Thanks first of all to the people in my life that made it possible for me, thirteen years ago, to devote years to coaching entrepreneurs and entrepreneurship MBA students.
That would first of all be my wife of 42 years, Mary. She is really the secret to my entrepreneurial success. Thirty plus years ago, when I proposed leaving a corporate job to start a company, with three kids at home, she said “Do what you think is best and I’ll support you.” And she did.
And, thirteen years ago, when I proposed, after selling the company, that rather than give it all to a wealth manager and buy a home in Florida, I’d like to stay here and put it at risk again investing in startups. And she said “Do what you think is best and I’ll support you.” And she did. She’s been my real friend and lifelong partner.
I’m very grateful for the support and encouragement of my three children Mike, Meg and Molly.
Thanks also to the 600 or more graduate students who enrolled in the graduate entrepreneurship cases courses I’d coached during those same years. They were choosing virtually the only case courses in the program and signed up for a different way of learning than they’d seen before. I’m grateful for their willingness to engage deeply with the process and devote so much attention and time to the diligent preparation that makes case learning what it is. Many have gone on to entrepreneurial careers and I’m grateful for having known them along the way.
I’m grateful to have had the opportunity to try and make a difference as people pursued entrepreneurial careers. To the extent I’ve succeeded, it’s been a group process.
Golden Angels Investors have clearly been a big part of this and I owe them all many thanks. They are both the brains and the heavy lifting responsible for the group’s achievements.
I try and give every entrepreneur we meet information they can use to grow their venture and succeed. It’s a great way to continue learning and be a better case teacher.
So what have I learned from this process?
How you teach is what you teach. The process – inquiry, intense listening, open discussion, respect for every learner, coaching not telling, -- this is what people learn to do from cases. It’s been a huge challenge because the natural tendency – at least mine – is to try and tell things – and come to conclusions. But no conclusion is worth a process that is an example of how not be an entrepreneur. Or a leader.
No one cares how much you know until they know how much you care. To the extent that I’ve been able to do this, more learning occurs. My preferred role in the classroom has been to be a guide along the journey of learning. But most important is to do it in a way that reveals my own interest in every student and their plans. I always asked every student in every class to come in and talk to me for half an hour at the beginning of each semester. It helped me get to know them and pull who they were and what they did into class discussions
Change the way you think.
It’s easy in case learning to find business problems and issues.
But one of the tricks with cases is not only to find the flaws and problems with people’s thoughts and ideas, but to draw out of the analysis the possible paths to success, their costs, risks, and relative rewards. When students gain confidence from this process, they sharpen their ability to reflect, synthesize and find the path to possibilities– and then learning occurs.
I'm spending lots of time helping companies with revenue get to the next stage of growth. I’m hoping also to find ways to continue to work with groups of entrepreneurs and those with entrepreneurial aspirations to explore these issues together.
I’m grateful and appreciative for this award from the Wisconsin Technology Council and its sponsors because it affirms what I believe and have tried to practice in working with and for entrepreneurs.
Thanks very much to the selection committee and to Tom Still.
And thanks also to everyone who's sent good wishes including my friend John Torinus
Being an entrepreneur is one of the hardest jobs there is. OK, so it’s not high altitude forest-fire fighting, (unless you’re starting a fire jumping service!).
Every entrepreneur knows, though, that in the quest to make a difference for customers, you face challenges and daunting uncertainties. And lots of opportunity for self-doubt.
If you’re lucky enough to get past the new idea stage, and start to get some real (paying) customers, the challenges and worries change. But, of course, they don’t go away.
And then there’s the whole matter of raising money. Most of the money available comes with “advice.” Not all advice is created equal, and not all advice givers make good investors.
One of the hardest challenges has to be sorting out advice based on…something.
I like experience-based advice, coming from someone or somewhere that has the proof of experience to back them up. That’s step one.
Step two is someone who mostly asks questions about facts and assumptions, who causes you to think, and to ask yourself questions.
In my mind, it’s sort of like taking a class. The best learning is when you teach yourself, perhaps with some guidance.
But, of course, that takes a time commitment on the part of both people and goes against a 30-second “pitch” world. Both have to feel the time is worth the effort to build a bond that will yield real results, and not just in the startup.
Step three, I suppose, is when there is enough trust built up to be honest about their reactions to each other, to ask about intentions, and to find ways to build believability and trust.
Step four gets to be when both parties get along together well enough to bring each other into their trusted networks of friends and colleagues who can add real value. And without a quid pro quo.
I had an entrepreneur tell me recently that they assumed that any conversation they had with investors was just because the investor wanted the “deal” and so everything they said had to be guarded and examined.
I don’t really know how to sort that one out. There are people who invest in startups who only want a return. Clearly they’re out there.
But at least for me, the real “deal” is the relationship that creates learning – in both directions – for the sake of making a difference to someone who I respect enough to go through the process and who I trust enough to know they’ll put up with my foibles and errors too.
So maybe ask these questions:
1. Why am I meeting this person or having this conversation?
2. What specific experience do they have that is relevant to my situation?
3. Does this conversation feel right? Is it back and forth, question and answer, deeper levels of detail, or a lot of “you should”?
4. What reaction do I get when I ask for other companies that the advice-giver has worked with, invested in or both?
5. What lessons learned do they have from exits? How many have they had? What’s good and bad?
6. Who are their friends?
See what happens.
“Last night’s game, like Saturday's, ended with a losing-team player disconsolate in the dirt, but this time without an attached ruling to talk about. Kolten Wong, a ninth-inning Cardinals pinch base runner, was cleanly picked off first base by the Boston closer Koji Uehara, for the last out of the game. No excuse: Sox win, 4–2, knotting the series at two games apiece. “
--Roger Angell, The New Yorker Blog, October 28, 2013
Scoring is the heart of the competitive game. Without it, Roger Angell’s meaning is gone.
Now, baseball isn’t scoring, of course, and no scorekeeper ever made it to the Hall of Fame. That’s reserved for the great players who inspire us with skill, courage, grit – American virtues that built this country.
But without the humble scorekeeper, and his offspring, the statisticians and analysts, it is hard not only to cite the deeds of the heroes, it’s also hard for those same heroes to know what to do.
It isn’t a game if there isn’t a score.
For entrepreneurs and their companies, it’s not a game without a score, either. While a baseball score certainly turns into cash in many ways, none of them are as direct as sales and sustainable cash flow in a venture.
And since the state of most startups is to be underfunded with more to accomplish than is humanly possible, the appearance of the unexamined hypothesis is almost guaranteed. Its cousin, the vanity metric almost always comes to the party, unwelcome and unnoticed, too. You may find them intertwined like moonstruck teens and just as hard to separate.
An unexamined hypothesis – ones that are used to plan with – are very dangerous. It can be many months or years before they’re proven to be wrong at a very high cost.
The vanity metric – “1.8MM visitors – 150,000 customers,” – are metrics that sound good – even great – but don’t tell us anything we can do anything about. How did we get them? Are they profitable? Or spending anything? They’re ok for PR, but offer no guidance.
Hypotheses are a central concept in a successful business model and accurate metrics are a requirement. But a successful hypotheses must be falsifiable – that is, it must be stated in a way that it can be factually disproven.
Real metrics need to reveal not only whether a hypothesis is false or true, but also how it can be actionable.
The customer acquisition component of the business model drives the entire business. Every entrepreneur wants to know how long it will take to and what it will cost to obtain customers, how long they stay, what they’ll spend, and over what period of time how much contribution margin they’ll contribute. (In some cases, a product spreads by work of mouth, “goes viral,” but less often than most entrepreneurs would like. And even in those cases, some acquired customers are better “carriers of the virus” than others. This tends to apply more to B2C companies than B2B.)
When the product is ready, most companies won’t have had enough sales experience to really know what their initial acquisition costs are. So, enter the hypothesis.
An entrepreneur might surmise, from the best data available to her, that their acquisition cost will be $300 per customer, and that there are many, many customers available to be acquired.
A customer, based on beta tested pricing, will deliver an annual contribution margin of $500, paid monthly. After about 8 months, that customer will generate positive cash flow of about $41 per month.
Spending $30,000 in month one will generate 100 customers, meaning about $4,100 in cash.
Spending $30,000 every month for a year adds $4,100 to the cash flow each month. After a year, the cash revenue is about $49,000 per month.
It’s tricky to calculate what an acquisition cost really is. What activities do you ascribe to it? Costs? Are you under-allocating your fixed costs to acquisition?
From the first day of revenue, a critical examination of acquisition costs – and the time acquisition takes using veracious cost based methods – is a necessity. This disciplined monitoring of ongoing acquisition costs allows for accurate course correction and will lead to diagnosing some important aspects of the business model.
Not all customers are equal. Some are described by where they came from (acquisition sources), others by their “type,” (demographic characteristics) others by their business (NAICS code) or their business size. (under 500 employees). There are many variations and combinations that make up segments.
This is important because in most situations, acquisition costs rise, and the best performing subgroups (segments) often are the smallest and least able to grow. In addition cohorts, (a group of customers acquired together at a fixed time in the past, i.e., “June, 2013) often change behavior one from another. This may be due to changes in the original promotions, offers, or product features.
This is just one example of the need to prove out a hypothesis and be wary of vanity metrics. There are many more areas to apply this to, including growth planning and control metrics around increasing production, customer service and fixed costs; examinations of unit economics to determine contribution margins; and planning for fixed versus variable expenses.
Tim Keane is an entrepreneur and investor who’s also taught entrepreneurship and consults with growing companies.
Starbucks announced this week that it is partnering with Arizona State University to make an undergraduate education available at a steep discount to 135,000 US employees who work at least 20 hours a week. Workers will be able to choose from 40 educational programs and they won’t be required to stay at Starbucks after earning the degree.
Why would they do that?
Bill Simmons, who lives in Billings, Montana, owns a small change of oil change stores, called “MasterLube.” More than 30 years ago, he realized that the people working at his one and only oil change shop had ambitions, talents and drive – but they were changing oil for a living. And they would never get to their potential if they kept doing that. So he devised a plan to do something meaningful for them. It turned out that it made his oil change business prosper as well.
In his own words, he created a "principle centered service business” that he describes like this:
“MasterLube is a principle centered service business that recruits people into a temporary workplace experience of extraordinary vision, discipline, and excellence in which they are encouraged to discover their own extraordinary capabilities and then trained, energized, and eventually launched into the specific direction of their greatest potential.”
Bill proudly displays a “where are they now” gallery in each of his now seven Montana locations that proudly track the history of his past employees. Much like Starbucks has discovered, he provides people with a high standards work environment that demonstrates the value of those same high standards; spends countless hours coaching, teaching and providing connections to all of his team members; and runs seminars and discussions on their future plans, careers and goals.
He runs a 3 week full time class for all of his team members, including career planning and a session on “where are you on Maslow’s Hierarchy of Human needs.”
He has 100% turnover every thirty-six months because he doesn’t let people stay any longer than that. His goal is to get each of them promoted – and then stay in touch as they continue their journey to to their goals.
And, as you would expect, his customers love MasterLube. Measured on every scale –changes per year, lifetime value, service satisfaction – MasterLube is off the charts. He’s been asked to replicate this program in a wide range of places and businesses – and always successfully. The embodiment of this idea in these two businesses – very different in scale - is the same. It focuses on serving the aspirations of employees well beyond the requirements of the business as a core value.
Yes, it’ll obviously provide great returns to the business in performance, reduced turnover and its associated costs, and a very high level of customer service satisfaction.
Maybe that’s enough. But Bill’s “Wall of Fame” is a pretty cool reward as well.