The Blade

Thoughts for entrepreneurs from someone who's been in the trenches.

In Love With Lean Startup? There Are Other Fish in the Entrepreneurial Sea

The Lean Startup methods are hot; I’m talking, “You can’t touch this” hot, a la M.C. Hammer. At least that’s how it felt to me while attending last month’s Lean Startup Conference where more than 1,500 gathered to pay homage to Lean methods (Lean). It’s spreading like wildfire across the globe with workshops and follow-up books.

LeanLean methods are not off-base. I know a few entrepreneurs who have successfully launched using Lean. If you aren’t familiar with Lean methods, they were originally attributed to Toyota for its manufacturing process to eliminate waste and build only what the customer wants. Professor and entrepreneur Steve Blank smartly applied Toyota’s ideas to start-ups. Then, Blank’s student, Eric Ries built upon his ideas from his own experiences and wrote the bestselling book The Lean Startup because the ideas worked so brilliantly. Much of the basis for Lean is rapidly validating or invalidating assumptions you made about your proposed business model by interviewing people and collecting data. Lean advocates for rapid prototyping and market testing.

But what rubs me wrong is the intimation that any process other than Lean is waaaaay off-base. For example, an attendee at the Lean Startup Conference who runs a university entrepreneurship center said to a group: “If university entrepreneurial centers aren’t deploying Lean methods, I’m to the point of calling it malpractice.” Malpractice? Really? For something as artful as starting an innovative company?

One speaker was explaining that if you don’t receive positive feedback during your first interviews, then you should pivot and try other business models. But when I told him that upon starting my own business, First Research I didn’t pivot (despite some less than stellar feedback) but instead stuck with my original plan until I landed paying customers, his response was that I was “perhaps lucky” and that I probably did pivot as I went along. (Partially true; I tweaked and improved my approaches.) He said Lean would have improved my chances of success. But would it have?

Please don’t misunderstand me. Lean is terrific, and if you’re starting a business, you should become aware of its methods and read Eric’s book. But there are Achilles’ heels you should also be aware of. Here are a few:

  1. Customers are not visionaries: Lean heavily relies upon asking potential customers what they really want, and then changing based upon their feedback. Yet Steve Jobs famously said, “We built [the Mac] for ourselves. We were the group of people who were going to judge whether it was great or not. We weren’t going to go out and do market research. We just wanted to build the best thing we could build.”[i] Jobs isn’t alone. Henry Ford once said, “If I had asked people what they wanted, they would have said faster horses.” The best-of-the-best entrepreneurs are visionaries and have good insight (or instinct) into what business models will work and which ones won’t. This is the “sixth sense” for business. So sometimes good ideas require your own intuition (not a future customer’s intuition) and most of all, the persistence to see them through to success.
  1. Giving up too soon may be a mistake: Lean relies upon “rapid” discovery and avoiding pouring good time and money after bad ideas. Yet the truth about when to give up on your idea or aspects of your business model may rest somewhere in between. Sometimes persistence is the trait that makes founders successful, and I can validate that from my own startup experiences. The key is knowing the difference between when your idea is a good one…despite poor feedback…versus when you should punt because the idea simply won’t work.
  1. “Early adopter” customers are hard to find: Lean heavily relies upon conversations to validate or invalidate your assumptions. But “early adopters” or “innovators”– those who are quick to try a new idea– are rare. Some studies show that only 2.5 percent of people fit into this category. So when you try interviewing the other 97.5 percent, how capable are they of validating your assumptions? Often times, you have to educate the market that it has a problem and that your product will fix it. This process requires lots of time and finding a few early adopters who are willing to be on the leading edge of change.
  1. There are no set formulas for starting a business: Many aspects of Lean rely upon data accumulation and scientific-type methods. Yet start-ups are more like art projects than science experiments; they are fluid, and each one is created subtly or profoundly different from another. Any founder must apply multiple experiences and thought processes to make it successful. Lean methods are good, but so are other strategies such as persistence or releasing a finished product.
  1. You’ll learn the most from your early selling efforts: Lean advocates for lots of interviews and conversations before you invest much money into a prototype. This is a fine idea, but you can only learn so much from talking to people because, as I’ve discovered, each person will say something completely different from another. Maybe I’m old-school, but the best way to learn is through trying to sell your product or idea. When you ask for people’s money, that’s when you get true objections and honest feedback.

At the conference, an executive form GE articulated how Lean greatly improved the speed and efficiency by which that company introduces new products. I have no doubt. But what’s good for GE may or may not be good for you if you’re starting your own business. There are many ways to go about it. I’m not saying that Lean isn’t a good way to build a start-up… but it definitely isn’t the only way. And while Lean may be hot, it can be touched. Stop. Hammertime. Oh. Oh-oh. Oh. Oh.

 

[i] “Playboy Interview: Steve Jobs, by David Sheff, Playboy,” Longform.org, August 28, 2015, http://longform.org/stories/playboy-interview-steve-jobs

Why Entrepreneurs & Bigwigs Just Don’t Gee-Haw (Google it)

“Between stimulus and response, there is a space. In that space is our power to choose our response. In our response lies our growth and our freedom.”

–Viktor Frankl, Man’s Search for Meaning

 

Perhaps I’m the one with the problem, but I just need to get this off my chest…

In September, venture capitalist Jim Goetz spoke before more than a thousand curious people at the CED Tech Conference in Raleigh. Goetz is a partner with Silicon Valley-based Sequoia Capital and for two years running has been voted Forbes Magazine’s “Midas List” top VC investor. In the start-up world, he has rock star status. Goetz has invested in some big-time winners like WhatsApp, Hubspot, and Jive. But after his talk, I was left feeling a bit disgusted. It wasn’t because of his comments, and it wasn’t the conference itself. Goetz’s advice was thoughtful, useful, smart, candid, and thoroughly interesting. The conference itself was amazingly beneficial.

What rubbed me wrong was how it all went down while Goetz was on stage. Let me set the scene. The “fireside chat”-style Q&A speech format turned into a “corporate and political-gain session.” Barf. Only dignitaries were granted the privilege to ask questions. There was the governor, the state’s treasurer, the divisional president a Blue Cross and Blue Shield, the head of the 16-campus North Carolina university system, the chancellor of UNC Chapel Hill. Shall I go? Oh, oh, sorry—there was one token student who’d earned her way to the stage for a question. Each dignitary was formally introduced, their rear end was dutifully kissed, and then they waltzed onto the stage. Once on the podium, each read their sycophantic remarks, bragging upon whomever they were representing, and then they finally asked their well-phrased, pre-written questions—clearly scripted by their PR staffs. Norovirus-caliber barf.

What’s my point? you might be wondering. My point is the irony arising from the spectacle. Many entrepreneurs’ primary motivation to start a business is to escape big-business mentality, arrogantly-bragging-upon-their-organization mentality, contradictions between what they say and what they do, over-the-topness in general, and their sickening overuse of clichés and platitudes (e.g., “Innovation is at the core of who we are as an organization”—could a’ fooled me).

deerMany (not all) entrepreneurs’ main inspiration for starting their business isn’t because they want to change the world, or because they have discovered some wiz-bang idea; it’s because they saw the corporate bullshit wherever they previously worked and wanted to get the hell out. That was one of my top motivations in starting First Research, and I’ve interviewed plenty of other founders who had a similar stimulus. One, Wes Aiken, who started hugely successful Schedulefly, was motivated because he was sick of the BS at First Research (i.e., management team meetings, corporate retreats, HR policies, etc.) and wanted to escape. It’s difficult to escape the BS cycle unless you have the chutzpah to strike out on your own and determine your own career destiny.

Researchers have investigated what it is about founders that makes them do it. Some have concluded, throwing up their hands, that what makes entrepreneurs tick is simply a mystery. Management guru Peter Drucker points out: “Classic economists …including the Keynesians, the Friedmanites, and the Supply-siders… cannot handle the entrepreneur, but consign him to the shadowy realm of ‘external forces,’ together with climate and weather, government and politics, pestilence and war, but also [with] technology.”[i]

Others have identified what they believe are the “essential qualities” of entrepreneurs. One of the most respected investigators, Manfred E.R. Kets de Vries, clinical professor of leadership at INSEAD, one of the world’s finest business schools, is the author, co-author, or editor of more than thirty books and 300 papers on the psychology of entrepreneurship. In his influential 1977 paper, “The Entrepreneurial Personality: A Person at the Crossroads,” de Vries writes that entrepreneurs often struggle to succeed in mainstream business and have defiant, odd-man-out personalities: “He is perceived by other people as a ‘deviant,’ a person out of place, frequently provocative and irritating because of his seemingly irrational, non-conformist actions and provocative ideas.”

Bill Aulet, senior lecturer on entrepreneurship at MIT’s Sloan School of Management, when asked in a CNBC interview what the stereotypical entrepreneur is like, also highlighted how iconoclastic and headstrong entrepreneurs are: “First of all, they have the spirit of a pirate. ‘We’re doing things differently!’ They disrespect the existing authority. And this is what we at MIT call ‘creative irreverence’ or ‘taking on the man.’”[ii]

I’ve found this to be true of many entrepreneurs, and I myself struggled with the constraints of corporate management described by Kets de Vries. So next time you see some corporate-gaining pundit on a stage, channel your frustrations by starting a company. Everyone wins!

Oh, and what’s an alternative to having the dignitaries parade up on stage and ask Jim Goetz questions? Crazy idea here: just let real entrepreneurs causally ask Goetz whatever they want. I’d be very surprised if they opened each question with a PR announcement bragging about how innovative they are. That would save us all a bunch of time AND make the session something much more than an eye-rolling/snore-fest.

[i] (Drucker 1985)

[ii] CNBC video interview online: “Entrepreneurship guru: ‘Need the spirit of a pirate’ Thu, 8 Aug ’13 | 6:35 AM ET

 

 

How Madonna, Teddy Roosevelt & Kenny Rogers Bolstered My Start-up Mojo

Starting a new company rarely goes as planned. The trial and error process of finding anyone who cares about your new product can be embarrassing, lonely, and downright disastrous. My first six months of starting First Research in 1999, which was sold eight years later to publicly traded firm Dun & Bradstreet for $26 million, began just that way….

The brutal honesty of youth

The asphalt radiated a fierce sun as I lugged my electronics back to the car. Sweat pouring, I felt as desperate as Jerry Maguire, Tommy Boy, or Willy Loman in Death of a Salesman. Wearing my best suit and well-prepared to make a presentation, at age 30, I had gotten myself laughed at by high school kids. Something felt as inevitable as death here, but I was confused about where I’d gone wrong.

Six months earlier, though, I felt like I’d invented the light bulb. Dubbed First Research, my fledgling company developed easy-to-comprehend industry reports designed for salespersons to use as background before approaching a client in a particular industry. I was certain this would be the next big thing.

So in 1999, I quit my job selling for a bank and convinced a partner to write these sales-friendly industry reports. Though I was originally confident I would soon be raking in the dough, reality set in, and I saw my plan going nowhere. For more than six months, potential buyers of my industry reports rejected the product: “Our salespeople are experienced and already know about the industries they sell to.”

What? No, they don’t—that’s the problem! I knew I had the solution, but denial and universal rejection were making me frustrated—and then scared.

Yet I pressed on and regrouped, figuring at least I was trying to turn my idea into a real company. If my original plan of selling to salespeople didn’t work, fine; other markets would appreciate my valuable industry reports. Somebody told me that high school business classes might need them. That seemed a reasonable market—our reports were easy-to-read and certainly educational.

Hours spent making phone calls and writing letters led me to the business curriculum director at the Board of Education. His drab office was small and stuffy with paper files stacked on every flat surface, even the windowsills. I explained the relevance of First Research industry reports to his classes’ work.

“Well, you know we have limited budgets just now,” he said. He was telling me this rabbit hole was a dead end, but I had a one-track mind: I would make this work. Through force of will, I convinced him to allow a class of students to pilot First Research.

Hoggard High School, in the relaxed coastal town of Wilmington, North Carolina, is a brick pillbox surrounded by treeless, sandy soil and a trackless parking lot. On this day, the place simmered in an early-autumn sun. Two thousand students were changing classes when I got out of my car. Almost twice their age, I was dressed for success in a dark blue suit, pressed white shirt, and red power tie. I chose a likely teen and asked her the way to the principal’s office.

After signing the visitor log, I found the Intro to Business classroom—a trailer stuck out in the parking lot. Stumbling into these cramped quarters, I introduced myself to the teacher, Mrs. McAllen, a heavy-set woman in her mid-40s. “So you’re the salesman I’ve heard about,” she said with a wry grin. “Okay, come on in—you’ll get your chance in a couple of minutes.”

I took a seat in the back. For 10 minutes, she talked about assignments. Every so often, a student’s eye grazed my way, then moved off. Finally, Mrs. McAllen introduced me.

“Attention, class. CLASS! Listen up! We have a guest speaker today. . . . What was your name again?”

“I’m Bobby Martin from First Research.”

“Class, Mr. Martin is going to tell us about his software.”

Software? Oh boy; this may be a tougher sell than I anticipated.

I fumbled around connecting cords from my laptop to my portable projector. Mousing and snickering, the students didn’t sound at all ready to listen up. I looked out at the group, but no Mrs. McAllen—she was long-gone, probably to the teachers’ break room.

“Hi, everybody. As your teacher said, I’m Bobby Martin from a new company, First Research, and I’m here to show you something exciting.”

I broke into a 15-page PowerPoint deck with slides more suited to a trade event, even though I’d titled one of my slides, “Benefits for Students.” Apathetic to these benefits, the students talked throughout my presentation. Periodically, one or two looked up, confused– “Why are we doing this?” on their faces. Perhaps worse, a couple of them appeared to feel sorry for me.

The trailer was hot and airless. My mouth was dry. In the back, an all-American in a polo shirt and khakis asked, “Excuse me, sir. What are you talking about?” Laughing and slouching in a chair, his buddy jabbed him on the arm.

I chuckled and shook my head. Sweat had officially saturated my shirt.

“Hey, everybody! I’m telling you, YOU NEED THESE REPORTS…AND THEY DON’T EXIST ANYWHERE ELSE!”

After 15 minutes of awkward, borderline abusive, interaction with the students, game over. They didn’t want my industry reports and wouldn’t use them to learn about the various industries in our economy. I disconnected my cords, packed up, and slunk out, my pride bruised and my enthusiasm squelched. No one seemed to notice.

After several months of experimenting with product and selling choices, some good ones and some bad ones (like attempting to sell First Research to high school students as a cooler kind of textbook), a few early adopters purchased my industry reports. As I originally had suspected, my product WAS a viable idea!

Surviving a maelstrom of criticism & self-doubt

From speaking with dozens of other successful founders, this type of story is all par for the course. You may have your own similar stories. Here is some fitting advice for surviving–mentally, physically, and financially– while you experiment.

  1. From Madonna: “I laugh at myself. I don’t take myself completely seriously. I think that’s another quality that people have to hold on to … you have to laugh, especially at yourself.” A study in the journal Emotion says that people who are able to laugh at themselves are more cheerful and healthier. These early start-up disasters are badges of honor and make for great stories (and blog posts) down the road. I love this story from Hoggard High School because today, with the benefit of hindsight, it was a valuable lesson learned, and it’s pretty damn funny to picture a sweat-soaked 30 year-old man in a suit getting laughed off the stage by a bunch of teenagers.
  2. From Teddy Roosevelt: “It’s not the critic that counts… The credit belongs to the man who is actually in the arena, whose face is marred by dust and sweat and blood.” So know this is what it takes –learn to mop your sweaty brow and brush off that dust.
  3. From Kenny Rogers: “You’ve got to know when to hold ‘em, know when to fold ‘em, know when to walk away, know when to run…” Trial and error is part of the game, but so is knowing when to stick it out and try harder on your current path versus quitting and trying something else. I gave up on selling to high schools right then and there. Trust your gut instinct.

Gut Check: Should You Accept Startup Money From Friends & Family?

cash

In an Entrepreneur Magazine article “Why Friends and Family are Your Worst Business Enemies,” CPA and attorney Mark J. Kohler advises, “…I typically recommend my clients not invest with close friends and family.”  Entrepreneur Michael Hess’ article in CBS Money Watch entitled “5 Dangers of Doing Business With Family and Friends” offers good reasons to avoid it as well: “The business comes to the family picnic,” or, “There’s collateral damage.”

I won’t refute this advice. Yes, founders should ideally avoid raising money from friends and family (f&f), but starting a company is rarely an idealistic journey.  Raising money to start a company is insanely challenging. Plenty of successful founders I’ve interviewed raised cash from f&f to get started. Moreover, what if f&f are your only viable funding option? What if your f&f have offered to invest, and it feels ok? Is it ok then?

That choice is up to you. I’ve made four f&f investments myself, one with my family and three with friends. I’ve interviewed dozens of successful founders who have raised money from f&f. If you decide to go for it and ask your f&f network to literally buy into your startup, here are some tips and best practices:

  • The best investment type is “love money”: Bob Young used love money to launch $1.8 billion Red Hat Software and describes it this way: “Love money is precisely what it says, which is that people are investing in your business, not because they know anything about your business, or because they think you’re clever; they’re investing because they love you.” By accepting “love money,” you have to treat it like receiving a gift because they aren’t betting on you or your proposed business—but instead they’re hoping you’ll succeed because they love you. There’s absolutely nothing wrong with taking love money if you follow these other tips and best practices as well.
  • Mention the investment request upfront: Never request a meeting with a friend or family member in order “tell them” about your business idea, and then at the meeting, ask that they invest. It puts them in an uncomfortable spot. Instead, I recommend communicating something like this: “Hi Friend/Family: I’m starting a new company and raising money. I would rather have a great friend/family than an investment, so please feel no pressure. Would you be willing to meet with me to learn more about it? If you’d rather not get involved in my business ventures—I’d totally understand.”
  • Invest a majority of your own money first: Make sure you tell friends and family members how much of your own money and sweat equity you’re investing. Also, make sure they know that their investment isn’t paying your salary. Take a night job before you accept f&f dollars to pay your salary during startup.
  • Never accept large amounts from f&f: Professional golfer Michelle Wie once told ESPN, “If someone wants to give you, like, $100 million, it’s hard to say no. But I don’t want to accept that kind of money right now. I’d feel burdened by it.” Michelle’s sentiment is quite wise – you don’t want the pressure of having to return investment money to those you love. The perfect f&f investment amount could be landing $15,000 from five relatively financially well-off individuals, $75,000 total. Each would invest with the caveat that the money can easily be gone forever, and without any ramifications that would impact their savings, retirement, or spending in any significant manner. You don’t want f&f to feel their potential investment loss is a financial hardship.
  • Decide upfront about “follow on” investing: The trouble with f&f startup investing is that rarely is the first round of investment enough. No seriously—like almost everyone predicts they’ll need, for example $75,000 to start but then wind up needing $200,000. Who do founders beg from when they run out? The initial investors. I actually believe that deciding upfront about how to handle the next round is more important than avoiding f&f investing. For most situations, I recommend you decide upfront that you won’t come back to f&f looking for more money because if you do, their “love money” may easily evolve into something other than love (resentment or frustration, to name a few).
  • Give f&f a fair deal: If you’re selling f&f shares in your business, give them a fair deal without them having to negotiate with you. In other words, don’t value your “idea” at a huge premium. Instead, keep your valuation realistic based on the amount of time and money you’re investing. Sure, your idea is worth something, but probably not $3 million! Also, ask a qualified corporate attorney to protect their interests by way of a shareholder agreement—and always make sure you have one in place before accepting f&f funds so there’s an understanding of how the business’ governance works.
  • Keep f&f off your board of directors: Make sure f&f don’t join your board because that could put them in the awkward position of taking sides or, in a worst case scenario, having to vote to fire you. Better to make the only “business” you do with them be accepting the money, and having conversations about your journey over coffee, lunch, or dinner.

The most important tip is to trust your gut. Before ever mentioning to a friend or family member a potential startup investment, you’ll probably instinctively know whether or not it’s a good idea or not. Trust that judgment before any of my or anyone else’s advice. But starting a business is tough – so never completely nix any funding strategy.

3 Tips for Navigating Your Start-up Without a Compass

plane
I recently spent two days hiking, fly-fishing, and talking business in North Carolina’s Blue Ridge Mountains with Lee Demby, successful co-founder of Boardroom Insiders, which provides sales professionals with high-quality profiles on more than 8,500 executives. While trekking up and over 6,000-foot Grandfather Mountain, near the summit, we stumbled upon eerie wreckage of a 1978 single-engine plane that killed its pilot. The pilot was flying in whiteout conditions, didn’t have proper instruments to navigate, became disoriented, and smashed into the mountain. The wreckage is a cruel reminder of the difficulty of navigating when you can’t see what’s ahead.

A journey with no roadmap

One of the most difficult aspects of starting a new business is navigating blindly – feeling as if you’re in whiteout conditions. With little data and history to help you, you’re forced to make educated guesses about which processes will work well, and which ones won’t. You want to avoid crashing into the side of a mountain.

During our trip, Lee and I were facing this dilemma ourselves. We were trying to answer the simple question: What’s the most efficient, effective method for Boardroom Insiders to get new customers? Boardroom Insiders already names Citrix, Microsoft, and Cisco as a few of its marquee customers. But how can Boardroom Insiders grow even faster? We contemplated trade shows, partnerships, cold calling, marketing campaigns, and an array of other ideas. Trouble was, as a new firm, Boardroom Insiders has only so much evidence as to what has worked in the past. Mind you, Lee’s one of the sharpest, most calculating founders I’ve known, so the process is clearly difficult.

Here are some tips for navigating your own start-up in whiteout conditions:

  • Don’t shy away from the challenging conversations: Finding the best answer to problems isn’t supposed to be easy, so devote the time and energy needed to dig in with your partners and advisers and figure it out.
  • Seek out and “calibrate” the advice of experts: I wasn’t the only person from whom Lee sought advice. He’s chatting with dozens of experts. “I calibrate each conversation based on what I know about the person’s background, experiences, and biases,” Lee told me.
  • Measure, measure, and measure: Right from the start, measure and document as much as you can because the data will be useful later. Use CRM systems or other sales automation tools to track key performance indicators (KPIs) such as sources of leads, costs per lead, conversion rates, cost of sales, and other applicable stats.

Taking these three steps opens up the clouds and provides you some instruments to better see where you’re going.

Fellow Entrepreneurs: Don’t Drive Past the Lemonade Stand

stand

My kids, ages 7 and 10, have become lemonade stand entrepreneurs on beautiful spring days. They paint creative signs, scream at passing cars, and learn what it takes to earn 25-cents a cup. But I’m amazed at how many cars wiz right by—hardly turning their necks to look, much less stop. These busy drivers are missing out—there’s a positive vibe when you stop at lemonade stands. The process only takes a second, yet you gotta adore seeing the sparkle in a young child’s eyes when their customers tell them, “Your lemonade is AMAZING!”

The same positive energy is created when meeting with a new, aspiring entrepreneur. Never ignore a would-be entrepreneur’s request for a meeting. Give them a shot. Hear them out. Help them discover the positives in what they’re trying to do. Give their free trial a whirl. Offer them advice. Spread the word. Encourage them.

Goodness knows, we all need the help when starting out. I certainly did when I started First Research, a provider of industry profiles for call preparation. I’ll never, ever, ever forget where I was standing on Front Street in Wilmington, North Carolina in 1999 when CPA Steve Johnson became First Research’s very first customer. “Sounds like a great idea,” he said. “Do you have one on food distributors? Send it to me; I’ll give it a shot.” And he did. The rest is history. Steve’s encouragement got me through some dark weeks. Steve, thanks for your support.

We should all strive to be more like Steve Johnson and agree to hear out new entrepreneurs, and also go out of our way to help them. Doing so is not only good for them—it could be good for you as well. When that entrepreneur’s idea makes it big, wouldn’t it be a great feeling to say, “I was the first person to try out this product!” or, “I was an early adopter.”

Don’t drive by the lemonade stand. You never know what might happen. Plus, who couldn’t use some liquid refreshment (and good karma) on a warm day?

Don’t be a Scrooge—Why You Should Reward Your Entire Team

 

graphic for blog 5I was struck by James Surowiecki’s mention in a recent New Yorker piece, “A Fair Day’s Wages,” that when Henry Ford increased wages for those on the assembly line building the Model T, employee turnover and absenteeism decreased dramatically and profits went up. Surowiecki also highlighted that Trader Joe’s and Costco have credited paying higher wages with increased sales. I’ve seen this also with a firm I admire and have been studying, software giant SAS. Its founder, Jim Goodnight, who owns roughly two-thirds of the privately held firm, and can reward employees pretty much as he pleases, has from day-one unselfishly shared the wealth with his entire team by offering generous benefits. The employees, in return, have rewarded SAS, almost never quitting. The low turnover has greatly increased profits.

Business management expert and author Peter Drucker famously suggested that a 20-to-1 salary ratio of CEO pay to average salary at a firm was a threshold above which a company will be afflicted by the corrosive effects of employee resentment. In 2013, the average ratio of CEO pay for the S&P 500 was 204-to-1, and that was up 20% from 2009. We’re moving in the wrong direction.

If you’re building the next GoPro, Facebook, Tesla, Twitter, or Uber, share the wealth with your entire team. This doesn’t have to be in salary. Start-ups are in an optimal position to pay bonuses, in part because they’re subject to less regulation. Set goals and reward people well for achieving them. The key is to make the goals realistic and your communication about them positive. Don’t make people feel like this is really a way of holding their feet to the fire or that you’re pitting them against one another.

Here are some great strategies for making sure everyone is inspired by bonus offers so they’re a win-win:

  • Variable Bonus: Each employee receives the same bonus percentage of their base pay if the goal is achieved, plus escalations if it is exceeded.
  • Team Bonus: Each employee receives the same amount of cash, plus escalations.
  • Profit-Sharing Plan: Pay all or part of the bonuses into a plan that you then divvy up equally.
  • Add Attractive Benefits: Invest some of the new profit into gym memberships, better health care coverage, more vacation time, or an upgraded 401(k) plan.
  • Creative Benefits: How about for the next year, all employees end their workday on Fridays at 3 p.m.? Or, upgrade your office space to be more employee-friendly?

Or if you do want to raise salaries instead, why not raise all of them by, say, eight percent, including executives, rather than 10 percent for execs and 3 percent for everyone else.

Whichever way you go, make the amount meaningful. Just think about how your team would feel if you gave them bonuses like those awarded to the whole staff last year by etailinsights. I spoke to founder Darren Pierce, who told me because the team exceeded its goal, each employee received a $5,000 bonus check.

Bravo. Charles Dickens would be impressed.

An Entrepreneur’s Moment of Truth

…In which a successful founder turns down $250,000 to get what he really wants

In 2006, programmer Wes Aiken started Schedulefly, a clever online program that allows independent restaurants to organize employee work schedules. He invested no money to start it, but in 2008, he teamed up with co-founder and Harvard-grad Tyler Rullman to figure out a business model to make it profitable. Skip ahead to today, and Schedulefly is growing fast with nearly 5,000 indie restaurants loving the service.

But Wes’s moment of truth came three years ago, in 2011.

Wes’s second partner, marketer Wil Brawley, received a phone call from a restaurant chain executive requesting a proposal. He’d heard about how well Schedulefly was working at several locations and was interested in deploying the service to his other 1,000 locations. But to do so, he’d need additional technical requirements, perhaps integration down the road with the chain’s other computer systems, pilots, master service agreements, and lots of individual attention.

The Deal of a Lifetime?

Initially, Wes and Wil were elated with the big, breakthrough opportunity and started writing up a $250,000 proposal. But the proposal got them thinking about what all had to be done to serve this big customer and how it would change their business’s focus, which was serving the specific needs of indie restaurants. So they told the executive “no thanks” and referred him to their competitors. He was flabbergasted that they’d turned him down, so much so that he went dead quiet for a moment in disbelief. But then he told Wil he admired their position.

Be the Best At What You’re Good At

You can read more about Schedulefly’s decision in its blog post, “We left $250,000 (and a million headaches) on the table…” The crux for them was that they wanted to stick to what they’re best at — serving individual restaurants — and to maintain their own balanced lifestyles, which that tight market focus has afforded them. This has turned out to be a smart business decision because since then, Schedulefly has been able to keep its software simple for its users—which is exactly what indie restaurants want. Their customer satisfaction has fueled strong growth mostly through word-of-mouth. Could the company have added all those customers had it taken this big deal with a chain? Probably not.

Bigger Isn’t Necessarily Better

Taking on big customers isn’t always a good thing for start-ups. First, consider the dangers:

  • The needs of this big new customer (BNC) may differ from those of your larger base of customers and lead to your larger base being less happy with your product.
  • The BNC may start to dominate your time.
  • The BNC may gain enough leverage to negotiate less favorable terms for future sales.
  • If the business of the BNC goes away, you may be left high and dry.

The key takeaways for all aspiring entrepreneurs from Schedulefly’s moment of truth are:

  • First, you can be successful without chasing each great deal that comes along.
  • Second, serving a niche market allows you to cater to your customers’ specific needs.
  • Third, you don’t have to grow exponentially; you can growth perfectly well from a strong niche base of loyal customers.

As the above referenced Schedulefly blog post concludes, “It’s 10:52 a.m. on a Friday. Rather than working through a rollout plan right now, I’m going to take my kids to the park.” I think that says it all.

Game, Set, Match: Why My Salesperson Whoops Your Customer Success Team

Brian de Haaff’s recent LinkedIn post “Why This CEO Will Never Hire Another Salesperson” earned serious PR for his two-year-old roadmap software company, Aha!: half a million views and 2,300 comments. He says the post is his “first volley in a healthy debate.” Brian, chase down this top-spin lob if you can.

Instead of hiring commissioned salespersons who carry a quota, Brian says that Aha! has created a Customer Success Team, a group of well-compensated employees who take care of prospective customers. From my understanding, Apple Stores don’t compensate their salespersons with commission either, and for me, the experience there has been strikingly warm and easy-going. So it’s not a bad idea. But does that make it best for your firm?

Brian says buyers of emerging technology want relationships, authenticity, collaboration, and information, strongly implying commissioned salespersons can’t provide these things. Though he doesn’t blame them, saying “It’s not them though and they should not be blamed, it’s how they are motivated that’s all wrong.”

Many high-tech firms do push products by investing in huge marketing budgets for driving sales leads, and their Sales VPs must hit their revenue targets each month. This has created some brutal sales cultures. You know the drill, “… first prize is a Cadillac Eldorado … Second prize? A set of steak knives. Third prize is you’re fired.”

A friend of mine, who wishes to remain anonymous, worked as a commissioned sales rep for a well-known high-tech firm and had this to say: “Their ‘Core Values’ are meaningless. They certainly don’t practice what they profess, and all they care about are the numbers and not their employees. You don’t go home unless you have booked a certain amount of demos or made 150 calls. There was no value-selling. ” I couldn’t agree more that this way of working with commissioned reps is all wrong.

But I’ve hired dozens of commissioned salespersons who’ve been great relationship-builders, authentic, collaborative, and informative. I’ve started two firms, First Research, provider of sales and marketing-friendly industry profiles, in 1999 (sold in 2007 to Dun & Bradstreet), and Vertical IQ, a similar firm, which launched in 2010. These sales professionals are patient and don’t push products. We don’t hold them accountable each week, month, or quarter to hit some arbitrary sales number. They work hard to make sure customers are successful, which is why Vertical IQ has a 98% renewal rate. And guess what? They earn commission for making existing customers happy as well. But they also have challenging jobs because we don’t raise capital, and therefore, we have small marketing budgets. They must work hard to find their own leads, cold call, listen carefully, run successful pilots, and manage the complexity of a negotiation. Selling like this is a unique skill, and most aren’t cut out for the difficulties that go along with it. I doubt I could attract this type of salesperson if they worked for a set salary. I doubt they’d think it was worth the heartache and disappointment that come along with this type of job. In a way, they’re entrepreneurs themselves—constantly battling risk versus reward—perfectly aligned with the goals of the company’s owner.

So if you’re an entrepreneur or an aspiring one, think about the perspective of those who provide you advice. For this issue, you now have two perspectives: Brian de Haaff’s and mine. I have no problem sharing the revenue I receive as an owner with the salesperson when they land another happy customer. And guess what? Our customers are happy. So are we.

21 Things I Want in a Co-Founder

In her 2002 song, “21 Things I Want in a Lover,” Alanis Morissette lists among them, “Do you derive joy when someone else succeeds? Do you not play dirty when engaged in competition? Are you uninhibited in bed, more than three times a week, up for being experimental?

She wants a lover, but she wants a certain type. Likewise, many entrepreneurs want a co-founder, but a certain type. In a study I’m conducting about how good ideas become successful firms, 85% of the successful start-ups had more than one founder. So there seems to be an advantage in having one, but how you do you find a co-founder with the traits you want? Alanis provides us a helpful hint, noting that her “21 things” are “not necessarily needs but qualities that I prefer.”

When it comes to choosing a co-founder, as with any meaningful relationship, you can’t always get exactly what you want. Let’s face it; all human beings have weaknesses and differences. However, you can do a better job if you take the time to consider the traits that are most important to you. For example, is he or she aligned with your way of thinking about business and the future?

To mimic Alanis, here are 21 things I choose to choose in a co-founder:

Do you derive joy by solving problems? Do you like working 40-hours a week because that’s enough work to still succeed? Do you have lots of intellectual capacity but understand that it alone does not equate to building a great company? Do you see big corporations as the enemy but still respect their roles in society? Are you passionate and flexible, open-minded, and don’t believe in taking advantage of employees? Do you derive joy from diving in and seeing a project through just for the love of it? Are you independent and self-motivated, like adventure, and offer skills that I don’t have? Are you creative at work, more than three times a week, up for being experimental? Are you honest? Are you thriving in a job that helps your associates and customers? Are you not money hungry?

If you ‘re looking for a co-founder, I suggest you make your own list. And keep in mind that while it’s impossible to find a partner with all the qualities you want, you can find one that has most of them.

Here’s an acoustic version of Alanis’ “21 Things I Want in a Lover” if you’d like to check it out: https://www.youtube.com/watch?v=z9u5MQqaG0o