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 Entrepreneurship Insights

June/July 2014

Welcome to the latest bulletin offering entrepreneurial insights from the Startup Owl. Enjoy and learn. This issue is mostly about enterprise growth and decline.
Scaling Sustainably
Tension Between Velocity and Veracity

My MBA students avidly discuss how they can start a business and scale it sustainably, wondering if growth and sustainability simply cannot work together. They ask how entrepreneurs with deep convictions about ethics, ecology and economy can rationalize the apparent mutual exclusivity of these three domains.


Some of them argue that while a startup must look to financial viability, the only way to remain true to founding values is to limit velocity-the speed and scale of growth. And that this may in turn, diminish financial returns and limit the ability to make positive change in the world.


It is tough to answer the question of whether high velocity business growth is possible while maintaining business veracity and honesty. I believe it is. What it takes is setting in place decision making and operational processes to ensure that with all the tension, the entrepreneur can make wise choices.


Maybe It's Traction You Want


The entrepreneur needs traction, Successful startups tend to experience traction early. Sales start picking up and cash flow really becomes an issue. The external validation of your value proposition is great, but now you realize you do need outside capital, after all.  Or maybe it's time to seek a mentor to help with those critical decisions that seem to come up every day.


Don't confuse delivering on your business model with rapid growth. The scale of growth needed to fulfill the expectation of the business model is what will count. Achieving the momentum towards a goal is not the same as growing at all costs. 


There is much data to support the fact that early business failure is often attributable to growing too fast, so fast that the cash runs out, and loans or equity cannot be marshaled fast enough. Or there was not enough cash available at the outset and loans are taken on at unsustainable interest rates.

Four Ways to Live the Tension

Here are four ways that will enable you to live more comfortably with the inevitable tension between achieving your chosen scale (assuming cooperation from customers!) and maintaining your business integrity:

  1. Communicate a Consistent Story. This is easier said than done, even at the very start, and it becomes progressively harder as the business grows. There will be more bases to cover, not just every person who works in the business, but among all the stakeholders, too. I suggest creating a graphic of all the parties who carry or influence your story, so that every employee in the business can use it to cascade the story up, down and sideways. I suggest a simple graphic, say an inner circle for internal and an outer one for the external stakeholders.

  2. Balance Gains and Pains. Develop a formal process to consider the benefits and disadvantages of, not only intentions, but plans and programs. This is sometimes called risk mitigation. Make sure that you have a formal way to increase the gains and reduce the pains. Allow intuition as well as logic to inform the process. I suggest using graphic tools to help here too. They could include cause and effect diagrams, SWOT, and force-field analysis. Be sure to consider the gains and pains as they impact the company, the product and the customer.

  3. Decide Consciously. Ensure that decisions are not simply linear, as in "we have to grow to survive." This is where the '5 Whys' technique, normally used for problem-solving, is especially useful. It gets you carefully considering implications as well as results. If you make decisions in the knowledge of likely consequences, you will minimize the unintended consequences that are inevitable in any startup situation. Establish values-based Key Performance Indicators (KPIs).

  4. Check Results. There is huge emphasis on data (especially 'big' data) in today's business, both small and large. The delays between action and result are very much quicker. The key here is to exercise judgement in evaluating results. The numbers alone are not enough, but performance against plan and the variances are much easier to check with all the measurement tools we have available. Use the values-based KPIs previously established-and publish the results widely. Do not shy away from admitting under-performance. Ensure the metrics you use really do inform the consequences of the actions to which they relate.

Consider Context, Circumstance and Commitment

You will stand up to be counted when you see yourself at the core, surrounded by your activity, your project, your business, your community and the wider environment. Realize that you inhabit a web of interconnections and that your actions ripple through the system, whether you are timid or bold. It is murky out there and you will not get it right every time.


Think carefully about context, since your reactions will be quickly spotted. Think about Google whose mantra is 'do no harm'. Doing good or harm in one context will seen differently in another. I remember an example that struck me forcefully. We abhor child labour, but I saw a little girl in India interviewed about the factory job she did, and she explained how it enabled her to pay for school. 


Think carefully about circumstance. If the conditions around you have changed or the demand for your product has dried up, the decisions you make impact your values. In conversation with Seth Goldman, founder of Honest Tea, he told me that while they had committed to buy organic peppermint from Crow Indians, the sales of the resulting product did not hold up and they had to abandon the purchases. The intention to be closely involved with suppliers continues, nonetheless, and the company recently built a drying house for small Indian tea growers from whom the buy. This was to help the farmers get a better price for processed, rather than raw leaves.
Think carefully about commitment. I discovered that the very Indians from whom Seth bought his peppermint had also been working with him on what use Honest Tea could make of so-called buffalo berries. It seems that this fruit is quite sour, and after eating, the berries leave the mouth a little dry, though a touch of frost will sweeten them. They can be made into jelly, jam, or syrup, or prepared like cranberry sauce. My Crow contact, Bill Snell at the Pretty Shield Foundation, expressed a little disappointment that there had been no follow up. There was no malice in this, but partnerships need nurture, maybe even after they have ended.

Be a Noticer of Growth, or Its Absence

Business growth is neither necessarily bad, nor obviously good. But it needs to be intentional. In the industrialized world, we have tended to consider economic growth to be positive thing and politicians consider low growth as bad for the people.

So, the generally accepted wisdom is that growth equals success, despite the increasing feeling that this may not be so. Entrepreneurs must determine what, for them, constitutes success. I was at fault here, for in my business back in the eighties and nineties, I took financial growth as an axiom for success. I swallowed the accountants' view that growth is required in order to replace worn out assets. Now, on the other hand, I don't think about business growth as exclusively being about higher sales and bigger profits, but look at growth in qualitative terms also.

What matters is that entrepreneurs are what the novelist Saul Bellow called 'noticers,' even 'first-class noticers.'. He described noticers as being like the pussycat in the corner. To be a noticer, is to use all the senses and to think both logically and emotionally about what is observed. It is not only OK, but necessary to use the capacity to feel, in order to take proper account of what business growth means and what its implications are.

We are naturally blind or deaf to noticing for a whole variety of reasons. Many times the data on which we make decisions is ambiguous and can be interpreted in different ways. Our tendency will be to go with the information that matches our expectation. We must guard against that.

If we are vested in growth in business performance and even more, if our remuneration depends up it, we can simply not see what the kitty in the corner will spot: the unintended consequence of growth that our dedication to achievement obscures. If there is a conflict of interest, we may naturally turn a blind eye to results. Remember, the kitty sees all.

What makes for a successful entrepreneur is not only the ability to learn, but the openness to notice in the first place.

A Strategy Fairy Tale
Not Growing But Shrinking

Business grows and it also shrinks. It can happen fast or slow, but just as I described in the previous article, it pays to be a noticer. As i suggested it takes all the senses and means not doing more of the same because it always worked in the past.

Back in the seventies I worked for a consulting firm that had Kodak as a client. Had we suggested that this established icon of a multinational could die, we would have been out of the door faster than our legs could carry us. But we did did not even dream of the possibility.

Like the three monkeys, we had our eyes, ears and mouths closed. In hindsight it was easy to see it coming, but at the time, the Kodak Moment was forever.

The fairy story below may help you think about growth, maintenance and decline.

1 Once upon a time


Kodak was a company, formed by George Eastman in 1880, that dominated the photographic market world wide and their name was synonymous with photography, as well as cinematography.  


2 Every day


people all over the world were taking photographs and making movies using Kodak film and radiographers did the same with x-rays; in its heyday Kodak employed 140,000 people. Most images were commercially processed.


3 One day


a Kodak employee, Steven Sasson, invented the digital camera (1975); the word 'pixel' became widely known, though published by Fred Billingsley at the Jet Propulsion Lab ten years earlier, as a contraction of 'picture' and 'element'.

4 Because of that


the invention spawned many new firms anxious to take advantage of digital imagery, while top management at Kodak failed to appreciate the potential of the patent they held, and these newcomers could bypass Kodak's distribution network, 'processing' their own images.  


5 Because of that


the use of the new electronic technology grew massively as the predilection for hard prints waned rapidly. Users found new applications, as Kodak maintained its attachment to legacy assets and entrenched culture, failing to develop a meaningful strategy for change.


6 Until finally


showing how easy it is to get things wrong, and miss the opportunities of convergence, Kodak went into bankruptcy in 2012; attempts to sell its digital imaging patents had largely failed. The company emerged, much chastened and smaller (4,700 people) about a year later.


This (true) fairy story uses the Pixar storyboard method that I describe in my book, Telling Startup Stories
Thanks for reading this issue of Entrepreneurship Insights. If you have any comments or would like help with your startup, do write to me:

Will Keyser
a.k.a. The Startup Owl

In This Issue
Telling Startup Stories: Keep the End in Mind
by William Keyser
Kindle ebook Edition
Make your startup pitch the most persuasive by learning how to tell your best story.

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Startup Mentors
If You Are Reading This, then chances are that you are contemplating entrepreneurship, have in mind to start a business, or are in the early stages of a new enterprise
You may be seeking a mentor to help you on that journey. Finding one who suits your style and can provide directly applicable pointers and feedback is really difficult.
A mentor should give you real value, not only for the money you spend, but also for your own time that is committed to the relationship.
You should choose a mentor who is older than you and has the experience of "been there, done that." The mentor should have a pure motive for helping you, and only you can judge that.
If you decide to find a mentor, it should be on a flexible basis, so that the advice meets your needs and priorities, so set clear demands, both initially and as your needs change.
Remember feedback goes both ways. Of course, you are going to ask for help when you need it, but provide feedback to your mentor spontaneously, too.
If you don't know the person, ask the mentor for references. For instance, I am always happy to introduce former clients, students and others who have used me as a mentor.
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