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community building

Start Ups Dilemma Planning your Strategy

from my column for Proseed Magazine

Dear Richard

I need to plan everything regarding the strategy for a little company we are going to set up with my friends (it will be an app supporting the existing tools for brand popularity monitoring). What to take into consideration when preparing a strategy? How to start? How to put it in practise in the end?

Dear little company founder

We used to say in one of my businesses, “if our clients/staff are happy and we are making a profit – who cares about the strategy”). It was a mistake but it felt clever at the time.

A start up needs a strategy so it is good you are asking about this.

When I was working for a small PA Consulting Group joint venture in 1989-91 I was told “strategy is what happens” and to ask three questions
1 where are you now ?
2 where do you want to be ?
3 how are you going to get there?

You need a sense of where your business is going. But your question is very worrying. There are three problems. You are focussing on
1 the scale, (little)
2. The “who” (my friends), and
3 the “what” (an app supporting brand popularity monitoring) ?

The first and fundamental question in strategy is Why? Why should anyone anywhere be remotely interested in what you are doing? What is the point? Why should they care? Why are we doing it? what is the benefit? what is better and different about your project? what unsolved problem are you solving. ? Guy Kawasaki calls it the search for meaning, in The Art of the Start If you cannot answer these questions you cannot really have a strategy. Once you’ve got the basic questions answered, it is also important to think about how you are going to market your business. With the help of the internet, that shouldn’t be as difficult as you initially think. Even if you are a start up, looking at CRM comparison could make the difference when it comes to offering top quality customer service. When it comes to running a business, there is so much to consider.

The second problem with your question is the lack of ambition. You make your business sound like a hobby, Why should anyone talented who could get a job with Mckinsey, Goldman Sachs The Economist, or Facebook consider working for you instead? If you can say, “we are going to be big, we want to be big” you may get the best most talented and ambitious people on the planet interested in working for you. If your ambition is to be a little company, then you need something else (cutting edge technology similar to robotic process automation, super high wages, fabulous people) or you will probably be a struggling little company for ever. You need to be able to offer the money or careers that make you interesting to smarter people.
If a start up is not ambitious you will probably fail. If all you want is to make a living then good luck, but you may be better off getting a regular job with a normal company instead.
You will not survive in business if you are not hyper-motivated and if you care that much you can aim far higher than a regular job in a large corporation. Of course there are companies with great opportunities for the very ambitious but this article is not aimed at describing them.

Having been negative about your question, here are some positive ideas. How to make a strategy? Spend time with clients and potential clients. Let’s assume that you have something really good and different. You’ve done your competition analysis in English, French, German and Spanish and you know that you have something special. You can ask me for advice on business models but it’s the wrong moment. Spend the next 6 months with clients and potential clients, and if you don’t have the money to do that sell 25% of your business to someone smart (or stupid enough) to pay for your bus/flights and hostel (not hotel) bills. Talk to your potential customers about what your tools can do, ask them about whether they are interested and what they would be interested in, and make sure that you take their feedback into account. Make sure they commit to trying and testing your product once you have taken their feedback into account. If you cannot get that commitment you’ve failed but at least you tried. If you understand why they rejected you, you can do better in your next conversation. If you start getting commitment then you are in a position to write the strategy, Each step of the strategy road needs a reality check.

If you can say “We have talked to 100 potential channel partners for our solution (here is a list) and 25% are ready to pay (here is a list). This is why they are interested, and how we can help the,. There 12,150 more companies like this this globally, and we are going after them, in the following ways (telesales, face to face, fairs, visiting them, google adwords, whatever)” then you begin to show strategy execution capability. An OK strategy implemented by a workhorse is better than a brilliant strategy on paper where the authors don’t have the organisation and drive. To be great in business you have to turn rejection into opportunities.

We can talk about business model strategy and many more things once we have a sense of why you are offering what you are offering and more importantly why anyone should buy it. As an angel investor I can tell you I am far more interesting in investing in businesses that already have happy clients. It’s very easy to build a product if you don’t have to deal with all those annoying clients, but completely pointless
In summary what should you do to develop your strategy ? 1 Have a clear sense of
– whose problem your product or service is going to solve and why they are going to choose you.
– how you can make money out of this, and how much, in other words your costs and pricing.
– how you are differentiated from current and future competitors. What will stop other’s entering your market and copying you if you start to succeed and how will you compete with those who copy you anyway.
– Who are you going to have in your team ? What sort of people do you have and need.
– set long term goals and have an implementation plan.

Whatever you do good luck. It is smart to ask for advice

Categories
community building

Startup’s Dilemma – Globalization

From my column at Proseed http://proseedmag.pl/magazine/proseed-21

Dear Richard
I’ve been running my business (e-learning platform) for two years now. It’s doing OK, but I have an impression that I reached a point where nothing else can be done to gain more users. I am not afraid of the risks. I want to open my business to foreign customers. What would you advice (apart from making the EN or CZ or DE version of the website)? Which markets shall I take into consideration – those who are close and kind of similar, or those which are unknown and scary but huge and full of potential?
What to do, how to plan?
Pozdrawiam

“Wondering about going global”

Dear “Wondering about going global”

Thanks for the question.

I will answer this question “generically” in a way that hopefully makes sense no matter what your business is.

The news is actually rather good. Poland is not the easiest market in the world in which to to “make it”. If you are making a profit here, then remember the line from Frank Sinatra’s “New York, New York” paraphrasing “if you can make it here, you’ll make it anywhere”

Many Polish companies find that they can make more money from international clients than local and therefore do not even think of dominating the local market first, so the issue of going global was solved from the very beginning. However from the sound of it this is not your approach.

Before we start opening the champagne, let’s think about this from the strategic point of view. Remember the “three Cs”. (costs, competition and clients)

Let’s start with clients. Several questions about them.
Who are your clients and users? Most web based businesses have some people who use your site without paying anything at all and some who are the source of money. It depends on the business model. You should have a clear idea of all your users and clients, especially the people who are sending you money – your clients. If you don’t know your clients well, then you are making a fundamental mistake. Pick up the phone and call them, Skype them, survey them, ask what they like and don’t like about your site, if there are any features that you should have that they would pay for, and if there is anything that annoys them. Ask them what other sites they visit instead of yours to address the need that leads them to your site. Call it “client relations, market research, whatever.” any business that does not focus on what its clients want and like both now , and what they will want in the future, is probably doomed. If you have 10,000 clients, don’t call them all, just call 250. Start by saying “Thank you” (and that you don’t want to sell them anything) You will be amazed at how much you can learn. If you don’t know about telephone interviewing try clicking here

Next, figure out what the foreign equivalents of your Polish clients are. It shouldn’t be hard. If it is going to vary by country (there are going to more clients in Germany than Iceland, you will want to start by ranking countries in terms of their potential attractiveness). Big and rich is often better than small and poor (but not always – sometimes you can dominate smaller markets while rich global competitors are spending a fortune in places like the USA, UK Japan and Germany and it is very hard to compete)

Remember the 3Ps (Product (or service) People and Process).

Product
Reviewing the potential clients in foreign countries for your offering leads to a natural question “is your product/service ready for it.” it’s more than just translating the web site. You will soon figure out how scaleable your product is. VCs and on line Start Up gurus obsess about scaleablity, and it is important. It is also true to note that many business are highly profitable, have sustainable competitive advantage and are not particularly scaleable. Lack of scaleability can make your business model harder to copy, so don’t despair If going global means hiring a person or two for each market you are going to address that is a fact, not a disaster.

If you do E-learning, are there linguistic, cultural, regulatory or other reasons why what you offer here will not work in other countries ? If yes then you will start have to factor in the costs of modification of your product to suit one or more international market. In many markets you will find that you need to take care not just of the web site but also the legal requirements of doing whatever you do in that country, including local language instructions, safety certification, approval from local regulators and compliance with recycling or guarantee requirements, so make a check list and work your way down it.

Is your service bundled with local service providers, who provide support, face to face training, or integration with client platforms? If yes, then your strategy for that market will include identification, qualification of, and forming partnerships with, those local service providers. This costs time, money and someone who speaks the relevant language.

Competition
This is the counter argument to the Sinatra song. Sometimes the reason you can make it in Poland is that the “big boys” in the market place have focussed on the world’s big markets (English speaking plus – FIGS, CJK, BRICS* (see if you can work it out) without cheating * Footnote France Italy, Germany Spain, China Korea Japan Brazil Russia India)) . If you never did competitive intelligence research in at least English, whoops 🙁 at least you are thinking about it now..:-)

You need to be aware that if your foreign competitors are doing well and making money then it is only a matter of time before they enter the Polish market. either through localization of their web site into Polish and (maybe) hiring your best people. You cannot assume they will ignore your market if you are making money here.

It may well be the case that you find that while you are ahead in Poland you face strong competition in larger international markets. What to do about this depends case by case.

You might want to sell your business to the international market leaders. If that is the case then it can be a good idea to establish yourself in markets where they are not present to increase the logic of an acquisition. if you are not making money (and worse, neither are they) then your chances of an exit are very much reduced.

You should try to figure out their strengths and weaknesses, in what ways you could compete. Decide how you can be better and hire their best people, or use their sub contractors. Obviously this requires money. but if you have decided to go global then it will cost something.

People
Another “P” is people (team or staff) Do you have the right team to go global? If you are going to take enquiries in foreign languages you must have some who can respond to them. How strong is your brand? If your brand is high quality then they need to be able to communicate in high quality English. If you need to visit clients then do you have someone in the team who is willing to travel, and if they do travel will they do a good job with partners and clients? You may need to hire someone for this position or else take on board the fact that you will be travelling a lot so make sure you’ve explained this to your boy or girlfriend, husband/wife kids and friends. Furthermore, for many multinational organizations, paying a global workforce means using dozens of local payroll providers, each with their own systems, workflows, processes, and standards. This can be time consuming and lead to an overwhelming amount of admin work. Consequently, a company that can coordinate a payroll system for you like CloudPay could be a game-changing solution to paying your staff.

Costs
Another of the three Cs is Costs. As will be clear if you have read this far, you are going to have some costs from trying to go global. You are still likely to be in the fortunate position of being in a lower cost country than some American and West European competitors, but you for sure will find there are well organised and clever competitors in other developing countries who are also hungry for the same revenue. As in any business, you need to cover your costs in the long run, If you are going to go into foreign markets for free to get a reference or two, that can make sense, but you have to charge enough to make a profit in the longer run. Generally speaking if you do not have arguments other than price to get people to buy from you you will struggle. Most clients want a good product or service first and foremost and will not switch just because you are cheap.

The third P of the three Ps is “Processes” Do you have good processes and are they suitable for international business. This will be true across a whole range of issues from:
Payments (suppose an American wants to send you a check),
Logistics, you want to send some CDs educational materials and workbooks to Korea, what is the import tariff and postage?)
Tax so what exactly are the rules about VAT when invoicing a Russian company that wants to pay you out of Cyprus, and what exchange rate do we use to calculate our taxable profit?

I always emphasize the importance of good processes in a business no matter how small (or big). well designed processes leave more time for the brain work that really matters.

Localisation – I have to declare an an interest here because I am a shareholder in Argos Translations which makes its living from helping companies go global. It is not cheap to get documents, web pages, instruction manuals and the like translated professionally, and good translators make good money. This means that going to a professional agency is going to cost more still. Many businesses start by trying to do translation “on the cheap”, using students and untested translation services and learn the hard way when native speakers of the target language tell them that standards are not professional, If you are a high quality company, your web site and marketing materials must be of high quality in target languages, and it is not a one off cost. Every time you have add new content in your source language (probably Polish), whether on your blog, or in the news section, you will need to update across the site. It is not rocket science but you need to develop a process, and automate it, probably with a Content Management System

Marketing
Marketing in most web businesses is the process by which a business generates sales leads, to whom there is a chance of selling something. Having very little experience of branding in consumer goods markets I am not going to comment on classic issues like logo colour and image other than to argue that it should be consistent and authentic. if you promise high quality reliable and professional services then not only should your web image be consistent but the people you have should meet the specification.

So when considering going global you must review your client acquisition process at home, and think about the equivalent in foreign markets. if you are somehow driving traffic to your web page(s) in Poland and then selling to people who visit, how are you going to do that in foreign markets? If you have lots of organic traffic from search engines, it’s going to be hard to generate that overnight, so it may be worth spending a relatively small amount of money on landing pages in foreign languages, and driving traffic to them using Google adwords. The process is described in detail here

The 3 Ps and 3 Cs – Costs, Competition, Clients, Product (service), Process and People are the building blocks through which to analyse any business, on line or off. An awareness of where you are now, where you want to be, and how you are going to get there under each of those headings will give you a clear view of your strategy.

Categories
community building

There Is No One „Fair” Deal (published in Proseed Magazine June 2012)

June 2012

If none of your team have the money you need to start, and if you cannot find a way of bootstrapping (or an investor), your team will collapse – says Richard Lucas in an article that originally appeared here .

The format in the magazine is that entrepreneurs write to me with their questions, and I answer them

“Dear Richard

Our team (we met during Startup Weekend Krakow) is currently dealing with formalities. We would like to sign a paper about who is responsible for what, that nobody will do our idea on the side and most of all – how we divide our startup.

Could you give me some tips about dividing shares of a startup among multiple team members? We have me (idea founder, mobile developer), one designer, one web developer, one PR specialist and one business person. In my opinion they are all very important to our team.
Another problem is that we can work different amount of hours (for example I can work about 40h a week, but others have their day jobs). I don’t want to make problems with my team, but I want to be fair to everyone, including myself.

My answer

Dear Start Up Team Builder,

This is complex, and it is smart to get advice. There is a large amount of advice in English on this topic on line. Try this .

Remember that if the business is not solving someone’s problem or meeting their needs in a way that you can potentially make money from, you are wasting your time negotiating. If you don’t believe this, why should anyone else (customer or investor)?

There is no one „fair” deal.

Felix Dennis, one of the UK’s richest men, described in his book “How to get rich” deciding to fire his top four managers, after they demanded 5% of the business each. He goes on to write that his book is called “How to get rich” not “How to be nice”!
Lesson: if you ask for too much you may get nothing, and if you don’t negotiate well you may be screwed.

Here is a checklist of things to consider:

Is your team complete, or are there gaps?
If there are gaps leave some shares for “key new people”. If you want people more talented than your current team (and of course you do), then leave plenty. Why should someone with more experience than you leave a good salary to join your team later ?

Whose idea is it? How much is it worth?
I used to overestimate the value of my good ideas, thinking it was 25-50% of the value. It isn’t. Michael Dell said “it’s 99% down to execution”. 5-10% for the idea is a lot. Anyone can have the idea of starting a bar, but how many people can make it happen?

How much money do you have and need?
If none of your team have the money you need to get started, and you cannot find a way of bootstrapping (or an investor), your team will collapse. Capital is scarce, and most startups fail. The person who contributes risks the first few thousands is taking a bigger risk than those who invest later when there are clients.

Nice-ness, character and values
You will spend a lot of time working with your startup team so make sure they are the right type of people. Do they share your values? Do you like them? At the Krakow Network we decided to share our values (goo.gl/58Z6D). Guy Kawasaki of Garage.com and Apple talks about the “Shopping Mall” test (if you see someone in a shopping centre and they haven’t seen you, do you hide so they don’t see you, or are you pleased to see them and say “hello”?).

UK doctors’ partnerships sometimes have a “green socks” clause, saying that any partner can be expelled at any time if “they don’t like the colour of his/her socks” (IE for no reason), if all the other partners agree. It’s a powerful incentive not to include (or be) an arsehole in the team. Make sure that you are on the same page in your attitudes to corruption, racism, and respect for other people. Not everyone is on the same page.

Be clear about what you want from the other team members
Most important is: are they really committed? If yes, how much time/money are they ready to commit? I wouldn’t want a shareholder if they were not fully committed. Think of some reasonable test. For example: if you work on this in way that I/most of the team thinks is great, then in x months when we form a company, you are entitled (but not obliged) to invest up to xxxx, get yyyy % of the shares.

Ask the others to consider putting money in
Even if they have “no money”, they should be able to find 1000 zł/US$/GBP from someone. It is a test (but remember that 10K/US$/GBP zloty from a young person with “nouveau riche” parents maybe “less” commitment than 1000 zl/US$/GBP from someone whose parents are pessimistic cynics, who never trust anyone, or were any role model (or a kid with no parents at all). Anyone who can write code should be putting in more money than average because they will have had plenty of earning opportunities. (unless they are lazy, spoiled, incapable of managing money, stupid, or demotivated – and do you want that?).

Roles, skills and responsibilities
These need to be discussed, defined, agreed, and modified if need be. Marketing, sales, PR, developers, legal, finance. Think about the core skills you need, and who is going to fill them. Note that the best leaders often have few skills, just are good at listening, taking decisions and getting everyone working well together. The way you take decisions is important, and you need to communicate what you expect to happen when there are disagreements. You may find there are inexperienced people in the team who are not used to modern ways of working, and have to educate them.
It is good to have “test” questions, like “would you be happy to live in Warsaw (or Korea or somewhere really nasty) for a time  we open an office there?”. If they say “I’d love to” that is great. If they say, “if I have to”, that is OK. If they look shocked and say “no way”, it rules them out of some positions, and shows a lack of commitment.

Do “gap analysis” – see who else is or will be needed in the team. Save some shares for new people or get agreement from the others about giving some shares away for new people.

Leadership and alignment of goals
Leadership is not taught in Polish (and many other) schools. Allow a few hours on Youtube and Google to make sure you know what it means. A leader is able to get a group of people working towards a goal willingly. You have to know and develop a vision for your startup with your team, communicate it and make sure they share it. If you want to work like crazy and build a global company, and someone in your team wants to take it easy and spend more time with their boyfriend, kids, or wife, or shopping, it limits what roles you can offer. Of course you don’t know everything, but it is important to discuss and get a feel for longer term ambitions. Is your team aligned with your vision? If someone does have kids and a housing credit – be open in discussions about how far that impacts on their ability to take risks and be mobile. A good rule is to say to everyone “there are no bad questions. We should all ask each other anything we like”.

What happens if it goes wrong?
If you met at a Startup Weekend, the risk is not trivial. You need to consider “buy back” provisions if someone quits. You don’t want 5-10% of the company in non-working shareholder hands, if they quit or you part company for some other reason. Discussions about this can be very revealing about whether you trust each other. Poland is known as a “low trust” society. In my experience most people here are honest, being cheated is the exception, and trust is efficient.

Sweat equity issues. If some of your team have jobs and cannot afford to quit. Putting a value on your time – say it is equal for everyone to make it less difficult: 20 euros/hour whatever. If you work 2000 hours in the first year and the others work 200 then you have invested 20K sweat equity, the others 2K so it should be 20/22 for you, 2/28 for other team members. Obviously if one of you feels your time is much more valuable than the others, maybe you have to negotiate. It is better to have a discussion up front than not. Use some time management software, like TimeCamp, and online project management tools like Basecamp, so everyone can see what everyone is doing.

Non-compete, drag and tag along agreements are important
It should not be a problem among founders. Later, when you are telling new employees to sign non competition agreements, you can say “we all have already”. They are very hard to enforce, but most people feel a moral obligation to honour them. It makes your company more valuable. Drag along and tag along are for the shareholders only.

Business plan
Someone has to write the business plan. What needs to be done? By who? By when? How much it is going to cost? How are we going to make sure it is done as planned? This is probably your job as a leader.

Investor and team appeal
If you need an external funding, it is a great idea to have someone in the team who will impress potential sources of capital. Investors tend to invest in people more than ideas. Having impressive people is also essential when hiring. So if you have someone with that magical star quality, be ready to offer them something extra.

Wages and benefits
Talk about this before you meet investors, if you are going to have them. Investors will need to see that you are doing this not to make a salary, but to build a great company. In Poland, there are no real rules. It is unusual to make more than 50% of your “normal market salary” in a startup.
Quite often investors will be looking for evidence of entrepreneur skills that mean you have made and saved a bit of cash in the past. Life is relatively easy when you are building a startup team. If you fall out, have arguments and cannot manage at the start, then you won’t manage later.

RICHARD LUCAS (Richardlucas.com)
Angel investor, entrepreneur. 6 companies, 400 employees, 20 years in Poland, Cambridge University, Economics, TEDxKrakow speaker, and supporter. Interested in getting involved in startups as coach, mentor, minority investor, in business projects that are: better, cheaper, faster and more fun that the existing way of doing things. Active in supporting the pro enterprise culture in Poland in schools and universities. Notably through znaniabsolwenci.pl and Global Entrepreneurship Week. And the Krakow Network. Awarded a Pro Memoria medal for his work promoting projects associated with Wojtek the Soldier Bear