The most successful entrepreneurs have some combination of insightfulness, optimism, and luck. Luck can trump the other two and can be enhanced by building a potent legion of friends, admirers, supporters and people who owe you a favor.
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.
Regardless of what size you think government should be (I prefer a government powerful enough to protect the community’s shared interests), the one area where government has consistently played a positive and often powerful role is in the development of infrastructure. Sometimes – nay usually – the costs associated with developing large systems of roads or power transmission or, more recently, information transmission defy the time lines that businesses can operate on. A community (another word for the government) can establish shared resources for a shared gain on a much more patient time line.
This study just released and reported on in TechJournal South supports what many of us have been saying for a long time.
For the last thirty years, the economy has been slowly taken over by [wikipop]pirates[/wikipop], thieves, and terrorists.
The economy – even before we called it that – always had a diverse set of participants. There have always been those who gathered raw materials, those who manufactured things from raw materials, those who traded in things of value and those who financed parts of the process. There have also always been those who made their living by disrupting this otherwise harmonious flow of value, namely: pirates, thieves and terrorists.
Value and Wealth must stay connected
If we go back a few generations – three for me – all these roles were what we would now call vertically integrated. The [wikipop]Quaker[/wikipop] farmers of my ancestry were soloists in the world of commerce, as most people were back then. They gathered, built, and traded and maintained a keen sense of the market value of things because they lived and died by it. When things are on this simple level you can depend on “market forces” to keep the market players in line. Another way of describing those market forces is to say that wealth (things that represent economic possibilities like having 1 dollar in your pocket or owning something you can sell or use) must move somewhat proportionally to value. If you make something more valuable you see more return. Defining value can be squishy and fluid – you know this if you are underwater on your mortgage. Lots of factors effect value. During a drought a gallon of water can fetch a better price than during a flood. The newest iPod that retails for $249 is worth lots more than a new, still in the original packaging iPod that retailed at $249 two years ago. Under the right circumstances you might say “My kingdom for a horse.”The point is that a healthy capitalist economy requires that value and currency flow roughly together. When they don’t, bad things happen.
If you are a farmer who has just sold your crop at a market, but get robbed on the way home, you no longer have the capital to grow the next crop. That farmer suffers most, but everyone else does too. Suddenly there is less of that crop in the market place next year. Costs rise for those who use the crop so funds must be diverted from other things or they buy less of it. If these buyers were making something to sell with that crop they are either making less of that thing, need to charge more for their product, or take less of a profit – the profit that they would use to invest in replacing tools or buying supplies. The ripples flow endlessly.
This is why human societies established law enforcement. Someone needs to stand in the way of these troublemakers or the whole thing falls apart because no one can predict what anything will really be worth.
For me, the economic troublemakers come in three basic flavors: pirates, thieves, and terrorists
Pirates, by my definition, are those who absorb value from the flow of value. They position themselves in the path of delivery, real or virtual, and take whatever crosses their path. They obtain wealth from value transitioning from one entity to another. They tend to be indiscriminate of what types of wealth they take. This is a crime of structural opportunity. The ocean is vast, hard to patrol, and there are lots of places to run after the crime.
Thieves target specific things that they want to have and take them by whatever means.Thieves obtain wealth from things that are supposed to be someplace in particular. Thieves take things out of cars, houses, and, increasingly often, the public coffers. If you were to, say, contract with government, caretakers of the public coffers, to provide a service and that service fails to provide any value, then it is thievery.
Terrorists destroy value. Usually they are a proxy for someone else who sees some tangential gain from the destruction. Destroying someone’s business so yours will have less competition – that is an act of terrorism.
How they took over
If capitalism were a religion, piracy, thievery, and acts of terrorism would be sins. Unfortunately, we have confused capitalism and sinful capitalism. We have come to accept immoral activity that generates profit as acceptable, if not laudable, behavior. The truth is, however, that our willingness to accept these behaviors and not make them illegal or regulate against them, have created a randomness to the economy – rewarding all the wrong people far too often.
Pirates, Thieves and Terrorists have always existed in the economy but today they take new forms. In a large, complex, and mostly electronic economy there are lots of places to hide. If there is no law enforcement in place, pirating or thievery start to look pretty enticing. Particularly pirating, is much easier than trying to create value on your own.
Unfortunately, these forces of economic destruction have grown so large that we have forgotten that they are dark forces instead of the norm. Market forces cannot impact complex transactions. The feedback loop that keeps markets efficient doesn’t exist when the buyers and sellers don’t have any access to understanding their choices or feeling the impact of their decisions. We need other players in the market – regulators of some form – to be the arbiters of safe value.
One way to keep from making the basic mistakes that kill most start-ups is to remain engaged with mentors. Notice the s on the end. A proper mentor can offer a couple of things:
- Expertise in things you are less knowledgeable in (see the Golden Boy sin)
- Perspective on short-term problems: It’s nice to have someone who is not embroiled in whatever you are facing to help you
- Long term dedication to your strategy
- Grown-up logic
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.
HR is nor my specialty, but it is a crucial part of any growing business. I don’t like talking about how to retain people because, in my crusty opinion, if you hire well and are mindful of the culture of the company, people will stay. Problem employees are usually either bad hires (not neccesarily bad people) or great hires in bad situations.
I think you can learn half of everything you need to know about who to hire by reading Jim Collin’s Good to Great. Resume’s, as far as I’ve have seen, can help you weed out people who are clearly inappropriate for a position but, even in this task, I suggest caution. 60% of all people hired find their position based on some personal connection. Part of this is nepotism, but just as often it is really based on persoanl endorsement. I have worked for clients in market segments where I had no previous knowledge, by their definition, and where my resume would have led them to believe I could not be helpful…BUT I was. I get excited about learning new markets and I’m very good a figuring out what I don’t know…and then learning it. Even if I have a strong background in a business model or market segment, I follow many of the same processes to achieve a victory. Ultimately, people hire me because they believe I can bring them a victory (what ever shape that may take). My resume shows that I have had victories (√) but referals are what brings in new clients.
The most common mistake I see is when people try to hire expertise. Expertise is fine and all but we tend to want to hire expertise in an area where we don’t have expertise…which makes it a bit challenging to recognize. There are a number of tests that can now be given to potential new employees to see if they are a good match for a position…but they tend to rely on you already having someone successful in the position to compare to….and the test look more for personality traits than anything you would put on a resume. Industrial Engineers who administer these tests tell me that the reason for this is that the context of a position tends to overshadow the task-oriented aspect of most positions. Being a successfull salesperson in one company doesn’t mean you’ll be a successful employee in another. The impact of the sales program and the nature of the leadership and the personalities that end up in sales support, etc. end up being the driving factors that determine how well the salesperson performs. I have seen this play out far too many times.
My favorite story around this topic comes from a Packy Highland, Jr. I saw him speak to a crowd of entrepreneurs in a town not known for entrepreneurship. The average age in the audience was mid 50s. Packy was in his mid 20s. Packy was already a very successful entrepreneur growing his OnBase product. During Packy’s presentation he mentioned some statistics about the technical certifications of his staff that were very impressive. He talked about how important this stat was to the company’s success. During Q&A someone asked where he found all those highly trained people. Packy said, “We hire people, not certifications. Most of these people didn’t have these credentials when they arrived.”
When asked if he was nervous about training people that leave once they are more valuable he said, “If people are leaving because they don’t feel properly valued and appreciated, then we have bigger problems than employee retention.”
Guy Kawasaki is both an exceptional entrepreneur and an exceptional supporter of entrepreneurs. Rather than the hazing that much of the VC game feels like, Garage has put together some excellent resources for people looking to pitch them. This support includes both clear guidance on how to develop documents that they can easily parse and exacting detail on what sort of deals they are looking for.
I must say, however, that their approach is quintessentially West Coast. I have worked on both coasts (and some difficult years in the middle) and, for me, the differences in expectations and approaches are dramatically different.
I will post an East Coast comp soon.
I found this post by Joe Colopy of Bronto Software titled, The Risk Takers at Phi Beta Kappa.
A favorite excert:
If you want to continue your habit of excellence after graduation, you will have to learn how to take risks—and to fail more often than you’re used to.
It can be difficult for people of exceptional academic accomplishment to transition to accomplishment in business. Quite often academic accomplishment occurs with well defined ends, goals, and requirements. Some corporate jobs are equally well-defined, but innovation and entrepreurship are not. When I am working with a new client, I always begin with a definition of goals and a healthy session about being open to changing them. IN my experience Entrepreneurs with do not have a full enough definition of a goal to make it easy to break it down into tasks and success metrics (so they know what they should spend their limited time on and if it is working) or they are so hell bent on a stated goal (with lots of limiting context) that they can’t maneuver into what will acttually work.
Entrepreneurship is more like experimentation than like studying for a test.