Serial entrepreneurs focus on core strengths

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The most fabulous part of my work life over the last decade has been to observe at close quarters the craziness, the inspirations, the quirks, and the discipline of entrepreneurs and serial entrepreneurs. The main thing that separates a first-time entrepreneur from a serial entrepreneur is that the latter shows a more profound and pragmatic understanding of risk and leverage.

But I wrote that in the last post already. This post is about something else. About how serial entrepreneurs continue to create new businesses, well, serially. Here are some of the things I have observed (for confidentiality reasons, I have to write about my clients in abstract terms but those are stories that I am excited to be part of, so share them I must!)

I am sure you have stories to tell too. Please do share them in the comments.

Core strength über alles

Serial entrepreneurs, especially the successful ones, know their core strengths and rarely stray far from them. This sounds simple enough but the difficulty of such focus is only revealed when one stops to count the dead bodies that litter the field called entrepreneurship.

Core strength enhanced opens new markets

Serial entrepreneurs are lucky. And their luck is not by chance, but made by their attitude, behaviour and choices.

Core strength + new knowledge –> new market

One of my serial entrepreneurs clients is an animal health specialist. That is the area in which he founded his first venture 25 years ago. That is the area in which his current venture’s main revenue streams lie. But as he got familiar with a different kind of animal from the kind he knew well before – moving from vertebrate quadripeds to invertebrate arthropods – he learnt about a certain manufacturing process and new materials.

This new knowledge set him on the path to invent a product for human health. It has opened a new market for his venture. One could call it serendipity, one could call it luck. I think it is the fruit of positive curiosity, the desire to understand things well and the ability to think laterally about possibilities.

Core strength + removal of a constraint –> new market

Another of my serial entrepreneurs clients emerged from his last exit, in pharmaceutical manufacturing, with his hands tied by a tight non-compete. He spent the next few years making new contacts and expanding his horizons. And plotting his next venture. Now his non-compete has expired and he has in the interim developed a business line in biologics. Contract biologics manufacturing is in demand but also faces a shortage in certified facilities. His new venture is already serving large orders and he is looking to expand them further.

The constraints of the non-compete gave him time to absorb new developments and be creative with his core strength in a way that was relevant to emerging market trends.

Core strength + emergent opportunity –> new market

Dharmesh Shah‘s new venture, Hubspot, illustrates this point beautifully. A profound understanding of what technology is and does is Dharmesh’s core strength. More importantly, as a good engineer, he knows that the user only cares about the ease of use of the front-end and must not be exposed to the complexity of the algorithm or the back-end. His venture before Hubspot, Pyramid Digital Solutions, was founded on these core strengths.

Fast forward to 2006, as social media were gathering pace, and Hubspot was born to help small businesses harness the power of the internet to grow. If you run a small business and are not already familiar with Hubspot tools, do try them out. You will see for yourself.

Core strength is fortified by complementary skills/ how to pick, motivate, reward and retain good teams

Successful entrepreneurs are aware that they owe their success in part to strong teams which are strong in skills they lack. All the serial entrepreneurs I have met, observed and worked with show an amazing knack for picking the right teams. While they have king-size egos otherwise, they are brutally honest to themselves about the skills they lack. Once they pick their trustworthy lieutenants, they treat them well thus motivating and retaining them and their loyalty.

I am aware that while the post is focused on serial entrepreneurs, these could equally be characteristics of a strong strategist and a good leader in a business. How do you see these lessons applying to your business or your clients’ for that matter?

Four Cs of The Scale Challenge

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”Let us try.
To-morrow, how you shall be glad for this!”

- Robert Browning

Businesses want to scale. It is especially true for ambitious entrepreneurs. It should be easy, should it not? After all, the smart view is that it is ambition that scales, ‘stuff’ does not. But the reality is not linear, not bi-modal, but nuanced. The road to hell is paved with a surfeit of ambition and a shortage of what it takes.

So what does it take to scale successfully?

Here is what.

Cardinal check: The core issues

Is the core of the business profitable? If it is not, then there may be a problem to solve already. There could be many reasons for unprofitability from bad strategy to poor execution. But one big outcome is that the business has little money to spend on dreams.

Is the business amenable to scaling? Not all businesses are. Some personality driven businesses and hourly chargeable careers may not always scale. The entrepreneur needs to take a dispassionate look – or ask someone else more dispassionate than she is to take a look – at the possibilities in and limitations of his business. That will also help think about strategic pathways to scaling. For instance, Nicky Clarke, who is a well-known hairdresser, can give only so many haircuts himself. Can he scale? Yes, possibly by personally training other stylists, or by launching haircare related products. But only he can decide if it is acceptable to him to scale that way.

Does the business have the capabilities required? A firm may be looking to open a new market. But it will be difficult to service a demand it actively creates if, for example, its manufacturing capabilities do not scale, or do not scale easily. For one of my clients in biologics manufacturing, we are doing our sums and readjusting our timetables because  the manufacturing plants must obtain regulatory approval. In other cases, a firm may not have the capabilities but may be willing and able to source help from outside.

Above all, will the added scale enhance the value of the business? If the answer to that is ‘no’, the project may not be worth the hassle.

Capital: do your sums!

Does the business have the money it will take? Nearly all scaling activities require money. Lots of it. There are both monetary and opportunity costs associated with raising money. One could approach one’s bank, assuming it is willing to lend. One could go to investors who have expertise in one’s industry or bring other non-financial value-add. However with both these sources, tough questions regarding the profitability of the core business must be answered.

If one’s ambition really does scale and if there is confidence in other organisational capabilities, then one could bootstrap, as one of my clients – a serial biotechnology entrepreneur – is doing! He understands the risks and that if he must use leverage or raise money, timing is all important.

Regardless of how one raises capital, the balance sheet will change. So will the nature and scope of control as we see next.

Control: See, letting go of.

Can you let go? For ambitious entrepreneurs, one of the hardest things to do is letting go of absolute and full control: control of the company ownership and sometimes, of strategic pathways to propel the ambition forward. It is however a necessary risk, since the entrepreneur himself cannot scale.

Scaling also requires organisational and process redesign. And empowerment of people who buy into the vision of the business and have the capability to make the right decisions. If a robust core business and a basic but clear structure exist, letting go of control enables emergent structures that suit emergent needs.

The global scaling experience of Indian IT firms, such as HCL Technologies, is informative in that respect.

In some cases, it has been my experience that it is easier to work on scale challenges with a serial entrepreneur of any age or background than with a first-time entrepreneur. Those who have been there, done that have a better understanding of leverage and using it to create enhanced value. The latter often needs to be asked: Would you rather than 10% of something that is worth £ 10Billion or 100% of squat? Brutal but a good readiness check.

Complexity: Dealing with it

I know “simplify or die” was one of the messages in my last post. But in reality, things do get more complex. What changes when complexity grows? I suggest a quick look at this link where Rui Das quotes James Kay:

“Under conditions of complexity, our framing of the situation changes from one (correct) perspective to multiple perspectives and scales. Our explanations shift from linear cause-effect models to narratives about self-organization, attractors, cannons, and propensities. Investigators into complexity do not seek prediction, control, right answers, or efficiency. (…) Rather, the investigators seek understanding, adaptability, and resilience.”

Although written in the context of science, the above description is equally applicable to business.

When seeking scale, assumptions about culture, people, time-scales all come up for scrutiny. There are gaps in data and knowledge. There are trade-offs to be made. All this makes decisions less easy.

In such a situation, a business with a clear vision, empowered employees and the ability to deal with ambiguity succeeds. All that and a lot of preparation.

Most recently, I am working with a British client keen on alliances with healthcare providers in India. Our main challenges are not just regulation, but deceptively simpler things like culture, use of language and imperfect information from potential partners. What helps? Above all, not being fazed by unpredictable developments. Also being able to join dots we have been watching which may not be directly relevant but have an impact on decision-making time lines.

…

And yet, helping them tackle these challenges is not the only reason why I work with entrepreneurs. I work with them because with their ambitious and unusual choices every day, they embody something else Robert Browning wrote:

“Ah, but a man’s reach should exceed his grasp,
Or what’s a heaven for?”

Strategic design for safer driving

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This is the week (or month) that Toyota would like to forget. The firm that revolutionised the otherwise unglamorous manufacturing business is in a tough place. The jury is out on the causal pathways, and on whether this signals the end of Toyota or whether it will rise like a phoenix from the ashes.

Car recalls are nearly as old as the history of the car itself. Risks range from fire hazards to bursting tyres. But when there are problems with brake pedals or accelerators, cars can be unsafe at any speed, as the polemical but timely book by Ralph Nader argued.

But cars do not drive themselves. People drive them. Before you start wondering if this is a “guns don’t kill people, people do” type of argument, please read on. The degree to which the car is safe or unsafe on the road depends on the car as much as it does on the driver. The driver controls how the car reacts to the developments in its environment – other drivers, hazards and unforeseeable events.

So while car makers recall and repair cars, and insurers hasten to confirm that insurance cover on those repaired cars will remain valid, I wonder about another question:

How can design shape driver behaviour and his/ her interaction with the car and its environment?

Here are my thoughts. Share yours in comments.

Designing the environment: Where to begin?

There are several elements in the mix here. Including, amongst others, the use of road and speed cameras to catch bad drivers, better education by schools, better training, responsible car advertising, to a change in societal attitude to inconsiderate driving. Syamant captures some of the frustrations of driving in India, not best known for its driving conditions, and discusses possible fixes in this blog post. The comments are worth a read too.

It’s a tall order. One could argue that redesigning the environment probably should start at better urban planning, that reduces the need to drive, makes it easy to walk or bike or use the bus. The discussion can go on and on.

Most recently, however, Mercedes Benz in the UK has sought to tackle one piece of this complex jigsaw  through better training, about which I have written earlier.

Designing the machine: Simplify or die!

In the last 50 years, cars have increasingly incorporated safety features. Seat belts, for instance, are now mostly de rigeur as are other safety features. Cars are also getting more “intelligent” features which can aid the driver pre-empt or correct costly errors. Possibly even create a false sense of security and encourage speeding?

At the same time, cars can now do top speeds over 250mph. Gratuitous pictures of said fast cars can be found here, since fortunately the price tags mean not too many of these are on the roads! But supercars aside, my regular car can do a top speed of 200 mph.

Needless to say that fast cars need fast response times.

While distractions inside the cars grow and grow. You can pick tracks from 12 CDs right from the controls on your steering wheel; adjust the speakers to be just so; fiddle with seat heating or adjust the air-conditioning for the nitpicky passengers. Recently I even felt sorry for a driver, driving after dark on the motorway. The sat-nav screen, inside the otherwise dark car, within the driver’s peripheral vision, was playing a DVD. The shotgun rider, as well as the back seat passengers were merrily singing along.  The driver was driving fast while coping with the dazzle inside and outside the car.

In short, modern cars are full of distractions, safety features can encourage recklessness and cars can speed up pretty quickly. The driver’s attention however hasn’t evolved to keep up with the collective onslaught of all these.

So what’s my point? I am arguing for “simplified design of cars”.

Since cars have much computing power inside them now, everything major should be programmable on the key hob. The rest should be removed or set to a default. There is plenty of comfort in the car now for passengers and driver alike. But in the main, car design should be simplified to serve the driver’s need to pay attention to the road, and make swift decisions as situations develop.

Designing the incentives: Custom-made insurance?

Here is an interesting TV ad from Axa Insurance that uses ‘pavement rage’ to illustrate how experience in driving can drive insurance premia down. The 30 seconds needed to watch it are worth it.

With much innovation in machine design, the actuarial models still lag behind. Searching for “car insurance innovation” brings up next to nothing notable. And uninsured car drivers still drive everybody’s average premium up.

But the health insurance industry has lessons. On offer from them are incentives for individuals who use the gym regularly and have other good health behaviours, and health accounts where a person can save money for later years when he/ she may need it. On the anvil are shorter term health insurance policies so one neither pays for nor unfairly benefits from being lumped with other less or more healthy age groups.

So how about designing “car insurance in step with individual driving behaviour”? Nature of roads most driven, speeding, driving patterns and so on. The technology to establish such profiles already exists and is getting better. Insurance redesign could add a powerful, quantifiable incentive to safer driving.

So what?

While environmental redesign remains a tough and complex challenge, the car makers and the car insurers can respond more swiftly.

As more and more drivers get on the crowded roads in developing markets, it’s time they did.

What do you think?

Enterprise 2.0: What IS The Real Elephant in The Room?

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As part of London Social Media week, Alan Patrick and David Terrar organised a session titled “Social Media In Enterprises: The Real Elephant in The Room”. I was due to join a rather illustrious panel but was held back by unforeseeable problems. Here is my 10-minute “firehose”.

My work is about solving strategic problems for customers in “highly regulated industries”. In these industries, strategic options and choices are often heavily constrained by various regulations.  So my comments come from recent and for the last couple of years, recurrent conversations with customers and prospects in these industries.

Parlez vous meine Sprache?

This may sound like nitpicking to those who spend their lives evangelising “social media” to consumer businesses and in communication or media firms. But enterprise customers don’t like the term. That is not news. So should we talk about “Enterprise 2.0″? The term has been criticised as being too corporate, managerial. In other words, stuck up. Now here is news. From the vantage point of smaller, nimble consulting and communication outfits, most, even most of the apparently nimble enterprises, really are stuck up.

But the question is: do we want the door opened to us or not? If the answer to that is “yes”, we need to speak their language. While “social media” and Enterprise 2.0 mean not much to many, saying “Enterprise Identity and Collaboration” seems to float many a boat. (Credit for this term goes to Futurescape, an India based visionary services design and implementation firm, who have worked with global enterprises for over 15 years from long before “social media” was coined.).

I am not advocating obfuscation or the use of heavy jargon. But objectively, to a n00b, “Enterprise Identity and Collaboration” is self-explanatory. It even suggests “progression” from what the enterprise does rather than some kind of revolutionary change, and is hence an easier “sell”. If you disagree, don’t hesitate to tell me why.

It is neither technology, nor culture. It is entirely something else, something I cannot control: regulation.

Let’s consider businesses in sectors – and certain processes inside certain highly regulated industries – where heavy regulation is not an issue. In those contexts, it is easy to adopt collaboration tools inside and outside the firm’s boundaries. For instance, the US$ 20Billion manufacturing group Emerson Electric has a subsidiary called Emerson Project Management in Leicestershire. Their 800-strong team in Pune, India helps them bid for and deliver global projects, each of which may be worth several hundred million US$. They achieve an efficient and effective level of collaboration through extensive use of open source tools to create project based wikis, to share information before, during and after the bid process, to deliver the project and to capture learnings at every stage of the long process.

On the other hand, consider pharmaceuticals and banking, where I have had ongoing discussions.

A BigPharma, within the firm, can use enterprise collaboration tools and in some functions, including pipeline development and project management, the employees do. But let’s imagine an “enterprise identity” project. As generic competition grows, it has never been more important for BigPharma to have some relationship with the consumer, the patient. Kapow! Here BigPharma is hamstrung by regulation, such as Direct To Consumer advertising. The nuances of the regulation are many. The price to pay for any trangression is considerable. The regulation is country specific, while interwebs are anything but. It is tricky and it is a legitimate concern in adoption of any “2.0″ tools. Likewise, consumer banking has a quagmire of regulation guiding, nay watching over, every interaction between banks and consumers. Just think data protection requirements and the need for audit trails.

(Ed. note added February 17. 2010, two weeks after this post: Finally, a journalist wakes up to this very significant barrier to adoption of social media in the enterprise. You can read it here. Real business people 1 – social media “experts” and journalists 0)

So, what IS the real elephant in the room?

Well, I’d ask “do you understand their problems or are you just another “social media guru (!)”?

The real elephant in the room is little overlap between “people who understand 2.0 tools and technologies” and “people who understand complex industry processes and strategic imperatives”.

The real elephant in the room is that selling the “Enterprise 2.0″ thing as a culture shift is too big a sell, and selling it as a technology solution is too meaningless a sell. The real sell is complex and subtle.

The real elephant in the room is regulation, and that the tools and technologies are just not ready.

Are we ready to ride the elephant yet?

Femtocell: free-riding, fair play or a fixer-upper?

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“Vodafone Sure Signal guarantees you a great 3G signal at home, no matter where you live. Watch the stories of people from around the UK who have been rescued from their mobile signal problems.“, says Vodafone’s Sure Signal marketing website. All you need is a broadband connection which gives you 1 Mbps or more.

A Femtocell gateway is a product that addresses a real and well-articulated, not latent, need. UK’s mobile not-spots are well-known. I live in one and moved to Vodafone when the Femtocell gateway was first launched in July 2009. I paid £60 for it, which was early adopter pricing seeing as Vodafone is now selling it for £50. It is a viable option unless you are so unfortunate that you live in a broadband not-spot too!

Now, thanks to the femtocell, my mobile phone works all the time at home. Routing my voice traffic through my BT Broadband pipe which on most days gives me 7Mbps or thereabouts. If I want, I can use up all of my 500Mb data allowance on the Vodafone contract every month.

Except that most of it – when I am not outside – will really be accessed through my broadband connection so I might as well just use my mobile phone as a Wi-Fi client.

It is a good thing then that my ISP does not ‘meter’ my usage. Because if it did, I hate to imagine how much I’d pay for the ‘privilege’ of routing all my mobile voice calls and some data calls through broadband, while nestling in my not-spot. You see, I pay monthly contract, I paid for the femtocell all so that I can route my calls through my broadband connection for which I am also paying. In other words, for now, femtocell gateways are free-riding. On fast broadband connections and ISPs who do not meter usage.

In my view, femtocells are a temporary end-of-pipe solution to the bigger problem of coverage and capacity in mobile networks, even as smart phone penetration rises, and expectations as well as patterns of mobile usage change.

To fix the current problem and to pre-empt it, someone has to pay, invest big sums of money. If the MNOs don’t invest and push consumer-end solutions, then the ISPs may well decide to charge the consumers. Consumers can then bring complaints to OFCOM. However as service contracts go, a signal at the end of your front yard by the road means the obligation is being fulfilled. So, many of the OFCOM complaints won’t do a jot for the consumer.

This is hardly fair-play. Mobile infrastructures in many countries, not least those booming markets, which haven’t yet granted their 3 licences, are fixer-uppers. They need strategic investment. Soon.