Start Up Blog

Are you offending someone? Is your new start up offensive?

It can be a really good idea to offend a group of people. Not just for the fun of it, it needs to be offensive for a reason. That reason needs to be that it makes it perfectly suited to someone else. When you’re offensive you have a higher probability of being noticed, just because….

You also have a higher probability of premium pricing and finding loyalty.

By the way, offensive doesn’t mean illegal or immoral, just something someone might hate.

Test Markets are very unfashionable in global marketing and large conglomerates. What would they know? Many large consumer goods firms won’t exist in a few years (especially FMCG in Australia). The retail duopsony will kill the majority as they perform classic backwards vertical integration. Large firms tend to have large national, if not global customers. Their customers demand homogeneous ranging. They desire scale and total geographic coverage. It’s all or nothing. I’m getting off the point here a bit….but the point is being nimble and without infrastructure can create a massive advantage.

Seth Godin’s latest book Small Is The New Big, espouses this clearly, because when you are small you can do things they can’t. Like test markets.

Test markets can:

-          iron out production problems

-          prove product with users

-          improve version 2.0 of your widget

-          prove revenue

-          facilitate supply contracts

-          assist in 2^nd stage financing

-          recruit sneezers

The cost of failure often morphs into a test market. If you build an effective test market with a foundation customer, it may well be the leverage you need for a significant contract to scale up.

Flip your thinking from a minimum cost per unit, to a minimum total cost. So long as you know the profit margins will be there when you scale up at V2.0.

We did this and found we could do a test market for 10% of the cost of a full scale launch. If we fail we save 90% of our cash, or the ability to fix why it failed. We succeed even if we fail.

Ask your ‘believers’ (people in your value chain putting in time and effort to make this happen before they get money out of you), how cheaply they could trial this concept. Could they do it manually instead? Get your supply chain working for you. Shift their minds from quotes, and capital required… ..to temporary methods that will make do. This isn’t about compromise. It’s about bridging, and the bridge must lead to your final ‘remarkable product.’

This works because your changed focus will change the thinking of your ‘believers’. That’s when they will think of ways how to. It worked for us.

How can you run a test market?

When is the last time you walked somewhere? You see more when you walk, the world moves in slow motion. You become closer to your environment. Speed is the enemy of insight.

            Slow down, see more.

Everyone talks about the importance of cashflow. Every start up book says, cash is lifeblood and without it you die. Cash is king – no dispute. If you are wondering why it is such an issue, so was I.

Secret revealed…

The Cash Trap:  

Definition - The gap in ‘time’ and resulting cash flow impact between paying suppliers and receiving actual payments from sales to customers. 

When starting a business you have to pay for everything up front. Everything from stationary, to product inputs to manufacturing runs. All these will need to be paid for prior to receiving services as you do not have a payment record. Put simply, suppliers are not sure you’re good for it.

On the flip side, when trying to get new customers, it is very hard to demand money up front. Most re-sellers have terms of trade. For example, payment net in 30 days. This creates the cash trap. In my blog entry 4, I wrote about the customer being the consumer as a must have. The ‘cash trap’ is the reason why. It reduces the impact of the cash trap. It improves cash flows by reducing the gap in time between inputs paid to revenue received. A business with very short business cycles and consumer direct interaction may even eliminate the cash trap.

Huge margins are irrelevant, until you have received the cash from the sale. In fact in a start up with a lengthy cash trap, growing too quick can be you’re worst enemy. Strong sales early, can send you broke.

Profit and solvency are not inextricably linked. 

• Drive a different route to work
• Take public transport
• Shop somewhere different
• Go people watching
• Go somewhere you have never been
• Reverse the order of daily tasks
• Change your reading habits
• Pretend you’re poor for a week
• Pretend you’re rich for a week
• Buy something you’ve never bought before
• Make something you always buy
• Do the opposite of what you do now

New environs create new thinking. Entrepreneurs need an open mind. What can you do to open yours?

Grey cubicles are not the best places for stimulating thinking. They want you to think outside it, but invariably put you in it. (And I hate that cliché). You get into a corporate haze. You can lose sight of what is real. The rhetoric is so thick, it turns into a fog.

If you want to succeed in a corporation, make sure you follow their rules. Then you will go far. Don’t scare them with radical improvements. However, Incremental Improvements are OK.

An office environment isn’t all bad. Maybe you like it, that’s fine. All large orgnaisations become hierarchical. This hasn’t changed since the Roman Empire. If you have start up ambitions, recognise the haze and how to see through it.

A long life is determined by what you put in your mouth. It is said.

For start ups it’s reversed. The most important thing for a start in life is what comes out of your mouth. Not to denounce the virtues of idea generating, marketing, planning, collaborating and bootstrapping . All of these things will be a function of you ability talk about them. You are judged daily on this by potential investors and all in your value chain.

Watch your diction. Be animated, yet succinct. You are selling yourself. You need to be impressive. The easiest way to impress is when you are speaking. If you’re not good at it, you must practice and learn. Get a night job in sales, or go a public speaking forum. When I say sales, I don’t mean a pretend role in a behemoth managing existing business. The ability to influence shipping 107 brown boxes instead of 100 in month X is not selling. I mean cold calling. Cold calling is selling. You need to have the gumption to cold call suppliers, prospects, venture capitalists, financiers.  

Remember you are evangelizing a ‘concept’. Make sure you’re up to it, or you’ll just get frustrated.

Two sisters quarreled over an orange. After they agreed to divide the orange in half, the first sister took her half, ate the fruit, and threw away the peel, while the other threw away the fruit and used the peel from her half in baking a cake.

                       Understand needs before cutting deals.

                       Bethink the orange.

What should your salary be once funded by investors? Market rates. You must be paid what you are worth in start up with funding above $1m.

Why?

If you get hit by a bus tomorrow, that is the cost to replace your skill base. They invested in you. Your investors will need to replace you.  The business will be a going concern with or without you. It will cost market rates. If the business can’t sustain your market value, you haven’t got a business.

An Angel Investor or VC doesn’t want their key men wondering around penniless. They need you to have comfort and focus. In the early and delicate stages paying your wage will greatly impact cash flow. To alleviate this, the payments can be deferred, or arranged through other financial vehicles until cash flow positive.

Also, remember to get Key Man Insurance. It is not very costly. Similar to the cost of a general home insurance. If that rogue bus knocks down a founding member or partner, an equity buy out will be required. Then investors can’t lock you out of the game.

Here’s the trick. All the VC’s we have met have told us to put up our wages in the financials – to market rates. But they don’t want to see it in your plans in the first instance. It’s an insider’s trick to test motives.

Quite frankly carbon emissions create a lovely little lifestyle that enables us zoom along the landscape, get fat and have warm caves to live in. Guilty.

Al Gore’s documentary on Global Warming is very concerning. Unless you are a non believer. The world is flat, right?

Opportunities for entrepreneurs are boundless in this sphere. Regular readers will note my entry “4”, which espouses focus on the  environment for a start up.

The answer to this conundrum is in the title. “An Inconvenient Truth”. We need to make a convenient reversal. People want to change behavior, but not if it inconveniences them. A great example is Greenfleet. They will plant your carbon emissions in native trees for a fee, so you essentially become carbon neutral.

With a fossil addicted governments this opportunity is massive. They don’t have the fortitude or vision to change.   Entrepreneurs of the Industrial Revolution created this mess, as Entrepreneurs of the Sustainability Revolution we must fix it. I’m certain consumers will respond to anything green. Green is very cool. However, you’ve got to bring it to them in an everyday format. There will be a big prize for those that do.