Once upon a time, a 25-year-old carrying an expensive laptop, walked into the cabin of a 40 plus marketing head of an FMCG company.
The marketing head seemed a little confused as the man with the laptop greeted him, handing him a card which read “Vice President – Revenue”. The marketing head and his team were bombarded with a colourful presentation of digital ad formats, internet statistics and reasons why digital advertising is way much cooler than any other form of advertising.
As the marketer tried to digest the information, he was hit by acronyms like CPM, CTR, CPC and CPL. He was possibly too embarrassed to ask what they stood for. Nevertheless, he nodded through the presentation and after a yawn or two in the middle, he disclosed that his budget for a digital marketing campaign was Rs 10 lakh. He agreed to part with half of it on a CPC (cost per click) model, demanding at least Rs 5 per response as the metric for the campaign. The young agency executive shrugged to that as a done deal, shut the laptop and walked out the cabin with a feeling of achievement.
Both sides were happy. The executive was closer to his quarterly target; the marketing head because he could count on 100,000 hits on his soon-to-be-launched brand microsite. The question is: if both sides are happy, why is there a problem in how digital advertising is sold?
To understand this better, let’s look back to what led to the marketing head call the digital agency lead to his office. We are in the year 2013. Facebook India has over 65 million users, YouTube has multi-billion video views a month, all known and not-so-known celebrities have their Twitter handles. There is so much noise about digital advertising that you cannot ‘not’ hear it.
Marketing heads are under pressure from their international headquarters to allocate a certain portion of their budgets to digital, because apparently their competition has just disclosed how well the internet has worked for them for their new product launch. And then, of course, none of the brands want to be seen as an old and outdated by not adopting digital advertising. Now the marketing head has a mandate to allocate some percentage of his marketing spends to digital advertising. And that’s when the call was taken to add ‘digital’ in the marketing budget.
I feel the problem lies in what digital was perceived to be in the above (hypothetical) scenario. After spending some years in the business, I have realised the mistakes we have made in selling this medium to our advertisers:
1. Digital advertising has always been an after-thought in the media plan: Usually digital is expected to be happy with the residual marketing budget, after allocation of spends in television, print, radio and even outdoor. Usually the digital spend is a small percentage of the overall marketing budget, hence advertisers don’t bother with execution till the very end. One reason for this could also be that digital has always been sold as an ‘easy to go live with’ medium. So maybe the thought is: why bother about the execution till the very end? Digital is almost never part of the overall brand strategy but is treated more like last-moment frills.
2. We try to over complicate the medium with complex metrics: Ask a hundred digital sales executives, ‘What is one of the biggest strength of digital advertising’? I bet the maximum answers would be, ‘It helps you track your ROI till the very last paisa with metrics like CPC, CPL, CPA.’ I feel this has become one of the biggest weaknesses for the medium, because marketers only look for ROI thru clicks received or leads generated and leave other important things like brand building to a glamorous medium like television. This is because marketers and digital executives do not usually speak the same language.
3. We try to de-sell other mediums to upsell ourselves and we fall flat on our face. As someone rightly said, 50 per cent of your advertising is a waste – the problem is to figure out which 50 per cent. Now if digital executives think the biggest strength of digital advertising is tracking spends, then our easiest pitch would be to de-sell any medium that cannot do this. But this has been tried and tested, with limited success. Advertising isn’t only about tracking spends, but about building brands. Maybe that’s why there are not many examples of brands built solely through digital advertising.
4. We do not look beyond our circle: There are two kinds of marketers for us – those who have a digital background and understand the medium; the rest don’t. The problem is that usually those who do not get it, are the ones sitting with a bigger chunk of money for their brand building and are generously spending on so-called traditional media. Unfortunately, for us unless these two kinds of marketers come together, the much awaited tipping point in digital advertising won’t be reached.
5. The industry structure is too complex: We have digital design agencies, search marketing folks, social media experts, ad networks and others. I think, for an industry of our size in terms of spends, our structure is very complex and that puts advertisers off. The idea of dealing with multiple agencies for less than 5 per cent of one’s budget is not a welcoming thought. Usually the brand appoints its lead agency to hire these smaller agencies, on the basis of who bids the lowest for the clicks or likes or leads, which are traded as commodities. All this for the sake of extending a client’s offline campaign online, which is commonly referred to as ‘integration of media’.
These are some of the mis-steps made in the process of selling digital in India. The matter can be solved but the first step towards doing that is to agree that there is indeed a problem. I am not sure how many people will agree that we have a problem in the way we look at digital. It is easier to blame the marketing heads, brand managers or traditional agencies as being the gatekeepers, who do not allow the digital advertising’s party to start in India.
About the Author: Deep Malhotra is the founder and managing partner of Gemini New Media Ventures and has earlier worked with Google, Myspace, Rediff and Onmag.com.
Originally published on : http://www.afaqs.com/news/story/37281_Guest-Article:-How-we-sold-digital-advertising-wrong-in-India
In my mind I was clear, since my early years, that I would make my career in digital industry. I was barely out of school and had already completed few digital design courses and before I knew, it I was in my junior college and had worked in few companies as a designer.
In the year 2000 after couple of years of working and studying for my graduate degree, I got hit by the entrepreneurship bug and thought of setting up the first online creativity magazine: a platform for creative writing, photography & designing. We earned revenues through providing talent to publications & television channels, but the money wasn’t enough.
We struggled keeping the company afloat with some angel fund and the business was killed during the infamous dotcom bubble burst of our era. I thought maybe my approach wasn’t right, as I looked at the business from a creative side rather than business, so maybe a master’s degree and few years of experience in couple of known brands in the industry would help me understand the digital industry better.
In 2009 my father was not keeping well and we had few building projects stuck because of which cash flow in the business was trapped. I took a decision to join my family business of Real Estate Development that very year. After being part of the digital world for ten years I knew that doing something completely different won’t be easy. I was very wrong, it wasn’t just not easy but the most cut throat and crazy industry I had got into – the Real Estate Industry.
The thing is when you have been part of some of the biggest companies and have been running multi million dollar business, you think that you are actually the guy who is running the show and getting the revenues, and that if you put yourself in any other situation or company, you will continue making millions. This is untrue, especially when it is something as hardcore as real estate. The idea behind joining the business was to get it on track in six to twelve months and then join back my cushy lifestyle of a senior management role in a big known new media company. But I am now more than 3 years into the business and I am still very much in business and having a time of life learning new things everyday.
What actually happened? The first 6 months when I joined the business I thought it was worse thing that happened to me. Because I think real estate business is the most unorganized and unprofessional business that one can come across. Our company had four projects which were stalled for some reason or the other, one of which was a slum project rehabilitation project. This took me from having meetings & conferences in five star hotels, where we media executives are usually found having their meetings- to places where there are no proper ventilation or light surrounded by more than 100 people at any given point, screaming at top of their voice at you or with you. From meeting marketing heads, CEOs and industry stalwarts to dealing with police, government officials, politicians, local goons to so called social workers on daily basis. It was reality hitting you with a 100 kg hammer on your head. It helped me handle pressure of running an unorganized business in an unprofessional industry, raise capital in a cash crunch economy and handle complex people who are cut throat in their approach to get you out of business everyday.
Slowly I realized that when people say that ‘I want to do something of my own’, (and have been hearing this line more often from people recently since we have started our startup incubation firm Gemini New Media Ventures (www.imgemini.com) to help Indian entrepreneurs convert their ideas into a successful business) most of the times they have no clue what they are getting into.
Being an entrepreneur maybe a fad, but what goes into to making one is not a joke. It’s a glamorous thing to say you got VC money and you are building this cool new business, which is not necessary making any money. The tough part is to make the business run on its own money.
My thoughts changed from being an employee to a business owner in the last 3 years, it made me realize your product, marketing plans and revenue strategy can take a walk if your business is not making money. When we look around you don’t see many successful startups in new media space because I feel the reason behind this is the business owners want to fly before they can walk. I have seen business plans with projection of million customers before the business can even get ten customers. Planning on a magical tool called Microsoft Excel has no limits, you can project your company to beat your competitor or be the number one company with a click of button. Realities are different.
There are few lessons I have learnt from past experience as an employee & current experience as a business owner:
- Its easy to work for others than to be your own boss: Think about this, when you are an employee you don’t have to bother about paying salaries or paying rent of the office or paying the vendors. What you care how & when you will complete your targets and how well you are getting paid. If you cannot handle pressure, entrepreneurship isn’t for you.
- Getting money from investor may sound glamorous, but truth is far way from that:You might have heard this fairy tale story – your friend’s friend got this awesome idea for which he went to an investor who gave a million dollar cheque to him and then all of them lived happily ever after. But this friend from whom you heard the story probably missed out the details of how & what this friend’s friend went through to get the cheque. So don’t believe in such once upon a time fairy tale stories get into details and make sure you are ready for the process.
- Do something you really passionate about: In July 2011 my company Gemini New Media Ventures beta launched its first in house product http://www.gemideals.com – a platform for realestate deals. What we want to do is to make real estate more transparent & professional place. I am passionate about two things new media & real estate – make sense to combine both things and make it into a business. I believe passion will help me drive the company to success and I will enjoy the journey of growing the company.
- Start small as big needs money: Prove your concept microscopically before you grow. Test it out with getting 10 customers from your area before you even think about expanding it to the city.
- People are the most important thing in business, keep them happy: Its critical to have good team, its more critical when you are building a team to have good people building. Its simple – good talent attracts better talent.
This is what I have learnt from journey so far with Rethi, Cement & Dotcom. I am still learning everyday and would love to share more of my thoughts as I learn more. As a passionate entrepreneur, I am enthusiastic towards helping fellow entrepreneurs in their journey to success. Feel free to write to me with your business ideas, thoughts and opinions on firstname.lastname@example.org or follow me on Twitter: @DeepMalhotra
About the Author:
Deep Malhotra is the Founder and Managing Partner of Gemini New Media Ventures LLP. Deep has over 10 years of entrepreneurial and startup experience in working & building companies like Google, Myspace.com, rediff.com and Onmag.com. Deep is a movie buff and has few short films to his credit.
Remember the Air France flight 447 crash in 2009? In early July of this year, BEA–the French government’s official investigators–released its final report on the incident. I followed the news closely not only because I’m interested in aviation, but also because the outcome struck me as particularly relevant to business.
The tragic accident killed 216 passengers and 12 crew members when it crashed on its way from Brazil to France. The investigators discovered that two things happened: a technology failure and pilot error. There is still a debate over what ultimately caused the crash. But I see a bigger problem: a culture in which pilots were so accustomed to relying on technology and automation that when something went wrong, they didn’t know how to fall back on basic training and common sense.
It’s a problem that afflicts entrepreneurs, too: Sometimes technology won’t get you out of a crisis. What you really need are basic survival skills.
GPS didn’t exist back in college when I learned to fly outside of Washington, DC. You learned “dead reckoning”–a skill that was taught as an important part of learning how to navigate. Because my father was a highly experienced private pilot, I came to flying already with a good sense of stick-and-rudder control–the hand/eye/body coordination that pilots come to gain overtime.
Even in a crisis, there is a simplicity to flying that can be distilled to a few key instruments and concepts that help a pilot maintain control of an aircraft: airspeed, level flight, altitude, and ascent/descent. While GPS and high-tech auto-pilot systems can bring tremendous efficiencies to the process of flying, they also can give a false sense of security that encourages complacency. If something goes wrong, the auto-pilot will adjust and the computer will tell you where to go, won’t it?
Here is where technology has the ability to distract pilots–and entrepreneurs–from asking themselves if they’re both focused on and capable of solving the right problems.
Did Technology Trump Basic Management Skills?
Airbus has been criticized for creating its A330 (the plane involved in the Air France crash) in a way that removes pilots from the basic nuts and bolts of flying and instead makes them focus on technology management. But this cultural shift is not just limited to aviation–it applies to almost any other industry.
Technology has the ability to create marvelously accurate and elegant systems. But all too often, the people using these systems start to view them as infallible and thus, they stop looking for potential pitfalls.
After reading about the moments leading up to the crash, it is clear that the pilots flying Air France flight 447, were confused and did not understand what was happening. They believed that the technology just couldn’t be wrong–it wouldn’t let the plane react in a dangerous way–and so they lost their ability to properly identify and manage the crisis.
Getting Back to Basic Business Survival Skills
The bigger your business gets and the more technology you rely on, the more you need to be vigilant about not letting automation co-opt your decision-making process. You must be in control, not the machines. Here are some good reminders to help analyze how good your basic business survival skills would be if your systems went down:
- Financial: Do you understand how you make money in your business? Can you reduce this to the most basic elements? What technology do you use to confirm this? Could you determine where you were if the technology was not there or failed?
- Financial: Do you understand the basic structure of accounting? If your accounting system or your accountant were gone, would you know what your business is doing? Would you know how to get to a place where you could rebuild this?
- Financial: Can you recreate your billings to your clients if necessary?
- Production/Operations: Do you know how your service or product is made or delivered? If your people disappeared overnight could you recreate your programs? Do you have documentation of processes?
- Sales: When was the last time you sold your product? Can you still give the elevator pitch and value proposition?
- Disaster Plan: Have you written a back up/disaster plan? What happens when the lights go out? Can you keep your business going?
There is no substitute for starting, and that’s true whether it’s something small like exercising today or something big like building a business.
You simply cannot replace the ability to take the first step, even if it is small. Many people dream, but few actually begin.
With that in mind, here are 10 reasons you should start building your business right now.
1. Successful people start before they feel ready.
You are not the only person to feel uncertain or unsure about the outcome of your business. In fact, being an entrepreneur is one, long exercise in dealing with uncertainty. Uncertainty will not go away.
You can plan, delay, and revise all you want, but the winners begin despite the uncertainty.
2. If you have a goal, the most important thing is to start. Do not wait for motivation. If it’s not there, it will come after starting.
You can’t rely on motivation striking you at the right time each morning. You can’t wait for someone to come along and give you permission to begin. And you certainly can’t hope to research and understand it all before you get going.
Start small, but start today.
3. Make decisions and make them now.
Research has shown that the people who make decisions faster will become more successful. These people aren’t necessarily better decision makers, but simply quicker ones.
Get in the habit of making decisions. It will serve you well.
4. You don’t really have much of a choice.
If you want to do important work, if you want to do something that matters, then it’s pretty simple. You really don’t have much of a choice. You need to act now. The clock is ticking.
There was never a plan that changed the world, only the people who executed it. Make your move.
5. Give yourself time to think it over and you’ll overthink it.
Our brains are incredible machines with the ability to get to work on very difficult tasks. But if you simply sit in the planning or dreaming stage, then your brain gets bored with things because nothing new is happening. You’re not asking it to perform a difficult task because you are just running the same planning ideas on a repeating loop.
This is dangerous. Unless you give your brain a task to perform it will get bored and start to dream up reasons why this will never work. If you give your mind enough time to mull the options without giving it any real creative battles, then it will work against you.
Set your brain to the task of accomplishing your goal and it will start working for you. Don’t give yourself the chance to overthink it, start now.
6. This moment is a gift. Contribute to it.
At the risk of sounding foo–foo and fluffy, I firmly believe that the moment we have right now is a gift. You only have one life and this is it! It’s happening to you right now at this very moment. The mere fact that you are alive in a universe filled with mostly dead, empty space is a miracle.
The best way to be grateful for the time that you have is to contribute something to it. Step into the thick of things and make your own waves. Create something of your own and share it with the world. Give back to the moment you have been given.
7. “The world makes way for the man who knows where he is going.” —Ralph Waldo Emerson
Entrepreneurs without direction spend their days wandering and hoping for an opportunity. The odds that you’ll stumble your way into a thriving business are unlikely.
Pick a direction and pursue it. If you are crystal clear about what you are going after, people will either help you achieve it or get out of your way.
I swear to you that the world is filled with good people who are willing to help you get where you are going, but it’s on you to tell them where you’re headed.
You can call it your purpose in life, you can call it the vision for your company, you can call it why you do what you do … call it whatever you want, but you need to pick a direction and start walking.
8. “The best person is not usually the person who wins. The person who wins is the best at connecting with others, and getting people talking about them.” —Aaron Wall
You don’t need to be the best, the smartest, the most prepared, the most unique. But being the best connected will help immensely.
If you don’t have a strong network, guess what? Neither did anyone else when they got started! It takes time to connect with people, and that’s why you need to start now.
You don’t need anything else. Who you are right now is good enough to start. Be honest, be genuine, and be sincere. Start connecting with other people and start sharing your story.
9. Your actions are your priorities.
Don’t tell me that it’s a priority for you to start a business when you haven’t done it. The simple fact is this: what you do is what you care about.
Sometimes what you see on the surface is what you get underneath as well. You don’t have to look that deep to see what people are made of. Show the world you’re made of something better.
10. Do something now.
Make progress, even if it’s much smaller than you anticipated. Start with something small that you can do right now. Get in the habit of accomplishing things. Finish a small task, build momentum, and repeat.
source: by James Clear, passivepanda.com
If you have had some success in a business, I’m sure you bristle just like I do when someone says “You were just lucky…” I’m a strong believer that we all make our own luck, which means that the harder we work, the luckier we get. In reality, “hard work” is just a catch-all term for a list of principles that good entrepreneurs follow, allowing them to work smarter and improve their odds of success.
A short list of these “hard work” principles, published recently byAnthony Tjan in the Harvard Business Review summarizes them as heart, smarts, and guts. I agree with these, and most people recognize them when they see them in others, but the terms are still a bit abstract for learning purposes.
Therefore, other experts, like professors Alex Rovira and Fernando Trias de Bes, authors of the book, “Good Luck: Create the Conditions for Success in Life & Business,” have identified five more definitive principles that seemingly lucky and successful entrepreneurs have in common:
- Accept responsibility for your actions. Business owners who feel that they have had good luck also feel responsible for their own actions. When things go wrong or the outcome of any given situation is other than intended, they never point the finger of blame at external factors or other individuals. Instead, they look to themselves and ask, “What have I done for this to occur?” Then they act accordingly to solve the problem.
- Learning from mistakes. Creators of good luck don’t see a mistake as a failure. Instead, a mistake is an opportunity for learning. Thomas Edison is the classic example. The very first light bulb was invented by Sir Joseph Wilson Swan, who demonstrated the theoretical concept but gave up trying to develop a practical application after only three attempts. By contrast, Edison made his own good luck and designed a working light bulb after over 1,000 failures.
- Perseverance on all goals. Creators of good luck don’t give up or postpone. When a problem or situation arises, they act immediately to either solve it without delay, delegate, or forget about it. This enables their energy to be fully focused on their work and avoid conscious or unconscious distractions, which only generate inefficiency.
- Confidence in yourself and others. The most powerful principle is often the most overlooked. Confidence in yourself is essential, and those who create their own good luck have high degrees of assertiveness and self-esteem. Closely linked to assertiveness and self-esteem is trust in others and respect for them, seeing other people as major sources of opportunity.
- Cooperation with others in your network. Synergy is key. Trust in others leads to a solid network of work colleagues and friends, which, in turn, provides more resources to carry out projects than if they were managed alone. Think cooperation rather than competitiveness. At the most basic level, any project or undertaking takes place in the context of the broader group, and everyone should have the chance to emerge a winner.
With these attributes and the right attitude, I believe that most of “business luck” can be meaningfully influenced. That lucky attitude, according to Tjan, is a combination of three traits – humility, intellectual curiosity, and optimism.
Therefore, the basic equation of developing the right lucky attitude is quite simple. It starts with having the humility to be self-aware of your own limitations, followed by the intellectual curiosity to ask the right questions and actively listen to input, and concluding with the belief and optimism that something better is always possible.
Any entrepreneur can have this mindset if they just believe that luck is not random. They need to realize that they alone are the creators of the conditions that foster the achievement of specific, visualized goals. Then, having seen it work, they will know how to repeat the success. Overall, that really is “hard work.” Are you doing the right hard work to get lucky in your business?
By: Marty Zwilling, source: http://blog.startupprofessionals.com/2012/09/5-ways-successful-entrepreneurs-make.html
The hypergrowth needs of fast-growth startups have turned the old rules of venture financing on their ear. Five-year exit plans, 20 percent annual ROI, and 12-month negotiations are no longer the norm. Today’s venture capitalists have more money to invest, but they expect more in return. Raising capital is an intense process, which can be made easier by taking into consideration the ten rules outlined below.
Ask for the right amount of money
Believe it or not, you can actually lowball your company out of the running for financing. Venture capitalists know how much money it takes a typical fast-growth company to get started, and they want to be sure you have a clear idea of what will be needed. VCs also often have a minimum investment, and can’t be bothered with companies whose funding needs fall below that threshold. So how much do you ask for? That depends on the investor, your industry, and the stage of your development. To gauge ongoing trends, research recent deals through trade publications such as Red Herring and VentureWire, and through news release sections of VC Web sites.
Know the different development stages
Plan your fundraising strategy through several rounds by presenting a realistic timeline for subsequent financing stages. This shows the investor that you’ve carefully planned your financing needs, and have a pragmatic outlook for your business’ future.
The basic VC development stages are:
This is the initial investment used to get a company started and registered, hone the business plan, and begin development of a sample Web site. These funds often come from the business owners themselves, or through independent investors. Typical amount: $100,000 – $500,000
First stage/startup financing
Once the business idea is fully formed, these funds are used to build a management team, get the site ready for launch, and support the first few months of commercialization. Typical amount: $3 million – $5 million.
Second stage financing
Once the site is up and running, these funds are used for advertising, marketing support, building the customer base, and ensuring there’s enough money for fast growth. Typical amount: $10+ million.
Third stage/bridge financing — This round is used to bring a company to an IPO. These funds are usually paid off with the proceeds from the offering. Typical amount: $20+ million.
Build your management team
Talent is the number one thing VCs look at, especially for fast-growth companies where an idea’s execution often spells the difference between success and failure. Investors want to see a management team with previous startup success and expertise in areas related to the line of business. If your team is light on relevant business experience, consider hiring consultants and other outsiders who can fill this gap. For instance, if you’re building an Internet retailing business, bring in a consultant who can give you inventory management skills. In addition, VCs want to see plans for how your management team will evolve in relation to your company’s growth. When will you need to bring in a seasoned CEO, for example. Finally, consider creating a board of advisors consisting of people who influence your industry and know how to build businesses. Investors will appreciate the insight they can bring, and their participation demonstrates an ongoing commitment to your firm by a respected entity.
Watch your financials … but they don’t really matter
A venture capitalist is not going to invest in your business based on its numbers. The reason is that nobody can accurately predict how a new business will turn out, especially in emerging business markets where growth patterns are still undefined. That said, VCs will examine your numbers closely, and use them to gauge how seriously you’ve considered the size of your opportunity and the costs of bringing your product or service to market. Avoid making grand growth claims — while you may believe you are capable of becoming a $500 million business within 5 years, this kind of wild projection may turn off investors. Build your projections from the ground up, based on customer segment data, spending habits, and the success of other fast-growth businesses with similar models.
Demonstrate multiple revenue streams
Be sure your business plan shows a number of ways your company will seek revenue. Many fast-growth startups make the mistake of basing financial projections on a single revenue source, yet investors often want to see multiple revenue streams. This is because having more than one revenue source will provide a fallback position should your initial revenue stream not develop as planned, which is a distinct possibility for an unproven business model.
Show high-profile partners
You can build credibility by aligning your company with well-regarded, established firms, both offline and online. Internet startup success is often based on networking — the ability of a business to leverage other people’s assets to build its own. Strategic alliances that improve your talent pool, provide channels of distribution, or increase your visibility will demonstrate that respected companies are willing to work with you, reducing the amount of due diligence a VC has to undertake.
Sign some customers
Nothing impresses funders as much as signed contracts. These demonstrate to investors that clients support your product and company. Short of current customers, establishing prospect references — ones that are willing to work with your business if certain criteria are met — work well. Have a list of these references available for potential investors to contact.
Snowball your funding opportunities
The hottest VC deals are often those that appear to be the most urgent. Few things appear more urgent to VCs than funding offers that are on their way from other investors. The momentum these opportunities present can help you sway fence-sitters and give you greater leverage to get the best deal possible. Be careful, however. This tactic is only effective if genuine term sheets are in the works, and you can be sure a VC will call around to confirm your claims.
Be prepared to vest
Since a fast-growth startup’s management experience is crucial, VC’s want assurances that you and your team will be with the company for the long haul — or at least until they’re able to cash out. As a result, you can expect them to make vestment requests that require you and your key managers to stay with the business for a set amount of time before your shares take effect. Basically, the VC is hedging its bet. By addressing the vestment issue in your plan or presentation, you’ll demonstrate your ongoing commitment to the venture, and possibly ease concerns that may otherwise arise.
State the exit strategy clearly
Venture capitalists don’t make investments out of kindness. While your business plan and presentation may get them excited about investing in your project, you will need to show them how they can get out of it. VCs used to expect their exits to come four to five years down the road. For Internet ventures, they expect more rapid paybacks, often in as little as two years. Be explicit about where you expect your company to be at that time. Will it be a stand-alone firm? Will it be bought? Will you file an IPO? Be sure to provide a rationale for this vision.
Before you do anything else, figure out why–in the first place–you launched your business. You need to know now what you want to get out of it.
But they often can’t answer an important question: What do you ultimately want the business to do for you? What’s the payoff you seek for your hard work and risk-taking?
In my view, there are three types of businesses you could be building. None are right or wrong, or more or less likely to be successful. You just need to know which one yours is so you can stay focused on your goal. The business type should drive your day-to-day approach and inform all your strategic decisions.
The main objective for this type of company is a sale to a larger player. It should demonstrate repeatable process, recurring revenue, and seasoned management. So you, as the owner, should have a specific plan for how you would like to sell the company, and even an idea of who you would court to sell to and why.
Companies like this tend to capitalize on an emerging trend, intellectual property, or proprietary technology that could be useful for a larger company. In recent years we have seen many examples of smaller companies that built smartphone apps or websites that the likes of Facebook and Google swallowed up at record prices. The owner’s payday was tied up in the sale price.
With companies like these, your salary as the owner is often less than what you could earn working for another organization because profits are reinvested in the company. You are building a company for a payoff sometime in the future. That means you’ll take the greatest risk in hopes of a large longterm reward.
My current business, User Insight, is conceived from the start to be an “M&A Candidate.” I am intent on developing a proprietary method of consumer research that will attract the interest of a larger company that needs this.
This type of business is created with the main goal of generating lots of cash for the owners. Oftentimes, a “cash factory” takes something relatively cheap, adds a new or different element, and marks it up significantly. If you are running this type of company you are unabashedly in it for the money, and focused on keeping margins very high.
Consultancies and other project-based businesses are good examples of of companies that fall into this category. Many consulting companies, for instance, are built with virtual teams who feed money in with limited overhead; they also have the flexibility to grow or shrink as warranted.
With a company like this, you need to watch overhead, invest wisely in growth, and cut unnecessary costs quickly and decisively. You want to make as much money as possible on everything you sell so you can ultimately to do something else, like start a new business or retire. While the opportunity to sell to another company is not out of the question, it is more unlikely.
This type of company generates enough money every year just to support the primary owner(s) and allows great schedule flexibility. Unlike a “cash factory,” the “one-man band” has very few employees and often relies on the owner’s expertise. Often seasonal, examples include: tax accounting, insurance sales, or dental care.
If you’re a one-man band, you’re in it for the longterm; you basically create a job for yourself, one in which you have to do all the work. While you’re not necessarily handling unique work, you’re building contacts and accounts that could be valuable to someone else when you decide to move on.
If you don’t know which one of these your company is, you need to get that straight before you spend one more day or one more dollar at it.
No matter how much you may hate to negotiate yourself into a deal—or even out of one—negotiating is a very legitimate business skill to acquire.
It’s even more crucial if you’re a smaller business trying to get off the ground. You will have to make your arguments against much bigger, more powerful entities so it’s essential that you know the science behind negotiation skills and how they affect the other party’s psyche.
Based on psychological research, here are some negotiation tips that will help you to get what you want.
1. Focus on the first 5 minutes. In a study published in the Journal of Applied Sciences, the first 5 minutes of a negotiation can predict the negotiated outcome.
In these minutes, the study says you need to focus on “conversational engagement, prosodic emphasis—which basically means you should copy the emotional state of the speaker—and vocal mirroring” to help the negotiations end well on your side.
These first minutes are important because the other party is evaluating you most intensely during this time. They are “sizing you up” and trying to figure out if you actually mean what you say or if you’re merely trying to get more than what you know you’re worth.
Either way, start out likable so that the other person doesn’t shut down on you. If you are able to open him up during these first few minutes, he will listen to your arguments throughout the negotiation. If not, you’re basically wasting your time.
2. Start higher than what you’d feel satisfied with. In an article inCurrent Directions in Psychological Science, researchers say you should always start high in negotiations. These starting prices will eventually “form an anchor,” which will come to affect every other number that follows it.
This means that you need to start high because it will lead the individuals involved to “selectively focus on information consistent with, and make valuations similar to, the starting value. Thus, starting high will often lead to ending high in negotiations.”
Even if you know the number is ridiculously more than what you would be satisfied with, you are the only person who knows this. The other party doesn’t know; they can only assume it.
3. You should make your arguments first. According to this study published by the Harvard Business School, you should always consider going first during a negotiation. What are the benefits of making the first offer rather than waiting to hear what the other side is going to say?
It all comes back to that “anchor” number we discussed earlier. If you are the first to go, you are able to set the anchor number, and every number that follows this number will be compared or related to it.
The study says that by “making the first offer, you will anchor the negotiation in your favor.”
Making the first offer will also show the other party that you are a confident individual since it’s very rare that someone who lacks confidence and power ever makes the first offer.
4. Show that you’re passionate. If you’re satisfied, show that you’re happy by smiling. If you don’t like what you’re hearing, make sure the other party knows this by showing your emotions.
These emotional signs will signal to the other party that you care about what you’re arguing about, that you have done your research on the topic and understand the numbers that you’re arguing for.
5. Drink coffee. The more caffeine you consume, the less likely you’ll budge in an argument, according to a study published in the European Journal of Social Psychology.
The study says that “attitudes formed after caffeine consumption resisted counter-persuasion and led to indirect attitude change.”
The means that you won’t budge much during your negotiation and this will probably lead to “greater agreement” during the interaction.
6. Convince the other party that time is running out. The more you make it seem as though things will be unavailable after a certain amount of time, the more other people are going to want it.
In an article published in ScienceDaily, researchers say that “sold-out products create a sense of immediacy for customers; they feel that if one product is gone, the next item could also sell out.”
This is because people think that if a product is sold out or if there’s a limited time offer to it, then it must mean that it’s good. If they don’t make the move now, someone else will.
7. Provide them with as much data as possible. If you want to influence someone, just provide them with as much information as possible. In this scenarion, quantity is better than quality.
Gita Johar, a professor at Columbia Business School, says that when you “provide a lot of information, some of it is bound to stick.”
This will make the other party “open to persuasion.” When you provide people with as much information as possible, it enables them to “resolve ambivalent feelings” toward what they’re hearing.
There’s a good chance the other party will be influenced by all this data without even realizing it.
For many entrepreneurs, starting a business is the easy part. The challenge really begins with how to grow it into a real company. Here are 10 rules that every startup should follow to grow its business profitably.
1. Thou shalt watch thy cashflow. Remember that sales are vanity, cash is sanity. The most the important financial statement to review monthly is the cash flow statement. All other documents can lie. If you want to learn about cash, simply look at your bank statement. Do you have more money at the end of the month than at the beginning? If you have more at the end, then your business is cashflow positive.
2. Thou shalt have a brand strategy. Too many entrepreneurs become whatever the next customer wants them to be. Think through the actual pain your business solves and craft a memorable brand around that message. More businesses are successful solving a niche problem than a broad one.
3. Thou shalt not grow thy company broke. Many entrepreneurs try to grow their companies too fast. They don’t have the cash, people, systems or infrastructure to do it effectively. As a result, they eventually go broke. Do not be afraid to grow slowly and profitably. Choose profit growth over revenue.
4. Thou shalt keep thy current customers happy. So many entrepreneurs are so busy chasing new customers into their front doors, they can’t see the existing customers escaping out the back door. Happy customers will always want to buy more from your business. This is Amazon’s strategy. Many consumers shop elsewhere and then buy on Amazon because of their outstanding customer service.
5. Thou shalt keep thy overhead low. Try to keep as many expenses as possible tied directly to revenue. Entrepreneurs go out of business because their fixed overhead (like rent, equipment and people) are too high as their revenues fluctuate.
6. Thou shalt guard thy reputation and not speak badly of thy neighbor. In a connected world of the Internet, reputation is your most valuable asset. Watch and listen to what customer say about you. Never directly criticize your competitors.
7. Thou shalt get referrals from existing customers. Too many times, entrepreneurs do notask satisfied customers for referrals. This activity is one of the most powerful forms of marketing. Ask and ye shall receive!
8. Thou shalt reward outstanding employees frequently and fire bad employees immediately. Many entrepreneurs need to recognize the best contributors on a regular basis and not delay firing employees who are hurting the business. Everyone in your organization knows who the good and bad people are. It’s up to you to do something about it.
9. Thou shalt review thy financial statements monthly. The biggest mistake entrepreneurs make is not to review their statements monthly. Find an accountant that can explain them in terms you can understand.
10. Thou shalt take an annual vacation to recharge. Most entrepreneurs take too little time off. This is necessary to recharge yourself and to see how your business does without you.