While stubbornness is a trait of many entrepreneurs, it is also one of the biggest destroyers of their wealth. All entrepreneurs playing in growth businesses should have a reality check from time to time.
Over the last few weeks I have come across two interesting situations with entrepreneurs where a lack of flexibility has paralysed two businesses, both of which could ill-afford the time that was subsequently wasted. The focus should have been on getting them both cash flow positive but instead the debate came down to how “my idea” or “my intellectual property” was being used. In both cases they failed to listen to the only opinion that really matters – what the market was telling them.
A start-up technology business was formed where the “senior” partner had conceptualised a product and how it was to be monetised. The junior partner was then responsible for the operational rollout of the technology and monetising it. The senior partner thought that he had a very clear idea on how it was to be monetised and – despite regular feedback from the rest of his team (and potential clients) that his price point and strategy was wrong – he ploughed head-on with the strategy, refusing to adjust to market feedback. For three months the project has stalled because the two partners have become embroiled in the debate over “my” strategy.
An education start-up where a minority shareholder is involved in content creation has dug in her heels because she heard an off-the-cuff remark from somebody who had spoken to a larger shareholder saying that at some point the course material may be sold on to a listed corporate. The minority shareholder has worked herself into a froth because this content is “her” idea. She doesn’t agree with this second-hand information and now doesn’t want to create further content.
With the buying cycle for the product about to kick in, these lost days are likely to create serious time crunches just when the business is trying to turn itself into money.
Simple business sense
Consider this: neither business was out of the starting blocks before “my idea” became the thing which stalled it. Yet in Case 1, while the partners were slugging it out on ideology, the business quickly accumulated 150 000 users to a product. In Case 2, the senior shareholder had managed to secure three big contracts – which would make use of the courseware – and get the product into the market and revenue positive.
I remember listening to entrepreneur Allon Raiz, founder of Raizcorp, speak one night at a function at the Gordon Institute of Business Science (GIBS). He made the statement: “A business comes down to a very simple metric: buy for one and sell for two. Everything else is noise.”
It is a line which has stayed with me for the last few years and one that I have tried to use when I find myself getting frustrated because “my” idea has been rejected.
I have almost finished reading the Chris Anderson book “Free: The future of a radical price” and what is fascinating to see is how businesses built on “free” models are effectively becoming dominant forces across the globe. Google is the most obvious example but there are hundreds of others which are breaking down the traditional barriers in big industries.
One part of the book which particularly stood out for me is where Anderson relates the Microsoft response to the emergence of open source software. Microsoft went through the classic phases of denial (Open Source will never be relevant), attack (Open Source will be bad for you, our customers, and here is why), grudging acceptance (Yes, well no, fine) to a fully-fledged open source campus.
This decision-making took years and hundreds of millions in legal and consulting fees around anti-competitive behaviour but it shows how quickly businesses – and the personalities behind them – can become married to ideology.
In the education start-up case, I pointed out to the minority shareholder that MiT lets you download free courseware that, harsh as it may sound, will trump anything she can produce. In the case of the tech start-up it took an outside party to state the obvious (ideology wasn’t getting them anywhere and they were losing R100 000-plus per month) and they were not servicing the community they had built up.
Start-up entrepreneurs become obsessed with “my” idea and how it will give them financial independence and so my challenge to you is this: go into your local Spar and take a look around you. I was in one of the over weekend – probably the biggest one I have ever been in – and the formula is simple: know your target market, service them, buy your goods for 1 and sell them for 2.
The guys running that Super Spar don’t wake up in the morning talking about “my” idea and yet they will comfortably be within the top 10% earners in South Africa.
Be honest with yourself. Unless you have found a cure for HIV in your garage lab or are achieving the alchemy of turning R1 into R2, your idea is statistically not that great. As an entrepreneur, don’t destroy your wealth by being married to your idea. Statistically it sucks.