Sports and Business: "Refuse to Lose"

I am sports mad – I always have been. As a young man I played representative rugby at school and in the Army. I sat on bench for the County under-18s. My consolation at not making the starting fifteen is that the position was occupied by one Richard Hill who went on to captain England. I ran cross country for the County at schoolboy level. I played football for the Academy first eleven when I was at Sandhurst and I played Rugby, cricket and football for my regiment, I captained the regimental cross-country team and I was the regimental 800 metres champion. I only list this achievement to illustrate that I have a small insight into the psychology of the sportsman.

I discovered my passion for business in my late twenties at about the time my serious sporting days were beginning to wind down. I don’t think there was any connection between the decline of one and the rise of the other. However I do think there is a remarkable analogy between successful sportsmen and successful businessmen and this is something I want to explore in my blog over the coming weeks and months.

I have enjoyed this year’s Wimbledon as much as any of recent years. I especially enjoy watching Rafael Nadal play. I would love to know what goes on in his head when he is playing. Whatever it is, he has built a mindset that I describe as “Refuse to lose”. How often do we see him chase down shots that other players would give up on and concede the point? Often he still loses the point but sometimes he doesn’t – he rescues a point from a seemingly impossible position and turns a certain lost point to his favour. The key here is that unless he tries he won’t know whether he will win it and he is willing to try anything and everything.

This translates almost perfectly into the world of business and particularly into the world of sales. In my experience there are two types of salesman – there are those who give up on an opportunity as soon as it starts to get difficult. They only seem to want to work on low hanging fruit. And then there are the Rafael Nadal’s – people who keep fighting even when the odds seem stacked against them. Like Nadal they will lose plenty of these seemingly lost causes, but they will also win some and everyone they win is one more customer for the company that you would not have achieved from the low hanging fruit pickers.

As an example I remember a situation in my days at Transmit International, my first business start up. We had been through a formal tender process with the London offices of a leading Swiss investment bank. We were already an incumbent supplier to part of the bank and we knew they were very happy with what we did so felt we were well placed. So we were very surprised and a little confused to receive a letter out of the blue announcing that the bank had selected another company. Now many people would have accepted an official letter as the end of the matter – but we didn’t. We pulled some strings with our existing contacts and after a number of phone calls we managed to get an audience with the Managing Director of the division concerned. We met him and laid out our case that we felt we had been treated very unfairly and surely the low risk option was to use us as a known quantity rather than try someone completely untested. To cut a long story short, the decision was reversed and we were awarded the new contract. It was always a long shot, but on this occassion it worked.

So when things don’t seem to be going your way, remember Rafael Nadal sprinting to the far boundaries of Centre Court chasing down a ball that to most players would be dead. If you apply the same “Refuse to lose” mentality to your sales campaigns the worst that can happen is that you will be no worse off than if you hadn’t tried. But occasionally you will win business that you would otherwise have lost and in doing so you will also make yourself a very valuable asset to your sales team.

There is no place for unethical practice in business

Someone asked me recently in a profiling questionnaire if I thought there was any place for ethics in business. My answer was immediate and almost involuntary. I said that I thought that there was no place in business for unethical practice.

Nowhere is this being more graphically illustrated at the moment than in the case of Rebekah Brooks, the embattled Chief Executive of News International. Brooks was The Editor of the News of the World (NOTW) when a private investigator, allegedly working on its behalf, hacked into the mobile voicemail of Millie Dowler when she was missing and a full scale police search for her was underway. The discovery that voice mail on Millie’s mobile phone was being accessed gave the impression that she was still using her mobile phone. We now know the dreadful truth was that Millie was dead and the activity was a private investigator without scruples or morals working to find a story for the NOTW.

Brooks yesterday told News International staff it was "inconceivable" that she knew of or sanctioned the hacking of Milly's mobile phone. But this is not a defense – it is utterly irrelevant. I don’t think anyone is accusing her of personally organising this action. But as the Editor of the paper she can’t distance herself from it by pleading ignorance. That is as weak a position as it is possibe to take. She was in charge, she was responsible for setting the culture at the NOTW and I am afraid it stretches credibility that she didn’t know that this kind of behaviour was prevalent. If she didn’t know about it she should have done – she was the boss.  It may not have directly been her fault but it most certainly was her responsibility.

So it is time for Rebekah Brooks to show some moral courage and set an example to her staff. She has allowed her organisation to behave in the most despicably unethical way and she has no option but to resign. Her attempts to distance herself from the act beggar belief. She was in charge; there is no distance between her and the tactics of her staff. Every day she clings on to her job is another day when she is making the very clear statement that she condones unethical behaviour. Far better to hold her head high, stand up for stong ethical business practice, admit responsibility (if not fault), be accountable and resign than to be forced from office by a public campaign that shows no signs of relenting.

Entrpreneurs are not driven by a love of winning but by a hatred of losing

I have long held a view that great sportsmen and great entrepreneurs share a common motivation. They are not driven by a love of winning but by a hatred of losing. An extension of that theory is that entrepreneurs are also driven by the thrill of the battle and not by the reward. There is a big difference.

As an example of this consider some of the great sportsmen of the modern era -  Ian Botham for example. I don’t doubt that “Beefy” loved to win – especially if the opposition was Australia. But he seemed to produce his most dogged performances when the chips were down. There was none more memorable than his batting heroics in the Ashes test at Headingly in 1981 when England faced certain defeat having followed on.  Botham’s incredibly determined 149 not out dragged England back to a position from where they won the match.

Another iconic sporting success born of a fear of losing was Seb Coe in the 1980 Olympic 1500m final. Defeat would have consigned him to the history books as a failure having botched the 800m final days before. His arch rival Steve Ovett, still basking in the glory of his 800m gold medal couldn’t match Coe’s fierce determination, driven on by the pain of his earlier failure.

Others who were able to find something extra to pull victory from the jaws of defeat are Seve Ballesteros, Jimmy Connors and Chris Ewbank,

There is a direct parallel between this “refuse to lose” attribute and being an entrepreneur. I don’t believe that the great entrepreneurs are those that like to succeed. Entrepreneurs are not driven by making money. They are driven by something more instinctive and fundamental and it comes to the fore when the chips are down.  The great businessmen that I know have a glint in their eye when times get challenging - they love the fight.

I am not saying that entrepreneurs don’t enjoy the rewards that come from their efforts. But I know from speaking to a number of them that they simply regard the big pay day that comes from selling a business as an indication that they have done a good job. I speak from first-hand experience when I say that the real excitement comes not from the rewards of an exit. The real thrills come months or years earlier when you were fighting to win that deal that was slipping away or scrapping to establish your dominance over a competitor or fighting to get to break-even with the cash reserves running low. In sporting parlance it is those occasions that are like the pivotal moment in a boxing match or middle distance race when victory or failure is determined. The exit is more akin to the medal ceremony. Very gratifying but not the bit we revel in.

When is a cheap flights not a cheap flight? When extras increase it by 337%

We have a mid-year meeting for our leadership team in June. We had a great year last year and so far we have done well this year – so as a thank you to the team we have decided to hold our mid-year get together in the South of Spain. To get the ball rolling I asked our office manager Ping to do some research into flights.

“Great news” she reported back, “Ryanair are showing flights from Stanstead for £36.98 pounds return”.

By anyone’s standards that is a bargain and I momentarily felt genuinely grateful to Ryanair for fighting the corner of the little guy against the big airlines by keeping their fares so competitive. Their price was a no-brainer and they had done a good job of promoting them.

“Fantastic” was my reply to Ping “Book them before they sell out.”

Just as I was basking in the warm glow of satisfaction that our Spanish trip was meant to be, my desk phone rang. It was Ping

“If you want to check in any luggage it costs £30.....” came the bad news. Just as I was about to complain of the lack of transparency in the advert Ping continued here sentence: “.....per person and each way.” £60 a head to take a suitcase!

In an instant Ryanair went from heroes to villains. They had hooked us in with a very cheap headline price and now we are interested they tell us that it will cost more to take a suitcase than they charge for the flight.

But I quickly get over my irritation – after all the flight was still under £100 a head. Still a bargain even if it is not the bargain that we thought it was.   

“Not so fantastic” was my reply to Ping “But go ahead and book them before they sell out.”

I returned to my work with a slightly less warm glow of satisfaction. It was only a few minutes later that my phone rang again. It was Ping – my heart sank anticipating more bad news and she didn’t disappoint me.

“There is an administration charge of £12 person for booking......” she announced. Just as I was about to complain that the only way of getting a ticket was by booking Ping continued here sentence: “......and a £12 person charge for checking in online.”

“Let’s not worry about checking in online” I suggested in an effort to stop costs mounting.

“I can’t find any way for you not to check in online – I think you have to pay it” replied Ping dolefully.

I felt the anger rising and stopped to count to ten. As I got to about seven the final insult was delivered: “There is £4 per person “passenger fee”” said Ping. She didn’t add that she couldn’t see any explanation of what this was for – but I could tell she was thinking it.

 This beggared belief. A fare that had been advertised at £36.98 return was actually nothing of the sort. It was loaded with extras, some of which aren’t even optional, that ended up increasing the fare to £124.98 a head – 337% higher than the advertised fare.

I am sure that Ryanair have an army of lawyers who have checked that they are not in breach of the strict letter of any advertising standards. But that approach misses the point by a country mile. Here’s why.

If Ryanair had advertised an all inclusive £124.98 fare to the South of Spain, we would probably have booked it and felt we hadn’t got a bad deal. Ryanair would be good guys. As it is I feel that Ryanair’s sales tactics are misleading to say the least. I feel as though I have been sucked in on a false promise of a very cheap flight and the actual price is much more than I was led to believe I was going to pay. So although I will end up paying the same amount of money, rather than thinking Ryanair are good guys I will go out of my way never to fly with them again. Does Ryanair think that is a good outcome? Does Ryanair think that is a good return on their marketing spend?

So when you next advertise a cut price deal stop for a moment to look at it from the customer’s point of view. Sometimes the eventual price isn’t the issue, it’s the customer’s perception of how they get there that counts.

Would I call the Winkelvoss Twins Dumb and Dumber?

Sometimes in this life you need someone to take you to one side and tell you some truths that you are probably not able to see or admit for yourself. That time has come in the case of twin brothers Tyler and Cameron Winkelvoss.

You may recall that the Winkelvoss twins have claimed for some years that Mark Zukerberg, Facebooks’s young Chief Executive, stole their idea in 2005 when they were classmates at Harvard. Their idea, they claimed in court, was used by Zuckerberg to start thefacebook.com – a social networking phenomenon that became Facebook. A business now valued at $60 billion.

An out-of-court settlement was reached in 2008 which saw the Winkelvi, as Zukerberg cruelly dubbed them, awarded $20 million in cash and $45 million in Facebook shares; a settlement that is now worth $160 million based on Facebook’s current valuation.

This week a Federal Appeals Court judge in the USA ruled that the Winkelvosses could not have the 2008 ruling re-opened allowing them to go back for a larger settlement. Their case was based on a claim that at the time of the settlement they were duped by Facebook regarding its valuation – meaning they got fewer shares than they believe they should have.

So here’s one way to look at this. Here are two Harvard Graduates, majors in Economics and attendees of business school at Oxford whose father is a very successful and wealthy businessman and who surrounded themselves with an army of lawyers. Now they want us to believe that this collective of extraordinary business acumen and mental horsepower weren’t able to come to the right valuation for Facebook. Come on guys!

Could it be that the motivation here is two guys who have ceased to be able to see the woods from the trees? Two guys who are eaten up with bitterness that a geeky computer science major made himself the world’s youngest billionaire with an idea they allege was theirs. I can’t think of any other logic – because I think everyone predicted the outcome of this appeal. Everyone saw that it was fatally flawed....except that is the Winkelvoss twins. It is time someone took them to one side and gave them a simple piece of advice.

Guys you have many extraordinary qualities. You are Harvard and Oxford graduates, you are Olympic oarsmen and you are worth $160 million – more than most people will accumulate in ten lifetimes. It is time to stop defining your lives by how much you hate Mark Zuckerberg for monetising what you claim is your idea. Harness all of the positive things you have going for you and move on and create your own Magnum Opus before you destroy yourselves wondering what could have been.

And would I call the Winkelvoss twins Dumb and Dumber – no! Not with their track record for litigation! Besides which these guys have rowed in an Olympics - they are much much bigger than me!

The golden rule of recurring revenue businesses – “The Rule of 78”

All successful owners or managers of small businesses that I know have one thing in common. They all have a good grasp of “the numbers”. They all understand the important moving parts of their P&L. They all also have a couple of key metrics in their heads that they watch like hawks. I need to sign x number of customers to break even or I need to sign y customers a month to be profitable this year.

Understanding your numbers is important – but if you run a recurring revenue business, there is one set of numbers that is more important than anything – I call it “The Rule of 78”.

A quick definition – a recurring revenue business is one where you win a customer – usually in a services business - and they spend money every month. For example if you are on a mobile phone contract you are a recurring revenue customer. You spend £20 a month for your phone package every month. For obvious reasons business owners crave it and investors love it. But here is something that a lot of people don’t always appreciate – how you can fall foul of the “Rule of 78”. So what is it?

A simple example – imagine you run a services business and you win one new customer each month and your customers spend exactly £1,000 a month each, every month for the foreseeable future. Let’s look at how your sales in the year build. You win your first customer in January and they bill £1,000 every month in the year – in other words you bill them 12 times - £12,000.

You win your second customer in February and you bill them for the rest of the year – i.e. 11 times. You win the next one in March and bill them 10 times in the year and so on.

If you roll that model on throughout the year you will end up with 12 customers and you will send out 78 bills – hence the name “Rule of 78”. You will bill £78,000. But here’s the really important bit. Of your 78 “billing opportunities” 33 of them – or 42% - come as a result of business you won in January, February and March. In other words almost half of your year’s revenue comes as result of performance in the first quarter. By the half year it’s all over bar the shouting unless you do something really special in the second half. Why? Because in the final two quarters you only have 17 billing opportunities – or 21% of the total.

So what do you do with this information? Well I’ll tell you what I do as the Manager of a recurring revenue business. First and foremost we build some real incentives around performance in the first three months. The last thing a salesman can afford is a blank month between January and March. The second thing we do is we spend a lot of time around September of each year doing some marketing and focused sales activity in order to build a pipeline to set up the upcoming first quarter of the following year.

I am glad to say that with this Q1 just behind us, we hit or exceeded our sales numbers in January, February and March and in doing so have set ourselves up for a very good year. We still need to deliver the remainder but having done the hard bit, we have a good shot.

Those who haven’t appreciated the immutable laws of the Rule of 78 and who have exited Q1 with little sales success are now facing a long uphill climb during which they will be constantly behind the numbers. And with each passing month the chances of closing the gap gets smaller and smaller - literally.

If you run a recurring revenue business, your mantra must be: Recurring revenue businesses are all about first quarter performance.

Why invoice scanning and OCR is no more than an interim solution

Invoice scanning together with Optical Character Recognition (OCR) – digitising paper documents to you and me - is presented by many as the answer to everyone’s electronic invoicing prayers. In fact one company which I won’t name, which claims to be a leader in e-invoicing, is actively promoting it as their strategy. There are several reasons why invoice scanning is not the answer and represents only an interim solution.

The holy grail in the world of e-invoicing is that an invoice should go from creation, to delivery, to approval, to payment without a piece of paper being created. In other words machine to machine with software doing the work along the way. Not a pipe dream at all. Today we deliver hundreds of thousands of true electronic invoices a year that follow exactly this path. And with some ground-breaking new interfaces and tools currently in testing, we expect that number to increase sharply in the months ahead.

Invoice scanning and OCR (in the context of invoice processing) became popular because companies couldn’t persuade enough of their suppliers to adopt a truly electronic method of submitting invoices. This meant they found themselves in no man’s land – paying for an e-invoice solution but still having to retain a small army of employees to handle paper invoices. Scanning and OCR takes the paper, scans it and uses OCR technology to lift the data off the page so that it is useful and uses it to create an electronic invoice. But here is why it is no more than an interim solution:

1.       It is at best an inaccurate process. OCR software vendors will tell you they can read characters from paper with 99% accuracy. That may be so with a simple text document in a medium sized typeface. But when it comes to small print on invoices, the reality is that it is a lot less accurate. It only needs to read one character incorrectly in the wrong place for the invoice to fail in an electronic approval process. Someone has to manage these failures and exceptions. People involved in the process? Not what was promised from “electronic invoicing”

2.       Second – OCR on its own is not enough. The next thing a well run AP department will want to do is validate an invoice before it goes into an approval process so that it doesn’t get lost within the approval process. Validation, which is an automated process, includes all those pre-flight checks before starting an electronic approval process – is there a Purchasde Order (PO) number? Does it relate to an existing PO? Is there a supplier reference? Is there a VAT number? Does the invoice add up correctly? And so on. Even the most sophisticated solutions with people checking every invoice struggle with this. Suddenly the failure rate has risen. More inaccuracies and exceptions to manage. More people involved.

Of course the net result of this is that you or your outsourced provider has to incur some real costs to bring this error rate down. Guess who ends up getting stuck with those costs? So suddenly your business plan doesn’t look so good. Where you were expecting to drive the cost of processing each invoice down below £1, human intervention has resulted in costs being much higher.

Scanning and OCR has its place. Even allowing for the absurdity of taking an electronic file, printing it out on paper as an invoice, sending the paper to your customer for them to use an expensive process to turn it back into an electronic file – it has its place. But only if you build your business case based on there being a concerted effort to migrate from scanning and OCR to real electronic invoicing. You should aim over a three year period to turn a ratio of 80% scanned and 20% electronic on its head and have 80% submitted electronically. This is all about being good at persuading your suppliers to send you electronic invoices or online invoices. That is a whole subject on its own!

To see how a good e-invoicing deployment works download a case study here which shows how Essex County Council released 20 AP staff and will save £2.5 million next year by understanding the important distinction between scanning as a means to an end versus scanning as the answer. They now process tens of thousands of real electronic invoices – those that go from creation to delivery, to approval to payment without a piece of paper being created. Invoice scanning was merely a stepping stone which helped them to get there.

50 million views later.....how a major airline lost control of the messaging to social media

I remember as young man doing a stint in a large corporate marketing department. I also remember someone very knowingly telling me the marketing mantra of the time: “If you give a customer poor service they will tell ten people”.

The principle of a disgruntled customer telling others of their experience is not a new one. But the reason they told ten people back in the late 1980s, before the Internet, Social Media and mobile phones was because that is all they could tell without a lot of effort. The following tale illustrates in horrific terms how that paradigm has shifted beyond recognition.

In 2008 Dave Carroll, a barely known Country singer took a flight with his band, from Chicago to Nebraska. They flew United Airlines. As was usual, Dave checked his guitar in to the plane’s hold – no problem there – it had a hard case. But as he sat in his window seat before take-off he was horrified to see a baggage handler throw a guitar case aimlessly towards the hold which it missed. He instantly recognised the guitar case that bounced along the runway as his. He alerted several United employees on the plane to what was happening but was treated by all of them with complete indifference.

On arrival in Nebraska Dave’s worst fears were confirmed. His beloved guitar was broken. He consoled himself that he was sure a big airline like United would take responsibility and compensate him. He was in for a shock!

After an astonishing nine months of fruitless negotiations with the airline Dave was no further forward. All he got was standard letters from United – apparently he had not reported the incident within 24 hours as required by their terms and conditions. They didn’t want to know. Exasperated at the indifference of both the in-flight staff and the Customer Services team, Dave decided to take drastic action and so began United Airlines’ nightmare.

Dave and his band recorded a song called “United Breaks Guitars” and loaded it on iTunes. They also recorded a professionally shot video and posted it on YouTube. It became an overnight sensation. On its first day online the video was viewed 150,000 times! Barely a month later it had been viewed 5 million times. The week after it was released “United Breaks Guitars” was the most downloaded song on iTunes. But that was only the start.

The viral news story was picked up by the news networks and appeared on Fox News, a cable news station that is received in 90 million homes in the USA. So let’s conservatively say that 50 million people were exposed to the story and United’s poor performance in the few weeks after the song was recorded.

In the midst of this media maelstrom there are few reports of any concerted response by United. A company spokesman is reported to have described the song as “Excellent” and United's managing director of customer solutions, telephoned Carroll to apologize for the foul-up. He also is reported to have asked if the carrier could use the video internally for training. United mentioned it hoped to learn from the incident

The humiliation and brand damage for United was bad enough. But the very real and very expensive consequence, as reported by The Times newspaper, was that within 4 days of the video being posted online, United Airline's stock price fell 10%, costing shareholders about $180 million in value

It is always great to read a David versus Goliath story like this - especially one that results in such a high profile and humiliating defeat for the big guy. But there are some general lessons that companies can learn from this:

1.       It is right to give your customer service team some guidelines to operate within but that only works if there is some management oversight to pick up the cases that are getting out of hand. It beggars belief that United allowed this situation to drag on for nine months without it being escalated. If it was escalated then the outcome is even more surprising.

2.       Dave was claiming $1,000 to repair his guitar. It probably cost United $1,000 in staff time alone to process nine months of correspondence. Sometimesyou just need to apply some good old fashioned common sense. It would probably have been cheaper for United to pay this claim right at the outset.

3.        Customer Services is not designed to be the scene of a fight between you or your customer. The old adage that the customer is always right has never been truer when you consider the damage that a customer can do using modern media. We use a guiding principle in these situations of “It is not about being right, it is about being helpful”.

4.       Sometimes you need to cast a little bread on the water. Dave was obviously not a bogus claimant. I am guessing he sent them a picture of his broken guitar and they could check that he was on the flight. United should have swallowed this. Who knows they might have turned a negative story into a positive one although it may not have got 5 million YouTube views.

5.       This is a clear warning to everyone that Companies need to monitor the “0nline conversation”. Stuff happens in the world of social media. If 10 million views on YouTube are anything to go by I am guessing that the chat rooms, Facebook, MySpace, Bebo etc where full of talk about this. What were United doing on Facebook and generally in the Social media to manage this? There is no report of United’s response which probably tells us all we need to know.

The legacy of “United Breaks Guitars” is that at last count it had clocked up 10.1 million views on YouTube and is regularly used at Social Media and Customer Service training sessions as an example, admittedly an extreme one, of what can happen when you treat customers poorly and don’t manage the fall out well!
Enjoy Dave Carroll and his band singing United Breaks Guitars here:
  

An entrepreneur running a lifestyle business....hmmmm!

Here’s a quick thought about entrepreneurs. Someone described themselves to me recently as “an entrepreneur running a “lifestyle” business". Hmmm – that caused me a little trouble!

For those of you not familiar with the term, a lifestyle business is one where the owners run the business in order to fund a certain lifestyle. Usually one of nice house, nice cars, kids at private school, expensive holidays. Let me start by saying that there is nothing wrong with that. If someone has worked hard to build a business and they want to use it to fund a comfortable life then that’s fine.

The bit that troubled me was the use of the word “entrepreneur” in the same sentence as “lifestyle business”. In my dictionary an entrepreneur, amongst their many attributes, is a risk-taker. A lifestyle business strikes me as one that is completely de-risked.

An entrepreneur probably makes one or two “bet-the-company” decisions a year. Shall we build that new product; shall we buy that company etc. The lifestyle business owner will run a mile rather than make a “bet-the-company” decision.

The lifestyle business owner lives in a world of stability, reliability, predictability and steady income. The entrepreneur goes out of his way to create a volatile environment so that he can be disruptive and this brings with it a lack of predictability.

I admire people who are a) good enough and b) content enough to run their business for their lifestyle. But my message to the guy who told me he was “an entrepreneur running a “lifestyle” business” is: you can’t be both – they are poles apart.

Bill of the Week: £1,000 spent on an Xbox - Game Over

There’s something wonderfully simple about online purchasing. But sometimes can it be too easy to keep on spending … especially if you’re a big fan of video games.

According to Kent Online, one 11-year-old lad gave his mum a horrible shock when her own card payments started to be declined.She then discovered a whopping bill had been amassed by her son, who was able to purchase games, weapons, costumes and other bonus items using his Xbox Live account. The total topped £1,000. A phenomenally high score.

Now it’s been paid. But the 37-year-old media exec is planning to contact a solicitor about the issue. And she’s keen to warn other families the dangers of adding credit/debit cards to their children’s tech toys.

It’s game-over for the poor lad, apparently. His Xbox Live account has been closed.

Do you have a funny or frustrating bill or invoicing story to share? If so please tell me about it by emailing: pwhent@yahoo.co.uk. I’ll give you a £50 Amazon voucher if I publish your story.

Four ways in which I nearly went out of business

Every day  my Twitter feed is full of people telling me how successful they are, how much money they can make or how many Twitter followers they can promise me. Braggadocio!

In an effort to return to some semblance of normality and in the cause of perhaps passing on some lessons learned, here is a blog about how badly I have done some things. Five ways in which I have contrived to destroy value in my businesses.

1.       Be seduced by the monster customer

Without question my biggest single blooper was allowing a huge customer to dominate our business. At the time our new e-billing company was less than a year old and the customer was Orange! What entrepreneur could resist? Sure enough after a very well run sales campaign we won the contract to build a solution to present Orange’s business bills online.

Don’t get me wrong – I am not suggesting that I wish I hadn’t accepted the business. The mistake I made was in not setting out clearly what we were being contracted to deliver. The consequence was that Orange kept finding ways of improving the solution and dazzled by the glory of having such a mighty customer we kept on building. For a period of time they dominated our business much to its detriment. Eventually we woke up to what was happening and soon crossed a bridge in our minds that to continue like we were could jeopardise our entire business.  Once we had made that leap, dealing with the problem was easy. We put a fair but firm proposition to Orange reflecting the real cost and value of what we were doing. They wouldn’t accept it and to our credit we swallowed hard and parted company with them. It was a great lesson for me.

2.       Believe my own business plan

Somebody wiser than me once told me that you should get three quotes when having building work done – ask for a price and time to finish. Then to get the most accurate estimate of cost and time, add all three together. I think there is a rule similar to this but in reverse when writing your own business plans. Look at the sales growth you are assuming and then double the length of time before the first sale and halve the rate at which you win customers. The trouble is that entrepreneurs are eternal optimists and will always believe the best case scenario. But it never happens that way and the very real consequence in a start up is that you run out of money because you don’t bring revenue (and therefore cash) in as fast as you predicted.

I have done this once and I had to very sheepishly return to investors with my tail between my legs with a revised plan. Luckily we spotted it early before it became a cash problem and we got through. The simple lesson here is “get real”!

3.       Be cheap about paying good people

If I was only allowed to give one piece of advice to someone starting or running a small business it would be – surround yourself with good people. Especially in areas where you don’t have experience yourself. For me that is on the technical side. I would describe myself as a technical entrepreneur – I understand the major concepts – but I not a technologist. I have to admit that on a couple of occasions in order to keep start up costs down, I have been cheap about hiring a technical leader. The result was that what I got was someone who did an OK job at keeping development on track and ensuring the data centre didn’t fail – but when it came to the leadership, the vision, the roadmap, they looked at me blankly. Yet that is the bit that creates value in the business. Let’s assume I saved £25,000 a year for three years – total £75,000. Would a truly talented CTO have created more than £75,000 of value? Without question. The lesson here is, within reason, don’t think about the short term costs, think about the value. In other words don’t be cheap!

4.       Believe I can do everything

A common misconception in a start up is that because you are small everyone must be willing to do everything – including the CEO. I admit I have fallen into the same trap. There is something worthy and inclusive about seeing the CEO put in a shift on the helpdesk but is it really a recipe for the best result?

The CEO is in that role because someone has decided that he is the guy with the vision, the leadership skills, the drive and the knowledge to take the business forward. So ideally you want your CEO to spend all of his time doing things only he can do. That doesn’t include a shift on the Helpdesk. Entrepreneurs are a confident group who think they can do virtually anything. But doing everything is not only impossible it is not right for the business.

 It might seem stand offish, but I am afraid that is the way it is. The CEO is an expert – don’t waste his time. It took one of our investors to point out to me that if we needed an extra person part time on the Helpdesk then we should spend the £15,000 that it costs to hire one so that I didn't spend my valauble time doing it. He had invested in me to grow the business (and his investment) and he left me in no doubt that that was what he expected me to be doing!

It was quite a lesson - now learned and a mistake not to be repeated. The lesson is simple: Whatever you do protect your time valuable time. Work out what you do best and do it. Hire experts to do what you are not good at. And if you are a start up CEO, don’t be ashamed about ensuring your time is protected so that you can be a CEO.

I hope this helps and I also hope it inspires a bit more humility in my Twitter feed!

Interviewing and choosing good salesmen

Finding a good salesman is a tricky business - but getting it right is worth all of the effort. The problem is that there isn't a formal qualification that says: "This person is a fully trained fully qualified salesman". The only thing you have to go on is their track record. This post does not describe a comprehensive selection process, but having recruited many sales people over twenty years it gives some useful tips that I have learned through experience:

1. Interview lots of people at first interview stage and just go on gut feel. Are they nice people, do you get along, do you find them interesting, engaging or funny? Don't get too hung up on sales stuff just yet. After all people buy from people so the first thing you want is someone who gets along with people.
2. Use the first interview process to build a short list of three - then task each of them with doing a short presentation to you and a couple of colleagues. Give them a simple brief like: "Please tell us in no more than 10 minutes why we should hire you and what you are going to do in your first 3 months to be successful". What you are doing is putting them in a sales situation - seeing if they can sell. Think of it as being a bit like test driving a car.
3. In the Q&A ask them this question: "Rank the following 5 attributes of this role in order of importance to you - 1) career prospects 2) job title 3) job satisfaction 4) money 5) good working environment. You are only interested in one thing - that the answer in money! A salesman who is interested in any of these attributes ahead of money isn't a salesman. You want your sales guy foaming at the mouth at the prospect of making a big commission cheque - not worrying about his status in the company or his next career move.
4. Finally when you have chosen your man take up references. Don't use his - insist on your own criteria. I recommend you get a minimum of three 1) His last boss 2) A current customer and 3) A current work colleague. Spend time on these conversations. What was he like, was he punctual, was he easy to get on with, was he sociable, did his customers like him, did he make his targets? You can find out a lot from innocuous question. Always ask if they would re-engage with your candidate - i.e. would you hire him again, would you buy from him again. Listen to how much conviction is in the answer. They will all say yes - but how they say yes is what you are listening for.
5. If your candidates previous company say they don't give reference you should smell a rat. That may be a company saying we may give a bad reference and don't want to do that.

Finally on a practical note make sure you build in some terms and conditions with your recruiting partner to protect yourselves when things don't work out. I always insist on a free replacement if the candidate leaves, for whatever reason, in the first three months. Don't sign anything that says you only get a rebate for the first few weeks. If your recruiter is doing his job (i.e. sending you good people) he shouldn't be afraid of this. Good luck

How can I help?

I am lucky enough to have been successful several times with start-up and early stage businesses (there's a topic - was it really luck?).

I aim to put something back by offering advice of any description to today's entrepreneurs and small business leaders. This blog is designed to oil the wheels of that process by discussing the issues that I think were important to me in building my businesses and that are important to the current generation of entrepreneurs.

So please ask, post comments or follow me on Twitter @theclearhead.