Real Markets

With the rhetorical overuse of terms like “let the market decide” being used in campaigns and debates I think it would be beneficial to define what real markets look like and when market forces work. Markets are neither magic nor wise. It is a term that describes the cumulative effect of a number of individual decisions made by real individuals.

I currently live in Cleveland where the economy is particularly bad but there is a very real market. The West Side Market has been a place where indicidual vendors come to compete for market share to a very real and identifiable “addressable market.” namely the very real humans that present themselves, cash in hand.

This market has worked very well for a long time because consumers can go there, review a range of choices for the goods they would like to purchase and make individual and relatively well-informed decisions as to which vendor they will use and what price they will pay.

This all works because the consumer who benefits from the purchase has informed choices.  It is very nearly the perfect theoretical market:

  • Choice with frictionless switching
  • Visibility of options
  • Understanding of value by the consumers
  • Feedback from consumers, usually in the form of switching

Lots of consumer goods end up having to make their way in a market with all these attributes, but most “markets” are not so well-formed and lack one or more of these criteria.  There is no “healthcare market” per se because almost no consumer has frictionless choice, visibility of options, understanding of value or any meaningful feedback except perhaps for lawsuits.  0 for 4.

As entrepreneurs, we often try to play against markets to gain at least initial advantage.  We do this because efficient markets drive down price and when you are starting up this is, obviously, undesirable. Once again, we can point to the  healthcare system as an example of what happens when there aren’t sufficient market attributes in place: prices rise uncontrolled.

Being first-to-market with anything can eliminate a couple of those attributes or at least mute them a bit.  Use this advantage to get to a place where you have what you need to compete in a more mature market (like efficient processes, optimized supply chains, or a ton of brand loyalty) – or even better, cannibalize your own market regularly and at a time of your own choosing.

The last bit that I’ll relate here is that markets have, historically, limited how fast things can increase in value.  If something is increasing in value for an extended period of time at better than 15%, you probably have a bubble caused by an inefficient market.

The New Normal

With regard to Mr. Schwaretz’s article on the “new normal”( NY Times “Jobless and Staying That Way”, 8/7/2010), both camps are right. Unfortunately, the same forces that created the new normal are fuel for the cyclical trends. The cycles are partly a reaction to inefficiency in the wider market; when the world’s wealth is not tied to, or moving in parallel with, value creation. The wrong market players are getting all the money.

Entrepreneurs know ideas are nearly worthless; Execution creates value. I promise that very few, if any, of the investment bankers are executing on tens of millions of dollars of value creation.  They are siphoning.

This continent was settled by the religious but the United States was founded by entrepreneurs.  Entrepreneurs will use whatever infrastructure we give them to build real value.  They will use whatever safety net we give them, like loans and health insurance, to take more risks and try new things.

Who Suffers Most?

There are many versions of the old adage, “When the economy catches a cold, the poor have pneumonia.”

Who's spending and who's hurting?
Who is spending and who is hurting?

A poll on LinkedIn asking about business spending patterns shows a wide range of responses to how much the economic downturn is effecting spending patterns (self-reported) of businesses.  At last look, 100% of those in large enterprises reported that the economy had no effect on their spending, while 76% of those in small businesses report that they are scaling back or operating on necessities.

I hate to be grumpy about this, but I have to make these two points:

  1. An awful lot of money was pumped into the economy – guess where it went. Large enterprise, though it is easy to write just one large check rather than thousands of small ones, do not represent either most of the spending or most of the jobs in the economy.
  2. The small businesses are the ones that innovate, create substantial new value, and are most at risk of failure.

Healthcare socialism would benefit small business substantially. Bail-out socialism helps only those at the top.

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Sales Training for Entrepreneurs

My father always told me that every job is a sales job. That’s at least a little bit true, but in my experience, most entrepreneurs are a little disconnected from their inner

Harvard Business Review offered a special issue on Sales in 2006 (Vol 84, Issue 7/8) that included a number of articles that offers a number of quick reads that should at least help you purge whatever negative image you might have of sales and begin replacing it with an appropriate understanding of where it fits operationally across the life-cycle of an enterprise and as am integral part of the Sales and Marketing continuum.

Psychologist and Anthropologist G. Clotaire Rapaille is interviewed in a piece that presents a concise discription of the sales person archetype as Happy Loser, someone as motivated by the hunt as the kill.  Usually entrepreneurs need to develop rejection coping skills, but they don’t enjoy rejection. Sales people love it…according to Clotaire anyway.

For entrepreneurs, I suggest you learn a few solid basics:

  1. Focus on zebras – Even though your business plan says you are targeting a huge market, chances are your initial offerings will only really appeal to a small portion of the market in a particular place in their life-cycle (there are lots of horses, but you only want the zebras). In marketing, we might develop a persona of the most likely customer so that the sales team can ask just a few qualifying questions to can help determine if they are talking to the right people at the right time.  Remember each sales activity has a cost and spend your budget wisely. You’ll still face rejection for reasons you may not understand, but you can optimize your closure rate and minimize your funnel by maintaining focus.
  2. Mostly listen – The shape of your products and services and the way they are priced should evolve with your understanding of the customer. Listening to the way customers think about your product, what their expectations are, and what created the situation where they are considering your offering are invaluable as market research, engaging as a business development practice, and a time-tested means of closing a sale.
  3. Respond – Remember that “time kills all sales.” Respond in a timely fashion – think about the service you expect in a restaurant, except the tips you’ll get as an entrepreneur will likely be in the form of a positive referral.

It would be helpful for you to have an objective sense of where you are on your sales skills. I love the very affordable assessments available from the managment psychologists at Pradco. For $50 you get an assessment of your skills and attitudes and a prescription for improvement.

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Farewell to a Great Entrepreneur: John Patrick ‘Packy’ Hyland, Sr.

A goodbye to Packy Hyland, Sr

Entrepreneurship is the art form of organization development. All art forms are about synthesizing or transforming or juxtaposing objects from one realm and infusing them with the life forces of talent, vision, and craft to create something new and quite different from anything that has existed before – something with a life of it’s own beyond one’s self. Paint becomes Picture. Sounds becomes Symphony. Ideas become Industries.

Packy Hyland, Sr. was a great artist. He passed this week, but leaves behind a body of work that should distinguish him as a truly great entrepreneur. His most easily recognizable creation, Hyland Software, stands as one of very few unqualified success stories in Cleveland of recent.

While Mr. Hyland has achieved the success that most associate with great entrepreneurs – profit and growth – his greatest accomplishments are harder to recognize. I write this to honor those accomplishments so that they not be lost to the data that tends to define history.

Packy believed in his son and the power of his ideas, ingenuity, and diligence when no one else did. Even as many economies were being transformed by profit margins and efficiency gains that only software could bring, I know that Cleveland remained committed to more tangible industries. Aside from the struggles that all entrepreneurs face, Hyland had to operate within a culture that was not supportive. What’ s more, he was able to generate trust and enthusiasm, against the odds, and craft a uniquely winning culture in a community where it had few compatriots. In his quiet and friendly way, he was as much a revolutionary as an entrepreneur.

I remember the speech Packy Jr. gave to the entrepreneur’s club at John Carrol where he gave out copies of Rhinoceros Success. It was apparent to me by the dazed and confused expressions in the audience, that Hyland was an important revolution that needed to succeed if Cleveland was to survive, but Packy Jr.’s enthusiasm would have long ago been crushed under the weight of the predominant culture and the realities of company-building if not for the specific gifts of Packy Sr. and his ability to almost trick you into being inspired.

Add to this, that once he was successful, he held no grudges against those who doubted him or the city that made his path that much more difficult to tread. He continued to support and encourage Cleveland’s entrepreneurs in the most gracious and generous of ways long past the point where most of us, myself included, have turned away in frustration.

I will always remember my lunch with Packy, Jay Yoo, and Jay’s father at Larchmere Tavern. Jay and I represented an entrepreneurial dream in crisis of both spirit and cash flow. We were the younger generation and we had made some mistakes. The elders at the table bought lunch, imparted wisdom and wrote checks. I have worked in close proximity to dozens of good ideas and good people in search of that one break that will make all the difference when what is really called for is the calm, confident strides towards tomorrow, both cautious and quick. To date, I have never been in the presence of such honest and boundless love and compassion around a business deal as what Packy brought to the table that day. Everything was as it should be. Mentors providing support, guidance and knowledgeable, forthright encouragement that every dreamer needs to make something of real value. I remain in awe of his unique gifts.

It is a magical blend of passion, goodness, and community that always, always, always, sustains the just and their causes. There is no more powerful or beautiful force in the universe and Packy Hyland was one of it’s great practitioners.

Maestro, you will be missed. We will tell your story well and for as long as we live.

How to hire a small staff

Jim Collins has offered me no end of simple ways to describe complex issues to my consulting clients.  His book are full of solid wisdom. I’m sure his next book will be no different, but for the moment I’m all about this article in the NYT about his methods.  Genius – especially his hiring protocol.

Spend more time finding and selecting people. Learn about what makes someone successful in your organization. Get to the point where you can write it down and revise as needed.

90% of management is in the hire.

Predictably Irrational

I find research in human behavior fascinating and constantly applicable to both the BizDevGuy consulting business but also to how I advise our clients.  Marketing, business planning and human resources are complex, if not tricky, because our models and understanding of human motivations and behaviors are, for the most part too simple or sometimes dead wrong.

This article is a quick read about the work of Dan Ariely who is equally genius in business and cognitive psychology.

The Crash of ’29 Redux

There are two factors that I think parallel the present economic crisis with the crash of 1929: credit directed at zero-sum gains and delusional leadership.

Business and markets are not wise.  Both the strategic and daily decisions of businesses and individuals are about the marginal utility of a small set of transactions, on the whole.  As a community, either global or more local, we can decide whether some processes for money making are good for the whole and under what conditions. It’s easy to see in retrospect that loose lending practices, whether for homes, hedge funds, or corp buy-outs, are a dangerous element in maintaining a society directed at enabling individual prosperity.  Only some measure of centralized control can have both the visibility and the leverage to affect the situation. 

It isn’t the job of businesses to determine the effect they have on society on the whole.  As a business leader, you should make every attempt to understand the impact of your decisions of the welfare of your stakeholders and the community in which you operate.  It is imperative that your success, over the long term, doesn’t degrade the context in which you operate. Ultimately, business interests that align their success strategically with the success of stakeholders, customers, and everyone around them will find their efforts supported widely, their success more easily won and multiplicatively more sustainable. As you build your business model, I always suggest that you keep this in mind.  Build a model that makes it easy, if not enjoyable, to support you.

However, we should be content to hope that business leaders are so enlightened.  Clearly, we have plenty of examples to the contrary and sub-prime lending is a solid example.  This crisis was entirely predictable.  Shame on these businesses for driving themselves, and obviously, all of us to this point and shame on us for allowing it.

The inability of the present governmental leadership to recognize areas where rational controls could ultimately benefit all business and therefore society makes matters much worse.  Now all the President can do is speak hopefully about a clearly damaged market and throw money at the situation.

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New Products (Like the iPhone): Announce Early or Go for the Surprise Rollout?

I love when I find a resource that distills a common strategic question down to a few simple calculations. This article on doesn’t quite get to the paint-by-numbers status, but it does lay out a clear set of topics to consider when thinking about your product launch.

Vaporware or surprise attack?

So often your fortunes are dominated by thigs you cannot control, having a checklist of things that you can clearly make some predictions around should help minimize risks and allow you to make a decision with confidence.

Click here to see this article.