Bootstrap Busines A Step- by- Step Business Survival Guide ver 2 by Richard Christiansen

Bootstrap

Business

A Step-by-Step Business Survival Guide

Rich Christiansen & Ron E. Porter

Wizard Academy Press Austin, Texas

Copyrights Copyright ÂŠ 2009 by Rich Christiansen, Ron E. Porter and Wizard Academy Press. All rights reserved. Printed in Canada Permission to reproduce or transmit in any form or by any means, electronic or mechanical, including photocopying and recording, or by an information storage and retrieval system, must be obtained by writing to the publisher at the address below: Wizard Academy Press 16221 Crystal Hills Drive Austin, TX 78737 512.295.5700 voice, 512.295.5701 fax www.WizardAcademyPress.com Ordering Information: To order additional copies, contact your local bookstore, visit www.WizardAcademyPress.com, or call 1.800.425.4769 Quantity discounts are available. ISBN: 978-1-932226-72-0 Library of Congress Number: 2009922295 First printing: March 2009 Second printing: April 2009

Contents Acknowledgements

Introduction Rich’s First Thoughts

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Chapter 1: GRIT! Chapter 2: Juice to the Light Bulb Chapter 3: Power Tools Chapter 4: Got Gas? Chapter 5: The Rules Chapter 6: Boring! Chapter 7: Fish & Partners Chapter 8: Avoiding Cow Pies Chapter 9: I Never Want to be a Doctor Chapter 10: Motion or Momentum? Chapter 11: Climb High, Sleep Low Chapter 12: The Heart and the Head of the Entrepreneur Chapter 13: Fire, Fire, Fire, Aim Chapter 14: Act Big, Behave Small Chapter 15: Building a Killer Team Chapter 16: The Holy Grail Chapter 17: Embrace Accountability Chapter 18: Dancing with the Devil Chapter 19: No Exit Strategy?

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Rich’s Last Words Contact Information What is Wizard Academy?

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We had no idea at the outset that this book would take so long to complete—two years! Granted, we’re tech guys, and our world moves at lightning speed. Two years is a lifetime in technology. But in the new (to us) world of publishing, well, things move a bit slower. Writing the content, fleshing out the principles, connecting the principles to relevant stories, and distilling the take-aways—though fun work, this was sometimes pretty grueling. Interacting with and seeking out publishers, agents, and top-shelf editors added additional lightyears. Nonetheless, the book is now in print and we are thrilled with the outcome. We express our sincere appreciation to all who contributed to Bootstrap Business, many of whom are mentioned in the book itself. But we wish to make special acknowledgement of two fine editors, even advisors: Peter V. Hilton and Jim Bell. Without their careful attention and thoughtful interaction, this work would still be a dream. Lastly, we acknowledge two of the most important people in our journey: our wives, Gaye Christiansen and Debbie Porter. They have proven to be excellent sounding boards, providing continual encouragement and, at times, exacting feedback. With their help, our editors’ advice, and contributions from many associates, we are now proud and excited to give you Bootstrap Business: A Step-by-Step Business Survival Guide

Introduction Bootstrap Your Way to Success Most books on entrepreneurship focus on obtaining venture capital and writing a business plan. They are sterile, academic, and non-actionable, unless a person has access to considerable assets at the outset. ”Bootstrap Business” grows out of a proven process for taking $5,000 and pulling yourself up by your bootstraps to become a successful company. “Bootstrap Business” is not a get-rich-quick scheme. It is not an enticement to attend a “free” seminar where you will be goaded into buying products and services guaranteed to make you millions. It is a self-contained book that will explore the authors’ experiences in launching companies that have failed and companies that have generated millions in returns. And it is a book that will show readers the steps they must follow to do the same. Among its many unique features, “Bootstrap Business” encourages people to build a business from where they are: often on the side, as they continue their full-time employment and strategically plan their transition to full-time business ownership. A Recipe Book for Success Rich has mentored countless would-be entrepreneurs, in addition to starting almost 30 of his own businesses. These experiences have revealed a pattern of questions and processes. “Bootstrap Business” sets forth powerful principles from real people who have bootstrapped businesses. It organizes those principles 7

in such a way that they are both motivational and as easy to follow as a trusted family recipe. True Entrepreneurial Freedom In these crazy economic times, the greatest job security available to an individual is to own a business. One of the major drivers for most people is the desire to become their own boss. “Bootstrap Business” clarifies that entrepreneurship does offer the freedom so many seek, but that it also demands accountability. Most important, the book teaches how to balance the demands of business ownership with personal relationships. Chapter Format Each chapter has three sections as described below: 1. Porter’s Preface – Introduction to the chapter and the concepts taught within the chapter. This introduction is set up and written by Ron E. Porter 2. Chapter Body – Rich Christiansen teaches the principles and key points of the chapter using engaging stories and real-life experiences. 3. Porter’s Points – Ron wraps up each section by articulating actionable take-away items.

Rich’s First Thoughts Get a Life! At the age of five, my workday started in the early twilight hours of the evening. I would drag my parents’ faded garden hose out and let the cold mountain water loose on the front lawn. A thorough soaking was all I needed to procure my product. I then crawled across the saturated lawn, pulling reluctant night crawlers from their earthy habitat. My marketing manager, Mom, helped me paint a huge yellow sign depicting the happiest, juiciest worm imaginable. A large red arrow worthy of any Las Vegas casino pointed potential customers to our house. As advertising demands required, I hauled the sign down to the canyon road in the morning and propped it up against an old cottonwood tree in an effort to attract the attention of anglers on their way to favorite fishing holes. I don’t recall which aspect of the venture was more invigorating: digging out worms or collecting the 50 cents for a dozen night crawlers. Regardless, before my sixth birthday I had swallowed the bait of being my own boss—hook, line, and sinker. At the age of 32 I found myself working as the General Manager of USA Operations for Mitsubishi Electric, PC division. My MBA and my BS in Electronic Engineering Technology were behind me. Working my way up several corporate ladders, I experienced big wins with Novell, Mitsubishi Electric, and About.com.

Along the way I discovered my natural aptitude for leading teams, particularly while kicking off new and innovative technology products. These successes filled me with a sense of accomplishment, and I valued the knowledge gained from the experiences. However, I grew increasingly dissatisfied with the politics and red tape and felt held back by the rigid, unresponsive nature of big corporations in general. At a fundamental level, I craved facing the market forces eyeball to eyeball. Even amid my success in the corporate world, I eventually came to see that corporate life had begun to demand more than it offered. I knew a decision had to be made. I knew that it was time to return to my roots. That it was time to get a life! Build a Business Since completing my MBA, I have founded or cofounded 27 businesses. Each of these ventures was bootstrapped with less than $10,000 of initial capital. Nine have been outright failures. Seven have been moderately successful, four are in process, and seven have become multimillion dollar businesses. Countless times, while launching these companies, I have wished for a reference book or mentor to help me avoid the big mistakes. Fellow entrepreneurs were happy and willing to help with advice, but none could completely articulate the factors that had led to their success. In my search for the right reference guide, I found numerous, well-written books that were either bulging with theory or focused on high-end businesses withÂ startup budgets of over a million dollars, but nothing credible for the person with a dream, unbridled ambition, and only a few thousand dollars.

Most people who aspire to start their own enterprises cannot cobble together the millions such books suggest are needed to launch a business. Understanding that, and drawing from my own experiences of bootstrapping businesses, I outline with Bootstrap Business how it is that a person can take $5,000 and build it into a multimillion dollar business. When my partner and coauthor, Ron E. Porter, and I first started writing this book, we decided to create a company as a test case to prove the principles we are setting forth. We each came to the table with $2,500 and started Everest Web SEO, a company built around search engine optimization. Within the first few months, we had won deals with S&K Menswear, Warner Music Group, Franklin Covey, Shop At Home, and The New York Times. During these early months, we generated over $70,000 in total sales, with net profit margins of approximately 85 percent. Six months into the business, we merged with a New York online marketing firm, Interactive Acquisition, forming a new company, CastleWave, LLC. At the end of seven months, our monthly revenue was at $70,000 a month, with a $40,000-per-month net profit. At the time of making this book available, we just completed the first year of business. We now have sixteen employees. As of October 2008 CastleWave is generating approximately $110,000 of revenue per month at over 65 percent net margin. All indicators point to this business growing at an accelerated level. Bootstrap Business combines the art form that is found in any entrepreneurial venture with practical, step-by-step guidelines that a person canâ&#x20AC;&#x201D;and really mustâ&#x20AC;&#x201D;follow in building a successful enterprise with a minimal amount of capital. We share real-life examples, followed by extracting the steps you must 11

be mindful of in building a business. The book is at once, engaging, entertaining, and motivating, even as it leads a person through proven formulas that lead to success. Control Your Destiny I started my career thinking that a corporate job would provide both security and financial stability. As I was climbing the corporate ladder at Novell, I was convinced that I would pay off my home and retire with the stock options this burgeoning company offered me. By the time I left, those options were worthless. I did learn a lot of lessons on someone else's dime, but I also made a lot of other people rich. One year, I received an end-of-the-year bonus of $10,000. I thought this was a lot of money until I learned that my boss had received a $1-million bonus—off of my work! I found the same thing to be true with others I knew. One friend opened the Latin American market for his company, growing that market from $0 to $50 million in four short years. His reward? A four percent raise! I also witnessed, over and over again, that corporations simply have no loyalty to their employees—only to their shareholders. I came to realize that as an employee, the idea of security in companies large and small is a myth! It took several years, but I finally discovered that the best path to taking control of my financial and personal future was to create my own businesses. Today, no one can lay me off. I receive the direct rewards of my own success. I also get to decide how much risk I want to take. In the past I had to be ready 12

to fly across the country or the world at a moment’s notice. Now I decide when and where I travel. I used to have nine vacation days a year. Now I determine when and where I work. Do I work any less? Definitely not—in fact, I probably work more. But I control my work instead of having my work control me. As a result, I have the ability to enjoy the more meaningful and important things in my life—and to do it on my terms. Bootstrap Business goes beyond simply telling a person how to start a business; indeed, it promotes the values of achieving balance, reaching for purposes higher than amassing wealth, and investing time and resources into those parts of a person’s life that matter the most.

1 Grit! Porter’s Preface Do you have a fire in your belly and nerves of steel? Are you determined enough to take $5,000 and build it into a multimillion dollar business? Rich and I will be the first to tell you that without fire, nerves, and determination (some call this grit), you won’t weather the storms that inevitably accompany entrepreneurship. It is not enough to merely ask yourself tough questions; you must be willing to answer them honestly and act accordingly. Here are a few to start with. How’s your appetite for entrepreneurship? In this chapter, Rich explains that entrepreneurship isn’t about having all the talents and skills yourself; it’s about how bad you want it. You simply need to assess the attitudes and aptitudes you have, and then either develop the ones you’re missing or partner with people who have them. This, in large part, is how Rich’s and my partnership came to be. We offer distinct but complementary skill sets and talents, but we are the same in one respect: we are hungry for success and we expect to see it. Does the thought of bootstrapping a business strike fear into your heart and mind? If so, good! Fear can be an incredible motivator. A little terror 15

never hurt an entrepreneur; you simply need to learn to turn terror into triumph. What about your day job; should you stay or should you go? A lot of people are tethered to the corporate claim that life in the world of big business is more stable than their own venture. When the time comes, are you prepared to cut the lifeline? How will you survive? The grim fact is 50 percent of new businesses donâ&#x20AC;&#x2122;t make it. And if yours goes down, it can take your personal life with it. Itâ&#x20AC;&#x2122;s all about timing. Liberation from the corporate myth is exciting, but you donâ&#x20AC;&#x2122;t want to jump out of the airplane without your parachute on. In the early stages of bootstrapping a business, you might want to keep that day job around for a while. Managing all the demands on your time will take planning, but you can do it.

Know Yourself When someone comes to me stating he or she is going to start a business, here are some of the questions I ask: • What are the major reasons you want to be an entrepreneur? • Do you care what others say about you? • Does the prospect of a month (or more) with no paycheck panic you? • Do you know, within five dollars, how much money is in your checking account right now? • When was the last time you had a new business idea? There are thousands of questions you could ask yourself, but these are just a few that give you a taste of how you’ll react to entrepreneurship. To help you further assess your aptitudes and inclinations, Ron and I have developed the Entrepreneurial Appetite Test, or EAT, designed to help you address your fundamental character and your appetite for entrepreneurship. This test can be found at www.bootstrapbusiness.org If you don’t feel ready quite yet, don’t despair. I have always had the appetite for entrepreneurship, but it took me years to develop the characteristics that allowed me to overcome the fear of launching my own full-scale endeavor. Thinking back, I can identify three critical moments in my life and career that forged my entrepreneurial character. While working for Novell, I had a brilliant manager named Vish Vishwanath. Weekly, Vish would directly discuss with me in painful detail every mistake I had made in the previous week. It was agony, and my 17

initial reaction was to deny the claims. When straight denial didn’t work out, I moved on to justifying my own actions, blaming the bad results on someone or something else. Then the epiphany came: what Vish was saying was true! I learned to embrace my shortcomings and look my faults in the eye. When I chose to own my weaknesses and took an active role in addressing them, I became empowered. Later in my corporate career, I became extremely frustrated with an overly political work environment. One day, in a moment of total frustration, I created a banner stating, “Do the Right Thing and Damn the Torpedoes,” and hung it prominently on my office wall. The next day, I totally ignored all politics and simply “did the right thing.” I fully expected to get fired by the end of the week. Every time I turned around, I stepped on someone’s toes and had the nerve not to care. And yet an amazing thing happened. Before long, I was promoted multiple times. This mental shift launched my executive career. In 2003 I took the big jump from corporate executive to bootstrapper. Several weeks into the transition, I blew out my Achilles tendon. Six weeks later, during a therapy session, I blew it out again. The doctor prescribed some potent pain medication, which resulted in some rather interesting hallucinations, including purple elephants dancing about my room. As excruciating as the pain was, what really terrified me was the realization that I would be physically out of commission for six months. This forced me to face the reality of being on my own. I didn’t have sick leave and there was no corporate backer providing health insurance or making sure I had time to recuperate. I had made my choice, and now I had to survive. My mindset shifted from hoping for success to demanding 18

it. At this point, I literally willed myself to triumph. These three experiences made me face various aspects of myself and how I react to different situations. I learned to address my weaknesses, do the right thing, and stand alone. Most important, I learned to know and trust myself. I was able to clearly see my vulnerabilities and make up for them with hard work and determination, as well as through relationships with others. If you don’t have all the skills or qualities necessary for success, you can either develop them, hire for them, or partner with team members who have strengths where you have weaknesses. Ron and I chose to team up for that very reason. I consider myself a better-than-average idea man, but my real strength lies in getting the motor running. I specialize in taking a business from the early stages of unbridled potential and chaotic energy and transforming it into a focused, momentous venture. I make the big idea work. I love to attend to the overall structure and the important to-do items, but once the system is going, I have no desire to go back and slog through the details. Ron, on the other hand, is the optimizer. After the business has been defined and is off and running, he gets the wheels running smoothly. He specializes in scaling, increasing efficiency, and protecting what has been built. He’s the detail guy. Together, we make a team. Of course, we sometimes need to overlap, and we each have enough experience to fill each other’s shoes from time to time. We both work on the front end—coming up with new ideas— 19

and on the back end—the dry legal work required as a venture matures. It isn’t about being a one-man show; it’s about recognizing your strengths, and combining them with others to get the job done. In order to achieve success, you must face your Vishs, your torpedoes, and your purple elephants. This is not an exercise in what is right or wrong. You are who you are. This is an effort to help you understand what you have to offer, how you work, and what drives you forward. Porter’s Points – Know Yourself • Practice self-evaluation, honestly and often. • Don’t shy away from your weaknesses, or your strengths. • Pinpoint your personalized “purple elephants” and decide not to let them terrorize you. • You are who you are. Find ways (and people) to work with it.

Terror I have never lacked fire in the belly, but I have not always had nerves of steel. This has been a trait I have had to develop. It took years to do so, and the corporate world was a great training ground for me. But when it is your money and your venture on the line, the stakes go up, causing you to lose more sleep. There is no motivator like sheer terror. This has been one of the most difficult aspects of entrepreneurship that I have had to learn to deal with. I love to recount the story of Wilson Harrell and the way he described his battle with fear. 20

As a fighter pilot during World War II… I was shot do behind enemy wn lines. There, badly burned, up by members I was picked of the French Underground, unique and cy who devised a nical way to hide me from th e Germans: Th buried me in ey a cornfield wi th a hose stuc so I could br k in my mouth eath. The firs t time they bu ried me, I la there for four y hours – time enough to cons bleak possibil ider all the ities. I figure d the Germans a bayonet thro would 1) stick ugh the dirt an d into me; 2) riddle the hole with bullets; 3) accidentally kick the hose all, 4) turn ; or worst of on the faucet. For 11 days in was buried. Fo succession, I r 11 days I li ved with a new un – stark raving wanted friend fear. -“Entrepreneur

ial Terror,” In c. Magazine, Fe bruary 1987.

Harrell went on to state that the only thing that matched the intensity of the fear was the exhilaration he experienced as he was unburied each morning. And so it is with entrepreneurship. When everything is going as planned, you will feel higher than you ever have before. But if it starts to bury you, you’ll lie awake at night, just waiting for the bayonet to come through the dirt or for the water to seep down the hose. Terror is like exercise. It is intimidating at first, but once you get intimate with it, you realize it is not as painful as you first imagined. It can function as a powerful motivator, keeping you alert and focused. As an entrepreneur, you will have daily opportunities to confront and conquer your fears. If you let it, the fear will keep you alive and moving. There will be times when the uncontrollable fear of uncertainty surges into your throat. Thoughts like, “Will the receivables get here before the payables are due?” “Will the market 21

sustain?” and “Will I be able to generate enough cash to make payroll?” will become your “unwanted friend[s].” These questions might not sound too scary right now, but connect the answers with your bank account, your home, and your family, and you’ll understand what I mean by terror. Whatever questions or circumstances instill fear in your heart, work through them. You can and you must conquer them to achieve the exhilaration, confidence, and rewards that await you as a successful entrepreneur. I’ll never forget the absolute joy I felt when I made the first $100 of what would grow into a multimillion dollar venture, lying in bed after snapping my Achilles. Was I terrified? Yes! But I let the fear lead me to success. You can do the same. Porter’s Points – Terror • You will experience terror–allow it to be a motivator. • Visualize the exhilaration you will experience as you confront and conquer your fears. • Accept this truth: overcoming fear will write the first chapter of your success story.

The Corporate Myth When I first started at Novell, I belonged to a team headed by Dave Owens, the vice-president for Novell Labs. I had just completed my MBA and wanted more than anything to prove myself. Dave brought me into his office one afternoon and asked me one question: “Who do you work for, Rich?” I thought for a second and then answered, “You?” He looked at me and responded, “Wrong answer. I want you to go out and 22

talk to Julia. Get on my calendar for next week.” I was dismissed without further comment. The next week, I was sitting in the same chair. “Who do you work for, Rich?” This time I tried something different. “Novell.” Again, “Wrong answer.” I was instructed to make another appointment. A week later, I was ready. “Who do you work for, Rich?” “I work for myself.” Then Dave explained. How I behaved and the work I did would have an impact on my entire life, and although I was employed by Novell, I worked for myself. Anything I did was exclusively mine to own: it would help or hurt only me. This conversation caused me to see things in a different light, especially in regard to loyalty and stability. Corporations are bulging with people who truly believe that the company they work for provides them with far more stability than they could ever create in their own business. It is a lie! Plain and simple, it’s a façade created deliberately by companies to shackle talented, would-be entrepreneurs to their cubicle workspace. I concede there is a time and a place to allow the bonds of these corporate handcuffs, but don’t lose sight of the fact that the corporation will never represent your personal interests. One of the strongest sentiments I try to teach my team members is the following: loyalty belongs to family, friends, and trust relationships. Never to a company. I have sat in the executive board rooms. I have not only heard the discussions, I have participated in them. Corporations are created for one purpose and one purpose only, to maximize profits for the shareholders. In all those meetings and executive discussions, I never once heard a discussion about loyalty to or creating 23

stability for employees. This was one of the factors that motivated me to create my own businesses. Think about it. Do you believe a large corporation is looking out for your stability? If you answer honestly, the answer has to be, “Of course not.” I’m not saying that you shouldn’t seek to have loyal and trusting relationships with the people you work with and for. You can, and should! But put trust where it belongs— with people, not with a company. You will have more control over your future if you are the one pushing and pulling the financial levers. So why the apparent comfort level of working for a company? Blind bliss. It’s easier not to know. When you are the one at the controls, you get up close and personal with the finances, the near misses, and the visible realities. Corporations are extremely effective at creating a picture of relaxing perfection—that is, until quarterly projections are missed. Still not convinced? Consider the following statistics. According to the United States Department of Labor’s Mass Layoff Statistics from 1997 through June 2007, nearly 175,000 businesses with more than 50 employees each conducted mass layoffs. Those layoffs resulted in nearly nineteen million individuals seeking unemployment insurance. I’m willing to bet that those numbers represent something less than one hundred percent of the total number. So, how secure is “your” corporate job, and where does your loyalty lie?

Porter’s Points – The Corporate Myth • You work for you! • Understand the data: you can create more stability for yourself than you’ll ever get working for someone else. • Be loyal to yourself, your family, and your trust relationships.

Your Day Job Now you know the truth. The corporate myth has been unveiled. You are ready to put in your two weeks’ notice and quit your day job. Not so fast! Let’s look at the other side for a second. Most people are not in a financial position to quit the corporate world and immediately make a go at their own business. As thrilling as starting your own venture might sound, life keeps coming at you and so do the bill collectors. As you build your own business, you may need to stick out the corporate job for a while. During most of my corporate career, I actually had moonlighting businesses going on in the background. Was I able to devote full attention to my variety of ventures? No. Was it always effective? No. Was it a viable strategy? Yes. Some of my most valued assets to this day are my real estate rentals. While still working my day job, I’d come home at night and scour the newspapers for properties to buy. I’d take my wife on dates to see different houses, and we acquired quite a few. Those properties are still among my most stable incoming-generating assets. There is no question: this dual lifestyle demands a delicate balancing act. How much time can you realistically spend at your job, building your business, 25

taking care of yourself, nurturing your children, spending time with your spouse, walking the dogs, and snagging a wink or two of sleep? If you choose to keep your day job, you must be ready to purposefully carve up your day into segments–each one allocated for a different part of life. Very directly speaking, you will also have to make some very serious sacrifices. When I was a newlywed getting my MBA, I worked a full-time job and, as always, had a few ventures on the side. To make ends meet, I drove a car that had been totaled four times. I bought my clothes at a thrift store. Our weekly food budget was $13; we lived on potatoes and love. For years of my life, it was a rare event to see a movie, rarer still to sit down and watch a television show. While I’ve grown fond of sleep in more recent years, for a long time I don’t think I could have told you what the word meant. Achieving your dream will demand hard work. It will test your mettle. If you believe all of life’s demands will line up for you on their own, you will be buried in chaos. In order to be successful in all aspects of your life, including your business ventures, you must engage in thoughtful planning. I go into a lot more detail about how to accomplish a work/life balance in the chapter, “Climb High, Sleep Low.” At some point, you will be able to bid a fond farewell to the shackles of living in someone else’s dream and in accordance with their ideals. For now, however, you may need to play the juggling game. Recognize your goals, know your limitations, and move forward. This, more than anything else, will test your devotion to entrepreneurship.

Porter’s Points – Your Day Job • You need an effective time-management strategy– now! • It doesn’t matter if you use a planner, a PDA, or a desktop calendar to help you manage your time. Just use something! • You cannot, you must not, let time manage you! • Get as granular as it takes, down to the quarter hour if needed. • You will learn about the time requirements of each task as you move through the reality of building your business. Adjust as you go.

2 Juice to the Light Bulb Porter’s Preface One of the questions Rich is continually asked by aspiring entrepreneurs is, “How do you come up with all of your ideas?” Many of those who ask seem to have the impression that they’re not smart enough to come up with a great business concept. They tend to think that great business ideas materialize miraculously from nowhere rather than being easily accessible to “us common folk.” This chapter discusses seven different strategies that will help you generate the kind of ideas that can result in a successful startup business. I know of an astute and successful businessman whom I have observed over the years. He owns a basketball franchise, numerous car dealerships, restaurants, entertainment complexes, and many other businesses. He wasn’t always wealthy, though; in fact, in the 1970s he was managing the auto parts department for a Toyota dealership when the first big fuel shortage caused gas prices to soar. Consumers were so desperate that siphoning and stealing gas became a common problem. Surveying the situation, this man saw a need. He discovered a small company that made locking gas caps, negotiated exclusive distribution rights with them, and became the only direct 29

seller in the United States, locking down the entire market. He eventually bought his own Toyota dealership and established the cornerstone of the foundation for his financial empire. Typically, you don’t think of a great idea. You find it. This requires you to open your mind and recognize what is already going on around you. While it’s true that part of success comes from being in the right place at the right time, entrepreneurship also takes a certain level of imagination and innovation, where you begin to see dollar bills everywhere you look. Be open to the possibilities that already exist. Any problem in the world can become a business opportunity if you get in the habit of asking yourself: • How can I fix this problem? • Do other people have this same problem? • Would there be people willing to buy my solution if I fix this problem? Was that gas-cap businessman a genius? No. He was simply in the right place (the auto parts department) at the right time (the 1970s gas shortage), and he looked for a way to solve a problem that was right in front of him. He did not create his business in isolation, and it was not the result of some light bulb magically going off in his head. He simply kept his eyes open and then took action. So, the question is, how can you learn to take action on the opportunities around you? How can you get juice to the “light bulbs” in your head?

Uninterruptible Time At the time we launched CastleWave, Ron and I were several months into writing Bootstrap Business when he began telling me we had to bootstrap a business as a case study for the principles we were setting forth. I had just come off of a recent bad partnership and had sold several other businesses, so I wasnâ&#x20AC;&#x2122;t ready to start another business any time soon. It took a good month for Ron to convince me; during that month, we had not even thought about what kind of business we would launch. When we did start, the first step was getting some juice to the light bulb. We decided to put our words to the test. One of the best ways to generate ideas is to find some uninterruptible time to brainstorm, so thatâ&#x20AC;&#x2122;s exactly what we did. We went into a great little room in the back of the office we were leasing. It overlooked a golf course and a mountain range in the distance, so we had an inspiring view. There were no phones to interrupt us during the half day we had set aside to brainstorm. About all we had in the room, besides a great view, was a big whiteboard. We took turns throwing ideas up on the board. We started asking ourselves questions to generate the flow. What new trends were we seeing in the technology market? What were our individual and combined skill sets? Where did our abilities and backgrounds intersect with the trends we were seeing? Suddenly, we were going crazy with all the potential ideas, and before long we had fifty or sixty ideas on the whiteboard. Focused energy in the right environment can fuel outbursts of ideas. Each of us is different, so you need to ask yourself: where do you find peace? What time of 31

day is best for your inspiration? Where have you found calm in the past? When you finally determine where your quiet place is, go there with intent and purpose. For me, I climb mountains. The reason is to eliminate clutter and gain perspective on the world around me. This is my personal place for inspiration, and when it comes, it’s a moment of pure clarity and joy. The result is exhilarating. The other night my daughter was complaining about her struggle with her physiology class. She said that she had been studying for hours upon end but couldn’t seem to understand what she was reading. Later that night I went down to her room and stood in the doorway, just watching. I found her sprawled across her bed with her textbook open, flanked by her cell phone on one side and her laptop on the other. I was amused as I watched her “study.” She read for a few moments, until her cell phone sounded the alert: text message. Pushing her book to the side, she responded. Then I saw the chat program open on her computer starting to flash, and she turned her attention to the screen. Finally, she got her head back into her book… until her cell phone rang and she left it all behind to talk to one of the many boys who seem to call at that time of night. In a moment of frustration, I interrupted her active social life and shared my thoughts on her academic plight: if she was ever going to get the chapter read, much less pass the class, she would have to shut off the cell phone, turn off the laptop, and focus on her reading.

The next day I sat in my office, still fuming, wondering whether or not I should take my daughterâ&#x20AC;&#x2122;s cell phone away. I had several important tasks to do that day. When I turned on my laptop, I had 98 new messages. I dove into my inbox, but my phone started ringing. Then an insurance salesman showed up in the front office wanting my attention. As I returned to my desk with the intent of really getting something done, my cell phone beeped with a message from my wife. I felt my blood pressure start to rise amid the frustration of not being able to work on my important tasks, and all of a sudden I realized that I was as distracted as my daughter! We both were working with commotion all around us. I decided to take my own advice. Shut off my phone, close the door, and provide myself with some uninterruptible time. I canâ&#x20AC;&#x2122;t help but wonder how the Sistine chapel would have turned out if Michelangelo had been signed up for a cellular friends-and-family plan. Some years ago one of my star team members became displaced when I sold and closed several of my businesses. This particular individual was an international employee in the United States on a H1 work visa. As he was attempting to find a new job, several very difficult situations arose that jeopardized his ability to remain working in the United States. After seeking legal and professional advice on his behalf, I started feeling there was no solution in sight. One afternoon I made time to sit down and consider the problem. I turned the volume down around me. I didnâ&#x20AC;&#x2122;t see a resolution immediately, but that night, as I was further meditating on the dilemma, the 33

answer came. It was 11:30, but I was so excited that I immediately jumped out of bed and called my team member. I am confident that if I had not scheduled uninterruptible time, I would not have had the clarity of thought needed to provide the soft landing I felt he deserved. Porter’s Points – Uninterruptible Time • While you are calendaring everything else, plan some time to ponder as well: When, where, and for how long? • Ponder with a plan, and be deliberate! Know what you want to come away with. • Uninterruptible time is not a vacation. Selfdiscipline will make or break an entrepreneur.

Pick a Brain The “Buy you lunch?” offer is too seldom used. Several of my businesses have grown out of having lunch or casual conversations with business associates. I remember one such experience with a trusted friend and associate from New York, David Fishman. In December 2003, Dave and I had prearranged a call to catch up, as we had both been extremely busy during the year. During the course of the conversation, Dave mentioned that he was aware of several sources for telephone-generated mortgage leads, and asked if I knew of anyone who could use them. I happened to have a connection, and based on that discussion, a highly profitable business was created. Personal connections are often a significant factor in success as an entrepreneur. Identify a few people associated with the area you are interested in pursuing and pick their brains. Take them to lunch, listen to 34

what they say, and ask questions. I have found this to be most effective when I’m talking to someone faceto-face, but a telephone conversation can also produce positive results. Another great way to pick a brain is going to an industry-specific trade show. For me, this has been a very successful method for not only coming up with ideas, but, more specifically, for validating concepts and quickly progressing through the learning curve of the industry. Early in my time with Mitsubishi, we wanted to manufacture motherboards for video games, so we decided to attend a video game trade show in Las Vegas. As a result, we met several great contacts and spawned a successful division. I remember another trade show where we were considering developing motherboards for gambling machines. All indicators looked good. However, after asking some very pointed questions of the industry experts who were there, we became aware of very unfavorable government controls that would have made it difficult to move quickly and become viable. If I had not attended the trade show and picked those brains, I would have wasted hundreds of thousands of dollars. What type of questions should you ask in these “pick a brain” sessions? Here are a few of my favorites: • What are the services or needs in your industry that are not being met? • What are two or three things you would change about the products or services you rely on? • What do your customers like about the service or the product they are buying? • What do you think the next big opportunity or change will be in your industry? 35

Ask open-ended questions, but be sensitive to concerns with intellectual property and confidentiality. There have been times when I have had individuals come to me attempting to clone my business. This is not only brazen, but offensive. Two other key secrets to success: first, make sure these relationships go both ways. And, second, thank everyone you talk to—everyone! You cannot expect to take and take from your friends and associates without giving up time, insight, and information helpful to their success. Life is not like Monopoly; there can be more than one winner. Casting some courteous bread across the waters will return in kind. Porter’s Points – Pick a Brain • Call today and schedule lunch with one of your idea-generating friends. • The next time you attend a trade show, prepare relevant and direct questions for the experts. Ask, listen, record. • Thank everyone you talk with and consider ways you can contribute to their venture in return.

Catch a Wave Some years ago I found myself sitting on the North Shore of Hawaii watching twenty-five-foot breakers pound the shoreline. These waves started way off in the distance as tiny little ripples that would gain strength and speed as they raced to the beach. By the time they hit the reef near where I sat, the bonecrushing power was tremendous. I was mesmerized as I watched what I considered crazy surfers attempt to ride these beasts. Certainly, the exhilaration of riding 36

one of these giants had to be beyond description, but a wipeout could literally mean death. After this experience, I could not help but draw the parallel between the breakers on Sunset Beach and entrepreneurial efforts. One of the surefire recipes for success is to carefully watch the horizon and identify the ripples that are forming. If you get way out in front of an upcoming wave, the momentum generated will provide a sustained ride. And if the wave is big enough, just being in the right vicinity will generate enough power to propel you to your destination. If you catch it right, it will be the ride of a lifetime. If you catch it wrong, life can come crashing down around you. In both surfing and business, the key factor is the timing of getting on and off the wave. So, the question then becomes; how do I identify and time a wave? Like most skills, your ability to identify sustainable waves will grow with experience. My bet is that you already have a feel for it. Letâ&#x20AC;&#x2122;s look at an example. In the year 2008, would you rather be starting a business in the cell phone sector or staffing a telemarketing center? Surely your gut will tell you that the telemarketing wave is slowing down and about to fizzle out. Look at the signs: do-not-call lists, litigation, annoyed people, and the movement away from home phone lines. With all the exciting possibilities and avenues with cell phones, however, there is no shortage of momentum. The wave is just starting to gather speed, and it will only get bigger. Identifying waves have both an analytic and an intuitive component. Here are a few of the things I do to identify waves: â&#x20AC;˘ Surround myself and associate with visionaries and forward thinkers 37

• Talk to my teenagers, observe what trends they are embracing, and then try to think a step ahead. • Stay abreast of the industry trends • Attend forward-looking conferences in my area of interest • Look for emerging social patterns CastleWave is riding the search engine wave. Anyone with a pulse is aware that the worldwide web and Google are generating this wave. Traditional, large companies are turning their focus to gaining a web presence, but their lack of understanding of how to successfully deploy their web initiatives has resulted in a huge disparity. CastleWave recognized this gap and is bridging it with the required expertise. The result? Large corporations are aggressively seeking our services. We recognized the wave and caught it! I have successfully caught and ridden a number of waves in my career. Riding on top, there’s a feeling that nothing could possibly go wrong. There have also been times when I didn’t get set up for the wave and experienced the pain as huge breakers slammed me into the ocean floor. In 2000 I learned the hard way that it was not a good time to build web-based companies. As the first wave of Internet business crashed, it didn’t matter how good your idea was, the riptide would suck it out to sea before it was even considered. Two years previously, however, an entrepreneur could get funding by scribbling a business plan on a napkin. PE ratios of publicly traded Internet stocks were insane, sometimes 200 percent! Most of these companies completely dried up and blew away when the bubble burst.

Let’s take another look at a contrasting example: • Bad day to start an airline: September 12, 2001. • Great day to start an anti-terrorist airline security business: September 12, 2001. Same day, different waves. Porter’s Points—Catch a Wave • Read what business analysts are saying about significant future growth industries. Are there opportunities within your skill set or your interests? • What major waves are occurring in areas of your expertise? What is everyone talking about? What are the hot topics online? Where do you see inefficiencies or weakness that you could fill? • Give your best estimate of how long you think the wave will last, and assess if you have time to get on and ride for a while.

Passion or Poison? Do any of your hobbies or pastimes match, support, or wrap around any of your venture ideas? If yes, they are worth a closer look. In this section, I want to simultaneously warn you and encourage you. Building a business around something you’re passionate about can be fun and fulfilling. It can also be torture. Before you turn your hobby into your livelihood, make sure to ask yourself these three important questions: 1. Is this activity your release valve or primary escape? 2. Would doing it full time cause conflict with your significant other? 39

3. Will working in this field undermine your interest in your normal recreational activities? If you answered yes to any of these questions, you may want to be wary about transforming your favorite hobby into your entrepreneurial venture. Maybe golfing helps you relax and adds invigorating downtime to your schedule. But how will it affect your nerves if all of a sudden you are not only working on your swing, but watching your business go up and down at the same time? In the year 2000, Abi Hunter, a member of one of the technology teams I was leading, came to me expressing interest in starting a business together. I had tremendous confidence in her abilities and half-jokingly stated, “Great! As long as it deals with my passion for golf or mountain climbing, I’m in!” Sometime later Abi returned with a bootstrap proposal to launch a business that focused on international exporting of golfing and hiking equipment. Out of her proposal came the Cyclone Trading Company. As I entered this business I thought that the local representatives of the manufacturers like Nike Golf and TaylorMade Golf had the ideal job. They got to go around promoting and selling the latest toys and tools available in the golf industry. In other words, they lived and breathed golf for a living! I couldn’t believe their good fortune. I soon discovered that the situation was not as I thought. One day I was speaking with Phil, the area representative of TaylorMade, and we began talking about our last golf outings. I was shocked when Phil said he had not been out yet that year. Mind you, this was the first of July! As I queried Phil, he admitted that although he 40

loves golf, after talking shop all day long and visiting all the golf courses, his passion had turned into labor. As a result, he doesn’t golf much for enjoyment any more. I saw this time and time again as I spoke with both golf and outdoor representatives. They had transformed their favorite sport into a dreaded job. Maybe you really do enjoy an activity enough to have it be a part of your life Monday through Friday and over the weekend as well. Your passion and skill could really give you a leg up on your competitors. As I set up Cyclone, I followed the principles outlined in this book. As a result, it was one of the most fun and rewarding businesses I have ever owned. However, if you are not careful and do not approach your venture properly, a business based around your favorite sport or hobby could transform your passion into your poison. Porter’s Points – Passion or Poison? • Create an “I’m passionate about…” list. Cross all the items off the list that are not potential wave items. • Remove from the list those items that you neither have the skill nor capital to pursue in a business setting. • Focus thought and energy on this process by employing the tools found in chapter 3, “Power Tools.”

A.S.K. I pray daily. I am a Christian, but I count Jews, Buddhists, and Hindus among my dearest friends and associates. I also have personal and important relationships with people who do not believe in a Higher Power but instead place their beliefs and faith 41

in ethics and humanity. I have taken great effort to study and attempt to understand each of these belief systems and have concluded that although we each address God or our Higher Power in a slightly different manner, the concept of prayer is the same. In each case, we respectfully request help, blessings, and inspiration from above. One of my most highly valued moments in my life occurred in the Himalayas where I had an audience with the famous High Lama of Pangboche, the Gashilay. I had spent much of the year before studying and learning as much as I could about Buddhism. Sherpa climbers request blessings from the High Lama before attempting summit bids on Mt. Everest and the other 8,000-meter peaks in Nepal, and my climbing experience provided me with an introduction to the High Lama. On the day we met, we had a lengthy conversation regarding our beliefs. Our time together was engaging and respectful, and before I left the monastery I was honored to receive a blessing from this Lama. After receiving my blessing, I asked if I could share a prayer with him. He agreed, and I prayed and asked God to bless him in return. When I stood, there were tears in both our eyes. Although very different prayers were offered that day, the intent and I believe the end resultâ&#x20AC;&#x201D;enlightenmentâ&#x20AC;&#x201D;was the same. Most world religions have a tradition of prayer or meditation. The acronym ASK in traditional Christianity provides an effective model, no matter your spiritual beliefs. Ask and expect to receive an answer. Seek and expect to find a way. Knock and expect doors to open for you.

One of my favo rite examples on this topic is a story told abou t Gandhi. On on e exceptionall y busy morning, with many cruc ial tasks ahea d, Gandhi made th e following st atement: “Today is such an import ant day. We ha ve so much to do today; we must take an extra hour to pray.” -Attributed to Mahatma Gandhi . A similar qu ote attributed to Martin Luther may be another source: “…In fa ct, I have so much to do that I shall spend th e first three hours in prayer .”

What should you ask for? Well, honestly, that’s up to you. In the 1500s, Ignatius of Loyola, founder of the Jesuit order, taught a procedure for decision-making. First, you must take time to meditate on the choice you have made or will make. Then, you must ask yourself: do you feel positive, energetic feelings, or stressful anxiety? Ignatius called these feelings “consolation and desolation.”1 I call them confirmation or confusion. Feelings of confirmation urge you to move forward, knowing that you are in harmony with the Divine Will. Confused feelings are a warning to back off. Similar concepts are found in Buddhism, Taoism, Islam, Sikhism, and many other religious traditions. Don’t underestimate the power of spiritual energy and insight in helping you complete your tasks. Praying, meditating, and pondering are powerful tools to be used when you are attempting to determine viable business ideas. Once you have an idea that has merit, 1 St. Ignatius of Loyola, The Spiritual Exercises, trans. Father Elder Mullan, S. J. (New York: P. J. Kenedy & Sons, 1914), 88.

confirm that feeling with your Supreme Being, your Tao. When you start focusing and seeking help in this manner, you will be amazed at what comes your way. You may think it coincidental, but I prefer to call it Providential. Inspiration has to be sought for. It may not come immediately, but it will come. The answer might not be what you expect or even perhaps what you would have chosen. But in my experience, it’s always been better than anything I could have planned for myself. Sometimes, clarity of focus has come to me when I have been lying down to go to bed. Other times, it has come early in the morning hours after I have had a restful night’s sleep. I have found that it is wise for me to keep a paper and a pen by my bed so that I can write ideas down as they come. Aside from having trouble in deciphering my handwriting the next day, the system works. Another place I get inspiration and ideas is in a warm, soothing shower. Sometimes I find myself dripping across the room to my paper and pen to jot the idea down before I forget it. Don’t put a solid line of demarcation between what you believe and your business ventures. It may not be a popular technique, or at least one not openly talked about, but I find that if I take the most important parts of my life—family, faith, entrepreneurship—and let them influence each other, I’m more receptive to good ideas, wherever they may come from. Whether you have spiritual roots or not, I encourage you to test the power of pondering and prayer.

Porter’s Points—A.S.K. • Don’t be afraid to include your own spiritual beliefs in the full circle of your life. • Whatever your source of Divine Inspiration, tap into it! • Recognize the pattern of when and how your inspiration comes. Doing so (a) creates the space required to hear it and feel it and (b) provides opportunity to record it and act upon it.

A Higher Purpose At this stage in my life I frequently find myself asking “Is what I am doing making a difference?” In 2003, as I left the corporate world, I recall I had a strong drive to do something that mattered. I wanted to conduct business in a humane and ethical manner. I am still the same. The approaches I use to get the win are as important as getting the win. Why make millions of dollars in “flim-flam” scams or fly-by-night businesses? The victory is hollow, and the loss of your self-esteem and integrity is way too high a price to pay. So what does all of this have to do with generating ideas? At one point in my career, I had a partner who was one of the most philanthropic individuals I have been associated with. Coincidentally—or not—he is also one of the best idea people I have ever met. One of his fundamental beliefs that I have also adopted and grown to love is the concept of “putting positive ions into the universe”: as you make positive contributions to the world around you, ideas and opportunities will naturally return. 45

He was one of the founders of Unitis. Unitisâ&#x20AC;&#x2122;s mission is to fight global poverty by increasing access to microfinance. He believes that as he puts good into the world, the good will return to him exponentially. I have seen this work for him on a personal and professional level. It never ceases to amaze me how just the right concept, just the right solution, or just the right idea will gravitate to him, completely unsolicited. I attribute this to his living the principle of a higher purpose. Iâ&#x20AC;&#x2122;ll be the first to admit I have absolutely no idea how this principle works. But I know it does. I attribute many of my fortunate coincidences in business to this principle and to my aforementioned Higher Power. I have also found that when things get really, really tough, having a purpose greater than money can provide intense fortitude. Shallow goals provide shallow support. Goals with depth, on the other hand, will give you a long-lasting well of strength and determination to draw from when times get tough. Over the past several years, I have become fixated on helping young women in third world countries (specifically, Nepal) break the bonds of abuse and oppression. This is a goal so much greater than me, and I have struggled at times to even know where to start. As part of my efforts, I have set up an educational model and structure that has proven very powerful with my daughter Nawang, who is from Nepal. Bit by bit I have worked, built, and dreamed about the impact that I might have there. It has required me to be creative and use non-traditional approaches. The project consumes me. It motivates and inspires me. It is indeed my higher purpose. What is yours?

Porter’s Points—A Higher Purpose • Decide now that it is important to contribute to the greater good, to a higher purpose than building your bank account. • Create your plan and get started. Make it a priority. Do it now. • Read a biography of someone you admire and take note of the steps he or she took to find higher purpose.

How Did I Get Here? Entrepreneurship often requires you to take detours and make new plans. I have gone through this process many times. At first, I felt dismay and confusion, but found that those feelings quickly changed to delight and confidence. When I worked at Novell I met three individuals who took detours to their ultimate success; Jan Newman, the vice-president of Worldwide Services; J.D. Brisk, a director at Novell Labs; and Kevin Turpin, a senior software engineer. They were all Novell lifers who became disenchanted with the direction the company was taking and who decided to set off on their own. Each of them had worked with Novell labs and saw a tremendous opportunity for an Independent lab that could work with Novell, Microsoft, Sun and others. In keeping with the mark of true entrepreneurs—they responded to a need and opportunity and created KeyLabs. Kevin wrote a piece of software that made it possible for him to sit at one station and run tests on thousands of computers at a time. Customers were amazed at the new feature and wanted it for their own use. All of 47

a sudden, there was great demand, not only for their service but for their software! Two of the partners moved on to manage the new venture, leaving the other to keep the lab running. KeyLabs was fruitfully sold to a corporation called Exodus, and their new software business, Altiris, went public. It was the topperforming stock on Wall Street in 2005. Jan, J.D., and Kevin couldn’t have predicted where they would end up when they left Novell, but they kept their eyes open and were ready to zig and zag forward with each new opportunity. Their huge success was due in large part to their willingness to embrace the journey, with detours, starts and stops along the way. Starting a business with limited financial resources requires you to chase cash immediately. Rarely are you able to chase your ultimate goal directly. You have to zigzag back and forth toward your ultimate destination, step-laddering the opportunities bit-bybit as you go. This is actually a very good thing. It slows you down and allows you to trip into all sorts of great little opportunities and nuggets of gold. From my experience, you end up building your successful business on a concept completely different from where you initially set out. When I was in college, my wife and I mapped out our ultimate career destination. We thought that the ideal job would be to go to Seattle and work for Boeing. There is no ink bold enough to emphasis how grateful I am that my original life plan did not come to fruition. My life has been full of rich and vibrant opportunities due to the zigging and zagging I have done. You must have a dual mindset. On the one hand, you have to emphasize a “never say die,” “work ‘til you drop,” “do it or die” devotion to your venture. And then 48

on the other, with the speed of a changing market, you have to be willing to jump ship and sail off in a new custom vessel, letting your old venture sink into the water. Porter’s Points – How Did I Get Here? • Create your map to success and use it…just know that detours may take you to a place even better than the original destination. • Realize that markets change, and, as a result, you may need to change too. Do you need to tweak a few small things in order to take advantage of the change, or do you need to create a new venture to catch the forming wave? • No knee-jerk reactions here. Analyze and act.

3 Power Tools Porter’s Preface In our offices we keep a drill brace manufactured in the 1950s like what Rich and I both used as kids. It’s one of those hand crank jobs you don’t see around very often nowadays. It’s a functional invention and eventually gets the job done – but it is painfully slow compared to today’s cordless power drills. In this chapter, Rich will provide you with several power tools to help you build your business. Rich and I have used these tools over and over again. They are the basics, tried and true. And although they can be a little “academic,” the Five Forces Model and the Competitive Matrix are both effective when you are weighing the pros and cons of a new venture. In addition, Rich will provide some additional power tools—handy processes that have worked repeatedly for him. With all of his startups, Rich has used them as quick sanity checks to help determine the viability of an idea. They have become part of the way we think and act. Taking a practical approach to the models, Rich will walk you step-by-step through a hypothetical business in an effort to help you grasp how to use the tools to analyze the opportunity you’re considering. 51

The Five Forces Model2 5 Forces Model Michael E. Porter

Potential Entrants Threats of New Entrants

Bargaining power of suppliers

Industry Competitors

Bargaining power of buyers Buyers

Suppliers Rivalry among existing firms Threat of substitutes product or services Substitutes

The Five Forces Model is one of very few things I learned in MBA school that I still use frequently. Michael E. Porter is a professor at Harvard Business School, and is considered a leading authority on competitive strategy. His model can look a bit intimidating, but it is the first tool I use to do a quick evaluation of a business idea. It provides an overview of how viable and profitable the venture could be. Running this model should not be a laborious process. I will demonstrate how simple it is. First, here’s a quick rating system that helps when using this tool. For each force, you will come up with several questions. The answer to each question will receive a positive (+), negative (-), or neutral (o) result, ending in a final, overall score for each force. To further 2 Porter, M.E. “How Competitive Forces Shape Strategy,” Harvard Business Re-

view, 57.2 (1979): 141.

clarify, I’ll create a fictional company, GRB—in honor of the gourmet root beer that I love! Porter’s model includes five forces: • • • • •

Industry competitors Suppliers Buyers Potential entrants Substitutes

#1—Industry Competitors The first step is to ask some specific questions regarding the competition that occupy the space you want to enter. It’s important to remember that every venture will require different questions, but this will give you a good place to start. Q: Who is competing for market share in the Gourmet Root Beer space? A: Four other companies, but they are all in geographies other than my target sales region. This results in a positive (+) score for this question. Place a plus on your diagram next to “Industry Competitors.” Q: Is there a tenacious rivalry among competitors in the industry? A: No. It seems to be a friendly and cooperative rivalry. No one is bristling at the mention of another company’s name, and the advertising hasn’t become intense. Place another + next to “Industry Competitors.”

As a side note, I find that too many people don’t really understand competition. At first glance, you might think two companies have a spiteful rivalry, but it’s actually friendly banter. Make sure you do your research here. Take a second look. Is the competition in your industry being fruitful or involving vicious catfights? Competition is good, as long as it isn’t so brutal as to squash your chances of entering the market. (See chapter 18, “Dancing with the Devil” for more on quality competition.) Q: How much will you need to spend on shelf space or advertising to differentiate your product? A: Focused advertising within a target market will help the product take hold and gain popularity. (+) Q: Is the market growing rapidly or is it dog-eat-dog? A: A surge of interest in specialty drinks has provided more than enough market to go around. (+) Four positive ratings result in an overall rating for this force of (+). #2—Suppliers In this category the model refers to the bargaining power of suppliers and how they will impact the cost of material required to develop your product. Put another way, how much power do I have over the suppliers? Q: Are there multiple suppliers available? A: Yes. (+) Q: Can you exert influence over the sugar supplier to get a better price? 54

A: No. Sugar is a commodity: unless you are able to lock in a long-term contract for huge quantities, the price will remain the same. (—) Q: Can you negotiate a better price than the competition for sugar? A: No. You’re not going to buy enough product to get a better price. (—) The overall score for this force is a (—). #3—Buyers Now analyze the bargaining power of the buyers. In this instance, the buyers are the stores and other vendors that will buy your root beer. Q: Do your target buyers have the power to force the price of your product down? A: Yes. If you don’t lower your price, they will likely buy a competitor’s product. (—) Q: Can you command a premium for your product? A: No. Buyers will take their business elsewhere. The overall score for this force is a (—). #4—Substitutes This category deals with the threat of substitute products or services. Q: Is there a feature of your root beer that will compel consumers to drink yours over other soft drinks? 55

A: GRB includes vitamins and minerals, and tastes great! (+) Q: Can your customers drink something other than root beer? A: Yes. There are gallons of other options. (—) Although this seems to even out, it’s not quite as cutand-dried as that. The truth is there are thousands of substitutes for your product: other root beer, other soda, juice, milk, water, or even nothing at all. Because of the weight of this negative aspect, the overall score for this force is negative as well. (—) #5—Potential Entrants How difficult is it to enter the space? Do you have an advantage over the competition? Once in, how do you plan to keep others out? Of all the factors to consider, this is the most important. I call it “Barriers to Entry.” Also, when I draw the model I include another box: “Channel.” I always pay particular attention to the power of the distribution channel, or lack thereof. The following questions will help you understand the concept more fully. Q: Can anyone make root beer? A: Yes. Q: How expensive is it for someone else to enter the GRB space? A: Not expensive at all. (—) Q: Is it expensive for your buyers to switch from GRB to another brand? 56

A: No. The store just has to clear the shelf and replace my brand with my competitors’ product. (—) Q: Do you have access to an established distribution channel? A: Yes, I have an exclusive agreement with all distribution channels in my target region. In fact, my brother-in-law controls the beverage distribution for all the food chains in my area. (+) The overall score for this force is a negative. (—) But you must take into consideration your exclusive channel agreement. The power of this positive may be enough to convince you to enter anyway. On your whiteboard diagram, write a “+” next to Potential Entrants. Tallying up the overall scores, we come up with a grand score of 2 positive, 3 negative. Do these results mean you should avoid the venture? Not necessarily. The information you’ve gained from this exercise is a valuable assessment of the competitive landscape– you know where you are vulnerable, where you need to apply focus, and what your strengths are. You now have a wide variety of things to consider. Perhaps your assessment ended up all negatives except for one area: but if that one area is powerful enough, your idea may still be worth the effort! I have colleagues who have made millions on a venture that scored all negatives. They had to work very hard and very long before they were able to make a profit, but they did it! If you look at your whiteboard and 57

see a plethora of pluses scattered across the boxes, it’s indicative of a wave! It will be easier and faster to get the venture up and running. Conversely, the more negatives you have, the more time it will take to make a profit. Porter’s Points – The Five Forces Model • The Five Forces Model is fast. Use it during your idea stage to test what you plan. • Just because an idea scores mostly negatives doesn’t make it a bad idea. Negatives mean you will have to work harder, smarter, and longer. Decide if you are up to it; if not, test some other ideas to find a wave. • Use the Five Forces Model with the Competitive Matrix in the next section to really get a grip on your market and make plans for success.

The Competitive Matrix This tool is exceptionally helpful when it comes to determining the gaps your gourmet root beer can fill in the marketplace. Below I’ve shared a hypothetical example of GRB’s regional analysis for the U.S. market. The clouds are your competitors. Their placement on the chart corresponds with their geographic location and price point. The analysis indicates GRB has a great opportunity for product sales in the Southwest across the price spectrum and a solid opportunity for product sales in the Northwest at the lower end of the price spectrum. You can run this analysis for a number of different areas of interest, including but not restricted to: • Location • Demographic 58

• Price • Distribution method I typically run the model three or four times with relevant pairs; for example, distribution method and price or demographic and price. Do your research online or on foot–any way you can. Learn about your competitors, and then apply what you learn to the matrix.

After running your idea through this process, the answers will tell you if you need to tweak your product game plan. My strong recommendation is to fill a profitable niche or hole in the market and not go up against the big boys—at least not yet. If your goal is to be purchased by a larger competitor, try not to overlap with what they are doing. Rather, complement their products and services and give them a reason to purchase your company. (We flesh this idea out more completely in chapter 19, “No Exit Strategy?”.)

Porter’s Points – The Competitive Matrix • Do not overlap your product or services with competitors if your target is a sale. Overlapping invites them to stomp you out; complementing invites them to buy you out. • Depending on your product, conduct a regional, price range, distribution, or demographic analysis of your competitors. Find where you can fit in, map it, and plan on it. • Run this model three or four times with different pairs of indicators. Go out and do research!

Rich’s Four Filter Rules List The following is a list of questions I’ve developed to assess an opportunity. These questions have, as a result of my experience, taken on the form of rules; and in order for me to act on an idea, it must conform to all or most of my four fundamental rules. Over the last 20-some years and 27 startups, I’ve assimilated a lot of knowledge from colleagues and partnerships, and each of my rules has come as a result of trial and error. Stated another way, life works best when I don’t break my rules: • • • •

Is the business opportunity transactional? Will I own the customer? Is the opportunity digital in nature? Does the opportunity ride a wave?

Let’s evaluate my GRB idea against this tool and see how it stacks up.

Is selling gourmet root beer transactional in nature? GRB is not a transactional business. You will manufacture your product and sell it to a distributor. Donâ&#x20AC;&#x2122;t confuse this idea of a transactional business with the traditional understanding of business transactions. Credit card companies are a great example of a transactional business. They sit between you and a vendor. You use the credit card to buy a product. The credit card company pays the vendor for the product. You pay the credit card company a premium to use its money. The credit card company carries no inventory. It collects interest and fees from all parties 24 hours a day, 7 days a week, 365 days a year. Will you own the customer? GRB can own the customer, if it chooses to. Owning the customer is paramount. It allows you to do the following: 1. Create an enduring business opportunity. 2. Fix problems that may arise. 3. Market directly to your customer. 4. Offer services and support to a customer that will greatly differentiate your product. Your ability to get face-to-face with your customer and establish a bond beyond the merits of your product is critical. In keeping with our GRB example, you could potentially own the customer (retail stores) if you choose to bypass the distributor and sell directly to the end user. Is owning the customer important enough for your business to go direct?

Is the opportunity digital in nature? No. Root beer is digestive in nature. Yes, that was an easy shot, but the fact is, root beer requires warehouse space. Root beer requires inventory. At this point in my entrepreneurial career, I’m not interested in running a store. I prefer digital assets, for example: software development, services (like web hosting and SEO work), and, my favorite, websites. But that’s my rule. What’s yours? Is root beer at the front end of a wave? No. Root beer and other soft drinks have been around for years. However, a healthful, all-natural gourmet root beer could ride the baby boomer health craze wave. Keep in mind, sometimes waves exist, and sometimes you make them. It took me years to distill my experiences into four simple rules. They are by no means an-end all or catch-all. There have been times when I have broken my rules. Case in point, Cyclone Trading Co.—a golf equipment exporting company. While it wasn’t digital, Cyclone was incredibly transactional, I owned the customer, and I was riding a wave. The company was a success. In the end, my rules cannot be your rules. You need to discover your own criteria for success. The important point is to make the rules yours, and make them work for you.

Porter’s Points –Rich’s Four Filter Rules List • Create your own list of rules. They will evolve as you gain experience. • Stick with these rules as closely as possible. You may need to revise them or ignore them along the way–but always do so with forethought and purpose. • Tapping into the expertise and experience of others as you consider your rules is a valuable resource. But at the end of the day, they’ve got to be yours.

Play. Compete. Win Over the years I’ve created dozens of products and services. In the process, I’ve realized that it can be a chore to decide where to place your resources. I’ve learned to ask myself three basic questions: • What is mandatory to play? • What is necessary to compete? • What is required to win? The exercise is wonderfully simple: identify the various functional pieces or features of your product or service and filter each one of them through these three questions. This short but powerful exercise puts you in a position to very specifically understand what you need to do to succeed—and when. First things first, what actions do you need to take to get into the space? What is mandatory to play? You can’t win a game you’re not in. Once you’re playing, though, you can focus your remaining resources on the next steps. How do you stick around and compete? Finally, with your foot in the door and your feature set growing, 63

what do you need to do to win? What differentiates you and your product from the competition? This line of questioning will help you stay focused and keep you from exerting energy on activities that don’t give you direct value. Let’s look at GRB. 1. What is mandatory to play? Your brother-in-law is your channel connection, but it’s time to lock it down. Get the contract signed and ready to go. Where will you keep your inventory and make your product? And are you sure it tastes good? 2. What is necessary to compete? Look at what it will take to finalize your pricing, create inventory, get shelf space, and establish a sales force. And then, watch your timing. 3. What is required to win? Now it’s time to concentrate on the shape of the bottle, the colors on the label, personal endorsements, and value proposition (vitamins and minerals, remember?). Buy billboard space! Set up magazine ads! Get on Oprah! Don’t let the simplicity of this test fool you. You really don’t need to overanalyze your idea or over-engineer your product. Stick with the essentials to play, compete, and win.

Porter’s Points – Play, Compete, Win • Your resources are valuable to you and the success of your venture – at any stage of the game. Thoughtfully determine where you will expend them. • First things first—ALWAYS!

4 Got Gas? Porter’s Preface Imagine yourself sitting in the captain’s seat of a commercial airliner. As you wait for the ground crew to finish the preflight checklist, you check the instrument panel and chat with your copilot. As you wait to push back, your headphones buzz and you hear a voice from the control tower: “Captain, we’re cleared for takeoff; let’s push back and get you in the air. We don’t have a flight plan for you, but we know how excited you are for this trip. We know you can probably figure out the details once you’re airborne. “By the way, we haven’t checked your fuel. We hope you have enough to make it to the Big Island— anyway, let’s give it a shot. And one more thing, you’re taking off on the short runway, so you’re going to have to give it some extra throttle. We know you’re in a hurry to get going, so cross your fingers and good luck!”

You may think that scenario is ridiculous—and it is. No airline captain would even consider taking off, much less flying, under those circumstances. Unfortunately, many would-be entrepreneurs launch their businesses with a cinch of their seatbelt, a glance toward heaven, and a push of the pedal. These small businesses never arrive at their destinations because they ignore basic startup 67

necessities. No plane can fly without fuel, and getting your venture off the ground is just the same. You have to get gas. There are three maxims Rich considers faithfully when fueling his ventures: logic must manage emotion, numbers donâ&#x20AC;&#x2122;t lie, and find how to fund the runway. Cruising at an altitude of well over six miles, watching patchwork farms, tall mountains, sprawling forests, and glittering oceans pass beneath you, your plane may feel invincible. Emotions run high when you start a venture, but reality hits if the gas runs out. Keep logic in mind, line up the numbers, and find the right funding to ensure as smooth a flight as possible.

Logic Must Manage Emotion Emotion, one of the greatest sources of success for an entrepreneur, can also seriously hinder performance. As excited as you are to take off on your new adventure, you have to do the logical things first. Starting a wellfueled venture requires three steps. You have to file the flight plan, make sure the runway is long enough, and, most important, check your gas tank. I recall speaking with a young entrepreneur who planned to launch a new, progressive technology. Talk about excited—he was like caffeine on steroids! On the verge of quitting his current job, he had convinced one of his best friends to do the same and jump on a plane ride to…well, where was unknown. This new technology needed a year to eighteen months of development time, followed by an intensive, costly marketing effort. I listened patiently, admiring his passion for this venture, and then started poking at him a bit. “What funding do you have available?” “How are you going to pay your salaries?” “How much have you allocated for market penetration?” My questions came like a dagger to his heart. He had not made the effort to measure the required runway, check his gas tank, or even file a flight plan. He and his would-be parachute pal had earnestly worked themselves into an emotional lather, saying, “Let’s do this thing,” and left logic behind. Sadly, the dagger was neither sharp nor penetrating enough. He disregarded my counsel to create even a simple pro forma, figure the cash requirements, or take a quicker path to profitability. Three and a half months later, I received a call from him: 69

“Rich, my family is starving. What can I do?” It was one of the saddest things I have ever heard. Let’s take a moment and pick this story apart. What, specifically, is the flight plan? What is the gas? And what is the runway? • The flight plan—your basic business plan— includes your pro forma, or your financial projections of what you expect to happen. (This does not need to be a six-month exercise in futility, but a document that fleshes out the basics.) • The gas is your cash reserve, used to execute your business plan. • The runway is the time needed to realize your business plan, to get profitable, or, at the very least, to stabilize. The flight plan, the gas, and the runway are interrelated and equally important. The pro forma seems to scare the most people. A pro forma is a simple document that projects cash flow, balances, and income statements. You do not need a CPA to create one. Use a basic Excel spreadsheet and simply begin outlining your monthly projected incomes and expenses. Keep it simple, but make sure it is thorough. Here is a sample of a pro forma I have found incredibly useful in my ventures. Generally, I draft three versions: a conservative, a realistic, and an aggressive model of my cash flow. I then operate based on the conservative model. Once you have written a one-year pro forma, do the same thing for three years. You don’t need to 70

spend too much time on this exercise, just enough to get a sense of where you can and want to go financially. Focus on your cash flow. Income statements and balance sheets come in handy for later reviews, but cash is your gas. Track it carefully. Once you begin operating the business, compare your performance against the projections of the pro forma each month (or each week, if necessary) and adjust accordingly.

Once you have gone through this exercise, you will have a better idea of how much gas and how much runway you actually need. After all, even the best logic doesnâ&#x20AC;&#x2122;t do much good without a solid cash reserve and financial plan.

Porter’s Points: Logic Must Manage Emotion • The same drive you need to start your business can run you right into a wall if you forget to meet the requirements of logic. • A pro forma is a simple statement that predicts cash flow for one to three years. It doesn’t have to be very in-depth, but it should cover your bases and give you a good overview of your income statements, balances, and cash flow. • Draft the pro forma and direct your drive toward that. Rather than a fluffy goal, shoot for something tangible and hold yourself to it.

Numbers Don’t Lie At the end of 2006, my successful mortgage company was reaching the end of its wave. My partner and I were extremely fond of the team we had assembled, and we wanted to keep it together. In a desperate attempt to hang onto this talented, rag-tag team, we created a company named Everest Web Design. We built a sophisticated pro forma model around the new business. As we reviewed the numbers, it became evident that this business was going to be a long shot, but we just couldn’t accept that. Because we were so emotionally tied to this little team, we ignored what the analysis told us. The team set about tweaking the numbers until the model showed us what we wanted to see. We began testing the business idea, knowing full well the numbers did not support success. The numbers were right: the tests failed. So did we shut down the business? No. We threw more money down the rat’s hole and tweaked the numbers some more.

The initial numbers told me the venture would not work unless we cut expense and reduced the size of

the team or infused capital into the project to get it off the ground with the entire team’s weight. After a substantial financial loss, we ended up shutting down the entire project and letting the team go. We had become too emotionally invested in the team to accept the reality of the numbers. When the numbers tell you your bright idea won’t work, trust the numbers. Remember: logic has to manage emotion. If you have that mindset, your first step is to get used to the fact that the numbers don’t lie. You may be considering how this reconciles with my mantra to “damn the torpedoes!” or “burn the bridges!” The answer is that you have to find the balance between persistence and reality. In the example above, I could have let half the team go, burned the bridges behind us, and perhaps made a run at success. I didn’t. I stuck with my emotions and persisted through insurmountable odds, but that wasn’t enough. I love persistent, determined people. However, persistent, determined people who chase down rat holes amuse me—and, yes, I have amused myself more than once. So how do you avoid rat holes? How do you strike the balance between persistence and reality? To be honest, this is an area I’ve failed at from time to time, and the cost has been more than financial. Usually, my failures came because we broke with our original intentions. In the next chapter I’ll talk about making and living with rules. Include rules in your personal guidebook for dealing with numbers scenarios. Rules do not smother your creativity or stall your drive. You create them to guide you past the cliffs and landslides along 73

the entrepreneurial path. For me, then, the answer— which has come the hard way—is threefold. The first rule I have added to my guidebook is: don’t tweak the numbers to fit your emotional needs. Some people call that discipline. Believe what the numbers say and act accordingly. Second, articulate the rules to your partner. If you don’t have a partner, then share your rules with your significant other, attorney, accountant, advisor, or somebody. This emphasizes the need not for a friend or a yes-man, but a partner! Articulate the rules to a person who will be up-front, frank, and direct, who will maintain a clear perspective when you start to chase rats down holes. Rehearse the rules with him or her. Your “rules partner” must be unafraid to ask the tough questions at the critical moment. And he or she must be willing to point out your departures from the established rules. In a moment of cloudy temptation, you must be able to say, “Hey, didn’t we agree to not…?” and then stick with it. You made the rules when the temptation didn’t exist. Your partner will remind you that you made the rules when your heads were clear. You made the rules by considering situations just like the one that now tempts you. These exchanges with your partner are vital sanity checks. With all of those hard-nosed rules, remember this third point: sometimes, things change. You may need to change the guidebook. If things do change, rework the rules based on fact, not emotion. Do it only when absolutely necessary. This is the tricky one of the three. You cannot change the rules to accommodate your emotional needs. No whims are allowed if you 74

want the rules to guide you to the summit. Take time when changing any rules; there can be nothing haphazard here—and always, always remember, some rules should never be changed. Don’t ignore reality. The numbers may be telling you to look into other opportunities. Porter’s Points: Numbers Don’t Lie • An honest pro forma is as much of a crystal ball as you will get. Make the effort to build it on accurate data. If the numbers don’t add up to a viable venture, it’s time to do the math: go after something else. • Set rules that specifically tie back to numbers. Make sure you and your partner hold each other accountable. Don’t let pride get in the way. • Set rules to govern your rules. If you have to, set rules to talk about your rules. This may seem tedious at first, but touching base in the beginning helps train your bootstrapping attitude for the end.

Fund the Runway There are a variety of methods you can pursue when funding your venture. I’ve seen associates use each of these methods, and I have used a number of them myself. It is interesting to note that I’ve experienced and seen both success and failure on each of these tracks. In many cases, the type of venture you embark on determines the type of funding you’ll need. Lengthy technology buildups take venture capital; but family businesses can be kick started with family funds, and quick-to-cash service businesses can be bootstrapped. 75

I’ll set forth several alternatives and discuss the pros and cons of each. There is no right or wrong answer on how to fund a company. It frequently depends on your present financial circumstances, what type of business it is, and your preference. Of course, I prefer to bootstrap, and my bias will come out—but remember to consider your specific situation. Potential Funding Sources: • • • • •

Debt Financing Credit Cards Bootstrapping Friends & Family Angels and Snakes

#1 Debt Financing Debt financing is a classic: simply get a loan from your local bank. Banks require collateral. Often, they choose to tie up your house. This may not be a bad option if you have equity in your home and don’t mind losing it if things fail. Of course, you want your venture to be successful, but if you put something on the line, you must be emotionally prepared to lose it. Don’t risk what you can’t afford—and really, truly don’t want—to lose. I’m sure that debt financing has its place, but I hate it because I have to go sit in front of some stodgy banker who pretends that he understands what I am setting out to do. I remember one business I created that required a line of credit. The business was growing so fast that I needed gas to fuel the rapid growth. Online sales was our model; I would get paid thirty days after the end of the month, but I had to pay for the advertising up front. 76

At one point during the term of the line of credit, the bank called me in for a formal discussion about their little $100,000 loan. They proceeded to express concerns. I proceeded to erupt into laughter. See, their biggest concern was that I had only one company paying me. Banks are used to seeing businesses collect only from most of their customers most of the time. To them, it looked like I had all of my eggs in one basket. They were right, it was only one company— but it was Google! After an hour of attempting to explain the business model to them, the president finally came in and vouched for me. Forty pages of terms and conditions later, I had received my line of credit. Needless to say, we never missed getting paid by Google. So what was the value of that debt financing? Well, I did not have to give up ownership in the company, and I instantly had funds to draw on for uninterrupted business growth. Outside of calculating the risk, the cost of such capital is very low. If you choose debt financing to fund your company, use a Small Business Loan (SBA). Interest rates are nominal, and these loans are fairly easy to obtain with a structured business plan. Of course, you have to provide a personal guarantee (in the form of collateral) and are obligated to make payments on the loan. If things go wrong, there is a chance you could end up paying for a dead dog. Pros: • SBAs are relatively easy to obtain. • You maintain ownership. • There is a low initial cost.

Cons: • You have ultimate responsibility to pay back the loan with or without success. • The loan requires material and emotional collateral. • You account to a banker who may or may not know your market. # 2 Credit Cards As crazy as it sounds, I have seen credit cards work financing wonders in the entrepreneurial world. I have an associate who was working for a company when it went defunct. He saw a quick path to cash, and, understanding the company’s business model, decided to roll the dice. He had no equity, but he had a credit card with a $12,000 limit. He drew out the money, took several team members with him, and started a new company. Off to the races they went! Within two months, they were profitable. He put his team members and himself on full salary. One year later, he had purchased a fleet of BMWs and Mercedes, allowing his employees to drive them. Two years later he purchased a complete office complex for his business, and within three years sold the company for $20 million dollars—all from a $12,000 credit card. As for me and my house, I don’t have the nerve. I personally don’t believe in exposing my family to that level of risk. However, my associate was in his late twenties when he did this. He had a small family, and his risk of failing and having to start over was not overly significant. He was bright and capable. You have to assess your own risk threshold. Although 78

a fun story, this is not a financial model I would recommend to most people. Pros: • Credit cards are quick to cash. • You maintain ultimate decision-making power. • You retain ownership. Cons: • There are high interest rates and merciless deadlines. • Long startup times make for heavy debt (and the servicing of that heavy debt). • There is increased risk to family and dependents. #3 Bootstrapping You know by now that bootstrapping is my favorite method of funding. It’s critical to remember that to get your venture started, you have to chase cash. This won’t get you rich quick—the pie in the sky often has to be postponed while you build up your fuel reserve—but it makes up for its zigzag approach by giving you full autonomy and stability. Simply stated, you sacrifice your rate of ascent, but it’s your flight, Captain! To bootstrap, many people dip into their own funds: retirement, emergency savings, or a 401K. Wherever you get the money, set your limit of risk and stick with it. (Remember those rules?) When you bootstrap, your initial efforts are often measured as opportunity versus strategy. Our most recent venture is a perfect example. Ron and I came up with three venture ideas: SEO work, 79

engineer outsourcing, and link building. We wanted to pursue link building, because we knew that it would be the most scalable, profitable, and successful; however, starting our venture with only $5,000 required us to get quick to cash. We knew the SEO idea would give us just that. With my contacts and skill in search engine optimization, we put a simple plan together and proceeded toward building a service business. Although our SEO business required intense lifting and was neither strategic nor scalable, we knew it was quick to cash. A few calls and a well-timed trip to New York landed us several large SEO accounts. We got gas in the tank. As we built that business, we kept an optimistic eye out to transition into our other two desired opportunities. We zigzagged our way to our ultimate goal: the cash from SEO allowed us to engage engineers, which bridged to link building, which has now led us to where we create our own assets. It took nine months to make our move to where we are now. Bootstrapping requires more patience and more brain power, but the pros outweigh the cons. You force yourself to literally watch every dollar and make sound decisions. Those attitudes are powerful allies. Additionally, chasing cash makes you zig and zag to the final destination. That slows down the whole process, but exposes more opportunities and allows more time for the analysis of your perceived ultimate destination. Pros: • You dictate all of the rules. • The need to zigzag opens unforeseen opportunities. • Whatever your initial level of discipline, you come out that much stronger. 80

Cons: • Bootstrapping can be stressful. It requires intense personal effort, firm commitment, and a high level of discipline to get the ball rolling. • You can’t go directly for the big opportunity. • You have to slow down. #4 Friends & Family “Hey Dad, you got ten dollars you can loan me?” When attempting to finance your business, the thought of funding with a loan from friends or family members may cross your mind. If it does, take a minute to think it through. What happens if the business fails and you can’t pay back the loan? What happens if the business finds the sweet spot and becomes wildly successful? Will your “banker” expect a percentage of the gain in addition to repayment of the principle and interest? Think for a moment about your next family Christmas get-together. Santa—or Grandpa—just might bring a hefty load of coal. You need to recognize the serious nature of these kinds of commitments. Be careful and thoughtful in accepting funding from family and friends, who are sometimes as willing to provide it as you are to receive it (with neither side thinking it through carefully). In any partnership or business relationship, you should ensure that everything is clearly understood and delineated in writing. I have never had the luxury or curse of borrowing from family and friends, but multiple business associates of mine have utilized this form of financing. Through 81

marriage, I have some relatives who are extremely well-off. They created one of the largest construction companies in the western United States, a cash cow for the whole family. Each member of their extended family has the opportunity to leverage off of this success. As a result, many have developed successful companies ranging from sand and gravel outfits to road sign businesses. If this option is available to you, consider using it. Just remember that borrowing money from your family and friends is not the same as bootstrapping. You are still accountable to an outside source: you are putting your relationship up as collateral. Pros: • Wealthy relatives can support each other. • Friends and family are quick to your aid. • Success and failure, if handled right, both make for fond memories. Cons: • If you can’t repay your financier, things can get ugly—and it’s easier to avoid seeing your banker than your father. • Even with a carefully drawn-up contract from the outset, success can be hard for a family to deal with. #5 Angels and Snakes Angel investors typically are wealthy individuals who provide capital for startups. They might contract for convertible debt or equity in the business as a return on their money. Some angel investors have begun to organize angel networks in an effort to share their pool of investment dollars. 82

Venture capitalists (called VCs, though we unaffectionately refer to them as “snakes”) are institutions that manage a pool of wealthy, qualified investors’ money. It is not uncommon for them to be the face of a trust, business, investment fund, or other entity. They have a responsibility to the members of that group to ensure the success of the businesses their money is invested in, which results in a very active involvement. My experience has been that dealing with angel investors is far better for your blood pressure than dealing with VCs. That can be good or it can be bad. If you have the discipline to execute on all aspects of your entrepreneurial climb, you may benefit from the more hands-off approach the angels take. However, if you need structure, leadership, and occasional bullying, the snakes may be the right solution for you. Many businesses simply require VC funding to start. If you are after the grand slam, you will want to consider it. If you do, then this book will give you some great guidance, but you will want to browse around for an additional entrepreneurial bible. In fact, it might be best to have an entrepreneurial clergyman. When you work with snakes, a critical resource to have among your senior staff or advisors is an individual who has had a successful VC exit. Having this experienced person will help you navigate the maze of VC demands. The attitude that a VC brings to the table is all or nothing. If a VC invests a million, they want ten million out of it. Some have done well with VCs, but I have never had a good experience with venture capital funding in my entire career. Traditional venture capitalists can be very difficult. Management gets restructured and 83

goals get realigned. With VCs, you will do it their way, not yours. So why the bad taste in my mouth? Hmm— let me count the ways. I worked as the CEO of a small company, making repeated attempts to get funding. I cannot count the number of times that venture capitalists led us down the rosy path, wasted our time and resources, jerked us around, and then proclaimed, “We’re out.” The truth of the matter is that many VCs don’t want to be first in. Because they have money to protect, they often hold off on commitment. But once you get one in on the deal, others clamor to climb aboard. Angels’ Pros: • They are less threatening than a snake. • They tend to leave you alone. • They are friendlier on the ownership terms. Angels’ Cons: • Legal costs can get high. • No pressure from them can cause laziness in your team. • Typically, you’ll need more than one angel. • Usually, an angel is someone you know. You don’t want to risk the friendship. Snakes’ Pros: • A massive infusion of funds allows you to quickly get to market. • The financial oversight keeps pressure on and momentum high. • Potential board contacts and crossrelationships with other funded ventures can open more doors. • You get visibility with funding from a notable VC. 84

Snakes’ Cons: • You lose some control. • You build product for the capital rather than the market. • It seems like a VC’s job is to make your life difficult. • If you don’t like audits, you had better cultivate that taste! For me, the choice to fund or bootstrap isn’t a matter of right or wrong. It’s just a matter of preference (and, granted, I have strong preferences). There are plenty of pros and cons for each approach. If you choose funding, whether you find an angel, family member, credit card, or VC, you must be cognizant of one potential roadblock: distraction. This past year I have been working with a brilliant young entrepreneur. I watched with great interest as he reported to me every several weeks the marked and smooth progress he was making with his selected VC. Knowing my own living hell in dealing with snakes, his optimism piqued my interest. I truly hoped to witness a positive experience. Knowing that his required funding event was two million dollars, I was horrified and confused when the VCs convinced him that he needed ten million, not two. One day he walked into my office, and instantly I knew what had happened. Emotionally bloodied and bruised, he explained the waste of the last three months of his life. He was sure the funding would execute based on a completed term sheet. He had stopped doing the side engineering work that covered his personal expenses. It was right then that the VC turned out to be disreputable. The deal fell apart at the due diligence phase—no gigs…no funding…no fun! 85

At one time, Ron worked in a building with a sister company in a thriving, high-demand industry. The sister company operated both on a bridge loan and on revenue generated by sales of services and products. It started taking off, and its executives decided that with additional funding, they could scale the business rapidly to make a nice return in a short period of time. The process to secure the funds was at once grueling and exciting. The entire company got caught up in the pursuit of funding; as a result, other vital parts of the business were ignored. The executive team spent countless hours building pro formas, gathering data, and presenting to VCs. Then the executives, based on the anticipated funding, decided it was time to start building a new facility. They used their existing funds to get the construction started. Heady and exciting times, right? Well, they forgot a minor detail: running the business. You can’t neglect day-to-day operations pursuing funding. You know the outcome of the story. The funding fell through, the company could no longer make payroll, and, instead of growing, it downsized. No need for a brand new building now! The only highlight was that the company Ron worked for watched and learned from the process while preparing for its own funding event. It was during one of the executive team’s planning sessions that they heard the sad tale. Then and there, they adopted a plan to assign a “tiger team” of executives to go after funding, while the rest of the executive team ensured that day-to-day business operations moved forward. And what happened to the new office building that was under construction? The company Ron worked for got to move in.

The major risk with pursuing venture capital is that you can easily end up doing crazy things, things completely at odds with your rules, objectives, and dreams. I have watched colleagues change their entire business model to adapt to venture capitalists who didn’t even understand the market they were in. If that works for you, work it—but remember to manage emotion with logic and to keep your numbers in line, making sure that everything falls into place. Porter’s Points: Fund the Runway • Once you have worked out your pro forma and set some ground rules, look into how you will get your funding. Do you need an initial funding event? How large? • Never discount bootstrapping in favor of more traditional methods. Remember that the unconventional, slower route may be more rewarding in the end. • Always know who and what you are dealing with. Weigh the pros and cons for your specific venture before taking action, and be sure to learn from other ventures around you.

5 The Rules Porterâ&#x20AC;&#x2122;s Preface Entrepreneurship is a tug-of-war and you are the rope. Total commitment to the battle pulls at one end while clear-headed detachment and objectivity heaves at the other. If youâ&#x20AC;&#x2122;re going to stay in one piece, pay close attention to this chapter. Rich will discuss several key concepts and methods that have helped him maintain sanity as he has been pulled by the opposing forces of the bootstrapping tug-ofwar. Neither Rich nor I would be where we are without having created and followed our own sets of rules. Have we fallen and been dragged through the mud pit? Yesâ&#x20AC;&#x201D;and you will, too. To minimize the damage of these muddy encounters, though, you must make and live by rules. It is vital that you understand the importance of making rules for your company and for yourself. But, as Rich will explain, it is not enough to just make the rules. You must have the discipline required to live the rules. To help you remember that first foundational rule, Rich will give you a firsthand look at some of the rules he has created for his bootstrap tug-of-wars. 89

In the next section, Rich will address the issue of how people frequently confuse their original lifestyle vision when creating their business. So many entrepreneurs build a business to support a chosen lifestyle, only to end up creating the exact opposite. Rich will explain this intriguing dichotomy and show you how to stick with your original intent. In memory of our rock-’n-roll days, Rich and I have entitled the third section, “Hold on Loosely, But Don’t Let Go.” He will tackle the challenge of knowing when to let a business go in order to move on to the next opportunity. This is much easier to write about than to do, which brings us back to that same old tug-of-war. What about the slippery slope of setting proper expectations with your trust relationships? How do you negotiate business and life with your significant other, family, partners, investors, bankers, and team members? In the fourth section, you’ll see that the outcome of this tug-ofwar has lasting consequences. But winning on the business front and on the personal front is possible if you stick to the rules outlined in all of five sections of this chapter. We have both done it. Finally, Rich will boldly advise you to not risk what you can’t lose. Do you really want to play Russian roulette with your kids’ college funds? If things go south, is mortgaging the house to fund your venture something you can live with? Should you really be sucking gas out of your retirement tank? Think carefully about these questions as you read on and learn to stick to your rules. 90

Make the Rules, Live the Rules One of the great joys of living the life of an entrepreneur is that you get to create the rules! You have the freedom to build and create according to your own specifications. However, once you have established the rules, you do not have the right to arbitrarily change them. Capricious rule changes result in crises not just in your business, but in all aspects of your life. Will the rules ever need to change? Yes! Circumstances change, objectives change, and markets change. However, if you change the rules, you must do so the same way you created them: with forethought and deliberation. You must then communicate these changes to everyone they will impact. Before you can change the rules, though, you need to write down your rules. This is your task. I cannot and will not create your rules for you. You must thoughtfully and carefully create them based on your value system, your goals, and the level of risk you are willing to take. To illustrate, let me share a few examples of the rules I have set up along the way. Here are seven basic categories that I build rules around when I create a new company: • • • • • • •

Finances Culture Hiring and Firing Roles and Responsibilities Boundaries Exit Plans Time and Travel Commitments

Rich’s Rule: I will not sign a personal guarantee unless I am the primary business owner, and I will always maintain control of company finances. Earlier in my career, I was hired to be the CEO of a highly visible startup web company. I was turned on by the title and really wanted to prove myself. One of my first responsibilities was to acquire computer equipment. This required our taking out a loan, which, in turn, required a personal guarantee. I had no vested ownership in the company and the finances were being handled by an external CPA. But, in my zeal to demonstrate my commitment and teamplayer attitude to the board of directors, I signed the personal guarantee. Several months later, the web bubble burst, and who do you suppose was responsible for that loan? I spent the next five years paying off those damn computers with my own money. The rule I now live by is: never sign a personal guarantee for someone else’s business. Ever! Along similar lines, although I have had wonderful accountants, office managers, and administrative assistants, every time I have given someone else complete control of the books, the outcome has been disastrous. No longer do I allow anyone else to have ultimate control of my finances. I always remain actively involved. Rich’s Rule: Be true to my conscience. How I succeed in business has become just as important to me as actually succeeding. In my last corporate job, I was a senior executive in a well-known company. In this role, I became exposed to some unscrupulous activities. As I left to start my own businesses, I recall thinking very clearly, “I would rather not succeed 92

financially if it means doing so through unprincipled means.” I make no claim to perfection—however, there are certain businesses and activities that I refuse to engage in. Each morning, as I shave, I have to look at myself in the mirror. And I’ve learned that’s easier to do if making money is not the most important motivator in my life. Being honest in my dealings coupled with building and lifting humanity is, to me, far more important than any amount of money. Rich’s Rule: Never put my house or my family at risk. I have chosen not to use the equity in my home to finance my businesses. However, it may be a viable option for some. (See chapter 4, “Got Gas?”) I made this rule for my psychological well-being. I find great comfort in knowing that my house is paid off whenever the worst-case scenario becomes the real-life scenario. In fact, this rule allows me to take even bigger risks because I am not worried about my family’s welfare. Because I follow this rule, I sleep very peacefully at night. Rich’s Rule: With each new business endeavor, I set limits for my investment of time and resource. At the very beginning of each new adventure, I write down just how much time, money, and other necessary resources I am willing to invest to go forward. Although I write down all of my rules, writing down this rule makes it especially real. When I know how far I am willing to go, I have a better feel for the finances, the time, and the commitment required. Then I can really apply the “Got Gas?” chapter. I can say, “Here is what I can give. Is that enough to get this baby off the ground?” 93

Rich’s Rule: I always sift each idea through my four filter rules list. Every idea I consider bootstrapping gets asked each of these questions: • • • •

Is my idea a digital asset? Is it transactional in nature? Will I own the customer? Is it riding a wave?

Your questions will be your own, but always ask them. No exceptions. (See chapter 3, “Power Tools.”)

Rich’s Rule: I will not engage in friends and family businesses. It is not my intent to offend the many good people engaged in friends and family businesses. This is just a rule for me. I choose not to sell to friends and family. I do not want any unhealthy strings attached to my close personal relationships. I have a few friends and extended family members who only call when they want me to join a so-called “great new business.” Personally, this gets on my nerves. I remember when I was first married and my wife and I moved into married student housing. The first people in our complex to approach us feigned friendship when all they really wanted was to sell us on a new business scheme. (Of course, we didn’t know that at first. They were just nice people.) They said that they would love to get together and start building a friendship. We were excited that someone wanted to get to know us, so we invited them over to dinner. My wife spent hours preparing a nice meal to impress them. They enjoyed the dinner, and we enjoyed their company. But just as we finished dessert, out came the sales pitch: “We would like to share something very, very special with you…” As I’ve gone through my rules, you’ve probably noticed that I have picked those that address each sector of my business life. These are just a few of the rules I’ve established for myself. They mean something to me. Yours will mean something to you. Take the time and find the joy that comes from creating your own set of guidelines.

Porter’s Points – Make the Rules, Live the Rules • Review the seven basic categories of rules that Rich has outlined. Think about where you stand in your own life. Write down at least four or five guiding principles to govern how you’re going to bootstrap your business. • Take those principles directly to your significant other. Make sure that he or she agrees and is fully invested in them. Do this with anybody whom your rules impact. • Set boundaries. List the top five most important things to you in your life. Ask yourself: what am I willing to do to get these? What will I not do to jeopardize these? If your rules do not agree with each other, fix them!

Donâ&#x20AC;&#x2122;t Destroy What You Want to Create Many people go into entrepreneurship to give themselves more freedom to choose their lifestyle. However, they frequently end up manufacturing the exact problems they were trying to escape. I live in a beautiful small town that is experiencing a growth spurt. There are countless new move-ins who sold their high-value homes in congested cities to live in a more laid-back atmosphere. Upon arriving, these same folks begin complaining about the lack of shopping outlets, social amenities, and malls. They seem to forget that people move to small towns because they are small towns. These people initially like the slower pace, lack of traffic, and actually getting to know a neighbor or two. But then the memory of convenient shopping and a wide range of restaurants comes back and wins out. This attitude is turning our small town into the congested city those people were trying to escape. Be careful lest you experience the same phenomenon in your business: donâ&#x20AC;&#x2122;t create what you left behind. One reason that I wanted to get out of corporate America was that I wanted to spend more quality time with my family. I wanted control over when I vacationed, when I worked, and when I took off to attend my childrenâ&#x20AC;&#x2122;s activities. However, starting a small business takes a lot of time and energy. I realized this one day when I was dashing out the door and my wife handed me a glass of milk for breakfast. I popped a vitamin in my mouth and washed it down with one large gulp. I was gagging on the pill and coughing as my 7:45 a.m. conference call rang on 97

my cell phone. As I started to jump into my car, my wife yelled after me: “Honey, please make sure you are there for Timmy's program. He is so looking forward to performing for you.” “I wouldn't miss it for the world,” I quickly said, dropping into the car and shutting the door. Then I hit the green “talk” button on my phone. Still on the conference call when I got to the office, I whispered to my admin to give me a 10:20 reminder to leave for my son’s performance. Where do the mornings go? After ten minutes of prodding, I jetted out the door at 10:30 and headed for the elementary school. It hit me. I’m going to be late. Cell phone stuck to my ear on another conference call, I swerved through traffic like Jeff Gordon threading competition at Daytona. Ending the call as I entered the west entrance of Timmy’s school, I pasted a calm smile on my face and looked for my wife. The kids had just started singing. As I walked in, my beautiful, amazing wife gave me that look a man can only interpret if he has been with a woman for twenty years: a combination of “thank heavens you’re here— where were you?” coupled with “You know I would have killed you.” At that moment, the bright eyes of my happy, yellowhaired Timothy caught mine and simply sparkled. They said to me, “You made it! It makes me so happy you are here. I am going to put on this show just for you, Dad.” His look made me avert mine, and I thought, “Boy, am I glad I did not blow this one.”

Too frequently, we allow ourselves to get caught up in both the whirlwind and the grind of our business adventures. Invariably, the drama of those adventures tends to muffle our inner voice of reason. It seems to mask the urgency of the truly valuable events in life. Too often we rush from task to task without really making significant contributions. We miss the really important things—the sweet things, the rewarding things—the lasting things of our lives. Likely, I will always struggle with the tugging lure of a successful business and a balanced life, but it is a tugof-war worth the fight. I do not embrace being my own boss to work less, but to be flexible enough to adjust my work to allow for the weightier matters of life. Weightier matters, like seeing my five-year-old dressed up as the Yellow-Bellied Bluebird in the school play. Porter’s Points – Don’t Destroy What You Want to Create • Many people go into business for themselves to have a more flexibility to do the things they love. Sometimes, what they love trumps flexibility. Don’t lock yourself into a corporate scheduling model that you’ve worked so hard to get out of. • Live the rules that you set regarding family, time, and financial boundaries. The fastest way to kill your dream is to go at it regardless of the rules you set. • You will never perfectly walk the tightrope in your venture. Getting the right mindset is the first step, though, and will keep you from destroying what you set out to create.

Hold on Loosely, But Don’t Let Go When I was a teenager, there was a popular rock band named .38 Special that recorded a song called “Hold on Loosely, But Don’t Let Go.” As “all-knowing” teenagers, my friends and I applied the great wisdom of these drugged-out rockers to our understanding of the big wide “world.” Amazingly, their insight turned out to be true. It was one of the few things I actually got right as a teenager. Have you ever had a relationship or an opportunity that you clung to so tightly that you suffocated it? I have. I wanted several of my early ventures to work so badly that I choked them right to death. I have an uncle who is a very successful farmer, owner of a trucking business, and also the founder of a local bank. He was the mayor of our small town for years and had a way of stating things that only a farmer could get away with. I heard him say several times, “The only deals that ever went bad on me were the ones that I wanted too bad.” When creating a business, entrepreneurs invariably adopt the necessary attitude of forward motion at all costs. The intensity of that commitment grows as more time and money go into the business. Then, ego kicks in and, before you know it, the effort has become allconsuming. At this point you have entered the danger zone. My experience has taught me that I can’t allow myself to get so caught up in achieving success that I don’t recognize when it’s time to let it go. Several years ago while I was golfing one day, I encountered three young boys playing in one of the streams on the golf course. All of a sudden they 100

jumped back a few steps. Then, ever-so-cautiously, they stepped back toward the streamâ&#x20AC;&#x2122;s edge. Curious, I went over to see what had caused the alarm. There, just below the surface of the water, was a harmless, three-inch crawdad snapping at the boys with all the perceived ferocity of a vicious, three-foot Tasmanian Devil! I did some checking on the monster and learned that it was nothing more than a freshwater lobsterâ&#x20AC;&#x201D;a crayfish. After my research, I went out on my own crawdad hunt, armed with nets and a bucket. I jumped right in the stream and began to stalk my prey. I got close to catching several of these little critters, but they swam much too fast for a novice hunter. At last, I grabbed one and a short battle ensued. It became clear those little pincers could grab and hurt. After a fun but not very productive hunt, I decided to resort to cleverer means. Learning that crawdads were attracted to old bones, bacon, and chicken, I equipped myself accordingly and set out for another try. I was not going to be outsmarted by a micro-lobster. Tying a small chicken bone to a string, I lowered it into the murky water. I soon felt a tug on the line. The pull grew increasingly persistent, and at just the right moment I lifted the string and bone out of the water. To my surprise, there were five little red-headed crustaceans holding onto that old bone for all they were worth. Their beady eyes glared at me. Their free claws snapped and clicked a warning to stay away. With one shake of my wrist, the five crawdads fell into the net waiting beneath them. They simply didnâ&#x20AC;&#x2122;t know when to let go. As a result, they ended up in a pot of boiling water and made me a tasty lunch.

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As a business owner, you are no different than those crawdads. If you aren’t careful, your venture that you hold to so tightly may land you in scalding hot water. You can’t afford to let go for just anything, but if you find out that you are holding onto a rotten chicken bone, cut and run. Go snap at something else. Porter’s Points – Hold on Loosely, But Don’t Let Go • Being an entrepreneur takes balance, so keep a healthy dose of reality in your back pocket even when you run full tilt at your venture. Some warning signs can be overcome, but some mean that it’s time to opt out. • Success is not hit-or-miss. If you miss it this time but come away clean, you have succeeded and are ready to try again. • The best sign that you need to back away from a venture is that it starts to violate your rules.

Concrete but Discreet One of the most frustrating characteristics of entrepreneurs is their failing to properly set expectations. “Properly” is the key word: your expectations must be both concrete and discreet. Make sure that you make things clear, but don’t feel like you have to tell all. To do that, you need to start with effective communication through frequent and open dialogue—in other words, don’t push people’s buttons.

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I recall one particularly grueling trip that I took to Birmingham, England. I never had a minute to adjust to the jet lag, and at the end of a long week, I was way beyond exhaustion. The trip had hit me like a hurricane. Finally, after boarding the plane for the flight home, I relaxed.

I comfortably settled into my cushy, business-class seat with finger-tip controls for adjusting lumbar support, leg angle, and chair tilt. In front of me was my personal TV/Game Boy/movie screen. I sank into rest mode, but the stupid buttons weren’t working. I pushed at them like crazy, but nothing happened. There was no movement. Just as my frustration got almost to the point of calling the flight attendant, I glanced at the guy sitting next to me. He, too, looked frustrated, but his face was tinged with a grin as he looked straight back at me. “You’ve been pushing my buttons!” he said. He had been sleeping. I had mistakenly taken hold of his controls, and all this time I had been pushing his buttons. I had him going up, down, sideways, squeezing, sitting forward, and laying back—in short, I was rocking his world. Tantamount to pushing the wrong buttons is allowing a lack of communication among those closest to you about what you are doing. You must frequently dialogue about your plans, how the business is faring, and how both of those will impact those who matter to you and to your enterprise. Be concrete with your descriptions. Entrepreneurship can be a wild ride. You must be open about where that ride is taking you. Do not discount this small courtesy. Clear communication up front and along the way is vital for all your relationships, be they with your significant other, family, partner, banker, customer, or self. Be careful about how much you articulate your ups and downs, though. This is where discretion comes in. 103

Early in my marriage, I was going to school and had not done very well on a significant test. After a long and frustrating day on campus, I walked through the door. The first thing out of my mouth was: “I’m going to fail this class and get kicked out of college.” Funny thing, this declaration had the exact opposite effect from what I had hoped for. Instead of soothing me with sympathy, my wife spiraled into panic mode. “What are we going to do now? I’ll have to make adjustments. Maybe I had better stop school and start working. Maybe we both better drop out and get jobs.” Getting a C-minus on a test was not going to get me kicked out of college. I was just feeling beaten and sorry for myself. In fact, by the end of the semester, I had pulled an A-minus out of that class. Think about how you set and communicate expectations. Be clear. Be diligent in reporting the progress of your business and don’t keep changing the rules of engagement with those around you. Do not blow small things out of proportion. Doing so will result in a wild emotional ride that will not be fun for anyone involved. Porter’s Points – Concrete but Discreet • Who do your rules impact? Keep those people informed. Don’t divulge company secrets or cause undue worry, but do talk about goals, plans, and progress. • Let yourself cool down before you talk about failure or success. It is unhealthy both for 104

your expectations and for others’ if you make something too dramatic. • Frequently ask yourself and others what you and they expect from your business. Every time you do, articulate the applicable rules. The best way to keep everybody on the same page is to set specific expectations through your rules and then live by them.

Don’t Risk What You Can’t Lose As you are pulled by the commitment side of the tugof-war, ensure that you establish financial boundaries. This is a critical element of success. You must set limits for the amount of resources and energy you are willing to exert to win. If you have not achieved success when that threshold is met, you must step back and evaluate the situation in light of your rules. Do the rules allow for layoffs? Do they include getting more funding? Reducing salaries? Whatever the stipulations of the rules, remember that you created them when you were clearheaded. You must have the discipline to do the hard thing and stick with it. You can’t let your partner or advisors tell you to go a little further when you know it’s time to stop. Most of the major disappointments I have had in my career have been when I have chased something for too long. In 2000 the Web 1.0 took a horrendous downturn. Despite the terrible market conditions, I held on to a very unprofitable business knowing, just knowing it would turn around. As I passed the thresholds established by my rules, I knowingly ignored them. Why? Because my partner and our prior success reassured me that we could pull out of the nosedive we were in. 105

There is no disgrace in delaying or even postponing the game because the field is too muddy. And since you’re the ref, you can decide. To persist just for the sake of persistence is a slippery slope. When I blew out my Achilles tendon, I was determined to get my ankle working at all costs. If my physical therapist told me to do 10 reps of exercises, I did 20. I knew that if I just worked a little harder then the tendon would heal faster, right? Soon, I was doing aggressive rehab and pushing past all the barriers. Less than six weeks after the initial injury, I tore my Achilles tendon a second time. Going through the second surgery and rehab after failing to follow the rules was much worse than at first. It would have been a better decision to ratchet back and abide by the rules of rehabilitation, rather than rewrite them around my expectations. Let me share one last experience. This is a painful story to tell, not only because my lack of good judgment regarding a cardinal rule cost me the business, but because it almost cost me a trusted friendship. Every good investment plan has a “stop-loss” provision built into it. Your business should have stop-losses built in as well. A trusted friend and I were engaged in a business called Eggnesters. Having previously learned the stop-loss lesson the hard way, we established rules up front. One such rule followed the counsel above—we set up stop106

losses in case the businesses took a downturn. The rule was simple: establish a $100,000, three-month buffer. If the buffer ever dipped below the threshold, we had agreed to reduce expenses to allow for a positive cash flow. After several years of mind-blowing success, the business took a downturn. Before long, we had crossed the $100,000 threshold. What did we do? We changed the rule. We didnâ&#x20AC;&#x2122;t even put a lot of thought into changing the rule. We just changed the buffer to $50,000. We knew we could pull out well before we spent that next $50,000. So what if the market was volatile? Repeat the scenario. We crossed the threshold again. We were not going to be able to pull out. What did we do this time? We came up with a new business idea. Sounds like a smart move, right? It could have been, but even though our current team was not suitable for our new venture, we kept everyone on board. It was a loyalty thing. We watched the numbers and saw right away that our plan was not going to work. Our gut told us to stop. Despite the warning, we held on until we were actually going slightly negative. What was the end game? With no ramp or buffer with which to juice our next endeavor, we had to completely layoff the entire team, terminate the partnership, and part ways. As hard as it seemed at the time, the best thing we could have done was reduce expenses and regroup when we got to the $100,000 buffer. By accepting the need for a few layoffs and cutting some costs, we could have saved our most valuable employees. We could have saved a good partnership. I would have avoided 107

significant personal frustration if I had paid more attention to both sides of the tug-of-war. Instead, I let commitment tug me along and watched as my clearheaded detachment got dragged through the mud. Porter’s Points – Don’t Risk What You Can’t Lose • You generally know what you can’t lose. Most people do. Why do they risk it, then? Usually, they are addicted either to prior or current success. Recognize that tendency within yourself and compensate with open-minded objectivity. • Always take time to back off and assess your progress, even when things are going well. If you get in that habit when it’s smooth sailing, it will be that much easier when the water gets choppy and you have to enforce a rule. • Never risk what you can’t afford to lose. If you can’t afford to lose it, don’t risk it. End of discussion.

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6 Boring! Sorry. But however boring this chapter may seem, it is every bit as critical as anything else you’ll read in this book. We promise to keep it on task, to the point, and brief (we’re even skipping Porter’s Preface), so stay with us! The kind of business structure you establish really does matter. Talk to your accountant. Talk to your attorney. Get this right. Ask questions and insist that your key advisors give you the answers to the questions you don’t know to ask. If you are going solo, it’s pretty easy to choose how to structure your company. If you are partnering, know what structure provides the best tax advantages, and set one up that easily allows decisions to be made and executed. DISCLAIMER: This chapter does not replace your interaction with two of the three most important relationships you will establish—your attorney and your accountant.

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Sole Proprietorship Definition: If you are a sole proprietor, you are a single owner. Consider this entity when you want to assume complete responsibility for your business, both with assets and with liabilities. The income generated by this type of business is taxed as personal income. The majority of small businesses function as sole proprietorships. After all, it is the simplest form of organization and allows one person to control the business. But, of course, with control that comes all of the risk and responsibility. These types of businesses may use trade names, fictitious names, or Doing Business As names (DBAs). Nonetheless, according to state law, the entity does not have a unique legal existence aside from the owner. Trade names need to be registered with appropriate government agency where the business exists. It is common for a person to start her or his business as a sole proprietor and at some achieved objective transition it into another business vehicle. Some of those other vehicles are described below. Depending on your state, that registration may take place at the state or local level. Advanatges: A sole proprietorship minimizes legal restrictions and all profits are retained by the proprietor. Typically, you will have less paperwork; as a result, exiting the business is simpler. Also, sole proprietorships are not required to acquire Employer Identification Numbers (EIN) from the Internal Revenue Service until they hire employees. 110

You are not required to file separate income tax returns for the proprietorship. Financial results are reported on the owner’s income tax returns—federal and state. Self-employed persons are not considered employees; therefore, the provision to withhold monies to pay Social Security, federal or state taxes is nonexistent. However, quarterly estimated tax payments must be made to cover these liabilities. Disadvantages: Sole proprietorships have limited ability to raise capital. All debts and liabilities are solely the owner’s, and the business ceases to exist when the owner ceases to exist (for now, no religious philosophizing, please). It is common for a person to start her or his business as a sole proprietor and at some achieved objective transition it into another business vehicle. Some of those other vehicles are described below.

General Partnership Definition: This structure has a lot in common with a sole proprietorship, except that it allows for more than one person to share profits and liabilities. General partnerships accommodate individuals, corporations, trusts, other partnerships, or any combination of the above to unite. Advantages: General partnerships are easy to establish, and to exploit (in a positive way) the skills, knowledge, and talents of all the partners. Additionally, profits are not directly taxed. Disadvantages: Unlimited personal liability exists for all partners for all of the partnership’s debts and 111

liabilities, not just for that partner’s “share.” As with a sole proprietorship, a general partnership terminates upon the death of a partner, so make sure you think this one through and do some advanced planning! Additionally, any partner can commit the firm to obligations. General partnerships do not protect participating partners against personal liability with regard to claims against the partnership. Don’t make the mistake of failing to enter into a written agreement as you put in place this business vehicle. Ensure that all parties understand the terms and conditions and that all parties execute the agreement. Do not rely on an informal verbal agreement. Witnessed signatures are highly advisable in a general partnership.

Limited Liability Partnership (LLP) Definition: LLPs are legal entities formed with your State’s secretary of state. These arrangements provide liability protection for all partners. In addition, all partners get management rights in the partnership. This entity is popular among professional practices and offers, for the most part, the same limited liability as does a corporation. Just like a partnership, an LLP acts as a flow-through entity for federal and state tax purposes. Note that this entity type is different from a Limited Partnership (LP) which has one or more general partners who bear the operational and financial risks of the company and one or more limited partners who do not have operational or financial risks. Advantages: Limited partners are liable only for the amount of their capital invested. In turn, each partner’s 112

respective share of the partnership income and losses is reported on the partnersâ&#x20AC;&#x2122; personal income tax returns. A required element of any partnership is the agreement itself. This agreement governs the operations of the business. Ensure the terms and conditions of this agreement are understood by all parties. We are huge advocates of clear and honest communication between partners, and the signed agreement is a cardinal element in keeping with this philosophy. A nice advantage of the LLP is that there is not a requirement to include a termination date for the partnership in the agreement in some states. Also, LLPs are an independent legal entity and as such may own property, sue, or be sued. Disadvantages: Because an LLP is an independent legal entity, its formation requires a bit more paperwork (legal documentation) than do general partnerships. Note that in some states, if one of the partners in this type of entity leaves for whatever reason, the LLP automatically.

Limited Liability Company (LLC) Definition: LLCs are a cross between partnerships and corporations. They unite the limited liability advantages of corporations with the tax status of a sole proprietor or partnership. (As a note, LLC owners are referred to as members.) Advantages: Like partnership entities, LLCs are guided by an â&#x20AC;&#x153;operating agreement.â&#x20AC;? If such an agreement does not exist, the LLC is governed by the applicable 113

State Limited Liability Company Act. LLCs may be formed by one or more owners or members but may own property, sue, and be sued in the LLC’s name. LLC managers are elected by the members of the LLC and may be individuals or other entities. Managers do not have to be members of the LLC. In some states, if the LLC’s Articles of Organization do not specify otherwise, the LLC are perpetual—similar to corporations. Disadvantages: While not a big deal here, legal documentation figures in more prominently in an LLC than in a proprietorship or partnership, given that LLCs are legal entities. But like those business models, taxes flow directly to the individual members’ tax returns. This can be either an advantage or disadvantage. Note that the IRS does allow LLCs to elect to be taxed as corporations, but a discussion of the impact of that election is beyond the scope of this chapter.

Corporation Definition: These are state-chartered organizations and are considered and act as separate legal entities. Corporations are the most structured of the business entities. The corporate charter—a sort of operating agreement for the corporation—specifies business activities, and the business of a corporation must be in keeping with that specification.

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Corporations may elect for tax purposes to file as a C-Corporation or an S-Corporation. The differences are defined by the tax filing status as determined by the chapters in the Internal Revenue Service Code.

C-corporations: These pay federal and state income taxes on earnings. Earnings are distributed to the shareholders as dividends, and earnings are thus taxed again. This double taxation is a huge drawback to this type of entity. S-corporations: These entities have the same legal attributes as C-corporations; however, S-corporations do not pay income taxes on earnings. Rather, the shareholders pay income tax on dividends, using their personal income tax return. Advantages: Corporations continue to exist unaffected by the death or transfer of shares by any of the owners; also, owners’ liability is limited to the amount they have paid into their share of stock. The Certificate of Incorporation may specify the corporation’s continuity; otherwise, they exist in perpetuity. As a separate legal entity, corporations may own property, sue, and be sued in the corporation’s name. Disadvantages: These entities are closely regulated, including the double taxation for the C-Corporation. In order for a corporation to maintain the liability protection, certain formalities must be followed to avoid “having the corporate veil pierced.” These formalities include holding annual shareholder and director meetings and having minutes of those meetings.

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Porters Points—Boring! • Carefully review your rules, your gas, your market analysis, and every other step you have taken so far. Where does you idea stand in relation to these legal frameworks? Decide and get to work. But to be sure— • Talk to your attorney. If you don’t have one, get one. • Talk to your accountant. If you don’t have one, get one.

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7 Fish & Partners Porter’s Preface I love to eat fish. One time, my family and I caught a bunch of fish. When we arrived home, it was late and we were really tired. In fact, I was so eager to jump in the shower that I left the fish in the trunk of the car. The next morning, when I climbed into the car to go to work, it smelled terrible! It took several days and a lot of air freshener to get the stench out. Obviously, we didn’t eat the fish, and we didn’t go fishing again for several years. We’ve all heard the saying, “Fish and company both stink after a week.” Rich and I would like to extend this advice to business partners as well. I’m familiar with a business that illustrates this issue. It started in a garage. The two guys enjoyed working together. Their business became profitable and they leased a warehouse. They obtained some assets. More money came in, and they found themselves “living the high life.” Then, without warning, the market conditions changed, and they found they were treading water. That’s when it came to light that one partner had 117

set aside resources for a rainy day. The other had not been so responsible. He had accrued a high level of personal debt. Understandably, he did not want to downsize. All of a sudden, contention arose. There were questions about what belonged to whom. The debt-ridden partner got a day job in the construction industry to make ends meet, but his heart was still set on the entrepreneurial upside. To his chagrin, his partner moved on to something new and let their venture stall. Fingers were pointed and the friendship was strained. The bootstrap garage utopia was lost because these partnersâ&#x20AC;&#x2122; ultimate goals were misaligned. Obviously, not all fish stink; when attended to, fish can be delicious. I recently had some fresh salmon from Alaska. It makes my mouth water just thinking about it. Just as fish can be delicious, business partnerships can have a very important and useful place in starting and maintaining a business. But it is important to note that if you are going to bootstrap a business, all the partners must really be willing and able to pull themselves up by their bootstraps. If one partner is using the income from the business as his rice bowl and the other is just placing a bet on the business, then goals are misaligned and trouble is sure to follow. This chapter is designed to preserve your partnership and prevent it from stinking up your venture and your valued relationships. 118

Set the Expectations There are a few basic choices that need to be made before launching any venture. First, you and your partners need to set the expectations. A partnership is not a life-long commitment. Rather, it is a merger of convenience based on skill, resources, present life situations, and the opportunity at hand. Forming a partnership with this understanding will allow you to be logical in your business dealings and be able to let go when the time is right. When you decide to take on a business partner, it is absolutely crucial that you sit down and talk through your long-term goals. Partnerships are all about expectations. Skills need to be aligned and expectations set. Your goal may be to build the company to a certain level and then sell—at which point you intend to split the profits and begin another venture. Your partner’s goal may be to have a life-long career in this business, with you as his sidekick. It really doesn’t matter what the goal is as long as you are both heading toward the same destination. Sit down and talk about your expectations, skills, and areas of expertise. Maybe one partner will handle finding new customers and securing contracts, while the other will solidify the processes, make the deadlines, and collect the accounts receivable. You cannot simply assume that you will each “settle” into your roles. You must discuss them and decide them! If you need to adjust down the road, at least you’ll be moving from one decided process to another. You also need to decide at the outset what to do if you 119

encounter a failure. In chapter 5, “The Rules,” I explain the importance of knowing when to pull the plug. I now want to focus on something else that can kill a partnership as easily as anything: Success! Part of being an entrepreneur is taking whatever resources are around you and using them to create a company. The problem arises, ironically, when the company starts to make money. How do you put a value on the initial resources? If you start a business in your home and you partner comes over and uses your paper and desks, not to mention your air conditioner, heater, and indoor plumbing, when the company is successful, do you get reimbursed for your costs? If you are incubating several companies in the same office where you use the same secretary, copier, desks, and contacts, when the companies go independent of each other, how do you divide these resources? What if these resources are technologies? How do you divide these? This is the biggest mistake that I have made. I have learned the importance of defining all of these details up front and not as you go along. Accountants tell us, “Don’t co-mingle funds.” It is just as important not to co-mingle ideas, assets, personal property, or technology. Regrettably, like Ron and his fish, I have stunk up a few partnerships. The main thing that I have learned from these experiences is to set expectations at the beginning. Have the hard conversations before you even start a new venture.

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Porters Points—Set the Expectation • While partnerships may not be life-long commitments, all partners must be committed to a clear understanding of expectations – always. • Aligning your goals from the outset is paramount. Divergent goals will result in opposing paths that may never merge again. • Make an exit plan. (For more detailed instruction, see chapter 19, “No Exit Strategy?”) Determine what you will do in case of success or failure, and stipulate the amount of compensation either partner will receive in proportion to the resources he or she used in starting the company.

Ownership or Upside? I have a good friend and business associate named Clint Argyle who is also a very successful entrepreneur. Recently, he shared with me how he handles that awkward and inevitable moment when a key employee comes to him and asks for ownership in the company. Invariably, these employees feel like they have put a lot into making the company successful, and they want to have a piece of it. Clint tells them, “You do not want ownership. What you want is ‘upside.’” They look at him funny and ask what he means. He asks, “If our company has it rough next month, are you willing to go off salary?” The employee invariably says, “No, I want to get paid for my work.” He then asks, “Are you willing to mortgage your house if we need help to cover the rent on the building? If things go bad, are you going to help do the layoffs? Are you willing to only be paid on the good months so 121

that we can make sure our employees are taken care of?” The employee usually responds, “No!” Then Clint explains, “What you really want is upside. You don’t want ownership.” Ownership involves ultimate responsibility. This responsibility is there through thick and thin. And as Clint went on to point out, there’s a vast difference between upside and ownership. Most people want rewards, not responsibilities. That’s why companies set plans up that give upside bonuses as they achieve success. Profit-sharing plans and goal-oriented rewards are great upside plans. However, those who are willing to sign the personal guarantees and put the money in up front are the ones who should own the business. I’ve been in several situations where I have shared the ownership of the company, but my partners were not willing to help on the downside. Had I heard these wise words of Clint Argyle back then, I would have been saved a lot of grief and frustration. I made the mistake of carrying all of the downside risks; however, I put myself in a position where I was expected to share the upside benefits. Porter’s Points—Ownership or Upside? • You must have an honest (and documented) conversation with all potential partners about ownership vs. upside. Who is willing to risk what? How will the tough decisions be resolved? • Do not put yourself in a position to be responsible for one hundred percent of the downside and a smaller percent of the upside. Partners share upside and downside equally. 122

Are Your Goals Aligned? As you start your business and it begins to grow, it is critical that you and your partners align your goals. Make sure you set both joint and individual goals and share them with each other so that you understand the other personâ&#x20AC;&#x2122;s point of view. Your ultimate goal should be success. Sometimes, success can mean separation. Do your goals reflect that? Selling one successful business does not mean that you cannot start another business with the same partner, but having a good exit plan from one business will often preserve the partnership and allow your business relationship to live to undertake another venture. Before striking out into the entrepreneurial world, I was working as an executive for a startup tech company. There was another executive who was my colleague and ally in the company. He was a level-headed, clear-thinking executive who always exercised sound judgment. Suddenly, out of nowhere, this associate started making simply crazy decisions. I could not figure it out. Then I discovered the reason. Unknown to the rest of us, my friend had decided to invest his entire IRA in the high-risk company we were involved with. Instead of making decisions that were best for the longâ&#x20AC;&#x201C;term strength of the company, he started making decisions he thought were best for his investment. Our goals were no longer aligned. The company failed shortly thereafter.

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Porter’s Points—Are Your Goals Aligned? • Write you goals down and share them openly before entering a partnership. • If you ever have a situation where you can’t understand the logic behind a partner’s action, explore her or his goals. Odds are you have a misalignment.

Best Friends No More On numerous occasions I have watched as good buddies who really enjoyed playing golf together concluded they would make great business partners. The ability to enjoy someone’s company for an afternoon of golf, even over the course of years, is not the criteria to use when choosing a business partner. Social relationships are completely different than business relationships. They are created for different reasons and are subject to different kinds of stress. I am aware of a partnership that melted down—or, more accurately, blew up—that exemplifies this point very well. These two individuals were actually best friends from high school. Both were charismatic, highly successful individuals who loved to be the winner and the center of attention. They decided to form a partnership and initially found success. I noted with great interest that much of their interaction and communication revolved around competition with each other. Although at times that dynamic proved successful, more frequently it became destructive. One of the partners achieved some limelight outside the partnership. He used this notoriety to whip his partner around. He then began an inappropriate (and supposedly secret) relationship with his partner’s wife. 124

Needless to say, they are no longer friends or partners. It is easy to become competitive with friends. I have oftentimes seen friends get into a business together and then waste their talents on a spitting contest. Instead of getting down to business and allocating tasks with regard to skill set and focus, they try to outdo each other, becoming more like little boys on a playground than a partnership. Not surprisingly, most of these partnerships last about as long as recess. There is a way to work with friends. In fact, itâ&#x20AC;&#x2122;s quite possible that your partner, because of your sheer amount of time spent together on your common interest, will become your friend. What is vital, however, is that at the outset, you openly establish the expectations and clearly define your roles. The most important aspect of any partnership is that you each bring a unique and irreplaceable asset to the table. That asset could be knowledge, skill, contacts, or financial resources. Whatever it is, find someone who complements it. I tend to be really task-oriented and get a lot done very quickly. I donâ&#x20AC;&#x2122;t engage on lengthy projects very well. Details drag me down and kill my efficiency. However, I know that ignoring the details can result inâ&#x20AC;&#x201D;well, a sinkful of smelly fish the next morning. Knowing my tendencies, I look for a partner who is detail-oriented and loves to streamline the work and sweat the small stuff. I have had one partner and dear friend, Roger Seegmiller, with whom I have owned several small businesses through the years. Roger and I graduated from MBA school together. Some of our businesses 125

have been profitable, and others have been just plain stupid. None of our businesses have hit the milliondollar mark. However, more important to me, we are still dear friends. Perhaps we are still friends because there has never been enough money involved in the companies to strain our relationship. Perhaps we are more mature than other friend-based partnerships I’ve seen. But I doubt either is the case. I think we are still friends because we have clearly and consistently established and delineated our roles and then drawn on our different contributions. Porter’s Points—Best Friends No More • Just because you are “best friends” does not mean you will be “best partners.” • Be precise with who brings what skills to the table. • Make up for your weaknesses with your partner’s strengths. This is the foundation of a solid, durable partnership.

Three Is a Dangerous Number My home seems to attract neighborhood children. All of our sons bring friends home regularly and we have always welcomed them, making our home a safe place to play. However, a few years back my wife established a wise rule: you can have one friend over, or three, but not two. Three has always been a dangerous number. Whether you’re nine years old making up a game in the backyard, 16 and going out to a movie, or 40 and starting a new venture, three is a tricky number.

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When you’re dealing with children, the storm will usually blow over after a day or two, forgiven and

forgotten. However, it’s harder for adults to play nice the next day. More often than not, we tend to hold grudges and attempt to exact revenge. I once cofounded a business developing niche content web sites. My partner and I were enjoying rapid success. A close friend of my partner’s—a former boss of mine—stopped by for a visit. He had lost his job and was looking for an opportunity. I was reluctant, but my partner felt very strongly about bringing this friend into our business. Not wanting to rock the boat, I went along with the plan, despite my reservations and the deep concerns of my wife. After extensive discussions, my partner and I agreed to bring this fellow on as the general manager under three conditions: 1. He would not have ownership in the company: no equity involvement. 2. We would pay him a very good salary. 3. We would not follow a path that would raise capital (which was his background and natural path). Somewhere deep inside, I could hear a voice telling me that this relationship structure was perilous, but logically I couldn’t find fault with it. To complicate the situation, our new hire had also been the chairman of a company where I had been the CEO. In this new arrangement, he would be required to report to me rather than me reporting to him. I know, I know—this screams train wreck, doesn’t it? A number of months later, as we were developing our next business concept, the new general manager laid down the gauntlet and demanded equity to remain involved. My partner supported his position and 127

pressed hard to grant him ownership. I caved. Rule #1 violated. Several months later, I woke up realizing we were on the path of raising funds “to quickly bring the new concept to market.” Rule #3 disregarded. Now I want to be very clear here. I hold myself accountable for the violation of these rules, as much if not more than my partner. In most of our interactions, I felt displaced and stupid. I felt awkward. I was the odd man out. My communication and interaction became guarded and I became hesitant to verbalize my thoughts, feelings, or ideas. Much of the direction of the company was now being decided independent of me. I was the little kid left out on the playground—the third wheel that just didn’t fit. And just as the little kid on the playground gets mad and runs home pouting, I made a stupid mistake. This mistake was over-dramatized, which, when combined with the communication breakdowns, led to the total destruction of the business relationship and the friendship. For me, the loss of the relationship was far worse than the loss of the business, but the decisions we made left us no other option than to messily and bitterly part ways. Porter’s Points—Three Is a Dangerous Number • 1 + 1 + 1 does not equal three - it equals trouble. • If you know the train is bound to wreck, why buy a ticket to that destination? Get off the train and find another ride—there are hundreds of trains! • If you find yourself in a hostile partnership give plenty of consideration about the price of terminating it. Pride is not your friend! 128

The Friends and Family Plan Ah, the family business. It’s a time-honored, American tradition. It’s also one of the best ways to kill your venture (or your siblings). Everyone likes to complain about work from time to time, but it’s not as easy to complain during Thanksgiving dinner when your boss is the one carving the turkey. This can cause some real problems, for your venture and your appetite. I’ve seen situations where a husband and wife got involved in businesses together, and it took a heavy toll on both the business and the marriage. I’ve known quite a few people who own businesses where their entire family is involved. There are times when family businesses work, but frequently they don’t. On the outside, they may seem to work just fine, but if you ask for the inside story, you’ll find out that uncles don’t talk with nephews, and the son hasn’t spoken to the father in five years, and someone in the family is not pulling their weight.

My father is a very wise and tho ughtful man. He was the elected county attorney in our community for 36 years. At the age of four he bec ame blind, having both of his eyes removed to preven t the spread of cancer. His experience as county attorn ey allowed him to offer the following invaluable insigh t. “Most par tnerships fail because each par tner onl y wants to give for ty-five percent. With that kind of eff ort, the venture is always coming up a bit short. In order to find success, each par tner needs to be willing to give seventy percent.” -John. O. Christiansen

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Frequently, with family we don’t feel as big a need to prove ourselves or do our part. Right or wrong, it seems easier to take advantage of someone you love. Again, the only thing that can be more disruptive and more damaging to a family-run business than failure is success, if it isn’t approached right. Challenges can help people work together and sacrifice. Success can bring out greed and encourage loved ones to cut in line or cut and run altogether. There was a very successful businessman who amassed a fortune worth over one billion dollars. As he retired, his entire family became involved at various levels with the holdings of the company. The family now hates each other; there have been internal power plays for control, suicides, divorce, and every other crisis that can be imagined in a family. Most of the discord revolves around “the family money.” I once heard this famous businessman state he would forego all of his riches just to have a united family. Is it worth sacrificing your greatest riches in life— namely, your family relationships—for the fleeting riches of this life? I strongly believe not! It’s important to note that family-run ventures can work, if you take the right precautions. What are those precautions? From my observation, the most important thing is to have rules and structures that clearly and openly delineate the involvement of the family members who enter the business. The second precaution? Give time, energy, and focus on a goal or vision greater than the acquisition of money or things. Make sure you feel comfortable having open, honest discussions with your family member partners. 130

Disagreement or conflict about the business cannot translate into contention in the home or at family events. However difficult it can be, you have to make sure that everyone is mature enough to keep the two relationships separate. No matter who your partner is, you need to share a work ethic and style. You also need to be invested in each other’s image. Help your partner look good. There is no room for selfishness in any partnership. Unfortunately, there is something about family businesses that can readily bring that destructive character trait to the surface. Porter’s Points—The Friends and Family Plan • If you choose to partner with family, treat the partnership like a business, not a family outing. • Temper the quest for success and the unpleasant scenarios that quest can create, by giving time, talents, and energy to a worthwhile cause (charity, humanitarian effort, foundation, etc.). • Put your partners’ well-being before your own.

Time to Part Ways I’ve had several really good, healthy partnerships, and I’ve had several that, to put it mildly, “went bad.” I’ve found these situations to be among the most painful, drawn-out experiences of my life. As I reflect on these partnerships it’s evident that each began to go south when one of two things occurred: • Our ultimate goals or intentions became misaligned • We began to seriously question each other’s motives

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Once one of these things had occurred, it was all downhill from there. In chapter 19,“No Exit Strategy?” I will describe in detail a variety of ways to exit your business. For now, I’ll just reiterate that the exit plan must be clear. Your hope and design is that the exit will be a good thing for all involved. But what if it isn’t? What then? Plan it and capture it in contract form. Have your attorney review it. Make sure both the amicable separation and the hostile separation are clearly defined. Then do your best to ensure that the parting of the ways is a positive experience for all involved. Business partnerships are not intended to last forever. Oftentimes, there will be an exit, and many times, there even should be. Your business agreement did not contain the words, “'Til death do us part,” so why should reaching the end of your road together be surprising? The problem with terminating a partnership stems from your exit plan not being laid out and having an unclear “last step” in the life of the partnership. In reality, the ultimate success of any business is to have a positive exit event, which by its very definition means a parting of ways. If you leave it to chance, there is no question that people will get defensive, and what could have been a preplanned, celebrated, and successful parting of the ways will become something ugly—something very, very ugly.

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Porter’s Points—Time to Part Ways • Your partnership will end. Do not let the ending rest on happenstance–plan it out. • Your ultimate success as a partnership will be a successful exit. Your worst failure will be a hostile parting of ways.

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8 Avoiding Cow Pies Porter’s Preface I had a funny experience a while back where I dropped the term “cow pie” in casual business conversation in New York City. It was funny because Rich and I, being small-town rural types, both knew exactly what I meant, but the gentlemen we were with, being big-city businessmen, had no idea. From their blank looks, they seemed to be trying to figure out what we did with our pumpkins or apples if we were making pies out of cows. That experience made me realize that both the term and its business application may need some explanation. After all, if it were as simple as swapping beef for berries in Grandma’s timehonored recipe, you’d be wondering why you ought to avoid this particular piece of pie. When you leave this chapter, you will have a clear understanding of why you don’t ever want to be served a slice of cow pie. Business has its own kinds of cow pies. It can be easy to let your accounts receivable start to lag, for example, or to slacken the frequency of tracking your cash flow. Once you head off into that particular pasture, though, you’re bound to 135

wind up with a boot stuck in the muck. In this chapter, Rich is going to outline four of the most common “cow pies” in business. As with the real thing, do your level best to avoid these not-so-fun surprises. The four business cow pies are: unmonitored cash flow, lagging accounts receivable, out-of-balance suppliers and customers, and failure to assess your everchanging business landscape. Cow pies are not entirely avoidable. No matter how gingerly you step, you will, from time to time, feel the squish under your shoe and the queasiness in your stomach that accompanies contact. Happily for you—and your shoes—you can circumvent most cow pie snafus with a bit of conscientious planning.

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The Cash Flow Cow Pie The shortest distance between you and smelly shoes is to let your cash stop flowing. Balancing profit and loss is the lifeblood of your company. In the early days of your venture, it is especially critical to conduct a daily review of your financial standing. Yes—I said daily, so do it! Some days the review will take five minutes; other days, your company will require a more detailed look. Regardless of how long it takes, make the time. You must know whether or not you made money, and you must know it today. Right now. The first step in staying on top of your daily cash flow is to devise a thorough tracking system well before the cash actually starts to flow. It doesn’t have to be complicated, but the end result of your system must be that it gives you a clear picture of what went out and what came in each day. Apply your system so that you always know how your financial picture is shaping up for the month. Determine how you will structure your tracking system. Out of the gate, a simple Excel spreadsheet might work nicely. Once you start increasing your income and expenses, you will want to consider a prepackaged software program like Quicken or QuickBooks. Whatever system you choose, be disciplined enough to track your cash flow daily (there are those italics again). It’s like watching your step between here and the fence out in the pasture. If you don’t do it, you’ll regret it. Just as important as how you track your cash flow is who does it. If you already have the skills to do it, use them; if not, you can take a bookkeeping class online or through your local community college, or even 137

just check out a book from the library. If you think you will need extra help, hire an affordable, part-time bookkeeper. As you get a greater vision for your venture, the best thing to do is to find someone who is able to wear many different hats: administrative assistant, editor, bookkeeper, customer service agent—whatever gaps you need to fill. This hire will be a great asset as your venture progresses. If you decide to do the bookkeeping yourself, be sure to refer to the principles on knowing yourself in chapter 1, “Grit,” and be sure that you really are up to the task. Specifically, are you a detail-oriented person who will track every penny—who loves tracking every penny—in and out? If you’re not, don’t be penny wise and pound foolish. Hire someone who will track your pennies and your pounds. While we’re on the topic of cash flow, I want to talk about a related cow pie that many businesses owners can’t seem to avoid. It is the mess-waiting-to-be-steppedin of “robbing Peter to pay Paul.” Leave Peter alone! Paul will take care of himself! What I mean is, taking money from your business’s marketing budget (or any department’s budget) to make your personal car payment (or any personal payment) not only impairs your marketing but will likely cripple your total cash flow. The same goes for using money from one business to support another. These are accounting nightmares waiting to happen. Keep your money separate and your books clean. Consistency here maintains good trust relationships all around. Occasionally, you may find that some borrowing is unavoidable. If that is the case, keep detailed notes of the transaction. Make sure you know exactly when what went where and why it went there. An audit is not 138

the place to sit, scratch your head, and wonder, “Why the [cow-pie] did I do that?” Your dream really can thrive, but only if you understand and manage your cash flow. Porter’s Points – The Cash Flow Cow Pie • Cows need to be milked twice a day. Tracking your cash flow is twice as easy—you only have to do it once a day. But you have to do it once a day, or else, like the cows, things might blow up in your face. • Your system for tracking your cash flow can be as simple as sitting down with five minutes and an Excel spreadsheet, or it can be as complicated as hunting out a new hire. If you can’t hack it on your own, get someone who can. Chapters 14 and 15 speak more to this point. • Leave business cash in the business! To the extent that you can, keep personal needs away from business funds. If you have to cross borders, reread the second bullet and track the transactions religiously.

Death by Net If you’re going to bootstrap a business, you need to internalize this irrefutable truth: nobody cares about your money like you care about your money. Nobody! That’s why you track your cash flow daily, and why you must also articulate and enforce your net due policy. A net due policy has to do with when your clients’ payments fall due. Generally, businesses do not expect the complete fee for their service before starting work. Some ask for net139

60, net-30, or even sooner terms—that is, they require their clients to pay the full balance within 30 or 60 days of the invoice. Articulating your policy is important— “net terms” could mean anywhere from seven days to sixty. Enforcing your policy is crucial—just because you say you have a two-week net due policy doesn’t mean that everyone will pay in two weeks. Your net due policy determines the promptness and amount of your accounts receivable. This is vital; accounts receivable, after all, are the flow to your cash. You must have cash coming in—and you must know when, where, and how much—because otherwise, you will only have cash going out. If you aren’t careful with your approach to your net terms, you will experience leakage. Leakage is bad. In cows, it makes for an extra mess. In business—well, you get the picture. I have sometimes had large companies as clients that have systematically tried to get out of paying their bills, particularly those submitted by smaller vendors. They would purposely delay payments for 30 days, or even 60. Why? Because these companies had discovered that if they held off payment long enough, the smaller businesses would either lose track of the payment or else just tire of the continual ankle biting in the money chase. They could usually trust small business owners to forget about the invoice altogether—or just give up on collecting it. For you, then, the moral is clear: don’t let anybody bully you into losing track of your receivables—and don’t lose track of them yourself! A second angle on this cow pie: if the money isn’t in the bank, it isn’t in your pocket. Once you’ve trained yourself or your multipurpose first hire to think in terms of cash flow, it’s really exciting to go into QuickBooks and see that you’ve got a huge balance. That definitely 140

ups your confidence—as does writing your checks out of QuickBooks and seeing that there’s money there to cover them. Confidence usually deflates at the next realization, though: QuickBooks is not the bank. Even if you have pending payments showing up as assets in your balance sheet, it’s not real money until the bank says so. Actual money needs to come in. A firm net due policy will help both of these issues. What kinds of terms do you give for payment? Do you allow 45 days? 30 days? 15 days? I always submit sevenday terms. Sometimes they stick, and sometimes they get bumped to 15 or 30 days—but I never permit a company to take more time than that to send me my payment. When I sit down to my QuickBooks, it is usually a very close representation of what is in the bank. Many small-scale businesspeople will allow longer terms so that they can charge a more expensive rate. Getting paid big amounts is nice, but if your accounts receivable start to lag, it means that your vendors get a bite out of you before you even sit down to eat at the buffet they are supposed to be providing. The speed of your pay is every bit as important as the amount. As with anything else, you have to strike a balance, and I far prefer to get paid quickly especially in the tender stages of the venture. Short-range net terms are good, but what if you have a particularly stubborn customer? Having seen many small businesses die because some accounts receivable were never collected, I have established a “collection escalation path.” Most of the time it works, and the method only involves a simple conversation. 141

My partner or employee brings up the topic first, as the deal is being settled. It goes something like this: “You’re going to love working with Rich—he’s a savvy businessman, good at what he does, and for the most part easy to talk to. But the one place you don’t want to go with him is late payments. If you don’t pay on time, and Rich gets wind of it—well, no one wants to be in the building when he makes that call. I’ve overheard a few, and they can get ugly. Very ugly! Whatever you do, don’t be late with a payment—but if you’re always on time, you’ll never get better work done than what he will do for you.” Do they make me sound a little like a Mafia boss? No, because I’m a really nice guy—I’m just a nice guy who wants to be paid on time, according to policy. I’ve seen this work with small and large companies alike. If the payment is a day late, have your administrative assistant place a call. Giving the company the benefit of the doubt will sometimes result in an immediate payment. If the company gets to be a week late, have the accounts receivable manager place a call. Have the person make a statement to this effect: “Your account is going to show up on Rich’s report. He’s going to see this shortly, and we need to get it resolved or you’re going to get a call and, let me assure you, you don’t want that call from Rich.” Nine times out of ten that solves the problem. If for some reason it doesn’t, all I have to do is place a phone call, even just leave a voice message, and say: “Hey, this is Rich. I’m really concerned about the finances here.” After all of the suspense that has been built 142

up, a simple call like that is usually enough to get the people owing me money to take care of the situation. It is remarkably effective for collecting receivables on time. No amount of accounts receivable, though, is any good unless you have a plan behind it that you are committed to follow. The questions that you ask while constructing your net due policy are also good for checking up on yourself later on. Some of these questions are: what is the state of my accounts receivable? What is my net due policy? How about my suppliers—thirty days net? Sixty? How do those all affect each other? When do expenses fall due? Will I have enough revenue flowing in at the right time for that? How about rent and utilities—when are they due and how much are they? How often do I need to pay insurance and taxes? If you don’t have answers to these questions before you start, get some. You don’t want to empty yourself of cash at the beginning of the month, waiting around for your net-30s or net-60s to kick in. Later on in your venture, if your plan doesn’t line up when you check up on it, look at your feet! You’re still walking through the pasture and might end up on the squishy ground of lagging accounts receivable. Create a calendar to organize your payments or have your miracle first hire help you out. Get and keep a visual of how all the financial pieces fit. While we’re on the topic of your money as it relates to your clients, be careful about who you extend credit to. It can be tempting to be liberal with credit in hopes that extending it will somehow come around and benefit you on the upside. While money is definitely a method for friend-making in the business world, foolishness with 143

money is great for bankruptcy-making. Be smart about to whom and how much you extend credit, and be sure to keep accurate records. Secure yourself first. Do background checks on anyone you give credit terms to and always follow up. Bring out the big, bad Rich if you have to. You can’t be too careful with your credit. Whatever the financial scenario, if your money goes out, make sure you bring it back in. Don’t let your services go unpaid and don’t be afraid to be blunt about it. If you don’t care about your money, nobody will—at least, they won’t care about getting it back to you. Porter’s Points – Death by Net • Avoid spending money you don’t have yet. Part of avoiding death by net is checking your cash flow—and checking it against your actual bank balances. • Net terms need to be set so payment comes as scheduled. Firmly back up the terms of your client agreements, and be prompt, friendly, and effective in providing your services. They want you on the job. Give them what they pay for— and don’t let them delay paying you. • Credit can do great things for your business relationships, unless it runs away from you unchecked. Keep a tight lid on who you loan to.

Stability When it comes to stability, I’ve got another farming metaphor: don’t take a one-horse show on the road. You are extremely vulnerable when you have all your eggs in one basket. (Okay, that was two farming metaphors). It’s great to have an initial big-name customer; in fact, you can and should use that to build credibility with 144

other potential clients. The same goes for a customer that buys lots of your product; once you have them, go out and get ten more. Don’t let losing one account make you lose your business. During the early stages of our endeavor, Ron and I landed a large New York City music label. This was a big deal for our budding venture. We celebrated at a nice restaurant in Time Square. A couple of bumpkins from way out West had scored a Big Apple icon as a client! The deal was penned for a six-month term. Six months may not be long, but our client was big, and it would have been easy to coast for a little while. What I have learned is that when you get a lucky break like that, it’s fortune’s way of giving you time to set up for your next one. It’s okay to celebrate your newfound breathing space—in fact, I’d encourage it. You’ve done well. You deserve a pat on the back and a nice dinner. Just don’t go for six months of back-patting and dining out. While income from the big client is driving your business, you have time and money to gain more clients, large and small. For Ron and me, in the six months that followed we went and got more business. When this contract came to a close, we didn’t worry about the financial viability of our company. We had several clients in place, and were safely out of the pasture without stepping in anything messy. Just as important as the number of customers is their diversity. When this deal ended, we had toeholds in a number of other viable arenas. I’ve been in situations in the past, however, where one company or one market was my primary source of revenue. I remember a sad happening between Google and me: one day, Google decided to up and change how it managed its organic traffic. And when Google rewrote 145

a simple algorithm, it completely killed my business. With that one tweak of a little line of code, my venture was sunk. As a matter of fact, I’ve seen some reports that Google’s “Florida Update” drove somewhere around 30,000 small businesses into the ground with that algorithm change. Products hadn’t been diversified, and a whole wing of the market collapsed. Securing a diversity of suppliers is likewise critical. You can rest assured that if one of your suppliers steps into the sort of unstable cow pie that you are avoiding, you will be left unsupplied. If you can get one product or service from several different sources (without exorbitant costs), try it. If a mismanaged client base is like stepping in a cow pie, your major supplier’s downfall can be like kicking your feet out from under yourself and landing hard in the mess. You’ll stand up from the field dirty and smelly if you don’t have backup plans in place. Porter’s Points – Stability • When that big customer puts pen to paper on the dotted line, celebrate! Your venture has been validated! Now get back to work. • Diversify and expand your clientele. See how many niches your product applies to, and get as many customers from each as you can. If one wing of the market takes a hit, you should still be able to fly because of the customer base you’ve built. • Your suppliers are running a business just like you—but perhaps unlike you, they may have not taken a good look at the pasture lately. Don’t count on all your supplies coming through one route. If one of your suppliers hits a cow pie, things could start to stink for you. Diversify and expand suppliers. 146

Continually Assess Your Environment If you can avoid the first three cow pies I’ve shared, you can get your business off to a running start. Once you’re smart about cash flow, net terms, and keeping a stable clientele, you’ve got all the tools to make great things happen—which means you have to start doing the making. Too often, business building gets so involved that the builder forgets to assess the landscape, or believes that there is not enough time to have a look around. Don’t be that kind of builder. If you stay on top of your business environment, it will ensure your safety and reveal which turn in the trail will take you the right way. The long-term success of your endeavor depends on regularly and systematically making this sort of assessment. If you walk through the business world with both eyes wide open, you will be less likely to wind up in financial peril. Not long ago, I relearned this principle while climbing the Pfeifferhorn, an 11,326-foot peak in northern Utah. I remember the experience well. The air sparkled with energy in the sharpness of the cold predawn. My skin tingled in that way it only does at high altitudes. I breathed deeply and filled myself with vitality as I gazed up at our goal. A few feet to my left stood my wife. Kneeling to her left was her brother, hunched over his backpack. Our objective for the day was to summit the Pfeifferhorn and be back in camp before sunset revealed the twilight stars of late December. “Okay, guys, let’s bag this sucker.” I was met with grins. We started forward. Bearing ice axes and crampons, we set a steady pace for our team of three. My adrenaline pumped, pushing me 147

forward and upward. Six hours into our quest, the brilliant white crown of the Pfiefferhorn jutted heavenward before us. Taking a quick break, we replaced snowshoes with crampons and prepared for what turned out to be a onehour ascent up a 40-degree slope. “How does the snow look, Rich?” my brother-in-law asked. I was digging out a small section of snow, blocking it out to get a feel for what lay beneath. It was crucial to know what was underfoot in each direction. Avalanche danger was always present. And this high up, frequent checks would be required for the safety of my team. “Great! It’s perfect for climbing. This is gonna be easy.” Exuding confidence, I encouraged us forward. Every season, climbers of the Pfeifferhorn have to face the infamous Knife’s Edge. Soon enough, it stretched out before our team. It is narrower than a sidewalk and flanked on both sides by thousand-foot gutters. This is the path to the summit. The path to victory. The Knife’s Edge ridge terminated at the final, looming, 400-foot crown of the mountain. Once there, we could see a sharp slope that vanished into seeming eternity. From here on out, one misstep, one unexpected slide, would drop the unlucky climber through a torrent of snow onto the rocky crags that lay hundreds of feet below, dying at best, dead most likely. The three of us assessed the situation. At nearly 11,000 feet, the view from the ridge was breathtaking. Adding another 400 feet would bring the thrill of victory and an even more unbelievable panorama. This close to our objective, my brother-in-law and I felt our second wind, confident in our ability to summit the peak. My wife wasn’t quite as enthusiastic and expressed some apprehension about the snow- and ice-covered pitch before us. 148

“Guys, I’m going to wait here. If anything happens to you, someone needs to be in a position to help,” she said. “Okay.” I looked back up at the peak. “I agree. That’s how we’ll play it.” Ice axe in hand, I led out. We made good time, soon finishing the last of the Knife’s Edge and attacking the final 400-foot stretch to the crown. Crampons crunched and ice axes sank firmly as we ascended until we were about halfway to the summit. I stopped for a quick breather and turned back to see where my wife stood. Fear grabbed my gut as I looked. My thoughts froze with the sudden realization of what I’d forgotten. I watched chunks of snow that had been kicked loose by our climb as they tumbled to the edge of the cliff and disappeared into nothingness. I had been so engrossed in reaching the objective that I had not taken the time to dig and block the snow. We had crossed the last 200 feet of snow, without once testing it. The composition of our foundation had slowly grown snowier, and I had not noticed the change. Scraping away about eight inches of powder, I blocked out a 12-inch square. Underneath the powder I discovered a fragile shell crust, only four inches deep, hiding nothing but whipped cream. There, leaning into the Pfeifferhorn, I realized that I had placed my brother-in-law and myself in serious peril. I had overlooked basic snow climbing principles, and, as a result, jeopardized not just the climb, but our lives and my wife’s safety. Here, one misstep would bring down an avalanche, careening along the ridge and over the 1,500149

foot free-fall. Looking toward my brother-in-law, I saw the mirrored realization. “We’re so close.” He nodded. “How thick is the crust?” I looked back to the crown. “About four inches. We could likely summit this baby without much danger. Getting down, though, without triggering a slide—I’m not willing to chance it.” My brother-in-law crouched to give himself a look at the snow. “Let’s call it off.” He stood up. “It’s too unstable. If we start sliding, we have no hope of surviving the fall.” I looked back to the crown. “As much as I hate to admit it, it’s the right call.” We hiked back across the ridge and joined my wife for the descent. I was fortunate that day. I caught my mistake before anything fatal happened. But you understand: you must continually assess your environment. You must think things through. Every upward step and every backward slide has to figure into your view of the environment. You can’t overlook the key principles just because you understand them; you must apply those principles if they are to provide physical or financial safety. High-altitude climbers, in business and life, must be confident in their ability to reach the summit; however, that confidence cannot be allowed to mask the need for vigilance. Recent real estate market trends are a perfect example of a continually changing environment. While I, my wife, and my brother-in-law all got off the Pfeifferhorn in safety, I have had several close friends who haven’t been quite so lucky with their figurative Pfeifferhorns. 150

They were making a killing doing high-end, speculative developments and hard-money lending, perfect techniques for a bullish market. But just like I failed to assess the changing snow conditions on the mountain, they got caught in their thrust toward the summit and jeopardized their financial footing. They lost their monetary safety as millions of dollars spiraled off the edge and into the abyss. Look along your own Knife’s Edge. Spectacular view, isn’t it? Not a cow within miles. But you’ll only get there with thoughtful consideration and planning. Keep your eyes peeled and your senses sharp, and don’t let the eye-on-the-prize mentality blind you to what else surrounds you. This is your honest, necessary awareness of the environment—the ever-changing landscape of business and of life. Porter’s Points – Continually Assess Your Environment • Take time to look around. It’s great to be able to focus on your goal, but even if the path to success seems obvious, it’s a path through a busy business environment. Don’t let yourself get blindsided by easily avoidable obstacles. • Tracking cash flow, keeping up on accounts receivable, and diversifying and expanding your client and supplier bases does you no good if it’s a one-off effort. Each of these is impacted by outside forces, and you need to keep an eye on the trends. • If you find yourself on a ledge with only four inches between you and oblivion, take time to back off and try again. Find a better way out, work around the obstacles inhibiting your success. 151

9 I Never Want to be a Doctor (And Certainly Not a Lawyer!)

Porter’s Preface Rich and I have several family members who are doctors and lawyers. This chapter is certain to offend them. But here is the reality: if a doctor isn’t in her or his office sticking a tongue depressor in someone’s mouth or snapping on a rubber glove, he or she is not making money. Attorneys are no different. Sure, their rubber gloves may be metaphorical, but the outcome is the same. The only way these professionals make money is by putting on the gloves. Now, we both realize there is nothing wrong with choosing either of these professions. They just don’t scale very well. The three sections in this chapter deal with the importance of scaling your business. The first section deals with the brutal fact that some types of business are simply more inclined to scale or grow than others. It is critical that you carefully consider your idea’s potential for scaling—for better or worse—when deciding whether or not you want to turn it into your business. The second section explains the difference between an asset and a job. The purpose of this section is to help you get in the mindset of 153

building a business that is an asset, not a liability. The final section shows the importance of your timing in scaling your business. Rich and I have both learned from personal, painful experiences how important it is to get the models and structures in place before growing your business. It may be hard to believe, but growing a business too fast and without an effective process guide can be as big of a problem as that identical business not growing fast enough.

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How Well Do You Scale? My brother-in-law, who is a successful doctor, loves to hike. Every time I get ready to head off on an extended hiking vacation, he expresses frustration at his situation: “I would love to do that, but if I’m not at work, my practice doesn’t make any money! My overhead doesn’t go away, and if I’m not there seeing patients, no revenue is coming in.” His cost of missing work is far greater than the cost of the trip to Nepal for a week. If he gets sick, he has to cancel all of his appointments and loses an entire day’s revenue. Sure, he can double–book his appointments the next day, but there are only so many hours available during which he can see patients. Ron’s brother is an attorney, as is his brother-in-law. They face the same challenge as the doctor. They can only bill for services when they are meeting with or solving other people’s problems. How does a doctor replicate himself? How does an attorney scale her business? No doubt about it, doctors and lawyers are entrepreneurs who build a business around themselves. However, these types of businesses do not scale as well as other businesses. It’s not that it can’t be done, but doing so involves leveraging other professionals or bringing in additional partners, which brings its own set of challenges. I have a friend who is a professional tile layer. The work he does is absolutely remarkable, truly an art form. But when the building market is soft, he can spend hours or even days bidding to win a contract. Sometimes he gets the bid, but increasingly he’s finding that people are choosing to use cheaper tile layers. When he does land a job, he spends his own money 155

or credit to get the supplies he needs for that job. Frequently, his work requires him to order special tile products from overseas. He worries (understandably) that his workers might break the expensive tile while transporting it to the job site. The cost of Italian granite or Egyptian marble is enough to bankrupt him if it gets broken before the masterpiece is finished. To mitigate his worry, he involves himself in every aspect of ordering and moving the imported tiles and supplies. As good as he is at what he does, the question he forgot to ask himself years ago was, â&#x20AC;&#x153;Will this tile business scale well?â&#x20AC;? Do you understand why the tile business is difficult to scale? He can only lay one piece of tile at a time. And no matter how many tile layers he hires and trains (and pays!), each one of them can only lay one tile at a time. Before you jump headlong into starting a business, it is absolutely critical that you consider how you will scale your business. Most people start their business without asking themselves this essential question. But the answer will make all the difference in the amount of work you are required to do yourself in the business and the amount of revenue you can make via the business, without having to clone yourself. So, what is an example of a business that scales well? Letâ&#x20AC;&#x2122;s take a look at a gorilla: Microsoft. Bill Gates and his buddies built an amazing operating system, one time. Okay, they have delivered a gazillion versions, updates, and upgrades, but they built the basic thing once. They conducted beta tests and documented what worked and what did not. And, while still on the road to perfecting their Windows OS, they sold it millions 156

and millions of times. What is their upward limit on how many times they can sell that piece of software? Infinite is high, but not too far off. Do they have to sell it themselves? Nope. Pretty much every PC maker sells the software for them. Look, most of us wonâ&#x20AC;&#x2122;t get the opportunity to create a Microsoft. But hereâ&#x20AC;&#x2122;s the thing: I firmly believe there are opportunities for scalable success everywhere. I personally favor businesses that involve digital assets. By digital assets, I mean companies that do not stock inventories of physical goods, but instead are based on software or technology. Digital assets are not prerequisites for scalable success, just my timetested preference. A good example of one of my favorite digital assets is a website. Several years ago during the height of the housing boom one of my partners and I built a website that collected mortgage leads. We found a nice picture of a house and created some meaningful content that would appeal to people in the market to buy a home. We added some useful tools the visitors to my site could use to calculate their mortgages and topped the site off with advertisements that provided links to take users to other sites. It generated revenue 24 hours a day via advertising and affiliate deals. Every time someone clicked on the site, the company brought in money. This business scaled incredibly well. It turned out to be wildly profitable and made money with very little human involvement. We made money in our sleep! Think about this. Once the website is programmed, set up, and running, do you ever have to hire a clerk to sit 157

at the checkout register and collect money from every user? No. Do you have to worry about the eggs spoiling if they get too old? No. Do you have to worry about an employee making off with inventory? No. This is an asset built one time; and, if put together properly, it will grow quite nicely, without an army of employees! Don’t get me wrong. I’m grateful for an attentive doctor and you better believe I turn to my lawyer’s expertise regarding my businesses and assets. This breed of entrepreneurship is simply not suited to my particular taste. First, it requires a tremendous amount of time, energy, and money to scale well; and, second, it requires constant care and attention. When deciding what kind of business or profession you are trying to bootstrap your way into, make sure to evaluate your idea’s scalability as part of your deliberations. Do you want to be your company’s only source of oxygen, or do you want some left over to breathe life into other interests as well? Porter’s Points – How Well Do You Scale? • I can’t think of a business that cannot scale; the matter to consider is “What resources will be required to scale it?” Know up front what those resources are and whether you can afford them. • The ideal for scaling a business is to figure out what you can accomplish with the fewest possible resources.

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Is It an Asset or Just a Job? I like to make money while sleeping, golfing, sitting in church, playing with my kids, and, yes, even while working at the office. You may think that sounds too convenient to be true. All businesses have obstacles to overcome, but certain businesses are much more attractive simply because they can become long-term assets. If you have to go to work every day and you don’t make money unless you’re there, what you’ve got is a job. What you need is an asset. Robert T. Kiyosaki, in Rich Dad, Poor Dad, defines an asset as “something that puts money in my pocket” and a liability as “something that takes money out.”3 After reading this book, I decided to teach my children the difference between assets and liabilities. Their asset of choice: candy machines. After buying a few candy machines using their Dad’s “venture capital,” my kids had to go around and find businesses that were willing to let them put the candy machines by their front doors. Once they felt the exhilaration of harvesting quarters from their venture, they never asked for money to stick in a candy machine again. They had learned that it’s much more rewarding to take the money out than to put the money in. One afternoon, I found myself craving a snack. After going through the cupboards, I remembered one of the candy machines in the garage. As I opened one up and dug in, my nine-year-old son Matthew walked by. When he saw what his father was doing, he stopped in horror, exclaiming, “Dad! Stop eating the profits!” Matthew knew he needed to protect his assets! He had learned through experience that he could put a little candy in a machine and let it sit while he went to 3 Kiyosaki, Robert T. Rich Dad, Poor Dad (New York: Warner Business Books, 1997), 61.

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school, played with friends, and did all the things that he really wanted to do. Later, he could return to the machine and enjoy the rewards of his asset. You’ve probably read books or heard presentations on using real estate to create wealth and assets. Rental properties are a continual asset. Sure, it’s a pain to get called out on the weekend to unplug a hairball in the bathroom sink. However, fixing a drain once in a while is a very small price to pay for having an asset that pays for itself every month and brings in positive cash flow without your having to be there. Maybe it’s worth getting a rental agency to take care of the daily work of managing the apartments, which can still keep the cash flow positive while you find other ways to enjoy your time. Whatever your business or venture, you can ensure that it becomes an asset. It all starts with your knowledge and awareness. Do you always have to be in the office in order to make money? Can your company breathe without you around? Once you’ve figured out if you have an asset, or just a job, you can plan accordingly. Maybe you’ll need to hire some employees or look into better technology that keeps things going even when you’re not in the office. There are as many ways to get out of a liability as there are ways to get into one. If you’re just beginning your venture, now is the opportune time to make choices that will help you avoid being stuck with a “job.” If you’re already in deep, I’ll bet there’s wiggle room in there somewhere. You simply have to pinpoint the opportunities that will turn your job into an asset. 160

Porter’s Points - Is it an Asset or Just a Job? • Until it starts putting money in your pocket, it ain’t an asset. • The more money it puts in your pocket with the fewer resources, the better an asset it is. • No matter what your current “job” is, you can find a way to turn it into an asset.

Secret Recipe In the early days of the dot.com era, I was the general manager of an Internet technology company that was heavily funded by venture capitalists. In those days, people were getting funding for throwing together business plans created over coffee on that same morning. The company that employed me actually had a fairly good concept built around helping people find jobs. One of my educational experiences while at the company dealt with scaling the business before our model was fully developed. The CEO and the venture capitalists were eager to see progress quickly! The problem in those early days was that we had no structured models to follow. That left us trying to figure out the technology in addition to the model. We were still experimenting with the gears and were actually getting pretty close when the CEO hired a new vice president of sales. The VP was absolutely convinced that we needed to hurry and hire a sales team. He almost immediately hired between thirty and forty salespeople before we even had the product completed. This team was out contacting businesses—and selling our unfinished product. We were sitting on the edge of a web bubble that was about to burst, and then we threw in an 161

aggressive sales team selling only the prototype of a product. It was the undoing of the company. We ended up with forty sales folks selling forty different products, all unique, all custom. You can imagine the nightmare that ensued. As the general manager, trying to hold it together, I vowed to never again attempt to scale something before the gears were meshing together. I learned the importance of making sure the process was carefully diagrammed and could flow so that the thing would scale well in the first place. It’s imperative that you get the sequence right. First, you have to poke around the gears, fiddling with them and making sure they’ll run smoothly. Next, turn the crank! If the inner parts work, turn it again! Make a few adjustments, add a little lubricant, smear on some grease, and change the torque angle. Then turn it five or ten more times. If everything still holds together, keep improving and optimizing it. Now you can go ahead and scale your product as rapidly as you choose. But don’t think about scaling it before you know what will happen when you turn the crank for the first time. The reason franchises are so successful is because someone has already tested the plan and checked the scalability. Regardless of who does the testing and checking, a franchiser or you, it must be done. So, you’re all excited to scale your businesses and move to Tahiti, right? Well, not so fast! First, you have to create a business that will make some money. You must first document the processes you’ve found that work and, second, determine what distinguishes your business from all the others. At this stage in the game, 162

it’s really important to watch and learn from other businesses. When my wife was a teenager, she spent a summer working at Kentucky Fried Chicken. When she first started, her manager had each of the employees go through a training of the procedures that KFC required of its franchisees. You see, the successful fast-food chains have a simple, step-by-step guide for how to make each recipe. When you go into KFC, you expect it to taste exactly the same every time. That’s why you go! With so many employees the company has to provide step-by-step procedures that are quickly taught and easily grasped. In order to make the biscuits, they use a certain bread machine. I suppose the process looks something like this; first, the flour goes in, followed by the shortening and the “spice packet.” The machine is set to turn at a certain speed for so many turns. Then the dough is rolled out to the same thickness and cut with the same size cutter every time. The biscuits are put into the oven and baked at the same temperature every time. When they’re done, butter is carefully brushed over each deliciously flaky biscuit. This was the process followed every time when my wife was making biscuits years ago. More than likely it’s pretty close if not identical to the process KFC uses today. The biscuits still taste good, don’t they? KFC’s Original Recipe chicken is made with a same step-by-step process. KFC was careful to provide the exact procedures to make the chicken, but didn’t tell anyone the exact ingredients of the “secret recipe.” 163

Bringing the discussion back to my friend, the tile layer, this is one of his main problems. As he teaches and trains employees to work for him, they eventually branch out and start their own tile company—because they’ve learned all his secrets. Is there something unique about your business that you can and should protect? Is it a product recipe? Is it a process recipe? Is it a patent? Whatever it is, find it and use it to help set your business apart from all the others. Porter’s Points – Secret Recipe • As you implement your business plan, document what works and what does not. Refer back to your notes often to ensure you duplicate your successes and learn from your failures. • Keep your plan simple, with step-by-step processes anyone can follow. • Don’t attempt to scale the business until you have all the components defined and functional, and then increase the speed gradually. • Identify areas that slow the process down and find a way to speed them up. Document the changes. • Want it to scale well? Be consistent. Just like KFC doesn’t want variations in their chicken, you do not want variations in your business that hinder scaling. • Define and protect your “secret recipe.” Protect and control one or more parts of the process very carefully so that others cannot easily duplicate your business.

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10 Motion or Momentum? Porter’s Preface Entrepreneurs must address some very vital issues in order to keep their psyche afloat. How do you avoid burning out? What steps do you take to make time for life and work? How do you stay motivated after a long string of 18-hour days? After all, there is only a fixed amount of time in which to accomplish everything you need to do in order to succeed. In this chapter Rich articulates several essential strategies that will help you achieve laser focus and effective effort. Too much of our time is spent doing things that don’t matter, that don’t have positive impact on the desired end result. It all boils down to this simple but seemingly difficult-to-employ principle: Motion is not momentum. Do you remember the last time you walked into someone’s workplace (or your own) and witnessed activity like a beehive? Was it motion or was it momentum? Rich and I have both seen more than a few businesses exuding this type of motion. Everyone is rushing around with frantic looks on their faces, hauling files hither and yon, shuffling 165

paper and guzzling coffee and colas as if their very existence depended on them. They look exhausted but quick-step between cubicles and offices performing tasks that appear to be incredibly demanding and important. At first glance, this is an impressive sight—busy people mean a successful company, right? Peeling away the layers causes one to wonder: How many of these folks are just rushing around doing meaningless work? Rich and I have a friend, Brent Peterson, who calls this “fake work. In fact, his book Fake Work will be released in early 2009. Fake work is pervasive in business. Will it be in yours? It will unless you learn to identify the critical tasks (those tasks that really support your strategic objectives), examine the timing required to complete them, prioritize them, and then execute on them. You need both to answer these questions for yourself and to coach your team to understand and act with this mindset. Particularly in the early stages of a business, owners waste a bank-load of energy on countless unimportant tasks. It’s easy to get bogged down in emails, phone calls, lunch dates, and hollow meetings. Sometimes, owners attempt to “will their success” by forging ahead and throwing themselves in front of the bus. When we hear someone say, “I’m working so hard, I have to succeed!” we get a little nervous. They have confused motion with momentum and could very well work themselves into an unfruitful, frenzied failure. Rich saw this firsthand while working in Japan. “I love Japan,” he told me. “I feel a deep connection to so many aspects of the culture. But one 166

aspect that drives me crazy with many of the Japanese businesses is the wasted motion, physically and emotionally. Everyone shuffles around the office moving papers back and forth, acting busy. No one goes home until the boss goes home. Politics prevail, and no one speaks their mind or asserts a thought or opinion on the best way to get things done. “After hours, though, that’s when the real work begins! They go to the karaoke and sake bars, get a bit tipsy, and all of a sudden have no problem saying what’s on their mind! Motion, not momentum.” Starting and maintaining your own business requires hard work. Waves of pressure come and go, encouraging you to move faster and move forward. As they come, are you focused on the right actions, the key movements that will actually get you somewhere? Are you exerting focused energy? People thrive on habits. If you are used to a twohour meeting on Tuesday mornings, it’s hard to let it go. But what if you don’t need it this week? Skip it! The following sections will help you effectively move forward through the mire of motion and allow you to benefit from the miracle of momentum.

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80/20 The 80/20 rule applies to every aspect of life. Twenty percent of your effort will bring about 80 percent of your results. I decided to apply this rule to my own life while in college. I was plodding my way through a brutal undergraduate program, working full-time, and trying to find time to kiss my wife more than just once a month. I was not willing to sacrifice my marriage because it was (and is) the highest priority in my life. I also had an understandable affinity for eating, so I had to keep my job. And, although it sometimes seemed like the only expendable option, I wasn’t about to give up on school. I was stuck. After a soul-searching analysis of my dilemma, I was forced to prioritize and chose to become a B student. I realized that the majority of the semester’s points for any given course were in the main tests. The labs required extensive and timely work, but the points given by the professors for lab work were not as significant. I decided to whip through the labs and always turn something in but focus the bulk of my energy on doing well on the tests. I also chose to become a “9-5” employee, meaning that I did my job but did not put in the extra effort to further my career.

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With my workaholic personality, this arrangement proved difficult at times. I had to make a deliberate decision to focus on the 20 percent of activities that would achieve 80 percent of the result. It took work, but I’m happy to report that I got back to kissing my wife more than once a month, I graduated from a difficult engineering program, and my career continues to advance—thus satisfying my affinity for eating.

As the CEO of a technology company, I had an employee named Daryl Guiver. He was a fine product manager and a meticulous worker. One afternoon, I was shocked to find that Daryl had put a sign up above his desk that read, “Strive for Mediocrity.” I had preached to my team to always do their best, so I was stunned he would put up something so bold and uninspiring. When I questioned him, Daryl explained that he was a detail-oriented perfectionist. There was nothing mediocre about him. With all of his drive for perfection, however, he sometimes got lost in the details. When he was developing a product, he wanted every “t” crossed and every “i” dotted. He realized that this hindered his ability to get things done. By concentrating on hitting perfection only on the most important tasks, while settling for his definition of mediocrity on the rest, he accomplished much, much more. Porter’s Points – 80/20 • What are your top three priorities in life? Do you have more than three competing for your attention? Start applying the 80/20 rule. Now. • If you find yourself getting bogged down in details, ask yourself, “Is this getting me to my goal?” If the answer is no, move on. Quickly. • Are you a perfectionist? Part of perfectionism comes from placing the same priority on each task at hand. Perfect the art of prioritization first. Burn through the less important tasks; focus your skills and resources on the more important ones.

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The Five-Minute Whiteboard I know a manager who insisted on having only standup meetings. If he couldn’t accomplish what needed to be done within five minutes, he wouldn’t meet at all. My favorite way to handle meetings is to gather my team around a whiteboard and give each person a chance to answer the question, “What are your tasks today?” We all take turns writing a brain dump of each and every single item on our to-do list for the day. At this point, we don’t try to prioritize. As soon as it’s all up on the whiteboard, we ask ourselves, “Which are the most critical items on the list? Which ones are vital to move us forward and make us successful?” Typically, 10 percent of the list ends up in this category, marked with a big, red A. The rest get marked as Bs, Cs, and on down to Ds, helping us organize precisely what we need to focus on. We all have our favorite tasks, but we won’t get anywhere by just working in our comfort zones all day long. Using the whiteboard this way is like putting a steering wheel on your day—you steer the ship and sail each hour exactly where you need to go. A nice side benefit to this exercise is that everyone has a good handle on what everyone else is doing. This enhances collaboration and community, and helps keep the energy up. It also provides a clear division of responsibility, prevents you from doubling up on the same tasks, and keeps your group from accidentally leaving some assignments untouched. Finally, it gets you back to work more quickly.

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Porter’s Points – The Five-Minute Whiteboard • How long do you spend in meetings each week? Cut that in half. • Buy a whiteboard if you don’t already have one (and make it a big one). This way, everybody can see how their tasks tie into yours and yours into theirs. • You will be tempted to coordinate and troubleshoot simply by using email. Save email for mundane needs; when it comes to saving time, focus on ensuring understanding. A fiveminute, face-to-face session of whiteboarding can save a five-hour, frustrating flurry of emailing. • When you whiteboard, you control your team’s momentum. Everybody has their to-do list, but you need to be sure that the A priorities drive your team to accomplish your company goals. • Review that day’s or week’s goals before and after, allowing everyone to brainstorm so you can all get back to work with speed and precision.

Walk and Talk In business, surprises are never good—even when they are a good surprise. Good or bad, you’ve done something wrong if you didn’t see it coming. When I was the general manager of About.com’s Web Services division, I found myself working with a group of brilliant engineers. Despite their brilliance, one of the challenges the group faced was a continuous breakdown in communication. Management would give direction to the engineers on a project, and the engineers would then disappear into their cubicles for several weeks to work out the details.

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It was like waiting for a baby to be born—boy or girl? Ten toes and fingers? Pretty or ugly? They would surface several weeks later and present their interpretation of what they had been asked to create. Sometimes, it would hit the mark; oftentimes, it would not. After several of these “little surprises,” I established weekly “Walk and Talk Meetings.” Some organizations share a common problem: they talk, talk, talk the day away and never get down to work. This is not good. My division had the opposite problem; the engineers would go off on a long “walk, walk, walk,” reaching a destination (the surprise product or feature) that no one wanted in the first place. When I realized this, I created a new approach for our team: “Walk and talk, walk and talk, walk and talk.” Walking and talking involves frequent, brief check-ins to keep everything on course. We would touch base in a way designed to keep everyone moving in the right direction together, avoiding the need for major course corrections. It sounds simple, but it became a weekly ritual that was not only productive but fun. I ended up tying rewards to it, setting benchmarks and then springing for group lunches or handing out incentives upon completion. This dramatically increased productivity and stopped our brilliant engineering group from wasting energy. Porter’s Points – Walk and Talk • To avoid surprises in your business, keep tabs on all assignments that you hand out. People quickly lose interest and momentum, though, so keep this contact brief and to the point. • Come to meetings with goals made and plans in place. If something doesn’t help you toward 172

a goal, don’t use it. Talk things over with your team, then make decisions quickly but wisely and make sure everybody understands the plans and goals. • Some teams come with a little bit of inertia. Use reward systems to kick-start your own walking and talking. This will encourage the appropriate behavior and keep the inertia from settling in as you roll forward.

Act or React As a child, I loved spending time at my grandparents’ farm. They had a little flock of about 50 guinea hens that I always made sure I “accidentally” encountered as I walked through the garden to the barn. All I had to say was “boo,” and they would look at me, cock their heads to the side, and go “whah!” It started a chain reaction. The first one would squawk, then the next, and then the next, until they were all “whah!”-ing and squawking and running around the barnyard in a noise-making microbial-like mass. It usually took them about five minutes before they collected themselves, calmed down, and went back to hunting for bugs. Sometimes, as human beings, we do the same thing. Someone says something, and one-by-one we start reacting and working ourselves into-a-lather for no reason at all. I was associated with a woman who was incredibly driven and dedicated to her work, but she was prone to react instead of act. She worked extremely long days and tortured herself by maintaining incredible motion with little momentum. She was the most energetic, sincere, and inefficient person I’ve had the pleasure to encounter. 173

She was a wonder to watch, running here and there, sometimes jumping in her car and whizzing away just to whiz back and run around again. The police even had a hard time keeping up with her, but she had enough speeding tickets to prove that they caught her now and again. This woman eventually ran herself into the ground by working like a guinea hen. She wore herself out and felt the need to choose a new, “relaxing” lifestyle. It would have made such a difference for this bright young woman if she would have just taken the time to organize and focus her energy and stop when other necessities (like sleep and composure time) became more crucial. (See the following section, “Urgent and Important,” for tips on organizing and focusing your energy.) This woman ignored the fact that sleep and downtime became quadrant I priorities and, instead, she burned out. Don’t react. Plan and then take action. In my current office suite, I have a great office with an elevated 20-foot ceiling. My window looks out over a golf course and then off to the distant snow-capped mountains. I love it and won’t leave it, but there is one problem: my door is right next to the entrance to our suite. Everyone who stops by sticks their head in to say hello and chat for a bit. Even if no one actually knocks on the door, someone walking by is enough reason for me to lift my head and lose my focus. When I’m involved in a critical task and can’t be interrupted, I leave my office and head down to the “war room,” another office down the hall with the same beautiful view but far from any of the daily foot traffic. 174

This doesn’t just make me more effective, though; this works for everyone. The best way to keep a team of engineers from reacting to every distraction is to locate them in the back offices and give everyone else the directive to leave them alone (except to slip a pizza under the door every once in a while). When it’s time to get down to work, you must eliminate distractions and start acting on your project instead of reacting to whatever crosses your path. Porter’s Points – Act or React • Eliminate distractions. Find a workspace more conducive to concentration or a way to limit the noise around you. Do what you have to do to get done what you have to get done. • Set a regular time each day to check and respond to your email and voicemail. Don’t react to it all day long as it comes in. • Turn your cell phone off or put it on vibrate and set it aside when you are in a critical work mode.

Urgent and Important The most powerful tool that I’ve found for sifting through piles of tasks is Stephen R. Covey’s “Time Management Matrix.”4 I do not claim any credit for these ideas but can definitely attest to their usefulness. This section is an explanation of how I have applied these concepts to my business practices.

4 Covey, Stephen R. The 7 Habits of Highly Effective People (New York: Free Press-Simon & Schuster, 2004), 151.

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Urgent

Not Urgent

Important

I Crises Pressing deadlines Deadline-driven projects

II Prevent time crunches Relationship building Recognizing new opportunities Planning, recreation

Not Important

The Time Management Matrix

III Interruptions, some calls Some mail, some reports Some meetings Proximate, pressing matters Popular activities

IV Trivia, busy work Some mail Some phone calls Time wasters Pleasant activities

More information on Covey’s “Time Management Matrix” can be found in his book, The 7 Habits of Highly Effective People (149-156).

Covey labels these quadrants with numbers and names; for example, quadrant I is “both urgent and important.”5 I’ll start with a simple example of how quadrant I works. Let’s say you walk out into your front yard and see your child step off the curb directly into the path of a speeding truck. This situation requires you to take action immediately. It wouldn’t matter if the phone started ringing or you had left something boiling on the stove; all of your attention would shift to preserving your child’s life. Take that principle into a business environment, and it is incredibly surprising the variety of emergencies that can occur. I had a quadrant I situation in my office the beginning of last week. I had just finished up SEO work on a famous musician’s web site. The project was completed by the Friday afternoon due date, but we had a call on Monday morning advising us that we had worked on the right artist but the wrong site! 5 7 Habits, 152

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It wasn’t our fault (the error grew out of a miscommunication between the two companies), but it resulted in my team starting from square one that morning, all of a sudden having two weeks worth of work to complete in just one. Our focus immediately jumped to correcting the oversight and getting ourselves back on track. The project hadn’t even been on our to-do list for that day, but as soon as the task arose, it became our highest priority. In quadrant II we find tasks that are “the heart of effective personal management.”6 These items are important but not urgent—for example, finding the time to have a talk with your kids about drugs when they get old enough to understand. This is very important but has no real external deadline. “Old enough to understand” is a pretty loose guideline; you could even have part of the talk at ten, some at eleven, some at twelve, and so forth. However, if you ignore this conversation until your child is old enough to encounter and experiment with drugs, the need reaches quadrant I and becomes a crisis. Learning to make time to deal with quadrant II keeps you from living life in a state of urgency. In the business world, quadrant II reflects the heavy lifting between you and your goals. This is the tedious work that you assign yourself in order to achieve your dreams. Covey maintains that a successful life is one that works mainly from this quadrant. For an entrepreneur whose entire life and livelihood hinges on the ability to follow through with long-term goals, quadrant II must be the priority. Now, on to quadrant III: these are tasks imposed on us by others. They occasionally become necessary to somebody, but not necessarily to your problem. We all 6 7 Habits, 153.

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know how friendly the guy next door gets when his fax machine breaks down, or how insistent door-to-door salesmen can be when they haven’t made their quota. When people start knocking on the door with all their little emergencies for you to handle, it is important to remember and live by the old adage: “Failure to plan on your part does not necessarily create a crisis on mine.” We’re all hit with this. It’s important to realize that although you can’t help everyone, it is a valuable and important use of time to help some people, sometimes. Actually, it’s worth your time to help out as often as you can. In this way, you’ll develop relationships of trust and respect, and trust relationships are always an asset. The key is to make sure you do what you can and not what you can’t. If you have the time, energy, and resources to help someone out, then by all means, help! If taking time away from the most important task at hand seriously injures your venture, then don’t do it. You need to achieve this important balance through practice and planning. Finally, quadrant IV—the fluffy, fun quadrant IV, activities that are neither urgent nor important. Examples would be useless, mindless, endless video games and television shows. Don’t get me wrong; I’m up for some good TV shows or a fun game every once in a while, but if you’ve just finished 19 straight hours of Seinfeld reruns, you’ve got a problem. You are not producing, growing, or creating. You are simply existing. Recreation is important and, when used for the purpose of recharging yourself and spending time with family 178

and loved ones, it can often fit into quadrant II. Watch yourself, though; it’s easy to get sucked in. So how do you identify quadrant IV at the office? Check your chat applications; do you chat with other people hourly? How meaningful or useful are those conversations to your strategy? Do you spend a lot of time online without needing to? I’ve even caught people watching DVDs or playing video games during “productivity time.” Statistically, Covey states that most people spend all their time in crisis mode, switching between quadrants I and III. The real power comes when you’re able to spend 80 percent of your time in quadrant II, 5 percent in quadrant I, and 15 percent in quadrant III. As you find yourself scurrying around the office in pursuit of your busy work, keep these thoughts in mind and develop the discipline to say to yourself: “Back off here. This is a waste of time.” This ability is extremely powerful. Finally, you must remember that you possess limited time and resources with which to accomplish your goals. Identify critical tasks and organize yourself around them. If you organize yourself, you will be able to lead a team of people confidently, competently, and consistently. Your team is obligated to develop their own critical reasoning so that they can make judgment calls as well, but it all starts with you. Obviously, using this strategy requires prep work. I’ve found, however, that it doesn’t necessarily need to take a lot of time. The clearer you are with what you want to accomplish, the more quickly you can put a strategy in place and develop it within your team.

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Porter’s Points – Urgent and Important • When you are continually approached with quadrant III activities, learn to say “no.” Try something like, “Thank you so much for thinking of me, but this time I am going to have to pass.” • Gather your thoughts. Take time to record your goals and the critical milestones involved in achieving them. • Prioritize a series of tasks necessary to implement your strategy. Timing is essential in priorities. For example, you may need to finish developing a product before creating the marketing materials so that your marketing reflects the product as accurately as possible. • Choose three important things to do today–and do them. If you have time for others, great; if you run out of time, rest assured that they will be there for you tomorrow. Mountains are climbed one step at a time.

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11 Climb High, Sleep Low Porterâ&#x20AC;&#x2122;s Preface Rich and his family are passionate mountain climbers. Theyâ&#x20AC;&#x2122;ve summitted mountains and hiked canyons throughout the United States and Nepal. He and his wife have trekked peaks in the Himalayas ranging from 14,000 to 20,000 feet, sometimes accompanied by two of their sons for the adventure. These boys were climbing in Nepal before they were 15 years old! Safety is always an issue while climbing mountains, but in remembering the last trip his family took to Nepal, Rich remarked that safety was on his mind like never before. As he contemplated the risks his family took to gain altitude and resulting actions required to keep them safe, Rich realized how applicable his climbing rules are to entrepreneurship. This chapter extracts the fundamental principles of mountain climbing and applies them to steps of creating a business. First, Rich will discuss a critical component of success: imagination! Second, heâ&#x20AC;&#x2122;ll explain the value of setting goals and rewarding yourself along the way. The third principle is to keep climbing! You will have failures along the way; the trick is to keep at it. The 181

fourth concept in this chapter is entitled Seven Years of Plenty, Seven Years of Famine, highlighting the necessity of preparation. Fifth, the section for which this chapter is named: Climb High, Sleep Low. This principle is integral to Richâ&#x20AC;&#x2122;s entrepreneurial philosophy and will provide a foundation upon which you can build success. Finally, Rich lays out his recipe for balancing all the demands of building a business in the section, Cross the Line. This is one of my favorite chapters in the book. As I approached the full time commitment of stepping out of the corporate world and building my own business, these principles kept me sane and on track. They can do the same for you.

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Imagine That! Someone once asked mountain climber George Mallory “Why do you want to climb Mount Everest?” His legendary replay was “Because it is there.”7 We recognize the authenticity of this quote is under debate. Bona fide quote or not, human beings are wired to search out unknown boundaries. It’s why people run marathons, are fascinated by space, or work to create new technology. It’s the same reason why many of us feel compelled to create new businesses. Entrepreneurship cannot exist without imagination. You have to dream it before you make it a reality. Imagination is your mind’s ability to create a blueprint by which you achieve great things. In 2003 I jumped from the seemingly safe, warm waters of a great salary, a matching 401k, and paid vacations, into the cold, deep water of entrepreneurship. Seven days after making the big jump I was playing basketball with some 12-year-old Boy Scouts. As I went for a three-pointer from the corner, I heard a puzzling pop. As I looked down, I saw that my right foot was hanging in an odd position. I had no control over it. I’d snapped my Achilles tendon. The result of that surprising snap was two painful surgeries, prolonged bed rest, physical therapy, and six months of recuperation. Physically, I was unable to get out and be about the work of starting a business. But I quickly recognized that even though my leg was useless, I still had a sharp mind and boundless imagination. It was my imagination that fought off despair. 7 New York Times. 1923. “CLIMBING MOUNT EVEREST IS WORK FOR SUPERMEN; A Member of Former Expeditions Tells of the Difficulties Involved in Reaching the Top -- Hope of Winning in 1924 by Establishment of Base Camps on a Higher Level,” March 18.

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Each night as I fell asleep, I forced positive thoughts into my mind. These thoughts centered around one specific goal. Closing my eyes I visualized cruising the deep blue Caribbean with my new business partners. I saw myself standing, filled with the intense emotions of victory, offering a toast to attaining our objective. “We did it! We made it!” This vision was a stabilizing and motivating lifeline.

“Whatever you can do or dream you can, begin it. Boldness has genius, power an d magic in it.” -Johann Wolfgang van Goethe (attributed in Murray, W. H. The Scottish Himalayan Expeditio n. London: J.M. Dent & Sons Ltd, 1951)

My wife and son drilled a hole in the bedroom floor in order to wire up a computer. Over the course of the next six weeks I taught myself how to program in HTML and built a website, 101waystosave.com. It was an ugly website, but it was a website! My partner Dan Handy had shown me a new advertising program from Google, and I was determined to check it out. After loading a few advertisements onto the site, I drove some traffic to it. The first day the site made one dollar. Putting several more hours of work into the site resulted in a two-day profit of a whopping three dollars. I was on to something! At the end of the month the site was clearing over $100 per day. This little exercise went on to spawn several business ventures which became million dollar businesses at insane profit levels. Reflecting on the experience I realized my injury forced me to take a break and rely on my imagination. This 184

success had nothing to do with contacts, phone calls, lunch dates, big meetings, or a hundred other activities that make a “full work day.” Too often entrepreneurs get caught up in the day-to-day maintenance of an idea, forgetting that true strength lies in the idea itself! There are times when intense focus can be destructive. If a climber spends all of his time feverishly focused on the summit, he could miss finding a more exciting or feasible route! Maybe there’s a better way to get to the top, or maybe there are more rewards to be experienced along the way. Whatever the case may be, the only way to find out is to take time to imagine the possibilities. I promise you that there is time enough in the day. The following section provides several ways to ensure you’re tapping into all of your entrepreneurial potential. Porter’s Points – Imagine That! • Making time to imagine is not counterproductive—it’s essential. • Capture your ideas on paper, in a file, or on a whiteboard. • Not good at “imagineering?” Practice.

Reward Yourself Not even a year after my injury my partners and I had reached our goal. We were ecstatic. It was a phenomenal achievement. I cannot convey the depth of my joy and satisfaction as I sat around the table on that cruise ship with my partners and our wives. My voice quivered with emotion as I stood, lifted my glass, and offered a toast, simply stating, “We did it. We made it.” My dream had become a reality. 185

In the end, dreaming about the cruise was every bit as enjoyable as actually living it. The satisfaction gained from completing the goal was just as fulfilling as the cruise in the Caribbean. However, what would have happened if I had blown off the cruise? After all, since I had enjoyed the dream, wasnâ&#x20AC;&#x2122;t that reward and motivation enough? No. My subconscious would have revolted! Going back on a promised reward would have damaged my desire to dig deep and sacrifice in the future. Take this as a serious warning: you cannot go back on your rewards. Doing so is far more costly to you than the actual cost of the reward. Even the smallest rewards motivate us to reach the top of big mountains. Standing at the bottom of Mount Everest looking heavenward overwhelms even the heartiest of climbers with the reality of the impossible. Smart mountaineers pick out a series of short-term goals and then reward themselves for reaching each and every single one. Perhaps the reward is a drink of water or 10 extra breaths before pressing upward. They chip away at the colossal goal bit by bit. During one of our trips in the Himalayas, our trekking team had a difficult time getting used to the food. When we arrived in the village of Namche Bazaar, famished and needing something delicious, we found a little bakery called Everest Bakery that had the most amazing apple pie. We were willing to add an entire dayâ&#x20AC;&#x2122;s hike just to be able to reward ourselves with one mouthwatering slice. In the same hike, we had a first-timer cook, who just happened to be a vegetarian. Another big motivator to get to a higher camp was the knowledge we would be 186

able to find canned Spam. After hiking for a few days with our vegetarian chef, this reward was particularly motivating. It’s important to realize that money is very seldom a powerful motivator. Small, meaningful, and tantalizing rewards elicit amazing efforts. Just as on the mountain, you must reward yourself for achieving business milestones. Milestones can be small or big accomplishments. Match the reward to the effort required. If you don’t take time to reward yourself, your subconscious will start asking, “Why am I doing this, anyway?” Porter’s Points - Reward Yourself • Establish achievable but “stretch” goals for all your projects. • Identify a reward for each goal. • Make the rewards special and meaningful to you. • Display a reminder of the goal in a prominent place. • Make the reward a real reward: don’t reward yourself with a trip to an amusement park if you hate amusement parks. • Once the goal is achieved don’t procrastinate giving the reward! • Create both individual and team rewards: team rewards create a community of collaboration and mutual appreciation.

Keep Climbing During our first trip to Nepal, my wife and I hiked with our friends, Steve and Lanette Olsen. Steve was without a doubt the strongest climber in the group, but after one particularly difficult ascent he had difficulty acclimating to the new altitude. At one point, Steve 187

had to go into an altitude compression chamber called a Gamoff bag. Despite the setback, Steve persevered, listened to his body, and kept climbing. He ended up being the strongest finisher of the trek. He overcame the obstacle and achieved his climbing objectives. In reality, many small businesses do not succeed. Just like on the mountain, there is no one to tell you to turn around and go home. It doesn’t matter how many summit bids you make. As long as you keep putting one foot in front of the other, you will eventually reach your goal. Keep climbing. Porter’s Points – Keep Climbing • Expect to win and when you do, don’t be surprised! • Experiencing failure does not make you a failure—learn from it and move on.

Seven Years of Plenty, Seven Years of Famine You will inevitably encounter failures on the road of entrepreneurship. It is absolutely essential to prepare for setbacks. I find relevance in the story of Joseph, which is found in the Bible, the Koran, and a number of other religious texts from around the world. In a jealous rage Joseph’s brothers sold him as a slave into Egypt. After years of abuse and hardship, he was unjustly thrown into prison. Joseph had a talent, though: a gift for interpreting dreams. Having heard of Joseph’s ability, the Pharaoh called upon him to decipher his disturbing dreams. After hearing the dream, Joseph warned Pharaoh that a famine was coming; seven years of plenty followed 188

by devastating shortages. Joseph became Pharaohâ&#x20AC;&#x2122;s chief steward and immediately began a program to set aside a reserve of food and supplies. Seven years later the famine hit, but Pharaoh and all of Egypt were ready. Ed Viesturs, one of my personal heroes, was the first American to climb all 14 of the worldâ&#x20AC;&#x2122;s 8,000-meter summits. He accomplished this remarkable success without the use of supplemental oxygen. Only those who have confronted high altitudes understand the superhuman ability required to accomplish this task. I identify with Ed for two primary reasons: 1. His work ethic and attitude on the mountain. Countless times he sacrificed his own summit bid in order to rescue others. How Ed climbs the mountain is as important to him as climbing it. Ed was a member of the IMAX team and one of the major heroes in the rescue attempt that occurred in the infamous 1996 Everest disaster. 2. His climbing philosophy. When Ed is acclimatized and the conditions are right, he goes for it. When the conditions are not right or he considers the venture an unacceptable risk, he has the courage to back off and go back to the tent. Sometimes this frustrates others around him, but he does not let peer pressure push him to climb a mountain when it does not feel right. In an article about his third attempt to summit Annapurna, Viesturs said:

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Veikka and I will approach this attempt the same way we have all our other climbs. I'm quite prepared to just turn around and come home if conditions are as dicey as they were on previous attempts. I admit to being pretty motivated to reach my goal of climbing all 14 peaks, but I'm not going to take unreasonable risks to do so. No mountain, no summit, is worth dying for. I do this for fun, not because I have to. I do this for me, and I do it my way.8

Ed said: “For me and the people I care about, my style of climbing is the right style. Getting to the top is optional, but gettin g back down is mandatory” (see footnote.) In mountain climbing, it is not enough just to get to the top. The goal must be to get to the top and return home safely. In business you must plan for the difficult times. As you reap the rewards of your hard wor k, build a financial buffer for your future.

Now, you have to keep in mind that Ed had already attempted this climb twice, and backed off both times. This was the last 8,000-meter peak he had left to conquer before attaining his goal of summiting all 14 peaks. Annapurna is arguably the most dangerous and most difficult of all of the 8,000 meter peaks, with the possible exception of K2. He had already tried and backed off twice. Ed’s team chose a route that required them to be above 26,000 feet, the death zone, for an extended period of time. However, taking this route allowed them to avoid the huge avalanche-prone faces of the foreboding 8 Potterfield, Peter. “Viesturs Returns to Annapurna,” GreatOutdoors.com (February 7, 2007). http://www.greatoutdoors.com/published/viesturs-returnsto-annapurna

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mountain. Well into their summit bid they came to a corniced face that “just did not feel right.” Ed and Veikka chose to go back down the mountain, but two other climbing partners decided to press forward. In an amazing climb, those other two reached the summit successfully. Some people watching the climb called Ed and Veikka weak-kneed. They received an enormous amount of criticism for turning around when their partners summitted. However, they did not waver and offered no regrets. They had the courage and fortitude to “go to the tent” despite receiving peer pressure, despite it being the final summit, and despite the world watching. I know of a local partnership that exemplified the need for this principle. After experiencing success at the outset of the venture, each partner was able to take huge disbursements rather frequently. Not sure of the upcoming terrain, the first partner chose to invest in some real estate and tucked money away for the future. The other partner built a gorgeous home, requiring him to take out two mortgages. He filled the new house with top-of-the-line furniture and increased his monthly burn to match the increase in the amount of money he was bringing home. As often happens, technology and the market changed. The business hit a transition period requiring the partners to lay off employees and cut expenses (including disbursements) while they took time to regroup. They determined it would take at least six months to retool the business to a level where the cash flow would allow both partners to take a salary. The first partner had the resources to wait out the tough time and keep climbing: slowly, but steadily. The second partner was forced into the tent at a dead 191

stop. He went back into corporate America seeking a salaried job that would support his new lifestyle. Different choices have different consequences. There is no way to predict the future, and you must be prepared to accept what changes may come. In the above example, the second partner cannot be considered a failure. He accomplished a great deal and chose his own priorities. However, if you want to experience true entrepreneurial freedom, your priorities need to reflect your goals. When things are going well, make sure you don’t burn up all the reserves. Put some away for the slow time. A good rule of thumb is to maintain three months of buffer, no matter what. This gives immense peace of mind when times get tough. It’s smart to be a little conservative now for peace of mind later; I’ve said it before and I’ll say it again: live like others won’t now so you can live like others can’t later. Getting to the top is optional, but getting back down is mandatory. Porter’s Points – Seven Years of Plenty, Seven Years of Famine • Live on less than you bring in. • Do not buy the extras on your basic earnings; buy them on your extra income. • Get your personal financial life in order and avoid putting your loved ones at risk. • Save and maintain a three-month buffer of financial reserves.

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Climb High, Sleep Low: Achieving Balance One of the most important concepts in high-altitude climbing is â&#x20AC;&#x153;climb high, sleep low.â&#x20AC;? At higher altitudes, less oxygen is present in the air. In order to compensate, the body fills up with fluid. Altitude sickness, displayed as headaches, nausea, or vomiting, results from this is a caution to slow your ascent. If these warning signs go unheeded, altitude sickness can progress into HAPE, or high-altitude pulmonary edema, as the lungs fill with fluid. A similar problem referred to as HACE, or cerebral edema, might also occur in the brain. These conditions are among the deadliest conditions associated with high-altitude climbing. If a person were dropped on the top of Mount Everest without giving the body time to acclimatize, he or she would die within five minutes. If you want to get to the top of a high mountain without experiencing the dilemmas of HAPE or HACE, you must sleep only 1,000 feet higher than the previous night: climb high, sleep low. This mountain climbing metaphor translates directly into entrepreneurship: while you must be diligent, you cannot be reckless. My dear friend Pema Dorje Sherpa told me a story about a marathon runner who considered his physiology to be above and beyond that of high altitude climbers. Flying out of Katmandu at 4,000 feet he landed at Lukla, at about 10,000 feet. Jumping off the tiny Otter twin-engine he proceeded to attack the trail, running the entire distance to the 16,000-foot lakes of Gokyo, an amazing and seemingly impossible feat. In just one day he gained 12,000 feet in altitude.

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Mountaineers take upwards of ten days to make that high of a climb, not because they can’t do it in two days, but because they know their bodies must acclimatize to ever-increasing altitude. The marathoner achieved his goal to cross the finish line at Gokyo in one day. The next morning he was dead. Balance is an essential attribute of mountain climbing. When you climb 8,000-meter peaks, a four- or fiveday rest period is part of the proven training regime. You need an ample reserve for the final assault on the summit. So it is when starting and growing your business. You cannot use this principle as an excuse to hang out at base camp. Be smart, and pace yourself for times that require gut-wrenching effort. As I’ve built and grown businesses, I’ve often turned to different books on entrepreneurship for guidance. More often than not I’ve found examples of successful businessmen or women who sacrificed their families, social life, and personal goals to make their business successful. Early in my corporate career I was fooled into thinking that this kind of sacrifice was necessary. As a result, too much time was spent out of balance. The following consecutive events occurred, which changed my incorrect thinking. While General Manager of Mitsubishi Electric PC Division I was summoned to Birmingham England for a chat with Dr. Peter Horne, my mentor and boss. As I arrived at Peter’s office he sat me down and offered sincere congratulations. He said, “You made marked progress; the USA division is starting to come together.” He continued: “Rich, I want you to remember this: you can replace anything in life. You can replace a job, a car, money, 194

anything, but you can’t replace your health, your trust relationships, or your family.” With that statement, he excused me from the meeting. The 20-hour plane trip home gave me ample time to consider this practical, wise, and invaluable advice. The previous year I’d spent three weeks out of each month traveling, resulting in excess of 100,000 air miles. I was determined to “earn my stripes” at all cost. Upon arriving home from this trip, I picked up my third son, only two years old at the time. He didn’t recognize me and pushed me away. It broke my heart. I reflected, “Why am I doing this? Is it worth it? Dr. Horne is right, I cannot replace this time with my child.” From this point forward I have made a very conscious attempt to guard my health, my family, and my trust relationships. You do not need to sacrifice family, health, or trust relationships in exchange for entrepreneurial success. I contend that you will be more effective, happy, and successful if you do not. Porter’s Points – Climb High, Sleep Low: Achieving Balance • Ensure you build reserves for stretches that require gut-wrenching effort. • Don’t hang out at “base camp” longer than necessary. • Entrepreneurial success is not an equal exchange for the loss of family, health, and trust relationships.

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Cross the Line Maintaining a perfect life balance as an entrepreneur is impossible. I’ll confess to anyone who asks, I live my life constantly and consistently out of balance. But, along the way, I’ve learned an invaluable principle: cross the line of balance as frequently as possible. It’s unavoidable; you will have ups and downs depending on the dynamic demands of your business. There will be times when you can play golf in the mornings and have family picnics on the weekends. Other times you will lose sleep and go weeks without swinging an eight iron. I’ll say it again: find the line of balance and stick to it as often as possible. If you find yourself at work constantly for a week, make time to be at home for a long weekend. Entrepreneurship occasionally requires you to live your life in extreme conditions. Make sure you’re switching back and forth between work and the rest of your life. You’ll cross the line of balance between extremes often enough to feel some sort of normalcy. Use your time wisely, and make sure your priorities are in order. Another important note: when you must go out of balance at work, communicate to your loved ones that your schedule is a deliberate choice, not an uncontrollable accident. Help them understand that the effort is critical for a specific time period. Then ensure you stick with the time period. Your conversation might look like this: I’m going to have to spend a lot of time at the office the next two weeks. We have some critical milestones approaching, so I won’t be around 196

much. At the end, though, let’s celebrate by going on a long weekend to the lake house. In keeping with the principles of “Reward Yourself,” don’t “forget” this reward! It’s the spirit of the adage work hard, play hard. It just so happens in entrepreneurship that the sentiment ends up looking more like work harder, play harder. The time to play hard is a freedom granted to entrepreneurs who are able to manage their time effectively. d life, tement ab out climbing an Ed Viesturs made this sta he maintains: epitomizing the balance commitment I was married, I made a “The fact is, even before as. What en I climb in the Himalay to myself to be smar t wh can have a is a balancing act, you I’ve learned is that life do what have to work, you have to family life but you still e it and untains is what I do, I lov you do. Climbing big mo al style successful. But my person I’d say I have been fairly e now shows mistakes. The life I liv includes avoiding stupid mbing.” is more to life than cli me every day that there atOutdoors.com

napurna,” Gre -“Viesturs Returns to An

Porter’s Points – Cross the Line • Cross the line of balance into a balanced life as frequently as possible. • Talk to your family and trust relationships. Let them know that your going out of balance is a deliberate choice, not an uncontrollable accident. • Make The 7 Habits of Highly Effective People by Steven R. Covey required reading and then live it. At our company, we do. • Schedule important life events in your calendar. Stick to these commitments unapologetically. • Schedule a long weekend every month or so and leave every respect of the office behind. 197

12 The Heart and the Head of the Entrepreneur Porter’s Preface How many “do-it-yourself” books have you read? Of those, how many did you pick up a second time? And what about chapters you’ve read multiple times? Scan your bookshelves. Invariably, you’ll come across a book with tattered pages and cover, a dogeared and underlined favorite. Your favorite book naturally falls open to “the best part,” a chapter that fills you with motivation and confidence. This chapter is one of those chapters. If you want to run the entrepreneur’s race you must understand this truth: the attributes and skills required to experience success deal directly with what you have in your heart and in your head. Nothing else is more important. The stamina essential for entrepreneurial success springs from your mental, emotional, and spiritual reservoirs. In this chapter, Rich discusses some of his favorite principles and topics for getting your heart right and your head on straight.

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WHAT’S IN YOUR HEART? The Race Seldom Goes to the Fastest Trusting Your Gut The Loneliness of Leadership Embracing Failure WHAT’S IN YOUR HEAD? The Secret Abundance Mentality Breaking Through the Mental Barrier The Zone Do the Hard Thing

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The Race Seldom Goes to the Fastest There is a man named Minesh Doshi who lives in Ahmedebad, India. He wanted his own computer hardware company, but didn’t have the capital for a full-scale start-up. Despite daunting obstacles, he began to work toward his goal, slowly. He bought all the components he could afford from the local market, put computers together on his own, and then sold them to local business owners. All the transportation of parts and machinery was literally done on his bicycle. He worked aggressively, providing stellar service and support until he became well-known and well-respected in this local area. As a result of his reputation and hard work, he got a hardware contract from the Indian government. Now, Minesh’s company, Semaphore Software, is a major engineering outsource resource in India. I prefer to work with him and his team of almost 400 employees over any other team in India. When you deal with Minesh, there is no question; you are doing business with a doggedly determined individual. John Adams, American patriot and second President of the United States described his position with respect to the fervent fight for independence as “unalterably determined.”9 He could not and would not be swayed from the defined objective, freedom. This mettle, this unalterable determination is also the foundation of your entrepreneurial success. 9 Adams, John. Autobiography. Part 2, “Travels, and Negotiations,” 17771778. Sheet 15 of 37, 21 April 1778. Available at http://www.masshist.org/ digitaladams/aea/cfm/doc.cfm?id=A2_15

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Let me impress upon you this truth: the race very seldom goes to the fastest, the prize to the smartest, the award to the most beautiful, or the brass ring to the cleverest. The individual who simply refuses to die and continues to press forward will eventually get the win. That is unalterable determination. In the 2004 Olympics, Puerto Rico played America in basketball. On paper, America was the “A-team,” Puerto Rico falling far behind, the B-team. Were you shocked as you watched the underdogs school the more talented Americans? I wasn’t. It was a classic occurrence of A players giving B efforts and B players giving A efforts. Larry Brown, USA’s coach, commented on the B team’s win: “I'd like to congratulate Puerto Rico... They played so much harder than we did, so much better as a team... From our perspective the only thing we can do is to find out what we're made of.”10 I’ll take a B team giving A effort any day of the week. As you read the following sections, analyze your mental and emotional foundation. If you’re not the strongest man or the cleverest woman, know that it has nothing to do with your promise as an entrepreneur. Your unalterable determination can and will carry you to victory. Porter’s Points—The Race Seldom Goes to the Fastest • Approach each endeavor with “unalterable determination” – and if you don’t have any, get some! • Continually press forward and course-correct as required.

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10 Brown, Larry, quoted in Monter, Chris, “USA stunned in 92-73 opening loss to Puerto Rico,” ScoutFIU.com (August 16, 2004). http://floridainternational. scout.com/a.z?s=446&p=2&c=284116

• So you weren’t MVP or valedictorian. Focus on what you are! Make a list of the qualities in your heart and head that will get you where you want to be.

Trusting Your Gut Want to make a really big mistake? Don’t follow your gut. I can’t say enough about that little feeling known as “intuition.” Some of the biggest mistakes I’ve made in business resulted from following pure logic and ignoring intuition. Yes, it is important to do your homework and know the numbers, but don’t put yourself through hours of effort and then ignore your gut. I remember one occasion when I ignored one of those “gut feelings,” and, as always happens, regretted it later. I grew up in southern Utah and still travel south down I-15 every so often to visit home. On one specific trip I had a thought while driving down the off-ramp headed home: this exit would be a perfect spot for a McDonald’s. I knew that it was the stopping point between Las Vegas and Salt Lake. However ingenious the idea, I didn’t follow my inclination. Two years later a McDonald’s went up on that exact spot. Last I checked, it was one of the highest dollar-volume McDonald’s in the state of Utah. Learning to let logic and intuition work together is an integral component of the art of entrepreneurship. It may feel a bit loosey-goosey. It may go against the grain of the MBA classes you took. It may fly in the face of your nature. Nonetheless, I’ve learned not to argue with results. Some of the worst hires I’ve made were after reading the resume, checking the GPA, calling all the references, and matching the best candidate to the 203

job description. On paper, one particular candidate was the most qualified, but my gut was screaming to go with the next guy. I first internalized this concept from a seasoned entrepreneur, Ladd Christensen. Ladd is a successful businessman who co-founded Huntsman Chemical and Huntsman Christensen Corp, founded Vinca Corporation, founded Petrosource Corporation, and was a founding partner with Deer Valley Resort's primary partner, Edgar Stern. While I was working for Ladd on a project, he became frustrated with my “economist” mindset. He accused me of being excessively and exclusively logical. At the height of his frustration, he challenged me to provide him with an accurate definition of entrepreneurship. Caught off guard, I rattled off a somewhat lame textbook answer. His response: “Wrong!” Then Ladd shared this thought: “Entrepreneurship is the courage to wander into the fog when you are not sure where you’re going.” Ladd went on to explain what he meant, and his metaphor showed me I needed to course-correct. I had parts of what was necessary to be successful, but I was missing something big. Ladd explained: initially, when you set a goal, you look to that goal in the distance like a beacon. After understanding where you want to go, you shift your gaze to analyze how you’re going to get there. After surveying the terrain, you set off through the foggy swamp, desperately attempting to keep your feet going in the right direction. Every so often you find a clearing in the fog, and you have the opportunity to get your bearings and reassess where you are in relation to your beacon. The respite does not last long, however, and you must jump back into the mud and 204

press forward, your confidence in yourself and trust in your gut as your only solace and inspiration. Ladd told me that while I was out there wandering I would have feelings, thoughts, and insights. He warned me not to ignore them. I came to realize that it was my intuition that would bring me to the clearings where I could take my bearings, apply logic and analysis, and dive back into the fog. Why does the gut matter? Why does the gut work? We all have enormous amounts of information hitting us on a continual basis. Some of that information remains in the realm of consciousness and some settles into the subconscious. It’s the subconscious data that guides us without our being fully aware that it’s happening. But the information we process intuitively is just as valid as the data we search out. Intuition and entrepreneurship go hand in hand. Following your gut will allow you to create, mold, and model things that have never been created, molded, or modeled before. Porter’s Points—Trusting Your Gut • Unite focused preparation and analysis with the power of intuition. • Because the entrepreneurial path is not always clearly laid out, you must develop the ability and courage to follow your instincts. • You will wander in the fog—don’t fear the occasional detour.

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Loneliness of Leadership Great leaders are often required to stand alone. They must make difficult decisions and stand by them, sometimes facing immense opposition. Many business owners confuse popularity with good leadership. In truth, as you learn to make the hard choices and have the courage to follow through, popularity may be one of the first things you sacrifice. Do you remember your most inspirational teacher? I do: Coach Tuft. He was tough! Coach Tuft taught with a unique structure and approach, and always expected significant effort for the results he expected. He may not have been the most popular, but he truly exemplified great leadership. Coach Tuft was honest, straightforward, demanding, and cared enough to give me relevant and, at times, piercing feedback. He held me to a higher standard than I ever dreamed of holding myself to. But don’t be such a strict taskmaster that you make enemies at every turn. My mentor, Dr. Peter Horne, told me something very important: “Be nice to the people on the way up because you’re going to see them again on the way down.” What about your easiest teacher? Remember her or his name? I can’t! I do, however, remember his face, and the shenanigans I used to pull in class from time to time. The same principle holds true as you lead. Leaders need to be honest, straightforward, and able to elicit an individual’s best work far more than they need to be popular. 206

Consider an example found closer to home. What happens when parents attempt to win popularity contests in an effort to be best buddies with their kids? Anarchy! Children want and need their parents to set boundaries, provide structure, and elicit excellence. They neither need nor want parents to win popularity contests, even on their grumpiest of days. The same is true of a business leader. A strong front may leave you out of the fun lunches from time to time, but know that the line you are guarding is an important one. The success of your business hinges on your ability to motivate and inspire, not your ability to make your team laugh at the Friday afternoon gettogethers.

ers to walk the earth One of the greatest lead s ago. His life exuded did so two thousand year s death. This is how Jesu lo neliness from birth to derstanding of this Christ expressed his un of ve holes, and the birds principle: “The foxes ha the So n of man hath not the air have nests; but where to lay his head.” io n). -Bible (King James Vers

Matthew 8:20.

Porter’s Points – Loneliness of Leadership • Do not fear to stand alone. Popularity does not make a great leader. • Hold yourself to a higher standard. • Set high standards for your team in order to elicit each individual’s best work.

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Embracing Failure Ron and I have a dear friend named Roger Reid who exemplifies the type of mindset and attitude necessary to thrive in times of turbulence. Roger was one of the most successful college basketball coaches in the United States during the 1990s. In 1996 Roger was involved in a nasty termination from a major university. After the termination, I stopped by his home to express my support. We talked for a while and after a bit he stated with a knowing smile, “I have finally found out how funny my jokes really are.” Chuckling, he continued: “Before this experience everyone always laughed at my jokes. Now people only laugh when I’m actually funny.” You will have times of turbulence as you build your business. Determine now how you will respond. Will you transform your failure into a step toward success? Will your failures provide you an opportunity to gutcheck your jokes? Roger went on to achieve multiple successes in his chosen field. Roger Reid is wired for success. So are you. Does failure break your heart? I sincerely hope not. Reality dictates that you will experience failures as you start a business. Many of my most valued experiences have been my biggest failures, resulting in my biggest opportunities to learn and change. One of my favorite sayings is: A stupid man never learns from his mistakes. A smart man always learns from his mistakes. A wise man learns from others’ mistakes. As you shift into this mindset, you will learn to embrace failure and realize that it is part of the process. I have 208

observed that great entrepreneurs seem to handle failure in a calm, competent, and confident manner. Become passionate about understanding your failures. It is the only way that you will learn from your mistakes and progress beyond them. Thomas Edison failed hundreds of times before creating a filament for the light bulb. Despite the rough beginnings, he refused to become discouraged or view anything as a failure: “Every wrong attempt discarded is a step forward.”11 One of my favorite sayings is: “Competence or incompetence always shows its head. It may take a day, a month, a year, maybe even 10 years or longer, but sooner or later it will show its head.” If you are competent, a failure is nothing more than a turn in your journey’s road, a step forward. It can actually make the process more exciting. You just have to refuse to allow your negative thoughts or naysayers to convince you that a setback or even a series of setbacks constitutes incompetence and marks you a failure. Years ago I heard a story from one of my peers about a seminar where the speaker used an object lesson to illustrate this principle. He took a $100 dollar bill out of his pocket and asked the audience: “Who wants this?” Every hand shot up. He proceeded to crumple the $100 in a small ball and asked again, “Who wants it now?” 11 “Edison’s Story,” The Lemelson Center Presents…Edison Invents! Smithsonian Institution: National Museum of American History. http://invention.smithsonian.org/centerpieces/edison/000_story_02.asp

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Again, every hand shot up. He took the C-note and threw it on the floor and began jumping up and down on it. “Who wants it now?” Once more, all hands were in the air. Then came the real gem: “You mean after I’ve crumpled it, jumped on it, and literally beat it up, you still want it? Why?” One of the participants volunteered the answer. “Because its value has not changed!” So it is with you. You will get beat up, you will fail. But your value does not change. It doesn’t diminish. In fact, the rough treatment will actually increase your value! There is definitely value in having a selective memory when you are an entrepreneur. Mark Twain captured the feeling: “The inability to forget is infinitely more devastating than the inability to remember.” Do not linger on the bad experiences. Take stock of where you are and appreciate how you got there. Starting a business is not like baseball where it’s three strikes and you’re out. If you set it up properly, you can take as many pitches as you like and all that really matters is eventually getting the bat to connect firmly with the ball. It doesn’t matter if it takes one pitch or twenty. Just keep at it. Tweak your swing, change your grip, try a lighter bat, or move up in the batter’s box. You will find the right combination and sooner or later you will connect. Frequently as I gather with my entrepreneur buddies, our banter turns to battle scars. Near-death stories 210

are told with relish and pride. They are badges of honor. Why? Because the journey, the failures, the experiences, and the lessons learned are the fun parts! Porter’s Points – Embracing Failure • Learn to enjoy, embrace, and savor your failures. • Don’t be too hard on yourself, you can’t gain experience without failure—it’s a natural cycle. • Keep a journal of critical decisions and how they turned out. Write advice to yourself to follow in similar, future situations.

The Secret Life gives you what you expect it to. If you expect success, everything you do translates into success—even your failures. If you expect failure, everything you do translates into failures—even your successes. If you expect to be loved, you will be loved; and if you expect to be taken advantage of you will be taken advantage of. Life is a self-fulfilling prophecy. This concept seems to be popping up everywhere lately. I attempted to trace it back to its origin, the law of attraction. I found it in Buddhism, Confucianism, in the philosophy and psychology of William James, and the 2006 bestseller called The Secret by Rhonda Byrne.12 My conclusion: this truth resonates throughout time and applies to our lives today. We all know people who seem to get all the breaks: the woman down the street who wins all the beauty contests, the guy in the office across the hallway whose putts always fall. Everything they touch turns platinum. 12 Byrne, Rhonda. The Secret (New York: Atria Books, 2006).

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Contrastingly, you likely know people who fill the casting call for the “Eeyores” of life. You’re not sure whether to pity them or appreciate how sparkling your personality seems in comparison. They have low expectations and their mood persistently commiserates with the dismal, melancholy little rain cloud that seems to hover over them everywhere they go. What made them this way? Luck of the draw? Lightning bolts on the equator? The truth is it’s no accident. It doesn’t just happen. They’ve expected nothing less, or more precisely, nothing more! They have used their will to make it so. I don’t watch a lot of television, but on more than one occasion I’ve come home to find my wife queuing up the TIVO and commanding me to sit down and watch Oprah. I’ve witnessed, from a distance, Oprah’s amazing ability to live this principle. From my perspective, she chose to expect the best from life. She chose to love. She chose to succeed. She chose to forgive. She will get everything from life she expects. And if you think she has fulfilled her expectations by now, my bet is that you’re very wrong. I conclude that Oprah expects more great things of herself and the world she lives in and loves, and always will. Golfing great Jack Nicklaus seemed to convey genuine surprise every time he missed a shot. He literally expected each and every shot to be a winner. He knew what he could do, and did not waste time timidly hoping the putt might fall. Decide what you want out of life! Write your expectations down. Call them goals, call them resolutions, call them whatever you want. Get your dreams down on paper, write them in your heart. Believe you will achieve them and go after them. 212

I add my humble but zealous voice to those who have, do, and will yet live life against the backdrop of this truth: life gives you what you expect it to. place in of the horrors that took Viktor Frankl, survivor a bo ok der a Nazi regime, wrote Auschwitz and Dachau un required Meaning.” This bo ok is called “Man’s Search for sible the midst of the worst pos reading for my team. In e. His works pect the most out of lif scenarios he chose to ex ple. e a paragon of this princi kept him alive to becom we can choose what happens to us but “We can’t always choose ultimate and happens to us. It is our how to respond to what the reader by nted simply to convey to final freedo m. I had wa ial meaning that life holds a potent way of concrete example es. And I n the most miserable on under any conditions, eve a situatio n nt were demonstrated in thought that if the poi bo ok might concentratio n camp, my as extreme as that in a iting down e felt responsible for wr gain a hearing. I therefor be helpful to , for I thought it might what I had gone through despair.” people who are pro ne to ’s Search for Meaning” -Frankl, Viktor E. “Man ter, 1963), 104-105. (New York: Simon & Schus

Porter’s Points – The Secret • Internalize this truth: Life really does give you what you expect it to. • Employ your will to make your success a reality. • It is not enough to just dream about what your success looks like. Exert the discipline required to achieve your dream. 213

Abundance Mentality Attaining and maintaining an abundance mentality is absolutely crucial to your success as an entrepreneur. Although this truth ties in nicely with the idea that life gives you what you expect it to, it deserves its own consideration. What is an abundance mentality? An entrepreneur with an abundance mentality has the ability to recognize opportunities. Look out your window. Do you see $100 bills lying in the streets, just waiting for you to pick them up? They are out there; you simply need to learn to see them. Benjamin Franklin often quoted the old saying “A bird in the hand is worth two in the bush.” To a certain extent, this is true. It’s better to have something than to have nothing at all. But here’s the thing: the world is absolutely brimming with bushes, and those bushes are bursting with birds! How did you get that bird in your hand in the first place? Can you do it again? Remember that old Ben also said, “He that would fish must venture his bait.” Surely there’s a balance that needs to be found. I recall a young man who asked me to lunch to discuss an idea of his. He was sure it would change the world. The only problem was that he clutched onto the idea so tightly, so afraid of losing it or having it stolen by someone else, that he shared it with no one. As a result, this young man will likely take “the idea of the century” to the grave with him. He suffers from the opposite of abundance mentality: scarcity mentality.

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Scarcity mentality causes people to cling tightly to their “bird in the hand” because they fear being left with nothing at all. This mentality results in individuals distrusting any or all who would be their partners and collaborators. They fear jeopardizing the “great idea.”

On the other hand, an abundance mentality allows you to plan and dream, work with others, and have faith that there are more opportunities out there than you know. Not only does this mindset allow you to relax and see things for what they are, it’s a lot more enjoyable! When Ron and I began partnering on our business Ron was living the scarcity model. He had just been through a layoff and was focused on the risk rather than the opportunity. For me, it was different: everywhere I turned there was an abundance of prospects, just waiting to be plucked from the bushes. As the year went on, we did a flip-flop! Ron had learned to trust my abundance mentality, and in doing so, began to see and trust the opportunities himself. I had been through a tough year. After a soured partnership, I went into survival mode. As you maneuver your way through business ventures, you may fluctuate between abundance and scarcity mentalities. Learn the warning signs, and be able to take applicable action to ensure your happiness, sanity, and success. The Warning Signs • You are paranoid that partners, outsourced workers, or the UPS guy might steal your great idea. • Instead of surveying the situation and reacting accordingly, you find yourself sticking to an original plan, regardless of how things have changed. • You are reluctant to expand, add new people, or make choices that will require you to branch out of your comfort zone. • You buy antacids in bulk. 215

• In the back of your mind, you feel like any success you’re experiencing could end at any moment, so you’re constantly on guard. Does that sound like you? If so, you need a course correction! Porter’s Points—Abundance Mentality • Spring for the office lunch or buy some Girl Scout cookies when your partner’s daughter comes around collecting orders. It’s good for the soul, and reminds you that things are not as tight as they may appear. • You are the driving force behind your idea. Without your passion, it wouldn’t be the same. Take the right steps to protect your intellectual property and get going! • Bend in response to new opportunities or setbacks. A small business’s agility is its trump card: large corporations don’t have that luxury. • Give! Philanthropy is the surest way to release you from unnecessary panic. Giving is a surefire cure for scarcity mentality.

Breaking Through the Mental Barrier Too often, when faced with a new task, we limit ourselves by asserting, “I can’t do this.” This mindset will sabotage every effort you make. To find entrepreneurial success you must break through mental barriers. A few years ago I enjoyed a great partnership with Curtis Blair. We were expanding a company called 216

Cyclone Trading Co., an international golf supply business. One day while we were working together, Curtis confided in me one of his personal mental barriers in golf. For years he had told himself he was not a sub-80 golfer. He was certain that if he took private lessons and had plenty of practice time, got his hip rotation right, and ensured his mechanics were fluid he could maybe, just maybe, go sub-80 in three or four years. For Curtis, the solution was “work harder.” I didn’t buy it. I saw his talent. I saw this predicament as a perfect opportunity to show Curtis what he could do for himself with regard to both his game and his business attitudes: he just needed to break though mental barriers. To spur him along, I issued an offer and a challenge: “Curtis, I’m going to prove to you that you are a sub-80 golfer. Not only will I do that, I will personally reward you for achieving your goal.” The plan laid out was simple and far from original: “You must visualize success on every shot. You must play one and only one shot at a time. You must decide whether your putt is a ‘get it close’ or a ‘make it in’ putt. You must focus on playing confidently but conservatively. The next few times we play I’ll walk you through each shot: club selection and positive reinforcement exercises. Finally, if you want the reward you must hit in the 70s within three months, not three years.” “You’re on,” Curtis agreed. Three months later Curtis and I stood on the 18th hole of the Coral Canyon Golf Course near St. George, Utah. The previous evening had been spent putting 217

for two hours, talking about mindset, practicing layups and up-and-down shots. After that, we ended with a relaxing dinner - nothing stressful, just having fun. Now it was the next day, standing on the tee box at the 18th. Curtis teed up and ripped off a smooth drive. The Pro-V1 bounced three times and rolled to the left center of the fairway. Pulling out a three iron he went through the same routine, but the ball sliced, ending up in the weeds. His wedge from the weeds got him within 10 feet of the flag for a chance at par. He pushed the putt, sliding it past the cup by three feet—no better than a bogey chance now. And then the moment arrived: an easy tap-in gave him a bogey. “Seventy-seven!” I shouted. I knew all along that Curtis would do it, so I was not surprised. The win came because Curtis broke through his mental barrier. Standing on the 18th hole that day, Curtis discovered exactly what he was capable of: anything. Porter’s Points – Breaking Through the Mental Barrier • Do not allow mental barriers to keep you from succeeding. • Visualize your success, paint the picture of where you want to be and then be the painting! • Don’t sell yourself short by believing your success requires a long, drawn-out process. With the right tools and mental attitude, success may be closer than you think.

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The Zone What is The Zone? It’s when your mind is focused so precisely that you don’t even think about the task at hand. You simply perform. The mechanics are lost in the sheer feeling of the action. You feel your way through the task instead of think your way through it. Anyone who has felt the elation of a well-executed presentation to a big client knows The Zone. I remember when Eddy Anderson joined my team at Novell. We traveled together to the UK to present to a client, Santa Cruz Operations. Eddy had put in weeks of hard work and forethought, and even prepared a software bundle as part of his presentation. As he began to speak, I felt the energy pick up in the room, and saw the board members nodding their heads in agreement. He was perfectly polished and charismatic. As he left the conference room everyone commented on how impressed they were with his high-quality work. He had hit a home run. He was in The Zone! Obviously, you can’t live your entire life in The Zone. Most of life will actually be spent setting the zone up, just like Ed did with his weeks of preparation. You have to pay for success up front. So go get ideas, do some research, make a plan, and practice, practice, practice! After you’ve gone through the process, however, you must learn to let all of it go and trust your preparation. You simply need to enter your zone and perform. There are two kinds of work: hard work, the kind that requires all of your focus and amazing amounts of energy, and zone work, the kind of work that leaves you feeling exhilarated and energized. Zone work usually follows hard work. 219

The feelings you experience in the zone will sustain you in critical moments. If you let it, your zone will always be in the background as motivation. You will crave that energy and that fulfillment. The thing is, the more you experience The Zone, the more your confidence will grow! Your performances will improve, and you will be able to enter it at will. Getting into their zones is why people love their work. A few years ago, in the foyer of Thanksgiving Point Golf Course, there stood a glass case that housed a short iron used by the golf great Johnny Miller. He must have used it for years, because on the middle of the club face there was an indention about half an inch deep. It came as the result of tens of thousands of golf balls being hit in the same spot on that club face over and over and over again. Clearly, Johnny found the sweet spot with that club and once he found it, he made the most of it—it was one of the clubs he used to win the 1973 U.S. Open at Oakmont. The lesson here? Get the most out of your passions and talents, and don’t let up! Porter’s Points – The Zone • Prepare. Make sure that when you arrive for the performance, you’ve put in the time and sweat necessary to feel confident and competent. • Don’t feel intimidated by clients. Big name or not, they’re asking for what you have to offer. Fear damages your ability to get in The Zone. • Have faith in your skills and the value of your smart, focused work. • Keep a mental image of the last time you were in The Zone. Vividly remember the excitement your felt—you can experience it again.

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Do the Hard Thing Somewhere along the road of life, my younger brother Brett chose to follow a philosophy that differentiated him from others and allowed him to achieve greatness. Brett and I grew up in the small town of Beaver, Utah, 200 miles south of Salt Lake City. Beaver is home to about 2,500 residents. If you’ve ever watched television, you have an unknown connection with Beaver. Philo T. Farnsworth, native son of Beaver, invented it! You can thank or curse him later. Before Brett had turned 16, he’d already won several southern Utah golf tournaments. In high school he was elected student body president, set a State record in the 400-yard dash, and graduated as valedictorian of his class with a perfect 4.0. All of these achievements acted as a springboard for an exacting college experience. Brett attended Brigham Young University in pre-med, focusing on a degree in engineering design technology while also working a full-time job. University advisors counseled him that in order to make it into med school, not only would he need to quit his job, but also change major tracks. For med school, his program was GPA suicide. But Brett had a vision and a personal “secret formula” for success. Long story short, Brett graduated with high honors from the DET program, completed his graduate work at Columbia Medical Center, and went to Johns Hopkins where he was selected as head resident in his final year. He was also highlighted in episode six of ABC’s Hopkins 24/7, was highlighted as a feature story on the Oprah Winfrey Show, and on and on and on. What does all this have to do with you and entrepreneurship? It’s Brett’s “secret formula”: 221

Do the Hard Thing. One evening over dinner, I pressed Brett on the substance behind this mantra. He responded: “Most people are like water; they take the path of least resistance. They look for short cuts or have the mindset of ‘Can I get by with doing less?’ As soon as you decide to do the hard things, you’ve achieved two victories: you’ve eliminated 98 percent of your competition (they’re off doing the easy things) and you’ve set yourself apart, differentiated yourself, and made yourself unique.” Ron penned the following verse, and I think it sums up the chapter well: “Stars were not scattered ‘cross the midnight sky To only be seen by the longing eye. Stars were scattered above the land To be grasped and held by the longing hand.” One of my favorite sayings comes from an entrepreneur in insurance and real estate about eight decades ago. Named Spencer W. Kimball, he later became a prominent religious leader in the 1970s and 1980s. He said, “Do it, do it now, and do it with a purpose. Make no small plans, for it has not the magic to stir the soul of man.” Make no small plans! Whoever you think you are, you must know this: you are not wired to accept failure. You are not wired to stay down. You are wired to get up and go forward. You are wired for greatness! What is your star? Can you see it? Can you visualize it? Your willingness to do the hard thing will allow you to grasp and hold onto your star.

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Porter’s Points – Do the Hard Thing • Analyze what is in your heart and in your head. You must be willing to do the work and balance the sacrifices. • Make a list of what you bring to the table. • Don’t pick the path of least resistance. Differentiate yourself. Make yourself unique. • Doing the hard thing will set you apart from most of your competition. Your unalterable determination will propel you beyond the rest. • Make big plans! Visualize your star and go after it! • Your mental attitude must be a “Can do!” attitude.

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13 Fire, Fire, Fire, Aim Porter’s Preface So, your heart is right and your head is on straight. You’ve had the grit you need ever since chapter one and you really want to start your own venture. That’s fine, but how will you get going? If you are like many entrepreneurs, you have big dreams and big plans and don’t want to mess up. You want to make those big plans as clear and detailed as possible. Qualifying and quantifying the market, writing a detailed business plan, and drafting a pro forma are all very good things to do, but they have one thing in common: they take time. For Rich, expending all that precious time for planning has a consistent rate of success: zero. Even so, he has done it, I have done it, and you may have, too. Rich has some good insights about why the rate of success is zippo. See, the thing about exhaustive planning is that it is comfortable. Taking months to answer every possible cash flow and marketing question lets you play with your gold nugget of an idea, turning it over in your hands and patting yourself on the back. This is comfortable. Planning is a lot of hard work, but it isn’t risky work. Spending days without end sweating over every minuscule detail of a business plan is easy compared to hitting the streets, getting your hands dirty, and doing the hard work of making

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your business happen. Once you have spent several months pushing pencils and drafting documents, you finally have the courage to begin. You have a safe plan in your entrepreneurial holster to load and fire into the market. You settle in, take aim, fire, and… …Bang, you’re dead. You missed the wave, you overstated your potential, you let your competitors beat you to market—business failed. Most entrepreneurs want to have a plan with answers for every contingency, but you cannot afford to do the comfortable thing when your gold nugget can start making cash now. You need to get to work. But don’t you need to plan? Rich is about to explain that planning skills help, sure, but he has had a lot of success using another, lessconventional method. It is one of his most powerful tools in creating new businesses. He likes to call it “Fire, Fire, Fire, Aim.” When he shared the concept with me the first time, I thought he’d spent too much time hiking at extremely high altitudes. Go to market before you have a business plan? Fire, Fire, Fire, Aim went against everything I had been taught! Much to my surprise, as I tested Fire, Fire, Fire, Aim with Rich, I discovered what he already knew: it works!

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In this chapter, Rich will explain why you need to shoot first and aim later. He’ll share his Four Phase Model for business growth. Understanding the way your business grows—and how you need to react to that growth—helps clarify when to fire and when to wait. Fire, Fire, Fire, Aim may seem counterintuitive, but by the time you have read this chapter, your heart, head, and determination will be ready to start gunning for success.

Fire, Fire, Fire, Aim I grew up in a rural community and loved rabbit hunting as a teenager. Sometimes, it proved a tricky pastime. When I’d enter a field or wooded area looking for game, I didn’t always see my target right away. I had two options for finding a rabbit. The first involved sneaking stealthily around the bushes and shrubs, .22 at the ready, until I discovered my target. When I saw a rabbit, I could take careful aim and squeeze off a shot. Bingo. The long hunt was rewarded—assuming I found a rabbit to shoot. The second method involved casually sauntering up to any given field and rattling off 10-20 rounds into the bushes. No aiming required! But, boy, did it work! While the first method might seem like a more traditional form of hunting, I found the second method to be wildly successful. Here’s the thing, though: I wasn’t just firing blindly and counting on a random hit. This rapid-fire method, for the price of a little more ammunition, gave me useful information in much less time. I learned that shooting randomly into the bushes startled the rabbits, causing them to jump out of their hiding places. One rabbit’s jump made another pop up—and then another and then another— and then pretty soon that “empty” field was hopping with rabbits. Instead of spending all my time looking for just one, I had all sorts of choices. Rabbits were everywhere! During my first five to seven years in business, I assailed the business world with the stealth and cunning I learned from my MBA classes. I quickly discovered there are many variables in business and in daily life, making it difficult to hit any target with your first shot. Frustrated by how my plans never quite 227

worked, I accidentally discovered a way to change my strategy. Inspired by my days spent hunting rabbits, I decided just to call up the competition and start acting like I was already in business. I wagered that all I had to do was get as many ideas to “jump” as I could. The new process didn’t involve long, thought-out planning, but rather demanded I go out into the market and actually test the myriad of back-burner ideas I had waiting. It worked. In the early ’90s, new software releases came out every one or two years. Most software distribution was done on diskettes and CDs. A new release was a huge production that took serious project management, coupled with a forebodingly heavy process of developing, releasing, and updating the software. Then Internet distribution changed everything. Different versions of software suddenly became available by simply downloading updates from the web, which computers were soon programmed to do automatically. Today, the Internet is so comprehensive that people simply develop a rapid-fire product and go live with it while still making changes. In today’s Internet-driven world, if you take a year to write a business plan, your opportunity is likely to pass you by. Let’s say that you follow conventional tactics and spend six months preparing a business plan, researching the market, buttoning up your pro forma, and gathering your reserves. Meanwhile, the guy next door has a similar idea but forges forward with testing, releasing, improving, and updating his product.

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By the time you’re ready to get down to the business of testing your idea in the actual market, your neighbor has been raking in profits for six months, figured out the “sweet spot,” released his seventh update, and firmly cornered his market share. Usually, the market moves faster than it would take you to line up all your ducks. The best way to qualify and quantify the market is by simply getting out in the field, firing off your ideas, and discovering what jumps out of the bushes. Don’t misunderstand me: planning is an important event, even in the early stages. The question you must answer is, “What planning is essential for me to hit the ground running?” You only have two steps and then you’re off. John C. Maxwell wrote, “No one can wait until everything is perfect to act and expect to be successful. It’s better to be 80 percent sure and make things happen than it is to wait until you are 100 percent sure because by then, the opportunity will have already passed you by.”13 In 2003, search engines were riding a tremendous wave. Several ideas jumped out of the field and I decided to shoot at the juiciest by creating a personalized search engine application. I very deliberately applied the Fire, Fire, Fire, Aim principle. My partner and I quickly dumped about $30,000 into our idea, which went belly-up in a few months. Most companies in that phase would have been out beating the bushes for venture capital, which would have taken writing a business plan and going back and forth with the VCs until we had enough to make it happen. Don’t get me wrong—the idea could have raised funding, no doubt about it. And with that kind of capital, we could have gone to trade shows, hired engineers, 13 Maxwell, John C. Talent Is Never Enough (Nashville: Thomas Nelson, Inc., 2007), 53.

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and whipped it out into the market only to discover that our idea wasn’t going to work—after two years of wasted effort and millions of wasted dollars. Instead, we shot thirty grand at a dead rabbit and moved on. More than saving our time and a VC’s money, though, our one shot earned it all back. Even though our initial good idea was off on the market timing, our shooting did scare up a pair of juicy rabbits that became very successful ventures. We left the initial rabbit behind and had great success—and a lot of fun—chasing the other two down. The point is that we did something. Our original plan didn’t take off, but we got ourselves into a better situation because we were out and active in the market.

rite quotes, from Jack Here is one of Ro n’s favo to for inspiratio n to co me Lo ndon: “You can’t wait r it with a club.” you. You have to go afte -Londo n, Jack. “Tales of

the Fish Patrol.”

Literary Society, 2007.

LibraryFairfield, IA: 1st World

In the early ’90s, I had a young man working for me who was a very intelligent chap, absolutely fascinated by business. After surveying his options, the young man decided he wanted to purchase some real estate and begin building his own little real estate empire. He met with me several times and picked my brain on what had worked for me. For some reason, even after all our counseling sessions, he never did manage to get around to making the purchases. Every time I checked in with him, he was hot on the trail of a new property, plowing through the numbers and doing the analysis. Ten years later, I still get calls from him about every 230

other year, wanting to talk about real estate—and he still hasn’t bought anything! Does this kind of person drive you crazy? Don’t be one! In order to achieve success, you eventually have to quit plowing and start planting. Get out there and do something that allows inspiration to envelope you! You can’t hit anything unless you pull the trigger, no matter how much time you take to aim. Porter’s Points – Fire, Fire, Fire, Aim • Call the competition and ask questions. You don’t need to tell them why you’re calling to find out what they’re selling and how they’re selling it. Talk to administrative assistants and secretaries. They are on the inside track and are often willing to share information. • Call potential customers and attempt to sell them your model—you’ll find out quickly if you have what they want. Don’t start with your most important target accounts. Start with the least important one and use the feedback to work out the kinks. • Ask advice from everyone you can. Chances are they’ll offer you an earful. Apply what you think will work and forget anything that has no value to your initiative. • Run a quick—“quick” being the operative word— model to see if your idea is viable, and then do another quick cash flow analysis to determine if the business can sustain itself. (See chapter 3, “Power Tools,” for more about models.)

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Aim, Aim, Aim, Fire Once those rabbits jump, you need to figure out if the ones you have a shot at are going to make much of a meal. The danger of firing first is that you can get caught up in the hunt and lose sight of your objective. All that initial shooting is just to show you what’s out there. After you get some action, you must have the discipline to decide: which rabbit do I go for? Imagine yourself as a stealthy lion focused on one zebra and one zebra only. You’re ready to pounce and start chasing that one zebra. It’s the same with your rabbits. You need to focus on just one or two, rather than running all over the field after every last one. Simultaneously chasing them all is a surefire way to go home emptyhanded. Interestingly, the skill that it took to find the opportunities is the exact opposite mindset needed to transform one into success. It’s time to Aim, Aim, Aim, Fire! I know another young, idea-rich entrepreneur whose ability to stumble across ideas initially fascinated me. He would think up a dozen different ventures at the drop of a hat and start to build one up a little. If another great idea didn’t take its place, he’d soon get bored and jump on the next big thing. This is the “a rabbit, a rabbit, a rabbit!” syndrome. He bounced from opportunity to opportunity but never exerted enough focused energy to make even one of his ideas fruitful. One of my business associates uses an analogy to describe this that I love. Imagine that you are standing in front of four different soda machines. To get a soda out, you have to put four quarters in. It so happens that you have exactly four quarters. You approach the first machine, put a quarter in and hit the soda button. Nothing happens. You get frustrated and leave the 232

machine, going to the next machine to stick in another quarter. You continue the pattern until you’ve dumped four quarters in four different soda machines. Only then does it hit you—you’ve expended all your means and you’re still thirsty! So many people put their four quarters in four separate soda machines, then stand there pounding on the door and wondering why the soda isn’t coming out. If you want to drink from the deep, refreshing well of entrepreneurship, you must put enough focused energy at the right time into one soda machine. I remember one really great quarters-and-sodamachines moment. I was working at Mitsubishi Electric with a team that developed motherboards. Competition in the market was intense. To make its way through the thick underbrush, the team quickly investigated the market using the trusted Fire, Fire, Fire, Aim method. Ten to fifteen opportunities jumped up immediately, but some proved more valuable as we examined each rabbit. Even so, I recall how painful it was to mentally transition to the Aim, Aim, Aim, Fire mindset with all that plentiful game hopping around, just begging to be shot. However difficult it was to leave some of the rabbits behind, it was a critical transition. More rabbits were to come. Through the team’s investigations, they wisely discovered a niche and established some barriers. It appeared that most companies were focusing on motherboards with frequent component rotation. Our team decided to target a more stable motherboard market for gear like medical apparatus, video game machines, and gambling equipment. At the same time, Dr. Horne, my mentor and the worldwide head of Mitsubishi’s PC division, had 233

established several strict parameters for us in accepting orders for the motherboards. Specifically, he mandated that we not accept orders unless they were at least $100,000. This was my first time in the role of general manager; while eager to earn my stripes, I wasn’t mature in the GM role. Although I agreed to the limit, I found it difficult, as our shooting had turned up plenty of smaller prey. It frustrated me to no end that I had to let a number of lower contracts go by. How would we ever sell anything? Suddenly, my dismay quickly turned to exuberance as we landed a seven-million-dollar-per-year deal. Dr. Horne was right: waiting for the big fish was worth it. For all of the extra effort it takes to support a smaller client, you don’t get nearly as good of a payout. If we had tried to hook all the little fish, we would still be struggling for pennies that wouldn’t have even made a dent in our eventual catch. Porter’s Points – Aim, Aim, Aim, Fire • It will be hard to make the move from Fire, Fire, Fire, Aim to Aim, Aim, Aim, Fire. Set a limit on the amount of firing you will do; once you have hit your limit, start aiming and pick the best ideas. Focus on only one or two. • Always write down all of your ideas (Rich and I call this list the “parking lot”). If you reach your cease-fire limits on personal time, duration of the venture, or cash flow, you might be able to take a shot at some of your parked ideas. • Decide right now what kind of customers and orders you will accept. What are your requirements? Visibility? Sales volume? Sustained ordering? Say “no” to those that don’t fit. 234

The Four Phase Model So far, I’ve talked about how to Fire, Fire, Fire, Aim and when to switch to Aim, Aim, Aim, Fire. But is that all there is? Stopping after Aim, Aim, Aim, Fire is like shooting rabbit after rabbit without ever pausing for dinner; eventually, you pass out from hunger with nothing to show for your efforts. Like Ron said in his preface, you want to build a business. You don’t just want to play with testing the market. To do that, you need to realize that your business goes through four phases of growth that range from brainstorming to stabilization. Being able to recognize which phase you are in not only helps you fire and aim, it also helps you know what action is required to best build and grow your business. Each successful business goes through four phases. This is my Four Phase Model: Phase One: Brainstorm Phase Two: Examine Phase Three: Optimize Phase Four: Protect Phase One: Brainstorm Yes, yes, yes! That idea sounds great! That one, too! This is Fire, Fire, Fire, Aim. You can identify this phase by the number of “yes” responses you give: yes, that idea is viable; yes, that does sound fun; yes, that idea takes advantage of a wave; yes, that opportunity is transactional. As long as your imagination is liberated, you are in phase one. Capture all the crazy things you’ve ever thought might work. Write them on a whiteboard or in an idea document. The idea is to brainstorm lots of ideas and see what sticks out. 235

Not everyone does this as well as some. You probably know people who are walking idea farms—I mentioned one earlier who was so good that he couldn’t get out of the “a rabbit, a rabbit, a rabbit” mindset. If you aren’t that way, reread chapter 2, “Juice to the Light Bulb,” for ideas on getting ideas. If you are, though, realize that lots of phase-one people have a hard time transitioning to later phases. Just when you find something that works, you want to run with something else. Most people who excel at phase one have lost steam long before they get to phase four. If that describes you (and if you have the entrepreneurial spirit, it might), take steps to counteract your natural tendencies and hone your strengths. For me, I have pretty good ideas, but my real strength lies in phase two. Phase Two: Examine Yes—yes! No! When you have a whole stack of ideas, you need to learn to start saying “no.” Now you start to apply the principles from Aim, Aim, Aim, Fire. Sit down, have a close look at your ideas, and select the most viable. Most front-end people who see rabbits in every bush have a tough time saying “no” at this point. The transition might be tough, but realize that you should settle on only two or three viable ideas at most. Don’t throw out the others—you might need them later—but you can’t afford to jump around when you get here. Keep those ideas in the “parking lot” list. Go gas up one of your top two or three and take it for a drive! I love working in this stage. Nothing is more fun to me than taking a raw idea and slapping a business together with baling wire and duct tape. Shoot the 236

moon with your $5,000; if you miss, you can pick another of your top two or three ideas and make that one work. It validates all of the hard work when you see one of your ideas suddenly become viable. Your first duct-tape attempt may be crude, but when you get it functional, stand back, and say, “Yes!”—as long as you say “no” enough to make time for building your business. Phase Three: Optimize Yes—but no. No. There is a time to chase and a time to optimize. During the optimization phase, you will say “no” more than you say “yes.” You can’t keep secondguessing which ideas are the juiciest. As well, just because your phase-two idea is able to stand on its own, you can’t leave it to start another. Now, you must move forward with your idea and develop, improve, and optimize it. Take time to look at the processes and procedures related to your business. Can you tighten some connections? Can you sand and buff some rough edges? Can you tweak the gears to get more torque? Optimization is a great phase to be in. The infrastructure is in place and you are generating a nice profit. With a little tightening, tweaking, sanding, and buffing here and there, you increase your margin. Nice work! Ron is great at this. I can hand him a taped-together load of wire and turn around to see a shiny, well-oiled business running in his hands. At the same time, he is my reality check. During this phase, you may discover that certain ideas just can’t be optimized. Don’t be afraid to abandon some of the main ideas or side initiatives you said “yes” to during the first two phases. Ron helps me stay on track with this, optimizing our 237

best ideas and pointing out our weak ones. Ultimately, we head toward success because we are able to change course to maintain our optimal output. In fact, many entrepreneurs I have collaborated with relate that they don’t always end up doing what they started out to do. This occurs for many reasons. Maybe the initial opportunity was not as quick to cash as it needed to be. Perhaps related opportunities worked out better. Maybe it hit a financial, time, or marketing wall and could not scale or optimize. We’ve been down those roads. Usually, we knew going in that we would allow our initial business to recede into the background as we developed and optimized something better suited to our long-term qualifications. Phase Four: Protect No. No. No. We can’t do that. We can’t make that change. We can’t jeopardize what we have. Our policies forbid us from considering that. You will find this attitude prevalent in many large corporations and government agencies. Once businesses are optimized, owners have the tendency to start thinking, “Don’t screw this up!” They develop the “play not to lose” mentality. This is good. Some things do need to be protected. Where would your technology business be without your algorithm? Or your restaurant without your special sauce? However, if you get into the “play not to lose” mentality and stay in it, it will be to your detriment. Protecting your business from unwarranted ideachasing once you hit full optimization is important, but you might be able to snag a few rabbits without derailing your ultimate goal. Part of protecting your business is building it to the point where you can have 238

teams that help the good things keep running while other teams can go out on exploratory development projects. If you don’t like this phase of business, that is completely fine. I don’t like it either. Figure out which phase feels most comfortable to you. Hire others, find a partner, or develop skills that help you succeed in the other phases. Branching out to other people is especially important in phases one, two, and three—by the time phase four hits, though, you might need to consider an exit. Entrepreneurs seem to excel at the first two but often begin to lose interest by the third and fourth, when they have to say “no” more often. It is our experience that many small businesses never endure all phases for this very reason. You don’t have to be one of those many small businesses, though, if you go in knowing what you want and how to leave. Say “yes” when you can, “no” when you must, and always start with Fire, Fire, Fire, Aim as you take your business through the four phases to success. Porter’s Points – The Four Phase Model • Cognitively assess what phase of business you are in and act accordingly. • “Whate’er thou art, act well thy part.” • Are you an idea person? Do you love the details? Do you thrive on stability? Match your personality type and skills with the phase of business you are in. • As you transition between the four phases, surround yourself with partners and employees who augment areas you are weak in.

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14 Act Big, Behave Small Porter’s Preface When Rich leaped from the corporate world into full-time entrepreneurship, he hadn’t intended to land in bed, but there he was, totally immobile and staring down the barrel of months of unadulterated bed rest. Days after quitting his job (and leaving behind his steady paycheck and benefits package), he snapped his Achilles tendon while playing basketball. Instantly, he was bedridden; his only option after the initial intense pain and discouragement was to build a company right from home. His wife and son wired up a computer with Internet access and off he went, starting the business while propped up on pillows. After a month or two of crafting and building a model that worked while lying in bed, he brought in a partner and then an employee. The two of them would show up for work, check in with Rich— still in bed—and go down into a small office they had created in the basement. If they needed to talk to him, they headed back upstairs and into Rich’s bedroom. Eventually, Rich healed enough that the big event of the day came to be his hopping downstairs to help coordinate his little group’s efforts. Though far from ideal, the situation worked. Since their company generated mortgage leads, they only needed a

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computer, the Internet, and a telephone to connect to both the lead generators and the lead buyers. Their leads rose in quantity, and soon they were servicing major mortgage brokers in the United States. There was one especially tricky aspect in all of this: maintaining a professional image. The entrepreneurs weren’t the only people inhabiting Rich’s “office.” In addition to the two partners, the one employee, and the one wife, there were six children ranging from ages two to seventeen. Dad had to establish a special signal for when he received an important phone call. Even then, he could only forestall the banging piano, children’s laughter, teenage music, and other household noises for so long before they would resume. Rich would much rather have gone to an office away from the distractions and noise, but he had no choice. He didn’t want the business to suffer, but recognized that one major purpose of childhood is the joy of making large amounts of uninhibited noise. He also knew that for the business to come across as competent and professional, he would have to “act big.”

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Acting big is different from behaving small. Although Rich’s scenario was extreme—and not ideal—the situation forced Rich into very small quarters and into acting like anything but a guy lying in bed with his employees down in the basement. As soon as he could walk and drive, Rich and his buddies moved into an office, but even then it was still just the three of them. To succeed in the early stages of entrepreneurship, do as Rich did: he kept his behavior frugal but presented himself and treated his clients as though he were a serious, big-time business. And you know what? He became one!

Acting Big Twenty years ago, it was much more difficult for small companies to achieve significant market penetration without extensive financial backing. As a result, those who controlled the wealth in the world got richer, and bootstrappers were restrained from achieving rapid growth. That has all changed. Think about how easy it is for a savvy businessman to get a website up that is just as professional-looking as, if not more than, his large corporate counterparts. Think about how a small company can leverage its abilities by outsourcing aspects of its business. Think about how easy it is to create the illusion of “big.” It is no longer necessary to have a large building with a huge internal staff, even in service-oriented businesses. With blogs, the Internet, cell phones, YouTube, text messaging, and social networks, it is almost hard to not get recognized if you do really great work. With our modern small-business advantages, I believe it is almost more difficult to compete as a large company. Large companies carry the burden of bureaucracy, too many employees, and a lot of overhead from buildings and expenses. There are, however, three things that larger companies do have going for them: 1. More resources and capital 2. Strong reputation and branding 3. Expertise and stability Any company can survive for a period of time without fulfilling the first two, but the last one is vital to getting your venture off the ground. It’s where you need to focus—and where you can create the required image. 243

Google proved the power of starting with number three above and then adding one and two. Larry Page and Sergey Brin, after meeting in grad school and finding themselves somewhere beyond strapped for cash, charged a terabyte of disks to their credit cards and assembled them in Larry’s dorm room at Stanford. Their idea for a new search engine was really quite ingenious, and they knew they just needed to be patient while they gathered all the needed resources. As they did so, the young programmers moved up the Internet food chain quickly enough that after about a year, they had to move their company into their friend’s garage. Surrounded by rusted bikes and kitty litter, they kept programming as they had in the musty college dorm. In this environment, they were surprised to suddenly land their first legitimate funding. When it happened, they realized they hadn’t even set up an actual business entity or a bank account, so they had to sit on $100,000 while they scrambled to get a place to deposit it.14 What a success from such a small start! But do you think they introduced themselves to potential venture capitalists by saying, “Well, we’re only in a garage right now, but we think we’ll get bigger”? No. Porter’s Points –Acting Big • If you don’t have a big office, don’t worry. You’re an entrepreneur. You have big dreams— let those be your office, and act like you mean them! • Learn from the way large and small companies work. Do their ad campaigns give them a professional image? How about their employees? Emulate the good things they do in your up-and-coming venture.

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14 Kopytoff, Verne and Fost, Dan. “For early Googlers, key word is $$$.” San Francisco Chronicle. 29 April 2004. http://www.sfgate.com/cgi-bin/article. cgi?file=/chronicle/archive/2004/04/29/MNGLD6CFND34.DTL

• What was the last personal service you received? How was it provided? Could you tell if the provider was a large company or took calls in its basement? List the things that impressed you. Those are the positive attributes you should adapt for your venture.

Your Administrative Assistant The most amazing executive administrative assistant I ever had was a young woman named Shawn Jensen. Shawn taught me about the real impact an administrative assistant can have. (It didn’t hurt that she had learned a few of her tricks from her mother, who had been the executive assistant for Stephen R. Covey.) In a very calm yet deliberate manner, Shawn controlled the mood and intensity of the office. I remember walking into her area one day to overhear her say into the phone, “Rich is not prepared to speak to you.” This, of course, caught my attention. I wanted to know to whom I was not prepared to speak. And why those words? She told me the person calling was with one of our major suppliers and that she had observed this individual becoming too casual in our relationship. The result was he had been off-loading some of his responsibility onto me. Being the rescuer that I tend to be, I had simply shouldered the load and dealt with it. Shawn’s save not only increased my status in the eyes of that company, but protected my resources and enabled our company to be more successful. Shawn would build, lift, and protect me, as well as optimize my time. To this day, I can hardly speak of her without having very tender, fond thoughts. During the time we worked together, I was traveling extensively all over the world, burning the candle at both 245

ends. Shawn tracked the status of my flights for me to keep everybody posted on my whereabouts. I remember one specific trip (I’m sure it happened countless times when I wasn’t aware) where I discovered my flight from Amsterdam, the Netherlands to Birmingham, England had been delayed. This was a busy weekend flight. Shawn discovered the delay and realized that I was going to miss my connection. She went ahead and contacted the people who were to pick me up and informed them that I would be late. She then called my wife, who was expecting a call from me when I landed, to let her know that my call would come a couple of hours late. Admins don’t get any better than that! I remember another young woman named Erin Johnson. We were looking for an admin, and while she was only a junior in college, we were drawn to her bright mind and her personality. We hired her on the spot and she instantly started impacting the business for good. Everyone who entered our office was quickly drawn to her soft yet firm personality. I remember her walking into my office on multiple occasions and saying, “Rich, you’re doing my job,” when I was engaged in various administrative tasks. She quickly took those things off my plate. Not only was she task-oriented, but Erin would keep track of the pulse of the office, and any time we began to get counterproductive, she would give me a headsup. She would also let me know if anyone had any personal or work-related issues they were dealing with. She was aware of undertows that I would completely miss. In addition to simply being brilliant, she became my eyes and ears. Once, as I was driving to a lunch and talking with a business partner, she chimed in and said, “I disagree 246

with you, Rich.” This of course caught me off guard, and I asked her to explain. I do not remember what the matter was, but her logic was flawless. From that point forward, I greatly valued her opinion. I knew she was in the game. Erin managed the finances and helped us grow three different businesses. This young woman, who earned her degree in elementary education, is now running the finances and, in essence, controlling the bookwork for one of the fastest-growing debt relief services companies in our region. Your administrative assistant is the most important hire you will make. Do not call this person your “secretary.” A title like “administrative assistant” or “executive assistant” gives weight and authority to the person answering your phones. He or she will be the gatekeeper of your organization, deciding who enters and who does not. There are a few qualities an admin must have. First, make sure he or she is capable of representing your company with an amiable personality and respectful tone. Only consider those potential admins who are friendly and easy to talk to, but who will always have your interests in mind. And, most important, your final selection must be someone you can work with. You need to find someone to whom you can effectively communicate your desires and expectations and know that they are understood. In the very early stages of a startup, this person might even be your spouse (if you work well together and won’t be too bossy with each other), or one of the partners can step in. 247

Porter’s Points – Your Administrative Assistant • Your admin must know exactly how things are running in your office. Find an admin who cares enough to know. He or she must be every whit as invested in the venture as you. • Your admin needs to second-guess you for the best, making judgment calls you would make without shifting the weight to your shoulders. He or she might make mistakes, so be forgiving and help encourage the learning process. • Your admin must know everything but convey nothing. • Do not treat your administrative assistant “small.” If you do, he or she will start acting small: pushing pencils, disengaging, and forwarding calls straight on to you. How you treat your admin will elicit like behavior.

Please Leave a Message One aspect of your “office” that often goes overlooked is your phone system. If you are working hard to create a professional appearance, don’t ruin it by neglecting this component! Think of your personal phone. Does your voice mail message sound something like “Hey dudes, this is Joe. Leave me a message and, umm, I’ll get back to you when I feel like it.” Let’s hope your office phone doesn’t sound like that! If it does, fix it right now. Even if you have to use your home or cell phone as your main contact number, you can record a professional message. Compare this one: “Hello, you have reached the office of Joe Johansen. Your call is important to me. Please leave a message, and I’ll return your call 248

as soon as possible.” Potential and current customers and vendors respond well when you act big. Yes, you may get some ribbing from your buddies, but if it helps solidify a deal, it’s worth it! If you have a little more time and resources, consider a phone with an automated answering system. When I called the “corporate offices” of one company I dealt with, I was greeted by a recording of a woman with a classy, zipped-up British accent that was incredibly pleasing to the ear. The recording came across as spicy and engaging, exuding the appearance of a large and progressive company. It was golden! Even though I knew there were only three people in a teeny Southern California office behind the recording, the casually elegant accent won me over—almost. As the woman’s voice concluded, I heard a man say, “You’ve missed us in our office; our normal business hours are 9-5. Call back during that time, or press extension 1 for John, 2 for Fred, or 3 for Mary.” Talk about dumping their gold into the dirt. Rookies often make two of the very same mistakes: they allow direct access to the decision makers and they give away the exact size of their organization (three people!). As far as possible, build a buffer between you and the ringing phone. If you don’t actually have an admin, take turns “playing” admin for each other. It gets a little complicated, but it’s worth your time. On the second mistake, it would have worked much better to go through a list of possible “departments,” rather than names. For example, “For Sales, press 1. For Accounting, press 2. For Support, press 3.” Direct the calls to whichever line you’d like—if John deals with the sales end of things, route those calls to him. When he answers, “Hi, this is John in Sales,” nobody will be the wiser. 249

Another great trick is to offer a “company directory” function, where callers type in the first three letters of the first or last name of the person they are trying to call. Voila! Without ever knowing that Mary is only one of three people in the office, callers instantly have her on the line. Usually, it’s only sales reps who will catch you on this. If they call and have no success with their pitch in “Accounting,” they often call back and try “Support,” not realizing that both numbers forward to Fred. But it livens up a Monday afternoon, that’s for sure! During the time I was working from my home with my blown Achilles tendon, I got in contact with the president of a large regional mortgage firm. At the time, I was working out of my basement. We had managed to outsource some leads to a call center and had received a great referral from another colleague that led to this executive’s company. I called this president and acted very calm and confident, when in reality I knew very little about how mortgage leads even worked. With a little bit of luck and some superior B.S.-ing skills, I managed to confidently navigate my way through the discussion. At the end of the call, the executive pulled in his vice president, and said, “Rich, let me introduce you to Mike. Now, Mike is going to be managing this relationship, and Mike, I really want you to treat these guys right. This isn’t a couple of guys in a back office rubbing two dimes together!” At the time, I remember thinking, “Nope, no back office here—I’m in my basement, and it’s not dimes I’m rubbing together, its pennies!” But because I was confident and we did the job well, the two of them never knew.

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It doesn’t matter where you’re doing business, you must project confidence and competence. Your service or product is worth the customer’s investment, so you have to be careful to never sound desperate. When people call, have someone else answer the phone. Schedule specific times to speak to new clients, and make sure you’re not always available. It’s a balance between being ready and playing hard to get. Porter’s Points—Please Leave a Message • Be polished and professional, even if all you have is your cell phone. • Use your phone system as a buffer. You may not always need to use the buffer, but when you do you’ll love it! • If you lack confidence and technique, the person on the other end of the line will see right through you. Be assertive and skilled, and callers will have no reason to think that you are anything but—even if your “organization” is just you and a laptop at a card table.

Don’t Do Desperation Last winter my wife came home and told me about a strange sign she had seen in the window of a local specialty children’s clothing store. It said something along the lines of, “My kids can’t live on clothing— everything’s on sale!” At first, my tender-hearted better half was worried and wanted to shop there so the owner’s kids would get some dinner that night. However, the desperation on the sign made her feel uncomfortable, and she end up not even going in. Desperation is a major turn-off. Lots of small businesses are afraid that if they try to create a big persona, someone will see through them.

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Rather than trying to act big, they act desperate and behave small. They beg clients for work and plead for lower prices from their vendors. This kind of attitude makes clients, vendors, and competitors alike all cringe. It’s embarrassing. Have you ever seen the movie Hitch, starring Will Smith? Smith plays Alex “Hitch” Hitchens, a love specialist who helps men take the right steps to find and catch their dream girl. At one point in the movie, Hitch teaches one of his clients how to kiss. First, he says, you have to watch the signals. A woman fiddling with her keys at the door is signaling that she wants to be kissed. Once you know she wants to be kissed, you lean in; however, you have to stop right before you seal the deal. Let her come the final 10 percent of the way, Hitch explains. If you take it upon yourself to just kiss her, you might succeed that once, but likely not again.15 Watching two men discuss and practice the art of kissing was absolutely hilarious, and at the same time the situation contained a principle that is true in many aspects of life. When you are a small but competent company, you have to make a great first impression, be creative in your approaches, and make sure you have a “great first date.” When you find the company fiddling with its keys, go in for the kiss. As you approach, however, make sure you allow them to come to you in the end. No matter how badly you need the work, letting them come to you helps them feel that they really are benefiting from your services and not just giving you a handout. Using language such as, “We’ll give this some time to make sure we’ve got the best fit,” is an amazing tool to make your interest known but not appear overly excited about the deal. 15 Hitch. Dir. Andy Tennant. Perf. Will Smith, Eva Mendes, Kevin James, and Amber Valleta. 2005. DVD. Columbia, 2005.

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Porter’s Points – Don’t Do Desperation • No matter how badly you need that deal, play it cool. Great business deals and great first dates are based on confidence and common interests, not on groveling and haste. • A good business relationship is almost intangible and unwritten. It’s not strained, emotionally charged, or jittery. It needs to feel natural and comfortable. You won’t create that feeling if you’re operating out of desperation.

Escalation Identify the power players in the organizations you do business with. Every organization has decision makers and decision stoppers. The latter are often disgruntled individuals who, when faced with any sort of query, will usually assert, “No, that can’t be done.” Face it; the admin’s job is to get you off the phone. He or she, doing his or her job, will attempt to create a buffer between you and the person he or she represents. As a business owner yourself, you can appreciate not wanting to talk to everyone who calls. However, to get things done you need to contact the decision makers. Escalation is a way to get through the door, past the front desk, and all the way up to where you’re playing on the same level as the power-playing managers. The key is also to make them escalate back to you. Doing this maintains your big-organization persona, regardless of how small your bootstrapped business may be. When you want to get decisions made, you have to match layer for layer. To talk with decision makers, you cannot start by calling the admin—that is, you cannot. 253

Your admin calls their admin. If there is another layer between the admin and the manager, have your admin request that layer to get back in touch with your business through a similar layer—and then have your admin or your partner take the call. The key is that you don’t want to have to be on the phone until you can verbally sit down with your target manager or other power player and get things done. In this same way, when somebody calls back, it’s okay to make them take the escalator up to you. If mid-level management calls, your admin answers the phone. Even if upper-level management calls, let your admin determine how urgent the call is. You don’t want to be the one to answer your phones. The chain of authority must match up. Because of that, whoever answers your phones needs to be on the same level as their secretary or admin. Make sure you have someone there to boost your level for you, even if it has to be your partner. This first use of escalation—matching layer for layer—shows your contacts that you have just as much right to be in business as they do, no matter how small of a business you might be. A second thing escalation does is give you a way to reverse course when a poor decision or miscommunication is made. We use this tool all the time, and it has gotten us out of some sticky jams. Though you as the owner are responsible, at the end of the day, for every decision in your organization, having an escalation buffer gives you the ability to reverse course when necessary. Recently, one of our partners inadvertently placed a wrong term in a contract we were negotiating. He had committed us to do some intensive work before payment. Upon realizing the misstep, another partner was able to reset the client’s expectations so that work 254

would not begin until payment was received. One of the powers of partners is the ability to play good cop or bad cop as needs be. The third invaluable tool that comes from a line of escalation or an “admin buffer” is crucial: you have time to react. When faced with a ringing phone and a direct line of questioning, you may feel pressured to make decisions quickly. Sometimes this works out perfectly; other times, you make mistakes. It’s much better if the question goes through an admin. Even if you don’t have an admin, be the admin for a moment. Say that you need to think it through, or to talk it through with one of the partners. Confidence in any relationship can be undermined with even one mistake, so to buy time by not shooting from the hip and by instead using an admin or time buffer gives you the ability to react appropriately, deliberately, and thoughtfully. Don’t let a customer press you into a knee-jerk decision. There are very few cases where someone has to have the answer right now. Your administrative assistant plays a crucial role in escalating your business, as I explained. When I was first starting at Mitsubishi, we were a relatively small office, attempting to land a contract with a very large company out of Chicago. This company built many of the pinball machines and video games that are available throughout the world. My administrative assistant—the wonderful Shawn Jensen—had left a message with the vice president, and a couple of days later he called back. We were a small enough division at the time that I was painfully aware when a VP called back. I was available at 255

that moment to talk, but Shawn answered the call smoothly, saying, “Oh yes, you’re trying to reach Mr. Christiansen. He’s available at either 10:25 or 2:50 for approximately 15 minutes. If those times are not possible,” she casually mentioned, “you’ll have to wait a few days because Mr. Christiansen is flying down to Mexico for a weekend with his wife and then to the UK to take care of some business there.” Shawn’s collected, confident nature further established my credibility and escalated my importance in the eyes of this VP. Everything she said was true, even if a bit embellished. In the end, the vice president got the message: Rich Christiansen is a very important and a very busy man. In the early stages of your business, you might not have all of the pieces in place. The important thing is to act like you do. In the early stages of my startup with Ron, any time either of us got into a tight spot where we didn’t have a definitive answer, we’d say to the customer, “I need to talk with my partner.” That bought us time to mull it over ourselves before we approached each other to confer. Sometimes, I wouldn’t even have to check with Ron, or him with me, before we could reach a decision. But it gave us time. The key is to have the levels in place so you have the space and time to step back and take a clear-headed approach.

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Porter’s Points – Escalation • You need to put an escalation path in place— admin, mid-level management, owners—for those times when you require time or space to respond. • If you are a team of one, get comfortable saying, “I need time to think that over. Let me get back to you.” • You don’t want to be like the government. Escalation can obscure critical decisions at the bottom of the chain of command. Role play or talk through how escalation will function—who are the key people, interaction points, clients, and vendors that need to be escalated? Put a buffer in place, then follow up with decisions and communication!

Do You Need It? In the community where I live, there are two brothers who are successful businessmen. One day, one of their employees got frustrated with their attitude toward their finances. He complained to me, using the following joke as an illustration: “How do you make copper wire?” When I didn’t give a satisfactory answer, he said, “You throw a penny on the ground and let these two brothers pull on each end.” Although he meant it to be demeaning, I took it as a compliment and wished someone would tell that joke about me. Now, you don’t want to stretch every penny into copper wire. There is a difference between being frugal and being downright cheap. Frugality means living within your budget and being realistic in what you can spend; cheapness means buying poor-quality ingredients for low prices while expecting to produce a high-quality item. It doesn’t work. Don’t even go there.

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Often, people end up cheap because of extravagance in other areas. Some rent expensive office space but skimp on salaries. I have a simple tip for keeping things under control: never buy inessential things with money that you do not have. That way, you’re more likely to have the money there for the things you absolutely need to take care of, such as bills, payroll, and equipment. While you should be frugal in your business, be sure to treat your employees as well as you can. Don’t overspend, there, either, but you cannot let employees take second place, especially when they see you spending company money on nonessentials that benefit you and not them. Some entrepreneurs try to cut dangerous corners. Skimping on essentials or not fulfilling contracts is a surefire road to disaster. As important as it is to be frugal, it’s more important to be honest and keep your word. Setting up an office is a very encouraging, “feelgood” part of starting your business. Developing your workspace, whether it’s a rental suite or a basement, is part of acting big. You need to be able to “go to work.” But be careful! It’s a lot easier to order nice office furniture and a thousand “Post-Its” than it is to get on the phone and get your product or service into the market. Let your frugality keep you in check, and never, ever forget this: don’t substitute the joy of accomplishing something with the thrill of buying something. You’re not creating an office; you’re building a business. Your passion and devotion to your venture should carry you through, regardless of your locale or the style of your desk. When bootstrapping, your funds are your best friend. Think about the needs of your business. Before you invest in nice furniture and expensive office 258

space, think: can I hire employees to make use of the space I currently have? Wait a bit and make sure you have some cash coming in before you make any big changes. Several years ago, a business acquaintance of Ron’s started a health services business based on a revolutionary piece of equipment. She made proper financial and use arrangements with the patent holder of the equipment, hoping to help people and make some money. Things should have gone well. However, the equipment was extremely expensive. In order to purchase a few of these machines, the business owner and her partner set about raising $2 million. Once the money was available for their use, the pair went and bought a whole bunch of office furniture and other accoutrements. They had no customers lined up to purchase the machines yet, but wanted their new, “triple-A” office space to look full and attractive. They knew the importance of acting big and felt they had to look like they really could compete with the other healthcare practitioners. Sadly, though, they had no idea how to behave small. In addition to setting up shop in a high-rent business district, they filled each office with plush furniture, outfitted the lunch room with a professional, automated ping-pong table, bought the latest in computer equipment for each office, and—last but not least— purchased not one, but two airplanes. Airplanes? It was important for them to act big, sure, but behaving big in this fashion proved to be a disaster for everyone. No revenue in sight, no potential customers, no idea if insurance companies would approve their service—and they were buying airplanes. Their seedling company, the partners, the venture capitalist, and the bank all 259

took a nosedive. The two partners chewed up the $2 million before the business ever left the hangar. It is important to give the perception that you are big enough to play the game; however, acting big should not be at the expense of your stewardship for the company’s resources. Some of the greatest successes pinch pennies, pay attention to details, and manage every resource in a scarcity mode. Sam Walton, the founder of Wal-Mart, did exactly that. It is said that when he saw a penny on the street, of course he stooped over and picked it up. I love that story. You have to think that way. In the early stages of your company—really, in all stages of the company— you must create a fiscally conservative culture. Behave small by asking yourself, “Do I need it?” before you try taking off without any gas. Porter’s Points—Do You Need It? • Never confuse putting on the face of confidence, stability, and professionalism with bloating your company with unnecessary frills. Outside of your organization, act big. Inside, behave as small as possible. • Don’t let your employees think you are cheap. Frugal and cheap are not the same thing.

Don’t Hire Stupid When my family and I were trekking in the Kumbu, the Mount Everest region in the Himalayas, we hired my dear friend and climbing guide, Pema Dorje Sherpa. He is an energetic and charismatic man and we loved his stories. He was responsible for planning how much food to take, how many porters were needed to carry 260

supplies, and where we would stop to rest or sleep. He basically coordinated all the details of the trip so we could stick with hiking. Trek coordinators like Pema usually hire porters from local villages. These men are paid to carry heavy loads on their backs. As I observed other hiking parties, I noticed that they had a lot more porters than Pema had hired for our adventure. Although we didn’t have as many porters, our group had more yaks. One day, I asked Pema why he used yaks rather than porters. Yaks were more expensive, ate more food, moved slower, and couldn’t climb the high mountain passes. Having so many yaks meant the group had to take the valley routes, which required a lot more travel time. What kind of business sense was that? Pema thoughtfully answered, “Yes, that’s true, but they don’t get headaches. They don’t complain about sore feet. They don’t whine and gripe. They don’t beg, work the clients for tips, or swindle handouts, and I never have to fire them.” As the trip progressed, I realized the wisdom of Pema’s philosophy. This little lesson shaped my thoughts about how I do my hiring. Let me explain. Several years ago, I sold several of my businesses and shut down a couple of others. In working with one, it came to a point where a good part of the team had been dissolved. Consequently, I was required to jump in and, for a short time, handle aspects of the business that were previously taken care of by others. I was dismayed as I discovered that I was able to complete tasks that I had previously hired five people to work on. I might not have done some things with the same level of accuracy as they were doing them, but they took 261

me far less time. While running a one-man show was not a long-term solution, I was, in large measure, able to do the job of five individuals. What I would have given for a yak! I’ve seen this situation frequently. It is vital that you keep your business lean and only hire enough people to cover the tasks at hand. One of my heroes is a man named Ray Noorda, the charismatic leader of Novell, Inc, in the 1980-1990s. One of networking technology’s pioneers, he had a philosophy that, for many years, bothered many people at Novell, including me. He was heard to say, “It’s spring cleaning, whether we need it or not!” Every spring, Novell would lay off 15 percent of the employees, regardless of the financial status of the company. The longer I’ve been in business, the more I’ve come to understand the reason behind this action. This was his way of systematically keeping the company lean and effective. More than just streamlining, this spring cleaning gave him an excuse to get rid of all the deadwood drifting around the hallways. It sounds harsh, but no matter how vigilant you are, growing organizations accumulate more dead wood the larger they get. Many of you have seen employees playing video games or surfing the Internet while they think the boss isn’t looking. As a general rule, you can always run much leaner and have happier, more satisfied employees when the company is running efficiently. Everyone likes to feel that they contribute. Doing busy work is both draining and demeaning. Don’t have employees who get stuck with that kind of work. Around here, the 262

team hears me say, “Slow to hire, quick to fire.” Make a lean, effective team. My personal preference is to have no more than 15 employees. To maintain that level, I will outsource certain aspects of the business. After hitting that 15-person threshold, I find that we lose the intimacy we enjoy in our small-business environment. On top of that, the team begins to lose energy. In my work at Novell, I was always fascinated by the company’s startup story. A small team of five individuals named SuperSet created 90 percent of the famous network operating system, NetWare. Once the core was created, Novell went about hiring thousands of additional engineers to write and maintain the remaining 10 percent. That just isn’t necessary. The brutal reality is that employees will expand their work to fill the workday, often wasting money, momentum, and time. Porter’s Points – Don’t Hire Stupid • Always run a little lean in the organization. It’s okay if some of your specialists take on one or two general assignments. • Whether you set up a schedule or not, always be sure to know when it’s time for spring cleaning. • Decide now what limits you will put on hiring. Perhaps your idea will grow bigger than Rich’s 15 employees; if you think it will, decide what your action will be. Growth must be deliberate, not accidental.

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15 Building a Killer Team Porterâ&#x20AC;&#x2122;s Preface When you consider all the activities associated with building a great team, what do you think of first? Where you are going to post the position? What about creating a detailed job description? Determining salary and title? Before you even consider filling your office with employees, there are three other people who need your primary attention. In this chapter, Rich will tell you who those people are. As you build your killer team, make sure you are particularly deliberate with your first few hires. Prioritizing relationships, creating appropriate culture, knowing who to hire when, and keeping your employees technologically equipped and informed helps keep your team killer. Rich and I had a close call when we were working on our team for a recent venture. While interviewing for an administrative assistant, one of our appointments committed a hit-and-run in our parking lot. When the police came, we discovered that she was a convicted felon. We consider our administrative assistant one of our most important hires. Needless to say, committing a hit-and-run was not one of our mandatory job qualifications! 265

In this chapter Rich will also give critical insight on the power of the team, and how to structure an effective organization. No individual can do as well as an effective team. It is important to have a solid grasp on the concepts in this chapter. They are the foundational principles upon which you will build your business. You canâ&#x20AC;&#x2122;t build your team unless you have a good foundation, a killer foundation. Rich knows that as well as or better than anyone else I know.

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The Three Most Important People in Your Life If youâ&#x20AC;&#x2122;re married (or in some other significant relationship), sharing the following list with your spouse or significant other is often all he or she needs to launch into a horrific harangue. Stay with me, though, as I explain who I consider to be the three most important people in starting a new business. In order of priority, these three very important people are: 1. Your accountant 2. Your attorney 3. Your spouse (or significant other) My wife has no problem voicing her feelings about coming in third. She fervently proclaims that neither my accountant nor my attorney has ever had to wonder if they were going to live without health insurance or income, or whether they would not see me for weeks on end as I started a new venture. And I agree with her! Your spouse or significant other is actually the first relationship you have to consider when deciding to start a business. Without her or his support, your venture will crumble from the beginning. However, I order my VIP list this way for several reasons. First, I do it for the fun of forcing a reaction from my wife. (She knows to expect a little bit of this by now, and it enriches our relationship.) My teasing her aside, I cannot overstate how much you need this same support, which brings me to my second reason. Her or his support wonâ&#x20AC;&#x2122;t just magically happen, so you need to open a dialogue about the role of your significant other in your venture. Finally, I use this order to stress how vital it is to ensure that you have 267

the right accountant and the right attorney in your corner as you strive to push your endeavor through its formative rounds. The reality is that having a spouse or significant other who is willing to embark on this adventure with you is, without question, the most important variable in being a successful entrepreneur. I worked with an individual who had an incredibly gifted business mind and a deep understanding of technology. He was very intelligent, with amazing intuition and market sense. To top it all off, he possessed the rare ability to clearly articulate his knowledge and communicate with engineers. My first impression of this man was he had the potential to be one of the most amazing entrepreneurs I’d ever come across. We actually embarked upon a short-lived partnership, aiming high and beaming broadly. Why short-lived, then? His wife kept him from ever giving it a healthy go. She required him to keep his working hours between 8 a.m. and 5 p.m.; anything after 5 seemed to violate the terms of an unwritten prenuptial agreement. Furthermore, his wife—a delightful woman, by the way—mandated a certain level of financial security. She could not stomach the thought (much less the reality) of going without a paycheck for more than a week. She didn’t want to sign up for the risks and rewards associated with entrepreneurship; as a result, he could not, either. His home situation simply did not enable him to consider being an early-stage entrepreneur. As he did to me, Dr. Peter Horne frequently reminds his protégés of this imperative: “You can replace anything in your life except your family, your health, 268

and your trust relationships.” To this end, it is vital that you analyze your home situation and assess your significant other’s ability to live the entrepreneurial life. In more ways than one, the spouse or significant other of an entrepreneur could be the more difficult role to manage. During the nurturing stages of the business, your spouse is often relegated to living with a lack of clarity about financial circumstances. To add insult to injury, in this stage spouses tend to live life looking at a control panel that is just beyond their reach. Often, unless they are actively involved in the venture, they share all of the risks with none of the decision-making power. If your significant other does not have the temperament for this lifestyle, there is no shame in following a different path. As badly as you may want it, don’t do it. You can use your entrepreneurial spirit in some other way—really tackle your corporate work in innovative ways, pick up a hobby, or bootstrap a small business on the side instead of taking the complete plunge. It is better to come to this realization during the idea stage. Do what you must to secure this trust relationship; don’t go so far down the road that you are faced with a no-win decision. Perhaps, with time, you two can be on the same page. Until you are, trying the waters will always lead to failure on at least one of the two fronts, if not both. We paraphrase this wisdom from the Gospel of Mark: “What therefore God hath joined together, let no venture put asunder.”16 Now that you’re convinced that number three on my list should be number one, let’s go back to one and two. Through the years I have tested numerous 16 Bible (King James Version). Mark 10:9.

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accountants and many, many attorneys. The reality is that finding the right attorney and accountant is not as easy as it sounds. From my experience, many accountants and attorneys are more eager to tell you “how it can’t or shouldn’t be done” rather than “how it could be done.” You need professionals who can find creative solutions. There are so many laws and variations of those laws governing how to set up a business that it is crucial to engage an accountant and attorney who are on top of the latest ways to get things done. Many attorneys and accountants are familiar with one or two ways of doing things and hesitate to take the time and effort to figure out different ways of setting up your business. Find an accountant and an attorney who are willing to be creative and uncover personalized solutions that are right for you and your venture. In all of this, however, I do not promote illegal or unethical activities. Worse than an uncreative lawyer or accountant is a liar—and whether that liar is one of them or you, dishonesty is no way to build a business. One of my favorite anecdotes exemplifies the necessary honesty-and-creativity-oriented mindset for an accountant. In the early days of his company, an assertive CEO was hiring a financial controller. He invited a candidate into his office and a short interview ensued. The CEO asked the applicant, “So, you know numbers pretty good?” The would-be controller responded in the affirmative. The CEO shot back, “What’s two plus two?” The candidate paused, looked the CEO in the eye, and quipped, “What would you like it to be?” The CEO hired him on the spot. One key reason the right attorney and accountant are so important in the early stages of your bootstrap 270

adventure is cash flow. You must understand the implications of the tax structure you are setting up. You must understand the ramifications of tax laws and why cash accounting may be more appropriate than accrual-based accounting. You must protect your asset, your intellectual property, your good name, and your reputation. Savvy and intelligent accountants and attorneys are critical. The right attorney can be used as a hammer in difficult circumstances. Consider what course you might be forced to take at the butt-end of a deal involving unscrupulous customers, partners, or employees. Could you use a tenacious and assertive attorney? Unequivocally, the answer is yes. Don’t guess! If you are uncertain about where you stand in these relationships, do some digging. Talk openly to your loved ones, make plans and promises, and do your research on the people you hire to handle your affairs. This foundation builds your successful team. If your spouse or significant other is on board and if you have a clever, assertive attorney and a creative, energetic accountant, you’re well on your way to success. I cannot count the times along my entrepreneurial trail one of these three people has saved me from charging over a cliff. It really is as simple as that. Porter’s Points – The Three Most Important People in Your Life • Do not attempt to replace your family or your trust relationships with your entrepreneurial dream. Find alternate ways to build your dream and test the waters if you need to. People and circumstances may change with time. • Look for an accountant and attorney with a 271

“can-do” attitude. If one of these two crucial people gets annoyed when you ask “Is there a better way?” then you know you need a better fit. • Listen to and for the truth when you talk to these three most important people. It may hurt a little at times. You need someone willing to dream, but you don’t want to be fed peaches and cream when what you really need is spinach and broccoli. • Seek to surround yourself with young, hungry individuals, as opposed to stodgy, set-in-theirways corporate counsel.

Slow To Hire I mentioned a favorite saying of mine in the last chapter: “Slow to hire, quick to fire.” This is truer than ever when you see your killer team in light of your company culture. The culture of your company is all about the people you hire. Your first hires will help you firmly plant the roots of the culture you want to nurture. These initial hires should be generalists. You have your specialists in your accountant and attorney; from there, you need to hire switch-hitters. These generalists must carry with them “can do!” and “how can I contribute?” attitudes. The last thing you want is to hire a person who can or will wear only one hat. To avoid singlehatters, you need to carefully go through the hiring process, considering everything from the cover letter to final references before you sign on the dotted line. Not only does your team mold your culture, but you can use your culture to mold your team. (See chapter 16, “The Holy Grail,” for details on creating your company 272

culture. In this section, I will focus on the hiring side of that endeavor.) One of the side benefits of getting your culture somewhat established prior to the hiring phase is that interviewees will see it and sense it. You will better discern whether or not the interviewee will fit into your culture. Hire people who will choose to jump in with both feet. These people will embrace your vision and help you quickly and effectively move your enterprise forward. In July 2004, I was interviewing for a creative ad copywriter for one of my companies. These ads would be seen by millions of people each month. I needed someone with solid writing skills and the ability to create imaginative and pertinent advertisements. I looked through about one hundred and fifty resumes. About one hundred and forty-nine of the cover letters looked something like this: To Whom It May Concern: I am writing this email in response to the job order for creative ad copywriter. I am very interested in the position and I have attached my resume. If you would like additional information about me, I am registered with the Department of Workforce Services. If you would like to contact me, you may do so via email or phone. I appreciate your time. Sincerely, Applicant

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The hundred-and-fiftieth resume really stood out. Here’s the cover letter it came with: Dear Rich: Do you need a writer who can create charismatic, creative, captivating, and compelling ad copy? Are you missing some zing-da-ba-ding in your current ads? Do you just need a little dash of this, or a pinch of that, to make your copy more palatable? Well, consider me your word chef! I can slice, dice, and spice the ad in a way that will make your mouth water and taste buds anticipate. I have included my past engagements as chef extraordinaire, but I am looking for ways to bring home the bacon, while never really leaving the kitchen. That is why I was drawn like a magnet to your enticing placing with Workforce Services. I love to write, read, research, and analyze, and I believe these are skills that are really gifts. I was born with it, and it has been sharpened and honed over time. I have not only the ability to tap into my creative side, but also am quite left-brained in my attention to detail and my organizational abilities. I can work alone or with others, and I never run with scissors. I’m a great person to work with because I am funny and personable, but I can also be very professional and prudent. I would look forward to an interview with your company, partially because my curiosity is piqued, but also because it sounds like a great opportunity. Even if this email reaches you too late and finds you have filled the position, please keep me in mind for future positions in any of your catering needs. With spice, Marta Wells Who do you suppose got my attention—and the job? Watch for applicants who stand out! You’ll always need 274

an interview, of course, but the first contact can tell you a lot about a person, the way they think, and the attitude they will bring. Make sure that this all lines up with your culture, and don’t be afraid of a little spice! Consider building quirks into your culture, just left or right of established norms. Killer teams need creativity. Creativity can sometimes get pretty quirky. In the hiring process, do not be afraid to mention these quirks in an interview. You might say something like this: “We are a nimble, dynamic team. Our culture is not for everyone. We embrace accountability and expect all of our team members to do the same. It may be a bit out of the ordinary, but we display everyone’s prioritized objectives on the whiteboard. We conduct regular ‘face the whiteboard’ sessions where everyone reports on the status of their objectives. We all answer to the team as a whole. If that kind of accountability bothers you, this is not the company for you.” Also, share a story or two in the interview process that has helped define the company. This fun and revealing practice might highlight some successful but intense negotiation or a silly snafu that you had to escape. See how the candidate responds and comments. Making bold statements and telling stories weeds out the people who want to sit in a cubicle and offer only the “status quo.” It also gives positive signals to the person who is the right fit. Recently, Ron and I went through the process of hiring a new engineer. A talented fellow applied, and our interview team explained the prevailing mentality we needed in whoever filled the position. For this special project, failure was not an option. We knew we had to 275

see this project through to the end, even if it meant extreme days and nights. Accordingly, we wanted to hire someone who could jump on board with both feet. There wasn’t time to dilly-dally. This applicant’s response to our need was something along the lines of: “At this stage in my career, all I really want is to work from home. I want to start whenever I get up, go work in the garden when I want, and then get back to the project later in the day.” Not a bad aspiration—plenty of people want a little freedom— and perhaps it will fit somebody’s culture somewhere, but not ours and not now. We all opted out. We went on to hire someone who had the attitude we needed. As for our other applicant, we heard he found the right fit and is contentedly programming software from a lawn swing tucked away in the corner of his secret garden. Take time to compile a list of interview questions that will reveal the attributes that you want and need to know. Ask every candidate the same questions so you have a level playing field. Keep notes on the answers in case you have to choose between two or three really good candidates. Take time to find the candidate that fits the culture. Be slow to hire—always! Porter’s Points – Slow to Hire • Employees make your culture as much as culture makes your employees. Before you start faxing out tax forms and contracts, consider the following: 1. Make the finances fit. Reducing your workload so you can hang around the water cooler more often is not a valid reason to shop around for additional employees. 2. Consider whether or not you can outsource the job. 276

3. Take as many applications as possible for the position. Screen them by phone before inviting people in for a formal interview. 4. Interview finalists back-to-back to be able to make good comparisons. 5. Call the references and check out candidates’ backgrounds. • Culture is crucial to your company. Once you have done your homework, don’t settle for anything less than the best. 1. Listen to your gut. You can make a culture outside of the norm. 2. Know what type of culture you want before you hire. 3. Don’t be afraid to add a little spice to the ingredients of your office recipe. 4. Hiring may not really last ‘til death do you part, but treat it that way. 5. Doing it right up front beats back-end cleanup.

Quick to Fire What happens when you are certain that someone is the right hire, but thirty days later, it just isn’t working out? Don’t let that month stretch into months—or years. If the new hire is not fitting into your culture and doesn’t opt out voluntarily, something needs to be done. A cultural misfit might be someone who gossips, makes other employees feel uncomfortable, acts or speaks inappropriately, or unsuitably represents the company. Maybe the new hire has proven he or she cannot be trusted. Maybe you just aren’t getting the level of contribution that you were hoping for. Maybe they really aren’t up to the task at hand. The list can go on and on.

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What now? Act quickly. You know, they know, and everyone else in the organization knows that the fit is not right—for anyone. Don’t beat around the bush. Go through the necessary steps (whatever you deem them to be), but go through them as quickly as possible. If you wait too long, the bad egg will begin to really smell, negatively affecting the rest of your team as well. Why does it affect the rest of the team? Everybody knows who does and does not carry their weight. The team all knows who fits in and who does not. If they see someone acting contrary to the goals of your company, they will either begin to feel alienated or they will take that person’s actions an excuse to offer less than their best. Which of these options would you prefer? I’ll take neither. Set the right tone. Do the hard thing with kindness, respect, and courtesy, but do it. Between the two of us, Ron and I have hired hundreds of individuals. Some have worked and some haven’t, but ultimately, rotten apples seldom turn delicious. Just remember before you fire that certain States are “Right to Work” States. The labor laws in some are tougher than others. It is important to understand the laws of the State where you are doing business—yet another reason you need that savvy attorney as the second most important person in your life. Also, take caution not to let the rumors fly. It is especially important in a burgeoning company to gather the troops around and communicate any changes that are occurring. The following style of speech has worked well for me: “Today we made a difficult change in the organization. We had to let John go. We appreciated John’s 278

contribution; however, our needs were no longer compatible. We wish him well. These situations are always difficult, but are necessary at times. This was one of those times. If any of you have any specific questions or concerns, feel free to come and talk with me privately.” But don’t just leave it at that. Turn the direction of the conversation to your next goal and what you are attempting to accomplish. Leave your team with a positive feeling about their contribution and what you hope to do together. This meeting should last twenty minutes or less. Remember, ninety-five percent of the time, everyone else knows what is going on before you do. They might even be glad to see John go, but don’t let those feelings fester. Turn your team back to your goals and start things rolling ahead again. Now, lest I be misunderstood, let me add a few words about diversity. I not only appreciate but actually seek out diversity. Conflict can be creative. I have no need or desire for a “yesman” organization. I detest the “good ol’ boy” clubs I saw time and time again in the corporate world, teams staffed and managed by lesscompetent individuals who happened to get along with the right people and offered no diverse opinion, input, skills, or attributes. I detest politically-correct employees who take measured steps to posture themselves and look good around the right people but offer no diverse thinking. Look for diversity, but apply the same principles outlined above.

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Porter’s Points – Quick to Fire • Trust your intuition as concerns come up. Be ever vigilant of the workplace atmosphere; if things head south, get to the bottom of the problem and fire if you have to. • Be courteous but act quickly. It’s best to know things like labor laws and company expectations up front so that you can move swiftly through the firing process without causing too much damage. • As soon as you release someone from the company, pull the team together and publicly announce it. This isn’t time to paint a bullseye on the ex-employee; it’s the time to be positive and focus on your company goals to get productivity back on track.

The Most Important Hire Your administrative assistant is the most important person you will hire (which you may have figured out from chapter 14). I make this statement with confidence, as the result of trial and error. Your admin, to be effective, must be in the position to peer into the inner workings of both your head and your bank account. As a result, he or she will see you in a different light from your other employees. Your admin should consciously and unconsciously represent you and your company to the world. He or she witnesses firsthand your fears, weaknesses, concerns, strengths, opportunities, and hopes. If your admin has bought into the vision and is naturally confident, he or she can and will carry a good portion of your load, diverting or deflecting lesser challenges. Your admin will literally make the difference between success and failure. 280

Have you ever called your doctor’s office only to be answered by a grumpy receptionist? What about the time you walked into an office and the first person you met was rude and indifferent to you? Now think about the time you encountered a cheerful, competent, intelligent individual sitting in that “first-impression chair.” How did you feel in each situation? How do you want people in consumer, vendor, and trust relationships to feel when they come to your office? The other day I went to the dry cleaners to drop off some of my shirts. As I walked in, the lady working the front desk growled, “You’re bringing me all those shirts?” I replied, “Isn’t that what gives you a job?” She responded with a blank stare and confessed that she was tired and just looking forward to a light day. The woman didn’t equate her work with the success of the business; rather, she just wanted to put in her hours, get paid, and go home. If I were the owner of this business, I would have been mortified to know my first-impression employee was discouraging customers from bringing in large bundles of business. Porter’s Points – The Most Important Hire • Define your company culture before interviewing for your most important hire. Your admin, more than any other employee, has to fit. Consider having one of your trusted relationships, such as your spouse or mentor, interview the candidates as well. • Conduct real-time, surprise skill tests with all finalists: how do they handle phone calls? 281

Upset customers? Can they write intelligent and purposeful letters? • Don’t rely just on looks. She may have polished nails and shoes or he might have walked right out of Men’s Health, but being easy on the eyes does not guarantee that either one can handle your company with confidence. Appearance is part of the first impression, but your admin tackles behind-the-scenes work, too. • Your admin must be an office-politics agnostic. No pot-stirrers at the front desk, please.

The Power of Team Once you’ve built your team using the right questions, an exacting interview process, the testing phase, and immersion in company culture, get out of their way and let them do their work. Micromanaging does not equate to leadership. If you are going to oversee every detail, save yourself the time and energy it takes to hire employees and just do the job yourself. You go for that eighty-hour work-week. One of the greatest values you will get out of building the right team is the added strength they bring in having what you don’t have. They will find solutions you may have missed. They will help you succeed. And, from time to time, they will save your bacon! While at Mitsubishi Electric, I managed a highly effective team that was working on winning a significant deal. We had labored long hours for several weeks (including several sleepless nights). The CEO of our target company was a guy by the name of Peter V., a tough, hard-nosed businessman. I flew to the target company’s headquarters and won the contract—a great payoff for my team and their hard, smart work. On the return flight home, I composed an email to 282

send to my team and the executive management of Mitsubishi. The email outlined our cost structure in detail, delineated how things would work going forward, and showed a great margin—in short, it opened wide the deal’s kimono. It just so happened that many of the Mitsubishi executive team members were named Peter. So I began adding the Peters from my address book one after the other. Upon landing and getting a connection, I let the email fly. At 5:00 a.m. the next morning, my well-deserved snooze was disturbed by Peter M., a member of the Mitsubishi executive team who had received the email. “Rich, congratulations on getting the deal! By the way, who is Peter V.?” I mumbled through sleepy eyes and hazy thoughts, “He’s the CEO of the company who awarded us the deal. Why?” Peter M., “Do you realize that you copied him on the email outlining our exact margins, costs, how well we came out, and how you just gave him a good, all-around spanking?” All of a sudden, my kimono was hanging wide open. In a panic, I bypassed the shower, breakfast, and family, and broke land speed records to get to the office. I waited dejectedly, slumped in my chair, anticipating my team’s arrival. As they filtered in, they were intrigued by my disheveled appearance and began asking questions. After giving them an update on our precarious situation, my admin called an emergency meeting. Here’s how it looked that fateful morning. 283

We had a room called the “War Room,” so designated because it was the place my team met to do all the heavy lifting. I stood in front of my colleagues and explained what had happened. It felt like there was no recovery possible. I couldn’t muster a single idea. The team began brain-storming. Shawn, an incredible executive admin, put a call in to Peter V.’s executive admin to test the waters. “Hello, Sarah, this is Shawn. How are you today? Rich was hoping to have a conversation with Peter. What is his status?” Sarah responded: “He is on a flight right now to Las Vegas.” Good sign! Shawn continued: “How is he at checking his email?” “He’s religious. The second he touches down he’ll go to the hotel and check his email before anything else.” “What time will he land?” “I think he lands about twelve-thirty our time, so it should be at about one o’clock that he’ll get his emails.” Shawn got off the phone and reported: four hours until Peter V. was able to check his email. One of the members of the team, Dave, said, “I’m really good friends with Jim, the IT guy at Peter V.’s company. I could call him and tell him that there is an inappropriate email that has gone through, and see if he’ll erase it. It’s risky, but better than doing nothing.” The team sat musing, and tried to expand on the new idea. “Well, what emotions are involved in this? What needs to happen to get the response we want?” 284

Everyone started naming emotions: fear, frustration, greed. Someone suggested confusion—if we could simply create enough confusion. Finally, someone suggested that I send 100 emails with the same title but nothing in it so it looked like spam. “Whoa, that might work—and while we’re at it, let’s add a little fear!” I chirped. We finally decided that everyone in the office would send 200 emails to all of their contacts in the target company with meaningless titles and bits of information. We ended up dumping something like 5,000 emails to the target company in a matter of one minute. It wasn’t two minutes before Jim called Dave and asked: “We just got 5,000 emails, what’s going on?” Dave responded, “Whatever you do, delete every email you got from us in the last 24 hours. If you don’t, a virus will mail itself to every address in your company’s database.” Jim did just that! Nightmare solved. Bacon saved. Lesson learned. Surround yourself with people you trust and let them use their skills.

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Porter’s Points – The Power of Team • Trust and empower your team to make decisions and take actions for the good of your company. Give them problems and let them come to you with solutions, always looking to make them stretch a little more than last time. • Do not punish mistakes that are made in an attempt to contribute. Take ten minutes to cool down if something blows up, then go back and make it a learning experience and not a tirade. • In times of crisis, let your team save you. If you haven’t empowered them before, though, they may have trouble treading water themselves. The power of team comes as you regularly involve the players, so give them practice.

The Lay of the Land I once worked for a large company that was engaged in some serious internal warfare. Someone had decided to house the sales team next to the engineering team. The engineers, listening in on sales calls with customers, insisted that the sales team was nothing but a bunch of liars. The software wouldn’t do what sales said it would. The engineers knew it because they had written the software. But the sales team retorted that the engineers were out of touch and needed to write the software that the customer wanted instead of their regular “useless junk.” The contention between the two teams caused a rift that hindered the entire company’s ability to ride the wave we were on. The company eventually failed. There were multiple reasons, but one key reason would have been incredibly easy to fix: office layout. The engineering team never should have been sitting next 286

to the sales team in the first place. Maybe the sales reps were lying, or maybe they were just stretching the truth; either way, the engineers would have been better equipped to deal with back-end troubleshooting than with up-front sales tactics. One system that has succeeded for me is to structure the office layout in terms of the flow of the business. In the example above, a better solution would have been to place the product management team between sales and engineering, playing the buffer role and helping maintain the balance between customer demands and engineering realities. The technical support team should sit as a branch of the engineering team, yet be accessible to sales. The engineers work best when kept away from all distractions. In our office, we find it helps to place engineers in the back of the building, close to food and drink. We make life comfortable for them; as a result, they are more productive. Your admin, of course, should be your first line of defense between the world and your company. Anyone wanting to talk to you or anyone else should go through the admin to get there. Maybe itâ&#x20AC;&#x2122;s trivial, but I have one last note concerning the layout and structure of your office. Make certain your teams have the most up-to-date and comfortable gear possible. If this is out of the realm of the probable, then give them the best of what youâ&#x20AC;&#x2122;ve got. This small act instills respect and helps them value the company. One of the best immediate supervisors I ever worked with was a dynamic man named Rob Allred. Rob managed a team of about twenty-five employees, all housed in an open office environment consisting of one large, cement room. Most of the team was using tattered, uncomfortable rolling chairs. One afternoon, 287

a shipment of brand new chairs arrived. Everyone clamored noisily to claim their prize. Even Rob joined the crowd to make sure he got one. Every man for himself! I watched as everyone set up their chairs and tried them out. I noticed Rob sit down on his chair, settle in, and give it a bit of a test drive. All of a sudden, he got this concerned look on his face. He got up and proceeded to go to each of his employees and check out their new chair. He went around the room, finally discovering a team member, Robyn, who had not shared in the spoils. Without hesitation, Rob grabbed his catch and wheeled it over to Robyn, exchanging it for her old clunker. Because of these types of acts, Rob was deeply trusted and appreciated. No matter the situation, his team knew he had their best interests at heart. Porter’s Points – The Lay of the Land • The physical location of each employee matters. Eavesdropping happens; don’t let it stop your company’s progress. Separate engineering from sales and use other teams as buffers. Even encourage your admin to float around a little to keep the peace. • Admins do not belong in the back offices. Put your admin up front for an effective first impression. Engineers, however, do. Put them in the back and let them work. • As far as possible, ensure your team has comfortable, up-to-date equipment. Whether chairs or computers, make a big deal out of it. Little things make office work exciting; executive attention to little things builds unity and trust. 288

16 The Holy Grail Porterâ&#x20AC;&#x2122;s Preface Countless crusaders spent their lives in search of the Holy Grail, a mythical object of deeply spiritual significance. What came of their quest? Did they ever find the Grail? Well, no, but their lives changed, and they left a legacyâ&#x20AC;&#x201D;some good, some bad. Long after deals are done, contracts are completed, and companies are closed, you and your team will be bound together by the experiences you shared. For good or ill, you will remember what you learned and how it felt. Your company culture is your Holy Grail. Establish it right from the start. Rich alluded to the function of your culture in the last chapter, but understanding why and how you are to establish your culture warrants its own space. You build your culture because it is your responsibility. You must, for the long-term success of your endeavor, establish a durable, viable culture. As you commemorate the great actions of the past, you help create a vibrant legacy that wins loyalty to your company and enhances the effectiveness of your work. As it goes in life, so it goes in business: the most infectious method of teaching and passing on 291

your culture is by example. You must create the culture within your company because if you do not, someone else will. That someone else could be anyone, right down to the depressing engineer whose daily complaints bring everyone down. Influential leaders have not been influential by accident. Leaders leave legacies built on their actions and the stories that grow out of those actions. Gandhi walked across India, millions followed, and their boycott of salt brought the British government to its knees. Winston Churchill ordered that theaters remain open despite Nazi bombing. George Washington galloped into a firestorm of lead, emerging with his cape riddled with bullet holes and his person unharmed. Mother Teresa labored in Calcutta and other povertystricken areas to minimize suffering with love and care until her own death. Great acts of leadership do not happen by accident. While your culture is your responsibility, you have additional resources at your disposal. If your company has been around for a while, you have already created part of your legacy. Past successes fuel future achievements. If, on the other hand, you are just starting out, there are plenty of names and faces to look to. Decide on values, rules, and attitudes. Make sure you enter the business world with a boom and hire employees who match. That’s the way the masters do it, and that’s the way that Rich does it. He doesn’t just do it, though—he has fun with it!

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You Own the Culture One of my favorite authors is Stephen R. Covey. In a book he writes with A. Roger Merrill, First Things First, he teaches that all humans are born with an innate drive to fulfill four basic needs: • • • •

To To To To

live love learn leave a legacy17

You must understand and address those needs as part of building your business. Each one will contribute to the culture you develop, as well as to the way your company accepts your leadership. For those of us who have peeled the layers back, it is evident that “leaving a legacy”—mattering—should be the primary focus. Make a difference. Do something that impacts more than just self. Establish worthy aspirations. Establish a culture that allows people to matter. Not many years ago, I attended Ray Noorda’s funeral. Ray was the man who took Novell, a failing startup with 17 employees, and transformed it into to a computer giant. Novell eventually employed more than twelve thousand people and transformed an entire valley in Utah into a veritable techno-hub. Ray is known in the technology industry as the “father of network computing.” This is a fair assessment, but he was much more than this. He generated thousands of high-paying technology jobs, spawned numerous small businesses, and—of most consequence to me— set a leadership model that enabled young leaders to emerge. As one of those, I have tried, in many ways, to emulate his leadership style. 17 Covey, Stephen R. and Merrill, A. Roger. First Things First (New York: FiresideSimon & Schuster, 1994), 46-48.

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Ray was a multimillionaire who drove a pickup truck, lived in the same modest home until he died, and was often seen wandering into someone else’s meetings to sample the snacks. As heads turned to see who was moseying in late, Ray would pleasantly say, “Hi, folks. Got anything good to eat here?” He was down-to-earth and his values were real. “Make a real contribution” was not just a mantra for Ray. He mattered, and established a culture that allowed others to matter as well. Ray created stories. He did not establish the culture at Novell by lecturing or mandating but rather by making a point to drop by offices after hours and on Saturdays to visit with whoever was in. He would park himself on our desks to see how we were doing, talk shop, and inspire us. Stories that originated with him started in one cubicle would circulate like wildfire. He gave us all the impression that we could add to the Novell culture, and that it belonged to all of us. He took time to educate and inspire us personally through both his interactions and his stories. We learned from him how to behave, what we stood for, and what was expected of us. Ray’s legacy ranges from larger-than-life examples of business fervor to amusing situational anecdotes. I was present for one of my favorite stories, which took place between Ray and my mentor, Dr. Peter Horne. Dr. Horne had flown in from London for a meeting with Ray and others, and things got started with some small talk. Ray casually mentioned his love for skiing, adding the aside, “But only on Tuesdays.” Dr. Horne, with his proper English accent, asked “Why only on Tuesdays?” Ray responded, “Because Tuesdays are Senior Citizen Day, and I ski for half price.” Without fanfare or self-aggrandizement, Ray set the tone of the meeting, establishing the fiscally conservative nature of Novell and laying the foundation 294

for a strong and productive relationship between Novell and Dr. Horne for years to come. This was Ray’s way: understated but clear, light but appropriate. I love and appreciate everything that I learned from him. At Ray’s funeral, the speakers gave outstanding eulogies, attempting to sum up several of his key beliefs. Ray wove these into the very fabric of Novell and, of course, his own life. Following are the characteristics I made note of during the service: • Believe and trust in people. • We all have a responsibility in life. Be faithful to it. • Customers first, employees second, shareholders third. • Be unassuming. • Listen, especially with your heart. • Practice integrity. • Be loyal. • Be true to your own core beliefs, but recognize the need to compromise within parameters that don’t violate those beliefs. • Respect the individual, not the title. • Marriage is ordained of God, and is your first priority in life. • Practice fiscal responsibility. • Take care of your health. • Willingly forgive others’ mistakes and shortcomings. • Retain your dignity, no matter the circumstances. • Give something back. Ray never put together a PowerPoint on these principles. He didn’t make posters or require us to attend “Company Culture” development workshops. He simply lived and shared what mattered most to him and expected us to internalize similar principles. Ray knew the culture he wanted, and he owned his responsibility to create it.

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In owning your company culture, remember that your culture has to work for you. Each company is different, and what might be appropriate for a marketing company could be outrageously unsuitable for an accounting firm. Your culture is about the way your office is laid out, the perks and fun things you do together, and the values you embrace. Whatever your culture, communicate it. You must be the one to start your own legacy and stand up for what you want to see happen. As an entrepreneur, you have the freedom to pick and choose and develop whatever you want your culture to be. Don’t succumb to laziness or insecurity and simply live and let live. Your culture is your Holy Grail, and you have the power to pursue it and make it your own. Porter’s Points – You Own the Culture • People don’t learn company culture from lectures and meetings. You create your culture by what you do. Map out how you want your company to act, and start acting that way yourself. • Everybody wants, somehow, to matter. Show your team that they matter to you and to the company’s objectives. You must balance your administrative duties with your need to lead. • How do you want to be remembered? You determine that memory by your every action.

Build It Right Just as a house has a foundation, so does a company. The foundation of yours will be built at the beginning, through actions and words. What you do, from day one, will have a profound effect on the direction the 296

culture takes. How you communicate—from mission statements to your casual conversations—will as well. You need both to build your culture, but you also need to build it right. Make sure that what you say and do on the outside is rooted in ethics and moral business principles inside. If you build a foundation for a one-story rambler, it’s hard to then build a three-story English Tudor estate, so establish your foundations with forethought. When WordPerfect was a new startup company, its executives built a rewards system into their culture. As a perk, they would give all their employees all of the soda and popsicles they could possibly consume. When employees had been with the company a certain length of time, they qualified for even greater rewards. After a series of successful years, WordPerfect actually sent the entire company to Hawaii together—with spouses and partners! As you can imagine, people loved that aspect of the WordPerfect culture and a high sense of company loyalty ensued. However, not long after, the company ran into financial difficulties that required a little belt tightening. The free soda and popsicles disappeared. The trips to Hawaii were replaced with free movie tickets. Many employees who had enjoyed WordPerfect’s culture for so long did not like the sudden change. The changes in the company’s fiscal policies were easy to make—management simply cut out the perks it couldn’t afford. But changing the cultural expectations of the employees was far more difficult. The employees had bought into a culture of free soda pop and popsicles, and those perks were at the heart of why many were there. When this aspect of the culture disappeared, loyalty to WordPerfect diminished. 297

The past several years, I’ve had occasion to work very closely with Google. A stroll through its campus reveals the company’s perks policy: employees and visitors enjoy free Naked Juice (usually five dollars a drink), unlimited candy (dental hygienists everywhere love this aspect of the Google culture), as well as free breakfast, lunch, and dinner made by chefs flown in from exotic locations. I wonder what is going to happen to the Naked Juice and flying chefs the first quarter Google misses its number? Don’t get me wrong. We stock our fridge and shelves with lunches and snacks. I love rewards systems. But our perks come from Costco. Whatever perks you provide, you want to make sure employees are buying into the goals of the company, not just the goodies. If employees are invested in their work and the planned outcomes, they’ll understand if a time comes when everyone needs to tighten their belts. They will feel involved and appreciated not because of gifts and food, but because they understand their contribution to the company culture and they feel vested in the success that grows out of that culture. Writing and living a mission statement can sometimes help with this aspect of instilling your culture into your company. Writing mission statements was the big hype of the early ’90s. Everyone had a mission statement, including me. Companies displayed theirs someplace conspicuous, proud to be motivating their employees and serving their customers. Even so, no matter how great the words, those statements need to be backed up by what your company actually does. Mission statements are only hype if nobody internalizes them. You and your team must internalize them by following them. Words are nothing without actions.

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Action establishes culture. Unfortunately, inaction does as well. If you don’t provide the leadership to create your culture, someone else will. If you don’t act, the culture will define itself based on the dominant personalities of those on your team. Greatness needs direction. Writing down and sharing goals is a good place to start, but you must take the lead and establish your culture through your daily actions and interactions. Porter’s Points – Build it Right • Your cultural foundation is established early and pretty much stays put, unless you get hit with an earthquake. Make sure your foundation is built on the traditions, values, and ethical practices you choose. You might be able to build a buzz with popsicles, but you wouldn’t build a house that way. • Words are a tool to reinforce your actions. Don’t think that writing a mission statement makes a culture. It can help, but don’t write what you’re not willing to live. Once you write it, live it, and help others do the same. • Include a rewards system as part of your culture, but be careful of creating expectations that can’t be sustained through lean times. Also remember that rewards are no substitute for a solid, leadership-centered culture.

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17 Embrace Accountability Porter’s Preface Why do you want to be an entrepreneur? If you answered, “To be my own boss,” or “to be able to do things my way,” that’s okay, but you need to remember that this kind of freedom comes with a price. In short, personal ownership equals personal accountability. Accountability means not affixing blame and finding solutions instead. It is doing the right thing because it’s the right thing. It is taking ownership of your choices and all of the resulting consequences. There’s no “pick and choose” here. I am—and Rich is—fascinated by people who, without concern for the outcome, just do the right thing. I am also intrigued by those who, in an effort to avoid being held accountable, do whatever (right or wrong) it takes to avoid accountability. It is our belief that many people choose to not be accountable because they fear the unknown. If you fear accountability, it follows that you will fear entrepreneurship. In the beginning, entrepreneurship can seem like a deep, dark pit of accountability. There aren’t very many sure bets to be had when starting your own venture, but there is always this one: for better 301

or for worse, you are responsible for whatever happens. Among the things you’ll put on the line are your money, your reputation, and your motivation. Some, after embarking on their own entrepreneurial journey, look accountability in the face and turn tail and run back to the comfortable, secure corporate world. For some, accountability is an acquired taste. To really enjoy it, you must learn to trust yourself, your judgment, your partners, and your venture. When you get the mixture just right, it can be quite sweet, even exhilarating. You’ll learn to savor the thrill of making decisions and standing behind them, knowing that you’re personally accountable. You might just decide you wouldn’t have it any other way. The tendency for far too many individuals is to avoid accountability rather than embrace it. Following are some examples of avoiding and embracing accountability Rich and I have witnessed during our personal experience in the corporate world. As you review these, consider which side of the ledger you find yourself on. What about your employees? What about your vendors or partners? Do you avoid or embrace accountability? What about those you rely on? Here’s the bottom line: make accountability personal to you and those you deal with. Here are some clear indicators that will help you identify when accountability is being embraced and when it’s not.

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Avoiding Accountability 1. “That’s not my job.” 2. “I can’t find anything to do.” 3. “Why do we need a self-improvement class at work?” 4. “When is upper management going to get it right?” 5. “I’ve been working here a year, and I still don’t have a job description – what am I supposed to be doing anyway?” 6. “Whose stupid idea was this team-building activity?” 7. And even: “No, don’t bother me about that until tomorrow. I go home too soon to worry about it right now.

Embracing Accountability 1. “I’d love to help, what do you need me to do?” 2. “I did it because it needed doing.” 3. “I’m glad the company is providing us the opportunity to learn and apply self-improvement techniques.” 4. “Maybe upper management hasn’t made the right choice because they don’t have enough data. How can we help them get that data?” 5. “No, I don’t have a job description. I’ve just observed and determined where we needed help and jumped in.” 6. “Yes, I’d love to participate in a team-building activity!” I remember a great teaching moment that occurred at one of my son’s baseball games. Jory was in the batter’s box, waiting for the pitch. The pitcher let 303

the ball go, and it headed straight for Jory’s head. Jory thought, “curve ball,” and stayed in the box. At the last second, the ball didn’t curve! He took the ball in the face, which broke his nose. As my son and I sat in the emergency room, I tried to make him feel better, “That was a really good job, son.” Jory, peering at me quizzically, remarked, “Dad, I got hit in the face with the ball!” “Yeah,” I told him. “But you stayed in the box!” Accountability can sometimes feel like a curve ball to the face. Or, more accurately, a failed curve ball. It might hurt, but the satisfaction of “staying in” is far greater than the fleeting feeling of safety as you jump out of the way of accountability.

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You Are Accountable Have you ever found yourself trying to deflect accountability? If you’re honest with yourself, you will likely answer, “Yes, I have.” And the fact is, it never feels good. The first time you slink around accountability, your conscience seems to shout back at you, “Not good!” And yet the more you shrink from it, the easier it becomes. The voice inside gets softer and softer until you fool yourself into thinking that not being accountable is okay—or, worse yet, that you’re doing all that could be expected of you. The result is that you replace the exhilarating sensation of accountability with the uninspiring sense of apathy. As a business owner and leader, you must not allow yourself to be fooled. You must learn how to be accountable yourself and how to hold your employees, partners, and vendors accountable. One of my favorite, real-life examples of taking personal accountability comes out of the aviation industry. This story depicts one CEO who stayed in, took the curve ball on the nose, and exemplified accountability to self, company, stockholders, and customers. In February of 1999 David Neeleman founded JetBlue Airways with the intent “to bring humanity back to air travel." Further elaborating on its commitment to customer service, Neeleman later said, It's a new kind of low-fare airline. JetBlue will offer wider seats, more legroom, and more overhead storage space than any other airline in its class and, with 24 channels of live in-flight television, you'll never have to miss your favorite show on the road. 305

What's more, our aircraft are some of the world's quietest, most emission-friendly passenger jets. 18 In an ad specific to the citizens of New York City, he committed to the following: We want to be New York's new low-fare, hometown airline. JetBlue will bring to the city a superior product…19 What happened on and around February 14, 2007, was anything but a sweetheart customer service story. Here are a few less-than-stellar low points, as reported by a variety of news agencies: • Over 500 JetBlue passengers were stranded on the tarmac at John F. Kennedy International Airport for six-plus hours. • During the ensuing six-day meltdown, over 1,000 JetBlue flights were cancelled. • By that Sunday, hundreds of bags belonging to JetBlue customers who had checked into flights that were eventually canceled were stacked outside JetBlue's Baggage Services office. • Hundreds of JetBlue flights were delayed. Passengers were frustrated and shocked by the extent of the delays. Bringing humanity back to the air travel? The business impact was, to say the least, expensive. The company’s stock fell five percent. During ensuing interviews, Neeleman acknowledged weaknesses in the company's communications and flight reservation system and vowed to invest the millions of dollars necessary to bring the airline up to speed.

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18 Neeleman, David, quoted in jetBlue, “JetBlue Airways, The First ‘Mega StartUp’ Unveils Launch Plans.” jetBlue.com. http://www.jetblue.com/about/pressroom/pressreleases/pr.asp?year=1999&news=07141999_startup 19 Ibid.

Put yourself in Neeleman’s shoes. What would you have done as the CEO in this situation? Do you send the public relations folks in to handle the mess? Does the VP of customer service get called upon to shield you from the wrath of the irate customers? Do you ignore the fiasco and hope it goes away? Do you point fingers at operations and lop off a few heads along the way? Here’s what David Neeleman did;

Dear JetBlue Customers, We are sorry and embarrassed. But most of all, we are deeply sorry. Last week was the worst operational week in JetBlue’s seven-year history. Many of you were either stranded, delayed or had flights cancelled following the severe winter ice storm in the Northeast. The storm disrupted the movement of aircraft, and, more importantly, disrupted the movement of JetBlue's pilot and in-flight crewmembers who were depending on those planes to get them to the airports where they were scheduled to serve you. With the busy President’s Day weekend upon us, rebooking opportunities were scarce and hold times at 1-800-JETBLUE were unusually long or not even available, further hindering our recovery efforts. Words cannot express how truly sorry we are for the anxiety, frustration and inconvenience that you, your family, friends and colleagues experienced. This is especially saddening because JetBlue was founded on 307

the promise of bringing humanity back to air travel, and making the experience of flying happier and easier for everyone who chooses to fly with us. We know we failed to deliver on this promise last week. We are committed to you, our valued customers, and are taking immediate corrective steps to regain your confidence in us. We have begun putting a comprehensive plan in place to provide better and more timely information to you, more tools and resources for our crewmembers and improved procedures for handling operational difficulties. Most importantly, we have published the JetBlue Airways Customer Bill of Rights—our official commitment to you of how we will handle operational interruptions going forward—including details of compensation. We invite you to learn more at jetblue.com/promise. You deserved better - a lot better - from us last week and we let you down. Nothing is more important than regaining your trust and all of us here hope you will give us the opportunity to once again welcome you onboard and provide you the positive JetBlue Experience you have come to expect from us. Sincerely, David Neeleman Founder and CEO20 And, to top it off, Neeleman followed up his heartfelt apology with pocket-felt actions. He announced what he estimated would cost between twenty and thirty million dollars to revamp procedures for handling 20 Neeleman, David. “Dear JetBlue Customers,” David Neeleman’s Flight Log (February 22, 2007). http://www.jetblue.com/about/ourcompany/flightlog/ archive_february2007.html

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interruptions in service. Before the month was out JetBlue Airways voluntarily offered forty million dollars in refunds and vouchers to impacted passengers and gave wings to JetBlue’s “Customer Bill of Rights.” We’re going to offer something that no other airline will offer customers… We’re going to be held accountable with laser beam focus… we want to do it because it’s the right thing to do.21 Now that is accountability. No hiding, no transparency, not waffling, no pointing fingers—just plain old refreshing, effective, personal accountability. Thank you, David Neeleman! Porter’s Points - You Are Accountable • The first time you shoulder accountability, it may seem difficult. But the more you accept it, the easier it becomes to accept. • Stay in and, if necessary, take the curve ball on the nose. • Be accountable—and then some. Exceed what those you are accountable to expect from you.

The Big Red Door Many people shy away from accountability because of fear. Fear of what? The unknown outcome of what is on the other side of accepting accountability. Back in the days of the early Roman Empire, when prisoners were captured and forced to fight to their death, the fighters would often be given a choice. They could either face the lions or walk through the big red 21 Neeleman, David. Interview with Matt Lauer. TODAY. NBC. WNBC, New York. February 20, 2007.

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door. Almost every single prisoner chose to face the lions. Why? Because of uncertainty and fear of the unknown. The unknown is often worse than the known, no matter what the “unknown” might turn out to be. What was behind the big red door? Freedom.

Ro osevelt: In the words of Eleanor age and co nfidence by “You gain strength, cour you really stop to lo ok every experience in which , e able to say to yourself fear in the face. You ar e is horror. I can take th ‘I have lived through th ong.’ You must do the next thing that co mes al ot do.” thing you think you cann You can’t allow yourself to be bullied away from venturing into the unknown simply because you fear the accountability that will result. It is tough and it is scary, but accountability often is what stands between you and freedom. Sometimes the curve ball will curve, and sometimes it’ll hit you smack in the nose. Either way, savor the accountability resulting from your choice to “stay in.” Porter’s Points – The Big Red Door • Don’t let fear of the unknown keep you from accepting accountability. • Make a list of the reasons you want to become an entrepreneur. As you review your list, analyze the trade-offs. Is what you want a fair exchange for the amount of accountability you are willing to assume?

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18 Dancing with the Devil Porter’s Preface As a teenager, I played on a football team in Flagstaff, Arizona. Once, we played an away game against a team that didn’t seem at all motivated. The game turned out to be an easy win, and one of my teammates quipped, “I bet if we hadn’t shown up, they still would have lost!” He didn’t know how true his statement was. In order to truly test yourself and your new business idea, you need competition; you can’t win without it. Several years ago, Rich and I both worked for Novell, a networking company that at one point controlled 80-plus percent of the market. In other words, it had no competition. Then Novell became complacent. And when the serious competition did show up, the company was far from prepared to take it on. Most people are timid about interacting with competitors; even worse, many business owners think that they don’t have or even want any competition. If you use it to your advantage, competition keeps you hungry, honest, and forward-moving.

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As the saying goes, “High tides float all boats.” When your competitors advertise their products, your business benefits from getting the byproduct of unexpected marketing. If you’ve positioned yourself correctly, when people look for your competitor’s product, they will likely also find yours. More than just benefiting from happy accidents, though, you must know your competitors’ strategies, their position in your market, and their weaknesses. Competition is a healthy part of the entrepreneur’s diet. Rich thrives on embracing and enjoying competition. It shows up in all aspects of his life—from golf to work to siblings. He has mastered how to let it keep him sharp and focused. He also knows that when you dance with the devil of competition, even one misstep will allow it to dance all over you. You may think that you are dancing the tango only to suddenly watch your competitors cha-cha on by. You want to win, but you cannot win unless you compete and do it well.

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Competition Is Good Whatever the competitive landscape in your market, you must accept it as the only landscape worth traversing. Competition can become the lifeblood of your business, inspiring change, freshness, and innovation. Ignoring your competitors, by contrast, will drain the life out of you—often without you even knowing it. Where do you and your competition stand? If, upon concluding your market analysis, you find that you have no competitors, think twice about your business idea. Why isn’t anyone else doing it? Are you really so smart that no one else could have possibly come up with the same idea? Dig deeper. Perhaps someone has already tried your idea and it didn’t fly. Be cautious and intelligent about when you enter what landscape. If you dive in anyway and then get asked to tango on a trampoline, it’s hard to back down. One drawback to entering a sparse environment of competition is the need for a longer, more expensive ramp-up phase. You have to break your own trail. You will have no competitor to help you advertise your product. There will not be an established channel of marketing and consumption specific to your brand-spanking-new idea. Building new channels and pioneering marketing campaigns can be done, but you need to recognize the associated costs. On the other hand, having a competitor or two gives you access to banks of information. You will not likely get direct access to your competitors’ databases of customers, cost structures, or product development secrets, but for every company you compete with, you will find administrative assistants, other customer313

facing employees, and both happy and dissatisfied customers—all who will be willing to talk. Most people are excited to chat about what they do. They like to brag about their company’s innovative products and who their big-name customers are. Use this knowledge to build a better mousetrap. What about your competitors’ product or service is broken? How can you take advantage of what has already been done? Being willing to follow the lead is often more profitable than leading out. This concept fits with the section on “abundance mentality” found in chapter 12, “The Heart and Head of the Entrepreneur.” Recognize—and, if necessary, make yourself understand—that there is plenty to go around. At times, it’s even a good move to let your competitors get to market first to make the mistakes for you. Learn from those mistakes and clean up! This is the idea of drafting—like how geese draft off the ones in front, or how the second- and third-place race cars draft off the leader. Our latest venture places us in the highly competitive and rapidly changing online search engine world. This market is complex enough that no one individual or company can keep up with the ever-changing landscape. Success requires a level of openness and sharing within the industry brain trust. There are several individuals in our industry that thrive on discovering amazing new strategies. We directly benefit from drafting off the learning and creativity of our competitors. You too can take the more profitable tack of learning from other companies’ mistakes and taking a more profitable slice of the pie. Some argue that beating everybody else to market is absolutely critical. If you 314

are going to get to the market first, simply prepare yourself to adjust, improve, and change as your competitors begin to poke into your market share. Porter’s Points – Competition Is Good • If nobody is in your market, ask yourself if there really is a demand for your product. Is the demand sufficient to give life to your business? How will you create a market that doesn’t exist? What other products and services can you offer? Do some careful investigation before diving headfirst into an empty pool. • The way to your competitors’ customers is through the employees who interact with the customers and through the customers themselves. Contact these people and ask them about what they do. Take careful notes on how you can improve. • Reread the section on having an “abundance mentality” from chapter 12. Really commit yourself to believe that the market is big enough for you and the competition. Let others test the waters a little, and always, always learn from your and their mistakes. Use those mistakes to look for openings and then take them!

Do Your Homework Think for a moment about your business idea— product, services, market, scope. Now create a list of all the competitors that occupy the same space. Did you write any names down? If so, you are further along than many first-time entrepreneurs. Lots of novice entrepreneurs don’t recognize the value of this type 315

of list. They don’t understand the power that comes from knowing about who’s out there for them to go head-to-head with. Make a concerted effort to create your list. Search online. Go to the mall. Attend conferences or seminars dealing with your market space. Pay attention to advertising you see throughout the day—commercials, newspaper and magazine ads, billboards, anything. List in hand, it’s time to get to know the guys across the street. What are they doing right? What are they doing wrong? Who are they selling to? Who is their biggest customer? What is their best-selling product? This may require a little espionage. Go stand in line at one of their stores. Eat their food! Call the companies and engage their administrative assistant in an informational conversation. Tell them that you’re doing research and ask about the company’s goals, mottos, and customers. You will be amazed at what you can find out by asking the right questions to the right people. Open up a line of communication with the owners of the company. Take them out to lunch and have an honest conversation. Make sure you approach this from the right angle, though. For instance, you could say, “I admire you company’s history. I’m interested in a similar industry, and as someone just starting, I wanted to know if I could ask you a few questions.” This comes across much better than, “Tell me what you guys do, because I plan to leave you in the dust in six months’ time.” Be polite and ask honest questions. You’ll get answers. Just because you know this information about your competitors, you do not necessarily need to model 316

their businesses’ look, feel, and function. If you see weaknesses, for example, you certainly don’t want to let them slide into your company. Don’t just look for holes, though; there may be a thing or two you find valuable and decide to borrow. We’ll go back to Schoolhouse Rock! and affirm that, indeed, “knowledge is power!” Specifically, it is the power to emulate the good, improve the bad, and sail past your competitor on the dance floor. Porter’s Points – Do Your Homework • In the planning stage, list all aspects of your business that might run up against competition. Starting with Internet searches and moving into actual legwork (malls, phone books, industry directories, etc.), make a list of all your competitors. • Draft a series of questions and talking points to use when approaching your competitors’ administrative assistant, managers, and owners. Don’t put them in the awkward position of disclosing proprietary information, but focus instead on their product ideas, customer relationships, advertising techniques, and other useful information. • Always be courteous when courting your competitors. Don’t push if they refuse some answers. If it really is important, you can find out some other way.

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Know Your Competition Now is a good time to pull out the model we talked about in “Power Tools.” You remember: the Competitive Matrix Model. Draw a matrix comparing your and the competition’s price, products, and cost. Where do your competitors map to? How about you? Are you right on top of them, or are you in one of the gaps in the market? This exercise will show you how likely you are to be in their crosshairs, how aggressive you need to be with pricing, whether or not you can ride in their wake, and how much you need to compete or cooperate. I don’t know if Ray Noorda at Novell coined this one or not, but the first time I ever heard the word “co-opetition” was from his mouth. The idea is exactly how it sounds: compete, but cooperate. Competitive relationships can and should be fun, lively, and challenging. Hate relationships (like those unfortunately existing between many competitors) are not a place you want to go. Haters are annoying. They just waste energy. The amount of energy you can expend in a fit of anger or jealousy can be significant, and even if it was motivated by an idea that popped into your head, that idea is usually gone once the tirade is over. New developments inspired by competitive camaraderie are often longer lasting and more respected. Some try to argue the value of a good dose of angry, negative competition, but it is just a short-lived dead end.

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As much as you would like to engage in “coopetition,” you still need to know when your customers or affiliates don’t feel the same way. Some years ago, Ron experienced the tip of this negatively competitive iceberg when caught between two companies that seemed to love hating each other. Here is how he learned about hateful competition: While employed at a large software company in the early ’90s, I had the direct responsibility to sponsor a customer feedback forum. The forum was held at a location that was neutral to all our customers, as we wanted uninfluenced and uninhibited feedback on how we were doing as a service organization. These customers made up our Customer Advisory Council, and their input was critical to our success. In many cases, they had spent millions of dollars on our software and services. They were highly respected in their particular markets and industries. About midway through the first day of meetings, break time came around. One of our customers, a representative from a worldwide manufacturer and distributor of soft drinks, made his way to the refreshment table. I was standing nearby, visiting with another customer, when I heard a loud expletive. Turning my head to see what was up, he locked on my eyes and exclaimed something to the effect of, “I see our competitor’s products all over this table, but not a single one of ours. Would someone like to explain to me why the %&*@ that is and what the %*#& I’m supposed to drink?!” Not knowing the intensity of the competition had led us to commit a cardinal sin. As soon as our customers returned to the meetings, we cleaned out every bit of his competitor’s products and replaced them with his company’s brands.

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This kind of competition is abundant. You need to do your homework to be sure that you know what kind of competition to expect. Don’t believe it? Well, of a hundred more that I could pen, here comes another example of a rivalry so intense that the companies did stupid, self-defeating things. Once again, it comes from Ron’s bank of stories. Read it, believe that competition can get brutal, and resolve to do better. When Ron was building the professional services team for a startup software company, his field sales engineer (FSE) was invited to present at a large hardware and software business based in Texas. He was equipped with the latest laptop technology—albeit from a competing hardware manufacturer—and was prepared to give a sterling presentation. This was a presentation that was important not just for the startup company, but for the long-term IT strategy of the Texas company as well. The FSE was invited into the conference room and settled in for the presentation. One of the potential client’s high-ranking employees watched the FSE set up for the meeting—laptop out, wires hooked to the projector, everything ready for the dog-and-pony show. The employee waited until the presentation was ready to begin and then stood up, walked around the table, stopped in front of the engineer, and told him to unwire his laptop, pick it up, and follow him. He led the FSE out of the room and into the hallway. There he “invited” him to stow his laptop in his bag and hand it to him. He then walked the laptop over to an administrative assistant and instructed her to return the laptop to the FSE after the meeting. Returning to the engineer, he said, “Don’t ever come into our complex again with our competitor’s laptops or any 320

of their products. You will do the presentation without our competitor’s gear or not at all. What’s it going to be?” Never underestimate or misunderstand how your competitor feels about you. You need to know the appropriate amount of sharing and communicating to do. If you can stay away from this kind of brutality, it will be better for all of you. In some cases, however, it’s best to leave the relationship alone completely. If you run up against negative competition, don’t touch it. This is for the good of both companies and anyone else foolish enough to wander into the crossfire. Porter’s Points – Know Your Competition • After you draw up your Competitive Matrix Model, determine when and how best to approach each of your competitors and then do it. “Co-opetition” does not always mean that you cuddle up with everyone in your market. Be especially careful with the timing of your market entry. • For those competitors who react harshly to your friendly overtures, figure out how best to observe their work from a distance and then stay away. As a startup, the last thing you need is for an established business to come gunning for you. • Whenever you interact with competitors or customers, think through every detail— technology, refreshments, location, and especially culture. If there is anything that could offend, eliminate it. In such situations, it’s much easier to be a friend up front than to ask forgiveness later.

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Reduce and Improve In a competitive environment, it’s important to know how to out-value your competition. I’ve discovered that one of the best ways is to reduce your transactional costs. While producing motherboards at Mitsubishi Electric, we went through a phase when customers wanted, more than ever, the latest technology possible. Mitsubishi knew that in order to be competitive, it had to either keep up with the latest technology or find another niche. We also found that if we did it right, we could reduce our costs and undermine the competition. At the time, specialty equipment such as medical devices, gaming machines and ATMs faced a problem with the motherboards used in their machines. Federal regulations mandated that an entire machine be approved through an often 12- or 18-month process before it could be used. In the sector that Mitsubishi and its competitors dealt with, keeping up with the latest technology meant a constant swapping in and out of motherboard components. (Obviously, that made us money.) But these sectors—medicine, gaming, and banking— could not simply swap out a motherboard. For example, any changes at all in an X-ray machine required that the whole product be re-approved. Twelve-month delays for every innovation obviously would not work. As a result, these industries had taken to hiring their own teams of engineers to build motherboards that were more stable. They did not meet the performance of outside motherboards, but there seemed to be no other way to meet the need for stability.

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This is where we came in with Mitsubishi. Seeing an opportunity, we began producing a line of

motherboards that would outperform the ones these industries had created while still providing the needed stability that kept the approval process from having to be repeated. Suddenly, these industries were able to cut their transactional costs by laying off engineers and opting for better-performing motherboards in their equipment. At the same time, Mitsubishi could optimize its profit by entering an arena where we could undercut the cost of a 10-person engineer team but make a massive profit relative to the other motherboard sectors we were engaged in. By reducing transactional costs and improving the product and product environment, this one sector opened up a profitable new market. An even clearer example comes from my 2001 trek through the Himalayas. While hiking in Nepal, I met a young man from the village of Namche Bazaar. Some time before, he had decided to try breaking into the Internet market in his village. Nestled high in the beautiful, snow-capped Himalayas, Namche Bazaar is a frequent traveling stop for trekkers. As hikers pass through this village, it is their last chance to check email, make a quick call home, or get in touch with business contacts. For a long time, the only telephone option was through expensive satellite communications. So, while trekkers could touch base with home, it was at a cost of several dollars a minute. Doing so took a small fortune, but given that this was the only option, nobody questioned the priceâ&#x20AC;&#x201D;until this young man set up his Internet cafĂŠ. His desire to break into the Internet market had led him to the United States, where he quickly landed a 323

job at McDonald’s. Saving as much money as he could, he eventually bought four used desktop computers that he brought back to Nepal. Once there, he had to hike up the Himalayas to Namche Bazaar with his computers strapped to his back. I met him after he had set up shop. His resolve and tenacity had given him a toehold in the Internet café business, but it had also whetted his appetite for something more. You see, while in the U.S., he had learned about Voice-Over IP technology. This piqued his interest as a cheaper option than satellite phone calls (and he knew would expand the potential of his business plan), but he did not know how to set it up. He asked if I did—and I did. I helped this young man set up his VOIP phone call business and, suddenly, he had not just a toe, but his whole foot, leg, arm, and body thrown right into the middle of the market. The high cost of satellite communication meant that his competitors could not drop their prices without losing their profit margin; for him, though, VOIP cost mere cents each minute. By charging little more than a dollar a minute to the trekkers, his profit margin was insanely higher than his competitors’, and the price tag to the trekkers was insanely lower. Considering the low average daily wage in Nepal, this was almost like me renting out my restroom for five hundred dollars an hour! I am certain it was harder for him to reduce costs and thereby increase margins than it will be for you. Still, if you do your prep work to cut your transactional costs, you will be able to reduce, improve, and profit. There are thousands of ways to reduce. Whether through applying technology, finding your niche, or 324

just behaving small (see chapter 14), you can find a way to reduce your transactional costs without traveling the world and hiking the Himalayas. If you can do it cheaper than the competition and protect that price-enabling innovation, you will have flexibility with pricing, marketing strategies, and customer relationships. You simply need to be aware of the competition, the customer’s wants and needs, and the best use of your imagination. When you do all of this, you will be far more profitable, acquire more customers, and outpace your competition. Dance with the devil for the judges and the audience, yes; but, most important, dance with the devil for yourself and your business. Porter’s Points – Reduce and Improve • In order to respond to your competition, examine product innovation, longevity, and quality, as well as associated services, legal and technical requirements, and market trends for places where you can start cutting. Reduce your transactional costs by cutting out the middleman. • Don’t just cut costs. When you scale something back, take the opportunity to improve the product, the marketing, and all other aspects of your reduction. When you can hit a market niche with lower costs to you, be sure to hit it with the highest profit margin that you can.

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19 No Exit Strategy? Porter’s Preface In business, one of the first things you need to do is plan the last thing you need to do. No, Rich isn’t going to talk about your last will and testament; what he will talk about is your exit strategy. In your venture, what’s the endgame? How do you want this bright idea of yours to play out? It’s a given that you need to plan the beginning of your venture; in fact, some entrepreneurs are so good at planning the beginning that they forget either to get to work or to remember that it will have an end. The thing is, if you don’t create an exit strategy, the market will do it for you. How you want to exit determines how you start. Are you looking at an asset sale in two years? Do you want to create a dynasty? Maybe you are hoping for a cash-out event to a competitor. With any of these options, you don’t need a crystal ball. You just need to make a choice. As market variables change, you may change your strategy along with them. There is no guarantee you’ll get exactly what you want, but knowing where you want to end up points you in the right direction.

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Don’t lie awake at night strategizing step-by-step exit plans. Set a goal, make rules, and get back to work. Understanding your exit will help guide you in building, organizing, and establishing your business. Run your venture well—and when the curtain falls, know which side of the stage you’re going to exit on!

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Map It If your exit isn’t planned, your exit will be forced. I was forced into some unanticipated business exits because of 9/11, as were countless small businesses. Obviously, nobody could control 9/11, but it taught me to think more seriously about exit strategies, planned and unplanned. Bad exits can also come if the competition tramples over you or the wave moves away. If a bad exit comes, you and your partners need rules to govern that (see chapter 5, “Make the Rules, Live the Rules”); however, good exits need just as much planning. Drafting an up-front exit strategy uses many of the same startup tools you’ve already employed. Keep in mind, though, that when you plan your business with your exit strategy up front, you aren’t just looking to break into the market. You’re looking to break in, and thinking about how to get out. In this way, one of my favorite exercises is competitive landscape mapping. This kind of mapping obviously gives you an idea of where to put your product in the market, but it also indicates how long and well you can operate and how you ought to exit. I talked briefly about this model in chapter 3, “Power Tools.” Remember the gourmet root beer? In that example, we plotted out regions and price as we determined just how viable our market opportunity would be. In this chapter, we will plot products and price. Considering your competition, this is what they will be most interested in. Knowing where your competition stands tells you how to best use that for your exit. The energy expended up front gives you power at the end. 329

As you enter the market, diagram your competitors and the segments they play in. Are they high-cost providers? Low-cost? What breadth of service do they offer? By taking time to draw out the landscape and understand where you operate in relation to your competition, you can deliberately position your company to fit. This little exercise will also tell you who will be in any fistfight you get into—or, if you play it right, which way you can turn to get away from the fight. The companies that your chosen space runs up against will be your most aggressive competitors. While competition helps them, they will, in some degree, want you out. Buying you might be a viable option. Definitely, the companies that border you are potential acquirers. If, you have a large gap, though, you’ll have a larger market opportunity, which means it could take you longer to have a high-dollar exit event. Let’s consider a retailer in the outdoor market. We’ll use the vertical axis to plot competitors’ pricing. On the horizontal axis, we’ll label competitors’ specialization through the gamut of outdoor sporting equipment. You should have something that looks like this:

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The next step is to identify the key players. Fill in your matrix so that you put these companies where they fit into the market. Make this accurate: bigger market shares need bigger circles. Go through each of the competitors in the context of your competition. Map the coverage and look for the gaps. For example: • Wal-Mart is a low-cost, low-quality provider that competes mostly in the camper, trailer, and family camping sections. • Outdoor World competes in the camper and trailer market, but they are a higher-quality, highercost provider, so you place them in the top left quadrant. • Sportsman’s Warehouse competes in the family camping and hunting markets, and pushes into the hiking markets, covering a fairly large area. They are a mid-range to higher-cost provider. • Back Country provides online, mid-range cost, focusing on higher quality but primarily the hiking and high-altitude market. • REI is very high quality, focusing primarily on the camping, hiking, and climbing market. • Kirkham’s competes directly with REI but at a much lower cost.

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Your matrix is shaping up nicely. It should look something like this by now:

Now that you have the landscape drawn out, examine the holes. Where are the overlaps? Can you compete at potential intersections? The larger the hole, the bigger the opportunity; however, it will take more effort to fill and more time to build to an exit event. If your venture fills a smaller opening, one of two things will happenâ&#x20AC;&#x201D;one, competitors at your borders could try to acquire you; or, two, they will strike aggressively and cross the line to compete in your space. My personality fits best with small holes. I like to fill them and plan for quick-liquidity exit events. In fact, the map we drew above is one that Ron and I used right before we acquired Campman.com. We chose to fill a small hole right at the intersection of Back Country, Sportsmanâ&#x20AC;&#x2122;s Warehouse, and Kirkhamâ&#x20AC;&#x2122;s. We were able to sell the company within a year.

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The area you choose to enter determines what type of exit you will have. If we had tried to go nose-to-nose with Wal-Mart, we would have been stomped flat. It takes far more money and time for that kind of fight than what I was willing to invest. I learned a long time ago that you have to look for the niche and fill the space. That brings success. Porter’s Points – Map It • Consider your competitive landscape map not only in terms of your potential market presence, but your potential market absence—that is, determine at the outset how you are going to go out. • Don’t take on the big market players at the heart of their empires. Look for a niche where a few smaller players overlap and build up to a sale. • Keep in mind all the possible variables in your competitive landscape map. Location may be important for some, but don’t forget product, price, and quality.

Types of Exits While I have my favorite exit style, it isn’t the only one. I have mentioned some and hinted at others; some bad, some good, all possible. You can plan for any of them; or, at the very least, you can put some backup plans in place. There are seven main categories of exits. When you start a business, you need to consider each of these, even if you rule some out in the planning stage.

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Types of Exits 1. Market Failure or Natural Catastrophe 2. Competition Closing In 3. Selling Your Business 4. Merging 5. Going Public 6. Raising Venture Capital 7. Systemizing and Cash Cows #1 Market Failure or Natural Catastrophe These are devastating and almost impossible to predict. Three of my digital businesses collapsed due to 9/11, and I wasnâ&#x20AC;&#x2122;t alone. Countless ventures tanked as a result of the downshift in economy and morale. One of my associates happened to be running a highly profitable call center at the time. When the tragedy began to unfold, nobody was in the mood to take surveys, respond to customer queries, or engage in any type of telephone interaction. That mindset persisted for quite some time. What could he do? Between office space and employees, he had a fixed overhead cost. I sympathized with his dilemma. Should he lay everyone off or hang on tight and hope the world would bounce back? In the end, he tried to save his team. It was an honorable thing to do but, regrettably, it was the wrong decision. Think of emergency exits like you think of going to the dentist with a toothache. Deal with the unsalvageable tooth quickly, and youâ&#x20AC;&#x2122;ll not only get rid of the pain but save yourself additional damage. Before you start on a venture, remember that catastrophes beyond your control are a possibility. Make rules up front so that 334

you don’t get stuck going down with the ship. If you are sinking, head for the lifeboats sooner than later and then wait out the storm. On a sunnier day, go ahead and try again. Getting out early also gives you and your team a chance to find something more solid while the market is still reeling. I’ll be the first to tell you that this is an area I have routinely struggled with. I tend to hold on too long. An entrepreneur never wants to give up, but it’s sometimes best to let a dying venture go. Maybe your slant on the market isn’t working out. Diversify! After 9/11, telemarketing plummeted, sure, but it was the perfect time to get into security systems. You can take a market catastrophe and find the next big thing, but it requires hard decisions and, sometimes, having to leave an old and beloved idea behind. #2 Competition Closing In The only thing you can do in the face of a monster competitor is to stay out of reach. You have to keep toward the front edge of the wave. As a small business, you have a big advantage. You are flexible and quick, without any corporate drama to bog you down. If you can surf your venture on the front end of that wave, it will take you for a thrilling ride. Just be careful; the only thing that hurts more than a competitor who squashes you is a wave that crashes you right into the rock-hard coral. Don’t ride so far ahead that you can’t stay on the wave you caught. One of the biggest signs of skilled entrepreneurship is timing. When do you get on the wave? How long will you ride? Most important, when will you get off? Several years ago, I rode a very successful wave in the mortgage market and had the opportunity to sell 335

the company for millions of dollars. I opted to try to stick with it. Sure, I prolonged the joy of the ride, but I ended up standing neck deep in the undertow. Out of necessity, I finally closed the company and laid a number of people off. Timing is everything. Keep your eye on the approaching shoreline. #3 Selling Your Business This is a fun and exciting strategy for a quick exit. Like I said about the competitive landscape model, you can quickly determine who your potential acquirers are. If you are filling a smaller hole with lots of borders, you can make it a larger event. Don’t announce your arrival into the space until you’ve built something viable; once you’ve launched, though, get your name out there. While I was general manager of About.com’s Web Services Division, a second-tier page search provider started reaching out for occasional contact with us and other large competitors in the area. They weren’t divulging anything big, just opening a friendly “I’m here” dialogue. Sure enough, within a year that little company was snapped up for millions of dollars. I had a similar experience with an international sports equipment company I owned. The process let me have fun with the business and come out with some cash in the end. Selling is not a universal exit strategy, though. Take time to consider the pros and cons before selling your business. While a sale is quick in and out and quick to cash, you and your teams don’t get to stick around very long. Since you target a niche market, it’s possible that the competition could stomp you out before you build to the sale.

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At the same time, though, this approach lets you fly under the radar and avoid the public eye. With a bit of anonymity on your side, you can come in quietly, make your money, and leave. Some like that, some don’t; usually, the low-flying outcome is the norm, though. Very few companies sell for the big bucks that will land your name in the Wall Street Journal. #4 Merging Merging is a great way to take what you’ve built and double down your bet for resources and stability. Often, opportunities arise to merge with bordering companies that have complementary skills where your strengths can fill each others’ weaknesses. Ron and I went through a merger with our business to increase our probability for success. Going in, our core skills were engineering and SEO. We began in the early stages to have discussions with a New York firm specializing in sales contacts and affiliate marketing. Midway through writing this book, we decided to formally merge. In essence, a merger is a stabilization mechanism. Merging is a way to diversify the talent. A good merger should stabilize your venture, elevate your chance of success, significantly add to the breadth of your market, and make it more difficult to displace you. However, all this stability comes with some pretty serious cons. A merger will dilute your ownership, introduce partner control issues, and create new concerns over culture. The new company basically steps in as a partner to your company; just as with any new partner, make sure that your priorities line up. Is it a good match? If not, it’ll be a nightmare.

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#5 Going Public Going public is a valid and lucrative option. If you come from a bootstrap model, however, it can take you a number of years to get to this point. There are exceptions, but you generally need a fair amount of capital and some real energy behind you. This is an incredibly significant liquidity event. If you want an exit plan totaling more than just a couple million, this is the way to go. A successful IPO is outrageously labor intensive, however, and your company will be subject to serious scrutiny. Going public is not for the fainthearted. A business needs stamina to make it through the process; I’ve seen many die trying. It requires absolute accountability and an unyielding structure. #6 Raising Venture Capital Listing this as an exit event actually makes me laugh. I can hardly believe I’m writing this. Seeing what I’ve seen, however, I know that this issue needs to be discussed. Too many young entrepreneurs build a business plan, get lucky (or wily) enough to receive venture capital, and then treat it like some grand exit. After all, when the millions roll in, you can live the business high life—right? Think again. Once you cash that check, the work really begins. You may have stabilized your business by securing significant financing, but you have locked yourself down and decreased the probability of a smaller, quicker exit. Why? Read the fine print. Venture capitalists typically require a multiplied return on their investment. If they give you two million dollars, they will not even think about selling the company unless you can do so for an incredibly high multiple—four or six million just won’t cut it. 338

Let’s talk through this. Say I build the company and things go well. A year and a half into the venture, it has evolved to a point where I can sell for five million dollars. Personally, that sounds pretty good. If I could pick up even three million dollars, I would be inclined to do so. But let’s go back to that contract you signed. If a venture capitalist is invested, it’s not going to happen, baby. Theirs is a bang-or-bust mentality. You don’t even have the freedom to make the choice for yourself. So, what are the pros of venture capital? You stabilize quickly and, for a period of time, have a steady influx of cash. The cons? The work has just begun, and it’s farther to the next exit than you can imagine. You have dramatically increased your accountability and lost a significant amount of flexibility; a real exit event will have to come at a much higher multiple. #7 Systemizing and Cash Cows This is really a great option if you are in a stable, secure marketplace. I have had the most success in this arena when dealing with real estate. I acquire the investment property, pay it off, and leave a manager to run the business while I collect the cash. The insurance industry follows this model as well. However, if you’re entering a more volatile industry (like technology), this is not a really good option for an exit. You need to ensure that your asset doesn’t up and blow away. If you play your cards just right, cash-cowing your venture can be considered a valid exit event. You retain ownership, you have a cash stream, and you maintain a very flexible lifestyle. On the other hand, there is a certain level of risk with retaining a company that 339

you are not actively involved with. You can let it go, as long as you keep your finger on the pulse. If you feel it slowing, you need to take some action. Also, this sort of cash cow doesn’t come from one big event. These chunks of cash come in small increments over time. Porter’s Points – Types of Exits • Decide when you enter how you want to exit. Be sure to have thought through all the possibilities and have backup plans in place. Rarely is a business a straight shot from start to finish. • Bad exits sometimes happen to good people. If a disaster, market-induced or otherwise, forces your business toward folding, quickly get out. Everybody—you, your team, and your later ventures—does better if they can deal with a hurricane when it’s still hundreds of miles from the coast. • Keep a close eye on your competition. As a small business, you have to stay at the front of the wave. Pay attention to the environment, too; just because you’ve eluded competition so far doesn’t mean you’ve escaped a changing market trend. • Building your business to sell works best when you place it in a competition-heavy intersection. • If you want to ultimately stick with your business, consider merging. A merger gives you the stability needed to hold onto your market footing after you’ve been in the game a while. • An IPO will make big bucks, but going public doesn’t just happen. To have success, you have to spend the time to be worth the public payout. • 340

• Venture capital is not a real exit. Don’t let yourself have any delusions about where that couple of millions is going to take you. • Systemizing a cash cow makes for a long-term exit investment; if you are looking for the big payout, however, this isn’t the way to go.

Timing and Greed As we discussed earlier in the chapter, timing your entry and exit is absolutely vital. I have seen many entrepreneurs who had an opportunity to sell a company for tens of millions of dollars, but hung on until the company became worthless. Why didn’t they let go? Greed. I’ll never forget a very painful conversation I had with one such business owner who, in a matter of weeks, went from being a multimillionaire to the depths of bankruptcy. Words can’t express the heaviness of his heart and the pain in his soul as he confessed that he had jeopardized his family’s security and his children’s college education. On the other hand, David McInnis, the founder of PRWeb, had the opportunity to sell his business for twenty-eight million. Everyone was telling him to hold onto his company. He really struggled with the decision. The business had very strong fundamentals, it kept very healthy margins, and it led the market in its segment. He sold in the end, but could it have gone for more? Probably; the market stayed pretty stable. David hit the bank button and stabilized his life. He actually had multiple offers for the company and did not choose the offer with the most upside, but rather the smaller downside risk. 341

In your first time or two through this process, your priority should be stabilization. I think David got it right. I had another visit from a young entrepreneur who was in turmoil, hovering around the decision to sell or not for over a year. He asked my opinion, and I shared my first-time philosophy. If given the opportunity, sell. Pay off your home, pay off your debt, and save for a rainy day. After that, you can build back up and do it again. There is no limit to how many times you can step up to bat. After tremendous torment, this young entrepreneur made the decision to sell the company. From a bootstrap investment he had a seven-digit gain. I saw him again after the sale, and he was happy and full of light. All of his debt was gone. He had paid off his house and cars and stashed some away for his kidsâ&#x20AC;&#x2122; education. The confidence gained in a first liquidity event that gets you out of the rat race is worth more than the money itself. It will put you in a powerful position for future ventures and give you the satisfaction of success.

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One Last Note: The FAQ what multiple can I frequently get asked: e answer to this I expect from a sale? Th e and is based on your question is pretty divers gic your co mpany value industry and how strate inco me-generating is. A small owner of an lued at three business is typically va its. More strategic times gross annual prof mes co mmand five to acquisitions can so meti seven times earnings. ere you get crazy There are situatio ns wh ple, The New York multipliers, to o; for exam om for a double-digit Times acquired Ab out.c azy one, Go ogle multiplier. In another cr billio n dollars— acquired YouTube for a , YouTube was losing and, for crying out loud are very rare—almost mo ney. These situatio ns be your goal. flukes—and should not way to get an exit The safest, most secure e quickly and then event is to get profitabl your mark in the stay profitable. Making s nothing to do with entrepreneurial world ha fluke; rather, making falling into a fortunate reneurial world has your mark in the entrep king it on your own, everything to do with ma through it, and star ting right, sticking ending stro ng.

Porter’s Points – Timing and Greed • The biggest obstacle to successfully timing your exit is your greed. Everybody wants to make it big, but if you hold out too long, the market may fall out from underneath you. • When you are new to the entrepreneurship world, sell! Having a good exit event, even if not as huge as you would like, increases your confidence and prepares you for bigger future accomplishments.

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Richâ&#x20AC;&#x2122;s Last Words Writing this book has required more effort and patience than either Ron or I thought possible. I now understand why I have never found a volume like it on the shelves. Setting the work aside, it has been an amazing opportunity for reflection and contemplation and has brought me to a conclusion I had already come to: entrepreneurship is truly an art form. Several months into the writing, Ron suggested we create a company as a test case for the book. This has proved to be an invaluable exercise. As we went through the creation and launch of this company, we forced ourselves to analyze each important action in light of the principles espoused. I am delighted to report that the fundamental tenets have held fast. Ron and I started the company with a total of $5,000 in March 2007. In seven months we grew the monthly revenue stream from $0 to over $60,000, with a gross net profit of $40,000. As of October 2008 the business is generating monthly revenue of $110,000 at a 65% margin. Has it been easy? No! Were there moments of confusion? Yes! After all, this is entrepreneurship. Many of the things that haunted me during my first voyage into starting my own company are the same things that keep me awake now. There are no guarantees in life or in business. However, 27 ventures later, my nerves have settled. I have â&#x20AC;&#x153;learnedâ&#x20AC;? my way to solid ground. The principles herein will help you learn your way to solid ground much sooner. This learning was achieved through a progressive series of choices, ventures, successes, and failures. 345

The entrepreneurial path is worth the climb. It has provided countless individuals with financial stability, it has allowed personal freedoms, and it has facilitated an exhilarating and liberating lifestyle. One of the greatest joys I have in my life is helping young entrepreneurs who are facing the same quandaries I encountered early in my career. This has been one of my main motivations for writing this book. Inevitably, as associates find out about this project they ask me, “What’s the key thing I need to know to be a successful entrepreneur?” Honestly, it isn’t as simple as one thing, but following are three critical attributes I have found are necessary to succeed. 1. Unalterable Determination I am associated with a young entrepreneur named Mike Proper. When he was in the ninth grade, he was placed in foster care. Under duress he ran away from the foster family, finding safety in another state. Mike dropped out of school in order to support himself. Even though he does not have a formal education, he possesses an intense, relentless drive and an unconquerable spirit. Mike has since founded a company that has grown to a value of over ten million dollars. Mike Proper simply will not be denied.22 The single most important factor to success in entrepreneurship and life is unalterable determination. I often say I’m not the smartest, I’m not the fastest, and I’m not the most handsome, but I’m definitely the most determined. 22 “DirectPointe mirrors founder’s story,” DeseretNews.com. June 3, 2007. http://www.deseretnews.com/article/1,5143,660225595,00.html, also available at LaunchUtah.com http://www.launchutah.com/articlecoverstory-q22008.php

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2. An Undeviating Support System I had a young man in my office the other day who possesses incredible entrepreneurial drive and talent. He stood on the threshold of his first entrepreneurial venture. He was looking for some final advice and encouragement as he jumped from a warm, safe corporate job into the cold, harsh realities of business ownership. As we discussed the required sacrifices ahead of him, his face took on a look of fierce determination. As I looked in his eyes, I knew he had what it takes; however, I still had one remaining question. “How is your wife doing with all this change?” I probed. At the very mention of his wife, calmness transformed his countenance. He responded, “She is amazingly supportive.” He nervously laughed as he recounted a dream his wife had the night before. She woke him in the middle of the night to share what she called a “hellish nightmare.” In a state of terror, she recounted how she went shopping and bought a vast array of expensive makeup and clothing. In the dream, she felt sick and was worried she had jeopardized her husband’s dream of starting his own company. He commented, “I am so lucky to have a wife like this.” Indeed, he is a lucky man! Some of the most talented and capable individuals I have known simply could not follow the course of their dreams due to the lack of support from their significant others. Without an undeviating support system, it will be very difficult to succeed. Not only will this type of relationship provide fortitude, but the sharing of all you do will enhance the joy of the ride.

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3. A Greater Purpose The final key to entrepreneurship is having the source of your motivation rooted deeper than the shallow objective of making money. You have to be driven by a purpose greater than owning a BMW, something beyond cashing a big check. Making money will be a natural derivative of achieving a greater purpose. Your motivator must be deep and meaningful. It will make the entrepreneurial journey more purposeful, more enduring, and more valuable. I wake up in the middle of the night dreaming about enabling educational opportunities for disadvantaged girls in third-world countries. It consumes me, it inspires me, and I am drawn to it. This type of motivator is far stronger than making money. Here is my parting thought: You can do this. You will have family, friends, mentors, professors, and any number of other folks tell you otherwise. Honestly apply the principles of this book, and you will not only survive entrepreneurship, but you will thrive in it! The hardest step for most people is simply taking those first few determined steps toward making something happen.

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