February 16, 2001 - Rhino Hide
Management
by
Bill Snow
Nobody ever said
entrepreneurship was easy. The stories of 23 year olds getting rich “over
night” because they were the 7th person hired by Yahoo has led many
recent college or MBA graduates, and more established managers and executives,
into the world of the startup. It’s fair to say the heralded “dotcom” implosion
of the past year has scared many of these “entrepreneurs” and sent them back to
more stable careers. Risk is a double-edged sword, and it does not imply
automatically becoming a millionaire. Risk means you may crap out.
The following are a few of my
thoughts, observations, lessons learned, and lessons I should have listen to
when the sage advice was tendered by those who have been there before me.
1.
You better have the hide of a rhinoceros if you want to be in business
What was that line from the
Tom Hank’s movie, A League of Their Own? “There’s no crying in
baseball!” The same is true in business, and especially entrepreneurship. If
you can’t take the criticisms, the attacks, the unfairness, and the ambiguity of
life in a start up, leave. If you don’t have the intestinal fortitude to pick
yourself up from the floor after being attacked (fairly or unfairly) by the
press, shareholders, employees, executives, leave. And if you don’t have the
intestinal fortitude to prove wrong an old CEO who just asked you to be
accountable for your actions and produce something, go back to your MBA school
and pontificate.
I was
recently reminded of the “rhinoceros” quote as I watched ShipNow CEO Mike Kurgen
get grilled at a recent Midwest Entrepreneur’s Forum. His business plan was
picked apart, his board choices questioned, inconsistencies with the plan were
exposed and criticized. I thought to myself, “…and this is just the
beginning.” As he builds his company, the attacks will mount, the criticisms
will increase. Some day, this will seem like a walk in the park.
There is no
place in any organization for whiners and complainers, for quitters, and for the
blue-blood MBAs who don’t want to get their hands dirty. Life is unfair, so get
over it. The further you advance in your career, the more you will be
criticized, and the more people will talk about you. You better be tough.
2.
It’s all about operating cash flow. Financing cash flow is just the
beginning.
Be wary of an impressively
pedigreed but dangerously disloyal creature, the Entrée-prey-on-us Exchequer
Spend-a-lot-ious, or loosely translated, “expense check entrepreneur.” This
is a creature whose understanding of the cash flow triumvirate focuses on two
parts: financing and investing. In other words, once you close that “A” round
(financing), they’ll come in and help you spend it (investing). Lost in their
world of Jordache coffee drinks is any firm concept of the most important part
of the venerable cash flow statement: operating cash flow.
Oh, sure,
expense check entrepreneurs will dazzle you with concepts and ideas. They are
very adept at using cell phones, attending industry events, ramping up frequent
flier miles, making reservations and expanding their personal networks. They
are good at “looking the part.” They like the status of being associated with
the word entrepreneur. But if you dig deep, you’ll find more activity than
accomplishment.
Eventually your investors
will start clamoring for results (operating cash flow), and this is where
expense check entrepreneurs are at their most wily. Their initial defense
mechanism, an innate capacity for spewing jargon-laden techno-nonsense
describing grandiose yet nebulous partnering arrangements, buys some time, but
eventually the halcyon days of spending and pontificating end, and actual
results are demanded. When this day of reckoning comes, the expense check
entrepreneur goes. Goes out the door, often with the impressive network you
paid for, leaving you with bills for unread magazines and invoices for young
executive club memberships.
Never loose
sight of your end game: producing revenue and earnings. More importantly, make
sure all your employees understand the main focus of your business is building a
positive operational cash flow. Financing is just a beginning, and every
dollar spent in investing better be going towards tangible results – operating
cash flow.
3.
Vision and commitment
Beyond having the guts and
courage needed to be an entrepreneur, you have to have the doggedness to stay
the course, and communicate your vision to your employees. Big things don’t
happen with half steps and hesitation. Doubting yourself and selling your
company’s abilities short will never yield the results you want. If you don’t
have buy-in from your employees, especially your managers, ask them to do
themselves a favor and leave.
You have to swing the bat to
have a chance at a hit. You have to have the courage to stay the course when
others say bail. If you don’t have conviction, you don’t have a chance. But
you also have to be savvy and quick enough to make changes when change is
warranted.
4.
You are under a microscope: Watch your attitude
Every leader is under a
microscope. The higher up the corporate ladder, the more powerful the
observation of others. At a recent luncheon, Nick Pontikes, the former CEO of
Comdisco mentioned the biggest and most immediate change he noticed when he was
promoted to CEO was the fact that every word he uttered was immediately parsed
and dissected. Every step was observed, and every action was examined. He
mentioned making a slightly off color joke on the elevator to one of his top
lieutenants, thinking they were alone, only to find someone overheard the joke,
and within minutes the entire company was aware of his comments.
The culture in any
organization is directly tied to the actions of the manager of the department,
the VP of the division or the CEO of the company. If you are a leader, look and
act the part at all times. You must realize you have a chance to shape how
people act, the way they think of their job and the most importantly, the way
they interact with your clients. A snobby leader who talks about clients and
possible customers with an air of disdain will infect his employees with that
poisonous culture. A truly effective leader understands the setting the
culture, and is careful with every step, every word, and every action.
True leaders understand they
are under constant scrutiny, and they consciously act to present and an air of
confidence, maturity, strictness, fairness, stability, decisiveness, and
honesty. They do not abuse their power. A weak leader waffles on decisions,
looks down on clients, plays favorites, and has no concept or regard for the use
and abuse of power.
5.
Maintain a personality and a sense of humor
In addition to watching every
step, word and action, a truly great leader is able to maintain a personality
and sense of humor. Great leaders effectively encourage their people, “it’s not
a crime to laugh and smile while on the clock.” Accomplishment should be the
first and most important goal, but setting an environment where people actually
enjoy their work is tantamount to success.
6.
Know your Key Number
Beyond the obvious (but oft
overlooked) importance of revenue and earnings, all businesses have a “key”
number, or a couple of “key” numbers. These are the few discrete matrices
buried deep in piles of numbers that managers review. Example: Webvan’s key
number is its average order size, purported to be about $115. Webvan
understands if it is to survive, it must drive this number as high as possible.
It’s delivery costs are largely fixed, so a one dollar increase in average order
size will translate into 27 cents of net operating margin.
An executive
in the video business once discussed how the understanding of one little number
told him almost everything about the operations of his stores: the average
number of rentals per tape per week. If that number was low in a particular
store, the cause of the problem was likely one of four issues: 1) bad buying
decisions, 2) theft, 3) failure to put tapes back in the right place, and/or 4)
failure to collect late fees, which often accounted for 1/3 of store revenue.
Simply understanding the importance and use of one number made that executive
privy to the entire operations of a store, and afforded insights as to what
steps were needed to fix the situation.
Part of the
understanding of the key number concept is the streamlining and simplification
aspect of your business. Think of the copious amounts of paperwork and e-mails
generated and bantered about in any business. How much of this information is
truly important. What do you really want and need to know. When you boil it
down, you probably pour through the documents and e-mails and look for a few
discrete numbers. Find those numbers, learn them, focus on them, and most
importantly, teach the importance of you key number to your people.
7.
Remember where your money comes from: Your customers
This is a simple entreaty for
customer service. Many of us are guilty of thinking to highly of ourselves, and
therefore placing ourselves above a job. You will quickly be out of business if
you forget the very existence of your business is because someone, somewhere, is
making a conscious decision to buy something, and spend money. It is easy for
employees, buried deep inside an organization and frantically worried about
completing some spreadsheet, to forget to have a customer service attitude.
After all, actually dealing with customers is the place of people who didn’t
finish high school and can only find work at a fast food restaurant. Right?
Wrong. First
of all, all work is honorable. Don’t place yourself high and mighty above those
who take your lunch order or shine your shoes. Secondly, a little humility may
do us all wonders. You are not as important as you think, you can be replaced,
and you probably won’t be missed. Those who strive to provide great service
have a better chance of surviving. A customer-centric approach should inundate
your organization, and if you are a leader, the inundation starts with you. The
customer service lesson bares constant redundancy: people need to know where the
money comes from: customers.
A simple test
for a manager or executive is to ask employees, “What is the most important
thing around here?” If answers include, “finishing my marketing report,” or
“spell checking my memo,” your company is in trouble. While those tasks are
important, all employees need to know and understand what they do, and how they
interact with clients, directly impacts the buying decision of a customer.
8.
Fox Hole Test
If your life were on the
line, who would you want next to you? If you were dug in the trenches, shells
exploding, bullets whizzing by you head, who could you really count on? Your
approach in business should be much the same. When push comes to shove, who can
you really count on?
9.
Separate the issues
Entrepreneurs often try to cure symptoms instead
of discovering the root cause and fixing the true problem. A good way of avoid
this problem is to learn how to separate the issues. A company might think
it has a problem with low sales, when in reality the poor sales are the symptom
of the real problem: incompetent sales people.
10.
Do not “Satisfice”
Problem solving involves
coming up with a real solution, and the real solution is not necessarily not
the first solution you think of! All options should be examined, and when
constructing a list of possible solutions, your first choice should always be
“do nothing.” I think experience teaches most of us it is often best to
leave well enough alone.
About the author
Bill Snow runs this site. If you haven't figured that out yet, I can't
help you. |