improve employee performance
• Make more intelligent business decisions
• And ultimately grow sales and profits
Importantly, this webinar will neither be an academic lecture nor a sales pitch in disguise. Rather, it will be an intense hands-on workshop where I will share key tips and tactics as to how to harness the power of executive dashboards in your business right away to grow revenues and make more money - while working less and having more fun.
Sign Up Now
Note that to promote interaction, we are limiting this program to no more than 35 attendees. So click below to register before the spots fill up!
Look forward to your attendance!
Last week, I wrote about the power of business intelligence dashboards.
How, for the first time, smaller businesses can harness the power of big data to more efficiently and profitably manage their companies.
Some readers expressed skepticism that this "stuff" actually works.
That it is just more "noise” that causes entrepreneurs to get “lost in the weeds” versus long-term thinking and planning.
There is some truth to this.
Heck, “Big Data” at its worst is probably best personified by Wall Street “quant jocks” who equate positive expected value "bets" with larger, more foundational truths of right and wrong, and of good and bad.
To these concerns, let me offer a few suggestions as to how to best utilize business data to support, but not drive, leadership and managerial decision-making.
The first point is that for the vast majority of small businesses “getting lost” in the data is the least of their concerns.
A far bigger one is simply analyzing anything more than the barest minimum of balance sheet - "i.e. How much money is in the bank?" and profit and loss statement - i.e. “What were our sales last month?” data.
And when broader data, like the number of incoming leads, sales proposals, average call hold time, marketing spend per action, e-mail open and click-through rates, is analyzed…
…so much of it is either incomplete or just flat-out incorrect to make doing so an exercise in futility.
AND the data that is complete and accurate sits in so many places, Excel worksheets on the sales manager's computer, deep in a little understood (and used) CRM, in the reporting functionality of software as services like Grasshopper, IfByPhone, Constant Contact and Google Analytics to name just a few…
…that a way too high percentage of the time and energy set aside to analyze it is outright wasted in simply accessing the reports from the data sources that house it!
The simple answer to these challenges is to utilize a best-of-breed business intelligence dashboard that:
• Automatically collects and updates all the data in one easy to access place;
• Has alerts built-in to flag incomplete or way-out-out-the ordinary data; and,
• Is arranged and presented in a visual and formatted way that works for the executive reviewing it.
But it goes deeper than this.
You see, leading and managing a business based on proper data collection and analysis is no longer a choice - it is a necessity.
Because all of our best competitors are doing it.
And doing so along with proper and appropriate strategic repositioning as the consistent and correct interpretation of the data allows, affords, and demands.
Or, as David Byrne of the Talking heads once so famously said “This ain't no party…this ain't no disco…this ain't no fooling around. “
You see, when it comes to data-driven decision-making, it has become a matter of going big or staying home.
As in admitting that one is really not that serious about growing and sustaining a business of lasting value - one agile enough to adapt and evolve in the face of technological and marketplace change, and of competitive threat.
Now, I don't believe this.
No, the best entrepreneurs I know are as serious as they can be about not just surviving but thriving in this massively opportunity-filled world of ours.
Just take it one step, one click, one API integration at a time.
Sooner than you think, your business will be running more responsively, more nimbly than ever.
Then watch the profits follow.
To Your Success,
P.S. Like to demo our dashboard offering? Then Click Here to learn more.
Last week, I wrote about the strong ambition across the globe to have a "Silicon Valley of One's Own," and to replicate the otherworldly innovation of a region that has produced more than 75% of the World’s Unicorns - technology companies started since 2003 that now have valuations of more than $1 billion.
Then, on Monday I went deeper into the drivers of this remarkable concentration along with the macroeconomic drivers of today’s very hot IPO and M&A Markets: long-term low interest rates, the $1.5 trillion in cash held by big tech. companies and private equity firms seeking deals, and venture investor’s now almost universal realization that only via extremely large exits they obtain alpha.
All of this is well and good, but what we found out was of much greater interest was to look at the common attributes and mindsets of these unicorns and their prospective investors and then how to integrate these elements into YOUR entrepreneurial and investment approach, especially when:
• As an entrepreneur, you know that you don’t have a business with “billion dollar potential”
• As an investor, you are more frightened than excited by the “big outlier” return phenomenon
We put it all together and boiled it down to the most essential and actionable insights, and are going to share them via webinar on Thursday at 7 pm ET / 4 pm PT.
Do sign up now via this link: https://www2.gotomeeting.com/register/622073466
I look forward to your attendance and feedback!
Tech. Exit Trends in Today's Hot Markets
Monday, September 29th
My Wednesday column as to tech. opportunities far from Silicon Valley was well-received, but frankly left a lot of folks wanting more.
Mostly what was asked was a variant of a common theme: How can I apply the wisdoms and best practices of the Uber - successful Silicon Valley entrepreneurs and investors to my business, or to the one I advise, or are invested in.
It was almost a hope against hope, something that most unfortunately are almost too scared to dream about…
...Having / being involved with a unicorn of one’s very own.
How important is this? Well, given that last week's $25 billion Alibaba IPO was greater in size than 2014’s other 154 IPOs - combined - even slightly improving one's "Unicorn Landing" odds has enormous expected value.
So I and my research team collected and analyzed some of the best research on the topic, from the Kauffman Foundation, NVCA, PricewaterhouseCoopers,Dr. Robert Wiltbank, Harvard University, and TechCrunch’s Aileen Lee, including:
- Categorizing the common attributes among 39 companies started since 2003 that are now valued at more than $1 billion
- The relative likelihood of success of enterprise (B2B) versus consumer - facing (B2C) business models
- How the great liquidity in today's market, with some estimates showing more than $1.5 trillion in cash being held by strategic tech. buyers and private equity firms, is impacting deal modeling and valuation analysis (all the way down to the startup stage)
- How and if yesterday’s report from Harvard University that for their endowment VC return for FY 2014 was 32.4% (compared to a 15.4% return for its total portfolio and the S&P 500's 21.38%) was an outlier, a harbinger of an over-heated market, or a reasonable return expectation given the high variance and the illiquidity of the asset class?
We put it all together and boiled down the most essential and actionable points, and are going to share our findings via webinar on Monday at 2 pm ET / 11 am PT.
Do sign up now via This Link.
I do look forward to your attendance and feedback!
I had the good fortune to moderate a panel at last week's IBA Silicon Valley from Start-up to IPO / Exit Conference.
With entrepreneurs, venture capitalists, attorneys, and investment bankers from over 18 countries represented - from places as far afield as Switzerland, Singapore, and Spain (and Santa Monica and Silicon Valley!) - it was a truly international gathering.
Predictions were shared ranging from the outcome of the Scottish independence vote (incorrect) to Alibaba’s 1st day’s trading closing price (correct!), to animated discussions on the differing perspectives on Internet privacy in the U.S. and Europe.
But, the main thrust of the conference call was quite simple.
It was an inquiry, especially from the conference’s international attendees, as to how and why such an incredibly high percentage of the tech. start-ups that turn into “Unicorns” - businesses with exits via IPO or acquisition of greater than $1 Billion - emanate almost exclusively from the United States, and far more specifically from Silicon Valley.
How concentrated is this phenomenon? Well, as shared by Doug Gonsalves of Mooreland Partners, more than 70% of these Unicorns - names like Dropbox, Airbnb, Facebook, Splunk, Uber, Waze, LinkedeIn, and Palantir - were born and are headquartered in a “30 mile circle around San Francisco Airport.”
The “top down” effect of this cannot be overstated.
These huge exits and investor wins drive the fact that the Bay Area - with less than 6 million people - ingests close to 50% of all U.S. venture capital funding, which in turn is four times as much as in all of Europe.
This in turn drives an as large disparity in the number and quality of tech. startups and innovation emanating from various points on the globe.
Now, my perspective on this concentration has been mostly as an American businessman, as one that lives and works in Los Angeles (which may seem close to Silicon Valley, but to those who know both places can attest are worlds apart).
But visiting with entrepreneurs and executives from Europe, Israel, India, Singapore, and beyond brought the matter into much sharper relief.
Gil Arie of Foley Hoag shared the Israeli perspective - one where the best tech companies there as often as not are making the simple and powerful decision to move themselves (and their families) from across the globe for a Valley presence.
Sure, these companies can (and prefer) to build engineering teams in the lower cost, talent rich environs like Israel, India, Eastern Europe, etc., but for the “top of the pyramid” stuff - strategy, product design, capital formation and funding – being in the Valley feels like a necessity.
But expressed also was a strong counter-balancing sentiment, a deep desire to prove that world and industry leading technology companies can be born and grown far from Sand Hill Road.
And surely it will be so.
For this ambition - always in abundance in the world's best entrepreneurs - to build something that is theirs will eventually push back on the Valley's admirable yes, but also unnatural hegemony on global tech innovation and wealth.
And the great thing is that it will be far from a zero sum game.
Just think about it - if even a small fraction more of the world's Seven Billion People could live, work, and dream in a culture as forward and possibility - filled as Silicon Valley's…
…Anything is possible, is it not?
The typical wisdom regarding the appropriate financing course for a new company goes as follows:
1. An entrepreneur starts a company in classic "bootstrap" fashion - with a combination of sweat equity and their own financial resources. This usually consists of personal savings, credit cards, and small loans from relatives (Mom, Dad, Uncle Bob, etc.).
2. Through connections, or through a chance meeting at a networking or social event, an angel investor hears the entrepreneur's story, likes them and their technology, and on the spot, writes a check to provide the company with its first outside financing.
The angel then introduces the entrepreneur to his or her wealthy friends and business connections who, based on the good reputation of the referring angel, also invest.
3. With this seed capital – more often than not totaling between $100,000 and $1,000,000 - the company accomplishes a number of key technical milestones, gets a beta customer or two, and then goes on a "road show" to venture capitalists around the country for capital to “scale” the business.
This venture capital financing - usually between $3 and $10 million - is the first of a number of rounds of outside investment over a period of three to five years. With this capital, the company propels itself to $50 million+ in revenues, and to either a sale to a strategic acquirer or to an initial public offering.
4. With the exit, the entrepreneur and the original angel investors become fantastically rich and are lauded far and wide.
5. The cycle is then repeated - with the original angel investors now joined in their investing by the once impoverished but now wealthy entrepreneur.
6. All live happily ever after.
It all sounds wonderful and it is. The only problem is that it almost always a fairy tale.
What really happens is more like the following:
A. The entrepreneur pours their lives, their fortunes, and their sacred honor into their company- at great personal sacrifice to them, their families, and everyone connected to the enterprise.
B. A "black swan" investor appears out of the blue and backs the company - less impressed by the technology than by the talent, desire, and grit of the entrepreneur.
Technical progress and market traction are much slower and cost a lot more than anticipated. There are a lot of dark, hard days.
C. There is considerable internal debate around whether or not to solicit and/or accept outside venture capital. For most companies, it is simply a non-starter. Management has the wrong pedigree, is geographically undesirable, competes in the wrong industry, and/or has a business model that lacks "scalability credibility" with the venture community.
D. Usually unbeknownst to all, the decision around pursuing or accepting a venture capital round will be the most important factor in determining the investment return for the founder and the original angel investors in the company.
But here is the key – contrary to popular wisdom it is negatively correlated.
Yes, you heard me right – multiple research studies, including from the Kauffman Foundation, have shown that when you remove a follow-on venture capital round from a founder or angel investor-funded company, that expected returns skyrocket.
This is very counter-intuitive but critical insight for emerging company entrepreneurs and those that back them to grasp. It is driven by the following:
• The Best Metric for the Health of a Company is Cash Flow. By definition, companies that receive venture capital cannot fund their businesses from operations, and thus need to seek outside capital.
This leads to a lot of negative selection with venture capital - backed companies – whereby the sample of companies that need venture monies are by definition weaker companies.
• Venture capitalists Have Very Different Objectives than Angel Investors. Venture capital funds are usually 7 - 10 year partnerships whereby the general partners - the “VC” - manage the capital of the limited partners, usually institutions (endowments, pension funds, etc.).
At the end of the period, all profits and proceeds are distributed to the various partners on a pre-determined split. These splits are normally such that the VC needs to obtain a “highwater” return for their limited partners before they, as the general partners, see any return.
In practice, this creates a significant incentive for the general partners to hold on for an extremely large investment return, and to be reasonably indifferent regarding smaller (less than 3x returns).
As a result, the VC will often block a portfolio company from harvesting a very attractive, but not home run, return.
• Venture capitalists Cut Tough Deals. Venture capitalists for the most part are very nice guys and passionate about entrepreneurship, but they are not shrinking violets. And they hire very aggressive securities attorneys to represent their interests.
This combo all too often leads to various forms of deal unpleasantness, like cram-down rounds, liquidation preferences, and change of control provisions, which in turn, often lead to unhappy founders and angel investors even in somewhat successful exits.
My suggestions for the investors seeking emerging companies to back?
First, look for "one and done" financings - companies that need just one round of outside capital to propel them to positive cash flow.
Second, look for companies that have short and realistic liquidity (exit, IPO) timelines.
And third, don’t get star-struck by big venture capital interest in a deal. It is often a double-edged and very sharp sword.
On the cover of this week’s Fortune Magazine is PayPal founder and famed technology investor Peter Thiel. Within is an awesome 4,000+ word opus on Thiel’s views on technology, investing, education and innovation.
Thiel’s career and successes span almost the entirety of the Internet Age - in 1998 he co-founded PayPal, sold to eBay in 2002 for $1.5 billion.
More impressively, the managers and engineers that Thiel attracted to PayPal went on to become some of the most famous entrepreneurs of our era – including at least seven that went on to build companies valued at more than $1 billion: Tesla and SpaceX (Elon Musk), LinkedIn, (Reid Hoffman), YouTube (Steve Chen, Chad Hurley, and Jawed Karim), Yelp (Jeremy Stoppelman and Russel Simmons), Yammer (David O. Sacks), and the data-mining company Palantir (co-founded by Thiel himself).
This recognition for entrepreneurial talent has also made Thiel one of the greatest investors of all time.
His prescience is of course best highlighted by his most famous investment, when in 2004 he gave the 20-year-old Mark Zuckerberg, a Harvard sophomore at the time who had never held a steady job, $500,000 in exchange for 10.2% of the company then called “Thefacebook.”
That investment has so far netted Thiel more than $1 billion in cash, and is the highest profile of a string of amazingly lucrative stock picks, a list that includes the aforementioned LinkedIn and SpaceX, but also tech high-flyers like Spotify and Airbnb.
While lately Thiel has become somewhat infamous for his controversial views on anti-aging (Sens Institute), Libertarianism (Seasteading Institute), and education (20 under 20), let this not distract from the fact that we can all learn a lot from his astoundingly successful approach to investing, technology and entrepreneurship.
A few of my favorites are:
1. Run With the Right Crowd. Starting with the PayPal Mafia, with his teaching of a famed Stanford Computer Science course, and his ongoing writing, speaking, and networking in Silicon Valley and beyond, Thiel travels in the rarefied air of next generation technology ideas and technologies. And because of this, he meets great technologists and entrepreneurs and sees deals. Many are duds of course, but a few are world-beaters like the list above.
2. Think AND Act. As PayPal, Facebook, LinkedIn, Airbnb and so many others so aptly demonstrate, Thiel “gets” key technology and investing precepts like scalability, switching costs, double feedback loops, customer acquisition costs, minimum viable paid options, lifetime value, and many more.
And he acts on what he thinks – through founding and investing in companies with these concepts inherent to their business models.
3. Get Lucky. In so many ways, Peter Thiel’s successes are emblematic of the business religion of our technology age: LUCK.
Books like Outliers, the Black Swan, Fooled by Randomness, and the Age of the Unthinkable profess on it. Successful technocratics like the PayPal mafia toast to it. Aspiring entrepreneurs who seek their name in lights pray to it.
And the average man unwilling to step outside of his box gets none of it.
Peter Thiel, from his earliest days, has stepped out of the box and has thought for himself and challenged others do the same.
He has acted on those thoughts and beliefs through founding and investing in companies that in retrospect might look like easy calls, but at the time were shrouded in considerable doubt and passed over by almost everyone else.
With this way of thinking and doing, Peter Thiel has channeled the Romans and their famous ode to luck - "Fortes Fortuna Adiuvat", "Fortune Favors the Bold."
The question, of course, is will you?
P.S. Looking for Opportunities Now? Each year, Growthink reviews hundreds of emerging company opportunities and selects those with the best management teams, market opportunities, and financial prospects.
To learn more about opportunities we are following now, Click Here.
Michael Raynor’s great book - "The Strategy Paradox" - should be required reading for any investor or executive seriously interested in understanding the real connection between risk and return in the modern economy.
Raynor’s basic premise is that almost everyone - because of how human beings are fundamentally wired – over-rate the consequences of “things going bad” and consequently default to seemingly safe strategies way too often.
Raynor goes on to make the point that while this may be perfectly fine from a personal health and safety perspective, it is disastrous business and investment strategy.
The reasons, he cites, are both subtle and obvious.
The obvious reasons revolve around classic “agency” challenges - namely that there are a different set of incentives in place for operators versus owners of businesses.
The owners - i.e. the shareholders - main goal is investment return. As such, they usually evaluate strategic decisions through the dispassionate prism of expected return.
The operators of businesses, in contrast, usually act as who they are - namely highly emotional, emphatic, and personal-safety focused human beings.
And while, as professionally trained managers, they are of course aware and focused on expected value and shareholder return, their analysis of those rational probabilities often get overshadowed by more "human" concerns.
Like the stable, comfortable routine of a job. Of co-workers. Of a daily, comfortable work rhythm.
And the result of this natural human bias toward more of the comfortable same is executive decision-making that defaults way too often to the seemingly (that word again) conservative option.
Now as for why this conservatism is a huge strategic problem, Raynor delves into the concept of survivor bias and how it pertains to traditional studies of what factors separate successful companies from the unsuccessful ones.
Survivor bias can be best illustrated by all of those statistics that too many of us unfortunately know by heart regarding the abysmally low percentage of companies that make it through their first year of business, the number that make it to five years, to 10 years, to a Million, Ten Million, a Hundred Million in revenues and so on.
Now most of us naturally interpret these statistics as to mean that the leaders of these failed businesses were too aggressive, that they took too many risks, made too many big bets that didn’t pan out.
But Raynor's research actually demonstrated the opposite.
As opposed to Jim Collins’ famous (and famously flawed) Good to Great analysis, Raynor found that when the full universe of companies were surveyed – not just those that survived – that there was a direct negative correlation between those that didn't make it and the relative conservatism of their leaders and their pursued business strategies.
Or from the other perspective, the successful businesses were led and managed far more so by leaders who could be described in those seemingly pejorative terms - "aggressive," "risk taker," "bet the house" types.
So what should the entrepreneur interested in building a big business do? And what should the investor looking for executives to back look for?
Well, to quote the title of a famous self-help book from many years ago, "Feel the Fear…but Do It Anyway."
Accept that as human beings, we are wired to be afraid.
BUT to prosper in in our modern age we must step out and into the brave new world of modern possibility, opportunity, and wealth.
And leave fear in the hunter - gatherer caves from which it came and where it belongs.