Technology ~ trickling down to change the world…
Forgive a tech veteran’s nostalgia, but today I was reminded of how technology, over time, changes the world bit by bit (sorry, no pun intended).
Back in early 1984, Steve Jobs released a new personal computer, the Macintosh, a “computer for the rest of us.” Talk back then throughout the industry, and later throughout the world, was that the power of personal computing would “democratize” the power of information.
Even earlier, in the 1970’s, the academic and military world began sharing information through the Internet, before the interface Mosaic, in the 1990s, brought us the World Wide Web, the Internet for the rest of us.
Today, in 2011, a little Chinese child abducted from his parents 3 years ago and set to begging on the streets for his new “father”, was found by the Chinese police through a micro-blog set up for just this purpose. This is in contemporary China, a country holding much suspicion and control over allowing Internet access and the “democratization of the power of information” to its people.
There is a reading in the iChing about Water, one of the basic elements (Earth, Air, Fire and Water). The reading is entitled “The Abyss” because water trickles down and around all obstacles in its natural order, seeking its ultimate destination.
Technology anytime anywhere, electronic knowledge sharing, the Internet – these are all our new element, our new Water, trickling down over time, around all obstacles, to the vision first crafted not so long ago – knowledge for the rest of us, for all of us.
The Zen distance of a consultant – a secret to success
Consultants like to get things right, and this often leads them to lose their Zen distance in relation to their client’s and their clients’ teams, and so to over-commit their time and effort beyond their (compensated) scope of work.
This is one of the easiest ways to lose profitability, and to get yourself in trouble with your client.
When you have an in-depth, long term gig with a client, where you are deeply embedded with the team responsible for certain outcomes, you can lose sight of what you, as the outsider/consultant, was hired to do.
You step up to a leadership role. Perhaps this is appropriate, or maybe you are compensating for a manager’s weaknesses, in order to get the project done (and done right) and delivered on time.
At this point, you step into tactical roles and tasks that are not within your scope of work, and which may replace or hide some weakness on the team. Furthermore, you become a de-facto manager, when you were hired to be strategic or to support the team in its efforts.
This gets tricky. Your appropriate role will be to report to your client that you have discovered a weakness in the team, or an obstacle that cannot be overcome without an executive decision (read, interference by the boss), and that the project will not be completed as planned (on time, or on budget, or at all). You can feel like you are ratting out your team members.
But when you, as a consultant, step up and step in to participate in solving the problem tactically within the team, you become part of the slippery slope to failure of the project.
At this point several things happen:
• You lose your strategic value to your client. He did not hire you to be one of his worker-bees.
• You lose your position as trusted advisor to your client. He expected you to consult to him on the strategic needs of his company.
• The project is likely to fail anyway, or fail next time if you are not there to intervene. This is a disservice to your client.
• You spend time (which is not compensated) doing the work of the team members.
• You may fail to perform your other deliverables to this client, because you are doing this tactical teamwork. Or you will over-work this gig to manage all your deliverables and this teamwork, thereby failing to maintain your prospecting for other clients, or closing new clients.
• If this gig fails for any reason, you may not be able to replace the revenue quickly enough to maintain your consultancy’s profitability, because you were not marketing and networking and prospecting while you were working (always your first responsibility to your own business).
The lesson here is to maintain your Zen distance on the work in progress of your client, and to remember that your scope of work was designed for you to take a certain position within and outside of the client company. This Zen distance must allow your client to make his own mistakes – in leadership, in hiring, in management – and even to fail on his own decisions. Your role is to tell the truth as you see it, when you see it, and respect your client’s ability to make his own decisions, and to manage his own company.
This respect for your client, and this distance from the internal conflicts of his company, is a core secret to successful consulting. It allows you to fulfill your role to your client, while acknowledging the needs of your own time and maintaining the goals of your consultancy.
Your digital past never dies
Now, we all know that once anything is on the Internet, it may pass from view, but it never dies. I heard on Marketplace the other day that banks and insurance companies are searching our social networks to see if we drink or skydive, in order to set our risk profile and therefore our likelihood for a loan or transaction, or our rate of payment for insurance. In this year (2011), this report did not seem unusual to me.
But then I was surprised this week: Google Alerts pinged me that I had been mentioned in a current (January 2011) blog within GameSetWatch with a link to a presentation I had given (a keynote in Melbourne, Australia, if I recall correctly) about doing business in China. I was at that time building a joint-venture in Shanghai. The blog referenced that the content of the presentation, linked in an audio archive on gaming, was relevant today, 14 years later!
Now, I do remember the presentation, but I actually didn’t pay attention in 1997 that it was being recorded. And more to the point, it never occurred to me that the recording would be archived and re-surface again all these years later.
I don’t mind. It’s just that I wasn’t aware then, and was surprised again today –even though I was consulting to Internet companies in 1997.
So be wary — not only is what you post about yourself up in cyberspace forever, everything that you do that is digitally captured is available to arrive there, now or later.
Hunger, boredom, boundaries and pricing
A strange effect takes hold when you are underemployed: your idea of your value can weaken. This context can take hold if you are a consultant or an ex-employee.
This context is more complex than just the erosion of your self-esteem. In fact, your self-esteem may be fine. But some or all of these factors may weigh in:
- the hunger for challenging work
- the boredom of unstructured time during the long days
- the loneliness missing a community working towards a common goal
- the loss of your identity of making a significant contribution
- the hope of involvement on an interesting project.
These factors can lead you to make bad choices about where to spend your time, and how to price your worth.
Let’s assume for the moment that you are not against the wall financially – that you still have time to find new gigs or a better job.
Hunger for challenging work or hope for involvement on an exciting project may lead you ignore your better judgment about the doubtful sustainability of an initiative, or the company itself, because the project is interesting (but the success factors may be missing).
The boredom of your long days not knowing what to do when you get up in the morning may lead you to involvement with fun people in a job that sets back your career plan.
Your loneliness and yearning for community moves you to work in a company that is off the path of your expertise, and hinders your depth of experience in your chosen field.
Your loss of identity from not contributing to your chosen field or community may lead you to question the worth of your earlier contributions, and your value moving forward.
All of these factors can lead to weak choices, diminishing career momentum, and the erosion of your pricing structure, setting you back significantly, and perhaps permanently.
I have watched my clients who are consultants accept work for well below their current pricing because they were under-employed and restless, when they found an interesting project that couldn’t pay their established fees. Most folks like working more than looking for work, of course. But the discipline of maintaining your unrelenting prospecting efforts is critical, especially during economic downturns.
The fault in this judgment is that your involvement in a project or a new job rarely remains temporary. You get involved with the work and the people. You stop prospecting because you feel more valued, even in a lesser position or at lesser payment, because the community reinforcement is so stimulating and you have been so restless and bored. You accept this new, lower position and its compensation as appropriate.
And in accepting a lesser position or lesser payment, you set yourself down a notch or two from the level of payment and responsibility that took you years to create for yourself. And as time goes on, you must re-earn that previous position, even when the economy recovers.
I understand the need for challenging work and community support, especially when the down times go on so long. I know how exhausting it is to continuously prospect for new work, to be disappointed when the prospective work is less interesting or lower-paid than you had hoped, and you pass on the opportunity. And then begin again.
But, unless you are desperate for any income, you must maintain your discipline and sustain your effort of 90% or more committed time to client work and to getting new work, leaving only 10% to confusion, loneliness and the administrivia that bores you. To make a weaker choice when you have the option to wait for the best opportunity is to erode the career path that you have maintained for so long.
History is written by the victors, even if victory is simply the survival of your position in your career field. Over your long career, economies will rise and fall, but if you are still standing at your premier value, your community will remember only your consistent success.
What’s your wealth number?
“I’m not going to work this hard for a lousy nickel million.” My client was 27 when he said this.
“So? What’s your number? How much wealth does it take for you to work this hard?”
“$20 million.”
“Before or after taxes?” I ask.
“After taxes,” he says.
“O.k.” I agree.
And after the IPO he had $30 million liquid, available.
I always ask, early in my consulting relationships, what is my client’s wealth number. It allows us to focus our strategies on that wealth creation. I also ask what my client wants that wealth for, and the answers are fascinating. My client with the $30M wanted to build a couple more companies with similar exits, so he could build a significant charity foundation. Other clients want to be free of financial considerations to pursue their other innovative ideas. Still others want to incubate or invest in other startups.
Earlier this week, in a similar conversation, and after relating the story about the nickel million, the entrepreneur across from me said, “I’m happy with $5 million – the nickel is good for me. Even after taxes.” And he smiled. “It’s enough for my family to live safely, added to the savings we already have. I have lots of neat ideas I want to work on.”
I keep a large file of reprints (in paper for the old ones, and electronically for the new ones) called “Thinking.” Trained in philosophy, I’ve been gathering these articles since my university days, on topics that I want to think about over evolving years and decades. You know, like a Favorites tag for Big Ideas.
This morning, I came across an article by Phillip Moffitt, then Publisher of Esquire, in its May 1989 issue, entitled “When $2 million isn’t enough.” The sidebar reads, “Two million dollars isn’t enough. A new magic number has to be created. Now people want to become ‘nickel millionaires.’” This was published before the dot com boom (and bust), and focused on how the 1980s had changed the context of wealth. The notion of a “nickel million” entered into the common lexicon. My conversation about the $20 million took place nearly 10 years later, in 1997 or 1998, as the dot com boom was just beginning.
It doesn’t matter what number each decade believes is an appropriate entrepreneurial reward. It matters that you know your number, and why you want that number and what you mean to do once you gain your financial freedom. We need this concept, and the goal it represents, to keep our focus on what life we want, what we are willing to trade to get that life, and what legacy we would like to leave behind. This number isn’t a dream or a wish – it is an anchor to the real world, a concept that keeps us grounded in our strategies, our choices, our exits (or our lifestyle-annuity businesses) and our real lives.
So, what is your number, and what do you want to do with it, once you get it?
iSuppli’s strategic sale to IHS for $95 million
Congratulations to iSuppli not only on its strategic sale to IHS for $95M last week http://bit.ly/blcJdL, but for creating a company of value and excellence despite the dot com bust, the 2001 economic crash, and the 2008 Great Recession.
The first year (1999), when we were riding the dot com boom, iSuppli’s vision was huge, and its early capital strategy carefully staged. iSuppli’s CEO, Derek Lidow, first recruited a “dream team” of the leading experts from the leading companies in his market sector (I remember interviewing one successful candidate from IBM over that Thanksgiving weekend – the only time he could cross the country to meet with us discreetly). When you hear investors say they invest in strong management teams, this is what they mean.
Over the past 11 years, iSuppli has demonstrated the qualities of leadership and savvy management that have created its value: refocusing its strategic direction after the dot com bust, careful capitalization strategy throughout its 11 years of challenging economic changes, and carefully controlling capital during downturns.
And beyond the financial story, the company created loyalty among its employees (the 10th anniversary party included even folks who had moved on to other ventures, and lasted very late into the night), and consistently kept its focus on creating value for its customers.
And the happy news is that iSuppli’s new home with IHS is both a strategic and cultural fit, with shared values.
All this is easy to say, and challenging to execute. A success story for our times. I am proud to have been a small part of its early days, and favored to have watched its evolution over these years.
Congratulations, everyone at iSuppli.
Due Diligence – from the entrepreneur’s perspective: early & ongoing
For the entrepreneur, due diligence should be early and thorough: at the beginning of capital investment, while building the company, and at the end-game moment of sale. Yes, early and thorough, and not only at the moment of sale.
I want to continue our thinking here on due diligence – from the entrepreneur’s perspective.
I often conduct due diligence for my investor-clients (e.g., Sony, JP Morgan Capital) at the front end of an investment — when they are making early stage investment decisions. The diligence must be rigorous and it must be conducted by an expert(s) who knows the realities of the marketplace and the strategic needs of the investor. Then the investor can get an accurate risk assessment of the investment in that company at that moment in its market space, and understand what must be managed for the investment to succeed. CEOs should be ready with the expected information for such diligence during funding talks.
And I have done due diligence on the investors, for the entrepreneurs — completing 30 conversations in 24 hours with CEOs (from the list offered by the investors) on their experience with this investment group. In one case, this due diligence was so clarifying, that the early stage investors are still with the company 11 years later, and the strategic sale of that company in the hundreds of millions of dollars has just been announced. It is important to know your partners. My conversations with these CEOs who had worked with these investors revealed that we could count on these investors to stay with us for the long run. It was true.
And I have created the due diligence books for early stage clients in preparing them to sell their companies. The result is a series of large 3-inch ring binders of information on everything a buyer wants to know. The system I use answers more than 125 questions on your company. Often we have 15 such binders when we are ready for the buyers.
I once had to create these due diligence books from scratch in four weeks for a new client with three buyers at the door. Nothing had been gathered in the company’s three years, with technology and patents in the U.S. and abroad. It took me six weeks, plus a full time Administrator to do the leg work, plus 25% of a VP’s time. I directed strategy and traffic.
Strategy included my adding the critical information about what information could be seen at what stage of the due diligence process. These stages are “just looking,” after signing a binding letter of intent, and (finally) commitment from the buyers and our revealing of the trade secrets, This “staging” of information protects the company from releasing information to the buyers before they are committed in writing to the purchase, as some of them can be strategic competitors.
After that pressured experience, I began building the due diligence books when my early stage clients are beginning their first rounds of investment. I then continue to update the books, through rounds of financing and up to the time of sale and the buyer’s due diligence. This extra effort in the beginning keeps us much more prepared for receiving strategic alliance and capital, for next-round financing, and ultimate liquidity.
So, yes, entrepreneurs, commit to preparing your due diligence early, and make it thorough, whether the diligence is at the beginning or at the end.
Controlling your client during creative work
Creative work holds an inherent risk of overwork for underpay (that is, no margin, no profit) if you do not control your client’s behavior in your contract.
Say you are proposing to deliver a creative work – perhaps a story bible for an online game, a webisode, a ghost-written book for a celebrity, or a graphic design for a website or marketing piece.
With this kind of work, you are risking many hours of rewrites for which you will not be paid, if your contract does not control the client’s expectations, sign offs and change orders.
There are two risks lurking in creative work, and they are two sides of a single issue: reading your client’s mind and limiting his change orders.
To deliver a creative work, you must pull from your client’s mind what he really wants to see when he cannot show it to you. These ideas are expressed as vague directives, goals, dreams and references to other work. Sometimes, in Hollywood, these references are to “high concept” ideas, like “Godzilla meets Bambi and Bambi wins!” Others are “make it sexy (when it is a software utility) or “we need a world created for these characters.”
The other side of this issue – the manifestation of your failing to read his mind — is the “change order.” A change order is request to fix what the client doesn’t like. It can be as simple as “make the villain more nasty” to “let’s change the gender of the main character.”
Controlling this two-sided threat starts in your contract:
- You specify each deliverable in phases.
- You do not begin the following phase until you have approval, in writing, signed by the client, that he has accepted what you have delivered in the previous phase, and authorizes you to begin the next phase.
- If he has made suggestions, your have documented his recommendations and he has signed off on that.
- You offer several steps of deliverables, each with its own authorization for sign-off. These steps will keep the creative vision and the project on track: an outline of the intentions and goals of the project; research as needed to validate these intentions; delivery of first draft; documentation of client changes and recommendations to the first draft; delivery of final (or next) draft. Each of these phases has the client’s sign off in writing.
- Then you control your client’s expectations: each phase has an estimated time period for your work and delivery. But each phase only begins when you have the sign off and payment from the client. I have seen creatives miss their deadline by promising a final delivery within two months, only to find that the client takes 3 weeks of that time to send back change orders.
- So, for each phase of work, there is a deliverable, a fee (in advance), a request for approval and sign-off, then the beginning of the next phase. The time of delivery is expressed as “X days from sign-off and receipt of fees.”
This system of careful contracting shares the responsibility of the creative course of work, and the timing of the deliverables, between the creative and the client.
Beyond the system, of course, the creative must be strong enough to not begin the next phase of work until he has received authorization and payment for the next phase to begin, despite any pressure from the client to move forward.
Capital Strategies – early planning for capital growth and wealth creation through IP design and channel partner strategies
Creating wealth for founders and early investors involves careful planning during the formation of your company and your technology. Strategies for both intellectual property design and the development of channel partners for reselling should be considered.
The design of your intellectual property is one critical strategy. You should build your technology so that you can retain and protect certain parts of the core IP (your “secret sauce”), while allowing yourself to license out other layers of your complex application to OEM or SaaS customers, and to resellers.
Another critical strategy is planning for your sales and revenue through indirect sales channels (partners, OEMs, resellers, bundlers). With the growth of SaaS technology, I am getting more and more requests to help companies build their channel strategies, so that my clients’ technology can be bundled, integrated and otherwise re-sold through partners. These partners add their own technology or services and need my clients’ technology to enhance their offerings. There are many variations on the deals that can be made, and new strategies for the outreach to reselling partners.
But if the intellectual property has not been designed in the beginning to separate the secret sauce from the applications that can be re-sold, the growth through these new channels will not succeed.
And, as a capital strategy, you may ultimately be able to spin off and sell off a particular application to a buyer with a combination of non-exclusive and exclusive licenses. I often use this selling of a particular application, into a vertical market or a defined territory, as a creative way to infuse new capital into a company without loss of equity.
To do this, the IP must be designed and patented carefully from the beginning of development. This is a case (again) of considering capital strategy, sales strategy and exit strategy in the very early stages of a company’s development, in order to create wealth at the exit.
Creating wealth for entrepreneurs: 3 strategies early stage CEOs don’t think about
Capital strategy, alternative revenue streams and IP to create that revenue are all topics most early stage CEOs omit when starting their businesses, to their later regret.
CEOs know they must raise capital at some point, but they don’t actually engage in the discipline of capital strategy – they just put together their business plan and PPT deck and try to find investors. This approach –intensive as it is – rarely works unless they personally know their investors and have a successful track record on earlier companies.
Strategy for capital raises must create wealth for the founders and early investors. This wealth can be created by an exit strategy (an IPO or a strategic sale of the company) or by an annuity of ongoing revenue when the company does not exit, but simply keeps on making money and distributing the cash to the founders and investors. The decision of how wealth will be created must be taken during early planning, so that the company’s strategies stay focused on that goal.
Alternative revenue streams are built to avoid capital raises (that remove equity from the company) by providing enough revenue to sustain the company without needing outside investment. These revenue streams involve licensing, white labeling, targeting vertical markets or international territories your company will not reach in its initial years, and a raft of creative deal making to extend the coverage of your product or service into areas you cannot reach, to create new revenue. Gaining revenue also keeps you in control of your company and your Board by keeping you in control of your equity.
These deals often involve unusual terms that create a win/win deal between the partners, and that shares the risk between them. I once raised $2.2M in revenue by changing one part of an international distribution deal – thereby eliminating the company’s seed capital round. No equity left the company for that $2.2M. CEOs should spend time on this kind of creative deal flow rather than chasing investment capital, especially in the early stages when capital costs so much more equity.
IP strategy should be structured to support these alternative revenue streams. During the product’s build process, these alternative revenue streams should direct the development of the intellectual property of the product or service (especially SaaS development). The core IP must be protected, especially if certain parts of the IP will be licensed or bundled or OEM’d, or distributed by indirect sales channel partners or resellers. This means designing layers of the product or service (separated from the core IP) which can be safely used with partners to expand your offerings’ reach into new markets or territories or languages.
This brief summary of capital, revenue and IP strategies is just the beginning of conversations I hold with quite savvy early-stage CEOs. A little discipline of this kind can create significant wealth in the long term.