I’ve been teaching the business model canvas for a while, both to students and to people actually starting businesses. From time to time there has been a question about where to put some specific piece of information or hypothesis, and I’ve been kind of lax in my understanding and explanation of where various bits of info go. The area labeled channels is where the confusion started for me. In business we typically talk about distribution channels and marketing channels, so it seems that this box has to do double duty. At least that was my logic, and that led to making other assumptions, such as your employees could be part of your cost structure as well as key resources and key partners. I discussed this for just a few minutes with Dr. Michael Chambers recently, and he corrected my thinking so gently I almost didn’t notice that he was doing it. I was explaining to him how I handled channels, and through our conversation he got me to realize that although in business we talk about marketing channels, when we’re starting a new business (and probably thereafter) it is more appropriate to think of marketing as communication with the customer, thus part of the the customer relationship. (I believe that this flaw in my logic stems from my inherent mistrust of marketing communications.)
After we had this conversation I starting thinking about other situations where I allowed students to categorize a fact or a hypothesis in more than one place, and I think I’m coming to agree with Benjamin Franklin “a place for everything, and everything in its place,” at least when it comes to the business model canvas. Take the earlier example of employees. Their salary is certainly part of the cost structure, maybe other expenses associated with them, but they themselves are not part of that structure. They are also not key partners. The company literature may say that. They may even be called partners, but I think a better characterization of their role, if they are central to the success of the organization, is a resource, and if they are not, then they don’t really show up on the canvas at all. If they were not employees, then they would be partners. I’ve gone though example after example in my head, and if I think about it deeply and clearly, I am able to fit each and every hypothesis into a single box.
I think accurate categorization is important because there are often important differences in how you test hypotheses, according to how they are categorized. Confirming a hypothesis (academics forgive me) for a distribution channel involves determining how you will get your products into that channel, and whether or not your customers will use that channel to purchase your products. Testing a customer relationship involves attempting to reach the customer and determining the hypothesis’s effectiveness in strengthening the relationship and/or generating a purchase.
I’m sure my thinking on this will evolve further as I use and teach the business model canvas, but I believe I’ve made a leap forward in understanding that will hopefully help lots of people.
P.S. If you’re one of my students and I gave you less than stellar advice using my previous approach to the business model canvas I apologize. I do stand behind my previous statements that testing is better than not testing, and capturing the information is good, even if it’s not precisely correct. I’m not sure if this is where people say sorry/not sorry, but I’ll just say if you feel like you could use some help with an ongoing project, or to understand this process better, just get a hold of me.
When you teach entrepreneurship, you are inevitably asked for advice (usually free) on starting a business, by all sorts of people. I don’t mind helping out, but when it’s a family member I think twice. I want everyone to succeed, but on some level if some man doesn’t follow my advice, or some woman does but fails anyway I’m not really bothered. I know that the advice I hand out is sound, based on received theory, empirical research, experiential learning, and my own personal experience. But if my mom’s business fails, I feel like it’s my fault, whether it is or not.
What follows are my recollections of two of my moms’ businesses. Believe it or not, the apostrophe is in the right place. I was for a time, probably due at least partially to my own shortcomings as a child, a foster child. I had the honor of calling many wonderful people mother and father. If not for some of them I’d be a very different person today, and I’m thankful for each one that stepped up, even for a little while.
Mom business number one: Nancy, my foster mother for the last three years of high school and a lifetime inspiration wanted to start a business. She had done some of the heavy lifting of finding a niche in a crowded market, designing a product, having stock manufactured, and beginning to sell. She asked me, along the way for advice and some help, but it was clearly her business. I bought her a web domain, got a graphic designer to create a banner, got her original website set up and so on, so that she could supplement her in-person sales with online sales. That business ran quite well until she fell ill and passed away. I have asked a couple times if I could run that business, more or less to keep her memory alive, but I’ve been shut down at every turn. I’m told that the family intends to restart the business, but its unique place in the market has been eliminated by imitation, and its established goodwill erodes daily. It makes me sad because it’s wasteful for no reason. This could have been avoided through planning. A simple succession plan is all it would have taken for this business to have survived the death of its founder.
Mom business number two: Dicki, the amazing woman who gave birth to me, and puts up with all my crap, recently started a business. She asked me for advice on various things and I gave her the same answers I would have given anyone else, the same answers I gave Nancy several years ago in fact. She asked someone else to do her website, which is fine, I told him how I would get the information to get it online, and I believe it’s being done as I write this. However, when she realized she wasn’t going to get a website immediately, she made one herself, on Facebook. She didn’t wait, she just did it. She had already developed a novel artistic product, and produces beautiful, salable art pieces which she sells for about 25% of what they should go for. (If you’re reading this and you’re selling something I’m going to go out on a limb and tell you that you should probably raise your prices. Most people undersell themselves.) She markets them in person at various venues. She’s in a conservative market and wants to move product, so I understand the low prices. Selling is half the fun!
The point is, in both cases, action is more important than just about anything else. This is the one thing that is so hard to get through people’s heads. The days of planning to plan to plan the plan are behind us. We have phase-shifted into a world where action is the first step. Maybe we’ve always been in that world, and it’s just taken the internet to show it to us, I don’t know. But for my money, give me a person, even (especially) a relative, that’s going to do it with or without me and I’ll be on board. I’ll do what I can to facilitate their success; we can work out the details later. But if someone wants to hang around the ‘startup culture’ and talk about starting a company, they can pay market rate for my time.
If you’d like to seem my mom’s business, click here.
This post is specifically about the Causeway Pitch Competition (CPC) at the University of South Alabama (USA). Some of what I write here may be useful to you for other contests as well. This year’s CPC was structured as a two stage contest. In stage one contestants submitted a poster about their business idea. That poster was judged on its own merits to determine which ideas made it in to the finals. In the finals students gave a 1-2 minute prepared speech explaining their idea.
Part One: My Poster Wasn’t Selected for the Finals
There are many reasons your poster might not have been selected. I’ll list and comment on some of them in no particular order.
- We received 29 entries. Not all of them could win. It might be that your poster was very very good and you just missed the cut.
- We received 29 entries, 23 of them on the last day. It is possible all the entries were working diligently on their entry for weeks or months. It is also possible that some students put together their entry at the last moment. Only you know if this applies to you. Research shows that people believe that they perform well under pressure, but really they don’t. I’m not pointing any fingers here, I had a deadline yesterday (as I write this) of 5:00 p.m. and I turned in the work at 4:12 p.m. I had thought about the project for a while, but I didn’t really settle on exactly what I was going to do until yesterday morning. As a result I was rushed and probably didn’t make as good a case for myself as I could have.
- You may not have tailored your poster to what the judges were looking for. This is hard. We tried to make it easy by publishing the judges instructions on the contest web page so that you could see exactly how they were going to judge. For example, in this particular contest, posters for for profit businesses were rated from 1 to 5 on four different things: the problem your business is solving, how your business was going to solve it, why you think it will work, and how much money you think you’ll make. So your minimum score is 4, and your maximum score is 20 (5 in each category). If you said nothing on the poster about how much money you thought your business idea would make it would be very difficult for a judge to give you more than one point (the minimum) in that category. Some judges looked at an idea and decided for themselves how much it would be likely to make, but they were not instructed to do so.
- The judges might be less knowledgeable than you, at least in your specific area of expertise, or have a different opinion of what is important than you do, or any number of other differences of that nature. For example, if you take a strong stance on a political issue, and the judge disagrees with you, it is possible that they would score your idea differently than if they agreed with you.
- Your poster may have been difficult to read, or hard to understand, or perhaps it didn’t communicate your idea as well as you thought. A poster is one form of communication. It’s different than speaking in person because it has to stand alone. Perhaps if you had been standing next to your poster to explain it, it would have been much better, but that wasn’t point of this part of the contest. If your poster didn’t explain your idea on its own, then it is unlikely it would make it though to the next round.
Part Two: I Pitched, But I Didn’t Win
- If you pitched in the Causeway Pitch Competition, you did win and congratulations! But I know what you mean. So let’s talk about it.
- There were 12 entries and 3 winners. We had a bunch of judges, and perhaps you were just edged out.
- There was a short span of time to prepare your pitch after you found out you were in the finals. All of the winners were preparing their pitch before they got in the finals. I know this because every one of them was emailing me and coming to my office before the finalists were selected. If you started preparing after you found out you were in the finals you may not have had enough time to adequately prepare.
- What you presented may not have matched up with rubric the judges were using. This is the same idea as point 3 above. The recommended way to present an elevator pitch for this contest was to present the 5 p’s in order. The reason for this was so that the judges could ‘follow along’ and know where your presentation was headed. This was to make scoring easy and fair. If you presented different information than the 5 p’s or presented them in a different order it is possible that one or more of the judges was confused and didn’t know how to score you.
- You may not have presented as well as you could have. This could be due to lots of things. Speaking in front of people is hard. I find it easier to talk to groups about things I care about, but many students tell me the more they care about something the harder it is to overcome nervousness or ‘stage fright’. Again, if you didn’t know your material well you may have missed an important point, or not communicated it as well as you could have.
No matter how far you made it in the competition, no matter if you won money or a trophy, I am proud of your effort. The 29 of you who entered did far more than your peers. Just like the sign at our rec center says ‘the only bad workout is the one you don’t do’ or something like that. This was a mental workout. It was hard. It’s supposed to be. I hope it was rewarding, and I hope you learned something that will help you later in life. And great news! We have another contest coming up in the spring. It’s harder, but there’s more money, and I know you’re capable. I look forward to seeing more great ideas from you in the spring.
AoM got busy. These write ups will be even shorter than the previous ones.
Interesting group, interesting discussion. No one (still) likes my relationship of Kickstarter to offline pre-sales, such as concerts. That’s ok. No one likes it when I point out that a mortgage is a bundled loan (it is really the deposits in the bank (well, 9 times the deposits of the bank) being lent, not the bank’s own money, so a mortgage in some sense is a crowd funded loan. Think Jimmy Stuart in It’s a Wonderful Life) either. I’ll get over it. Here are some bullets I got from this.
- why people buy and donate on Kickstarter is under researched
- the crowdfunding research is taking off, but it needs to be careful to not fall into Stuart’s Trap (which is apparently, not connecting to other areas of research…–so I know what that is now too….)
- (of course) there is a file drawer problem
- Demographics don’t seem to matter (to success) once you get the funding to start your project. This is probably the most significant non significant finding I’ve ever heard.
- There’s something called ScholarFlock.com that I need to check out someday.
- Paper Idea — Crowdfunding as cultural and/or social investment
- Paper Idea — Types of pitches that perform better (this wasn’t covered in the PDW, I just came up with it while in the session. I think if I could get a sample of pitches that failed, then later succeeded by redoing their pitches (along with some that failed twice) I could learn something interesting)
- Locally, the Crescent Theater might make a good crowdfunding case study. What would you use a crowdfunding case study for? Piola Shoes (from Cincinnati) has an interesting story as well, but I’m not sure I’d be able to get permission to tell it. I might be able to sanitize it though.
- Corporate KickStarter is a thing. (interesting paper idea–how do people relate to corporate campaigns?
- Is there some way to get to lying in campaigns and how that affects stuff? I’m thinking about the changing story of iCPooch here.
- Stretch goals are an interesting area of study.
- How is feedback incorporated into the product.
Digital Technologies: A Game Changer for Entrepreneurship?
This was Per Davidsson’s session. Great job, like every thing he does.
Some interesting ideas. Most agree that entrepreneurship is entrepreneurship and technology is a tool. The PDW recommended thinking about digital technologies as (digital) artifacts, platforms, and infrastructure. Everyone seemed to agree. I may be a bit behind the curve here, but I’m not sure I could articulate the difference between each of the three. I do think that digital technologies move us towards more forgiving business models. That is, they make it easier to try and fail, and eventually succeed because the cost of failure is so low, and the level of success can be so high. When initial capital outlays are tiny and there is a zero marginal cost for additional units shipped, profit potential is pretty great.
Then came Susan Marlow, questioning that technology is a great leveler, that entrepreneurship is easy, and an idea plus a laptop can equal success. First, no one really claims this. Thinking people realize that technology levels the playing field, but no playing field is perfectly level, some are just more level. Second, no one thinks it’s easy, they just think it’s less costly to fail, making eventual success possible. Finally, an idea plus a laptop plus A TON OF WORK can, but may not necessarily equal success. It works. Not every time, nothing works every time. But it does work. And then we brought intersectionality into the conversation. I am so tired of people thinking that the reason some people are more successful than others is that they’re being kept down. Maybe that’s true. But plenty of people have refused to be kept down, and all this focus on these problems will not make them go away. It will institutionalize the very problems it highlights. Sigh. Enough soapbox. If you think the internet is not good for your particular special group try to get them to give it up.
Digital Footprints: We all have digital footprints. This blog is one of them. I’m sure that there are things in here that will keep me from getting hired, getting tenure, or getting promotions at certain jobs. I’m sure there are things in there that will keep me from being on certain boards, and so on. I’m sure there are things that might even keep me from starting some businesses. I’m too old to care. I should care, but I can’t make myself care. What use are digital footprints for entrepreneurs? That is an interesting question.
Howard Aldrich closed out this session by positing that digital entrepreneurship is third industrial revolution. Howard is a genius, so I felt pretty good because I’ve been saying words to that effect in class for several years now.
How Can We Make Entrepreneurship Research Relevant?
This PDW was run by Norris Krueger. That is enough by itself to justify attendance. Bullet points again.
- What would happen if I would disappear? Does the e’ship paper I’m working on matter enough that its absence would be noted? What happens if I don’t publish this?
- Look more into Kauffman’s Reports on Entrepreneurial Ecosystems.
- Look at Kauffman’s Mayors Conference. Recommend to Mayor if appropriate.
- Remember, policy makers do not read academic articles. Hit them where they are.They look for knowledge that leads to action. They DO NOT CARE about your lit review. (That’s cool. I don’t either really.)
- One good suggestion was tiered writing. Start with a readable working paper. Make a 2 page executive summary. Maybe make it into a blog post. They didn’t say this, but maybe a series of tweets….
- Paper launch events for things you want to be noticed.
- Most of this is to do boundary spanning. You translate your papers to the appropriate audience.
- Know if your study seeks to understand or explain. To this I’d add predict.
Lean Startups and Innovation Strategy: Towards a New Paradigm? — This contained a lot of stuff I’d heard before. One very interesting point that was made was that on the Business Model Canvas the only parts that matter are Customer Segments, Value Proposition, and Channels. I get what they were saying, but I’d want to see the research before I discarded 2/3 of the entire canvas.
I was scheduled to attend Leading Entrepreneurial Ventures: Individual and Team-Based Perspectives, but I was conferenced out for the day. I went back to the room, did some back exercises, and got ready for the Entrepreneurship Social that evening.
Team-Based Learning for Entrepreneurship Educators & Getting Student Buy In With Team Based Learning.
These were both run by Peter Balan, from the University of South Australia. They were both part of a sub conference of the AoM, which I’m not sure why exists, other than to take an extra $130 of my University’s money. Both seminars were very valuable to me. I believe I’m sold on team based learning. Next summer I would like to develop a suite of TBL exercises and fully implement it. If implementation is easier than I think it will be I may fully commit in the spring. I’m going to adopt some of the exercises teaching techniques I learned this semester, but doing a complete change over on such a short time will shortchange the students I think. And even if I were able to pull it off, it would leave no time for other duties.
While the sub-conference took a break I squeezed in a lunch session on Entrepreneurs and Individual Differences. I found the entire stream of research as presented uninspiring. We are all different, no matter how much some people want that to not be true. We have differences in intelligence, drive, access to capital, access to markets and opportunities, and so on. Some differences are hard-coded (genetic) into us, some are situational, and some we create ourselves. I’m comfortable with that, because there is nothing I or any entrepreneur can do to address some differences, and everything we can do to address others. Focusing on why certain cultures start certain types of businesses, certain genders have different opportunities, or particular ‘races’ (I so hate that word, it’s incorrect, and politically charged) have differing success rates is boring to me.
The FLIPPED Workshop
This was a hands on practice session with various online tools. I was familiar with many of them, and have been using them in my classes for a long time. But there were a few new ones, and I’m looking forward to receiving the email packet from the instructors so that I can weave in a few more online exercises.
After this session I retired to my room in order to work on a business plan for a Mobile area client.
Family Business Exit and Survivability — Mixed bag of papers
ENT Plenary Session — Managing an Entrepreneurship Center: A Director’s Perspective
David Deeds and Michael Morris anchored a very competent panel focused on running an entrepreneurship center in an academic setting. I was surprised by how much we’re already doing right at South. The Center Directors on the panel have huge budgets and we’re doing almost all of what they’re doing. I did get some good takeaways from this, but I had Dr. Mosley there with me, and they’ll probably be his initiatives. I have enough to do with what I’m already doing.
Crowdfunding: Signalling Knowledge and Trust — This was supposed to be run by my friend John Mueller, but he was unable to attend for whatever reason. Still an interesting paper session. The research on crowdfunding is advancing fast. Several good papers investigating signaling, trust and syndication.
The remainder of the day was entrepreneurship business meetings and social, which I did not attend.
A Multi-Level Perspective on the Processes of Learning, Knowledge Creation and Sharing — This paper session was on topics I know a relatively small amount about. That being said, the entire thing was very frustrating. I went to this to see Cai Unger’s presentation. He’s a doc student at South. Nice guy, and smart. At the conclusion of his presentation, he took questions from the audience, only they weren’t questions. They were the ramblings of people who had something to say, who may have been very knowledgeable, but seemed to be grandstanding for some reason I don’t even understand. If someone had tried that with me I believe I would have said ‘I’m sorry, what was the question?’ But I guess we don’t do that in academia. At any rate Cai did a great job and several from South were there to support him.
After that I hit the road. There were more sessions I wanted to go to, but there was also a whisky run to make, and my own bed to get to.
This was an eventful day. I had a full, full schedule. I’d like to thank the Academy (always wanted to say that) for putting together an excellent program. I’ve compiled some quick notes on the events I attended. As you read this keep in mind that these are only my views. The people that worked hard to put these programs together no doubt know far, far, more about their topics than I do. I probably missed the point on many, or even all, of these sessions. Any errors of understanding are mine.
8:00 Hogwarts School of Leadership: Two engaging ladies from UAB (University of Alabama, Birmingham) explained how they run an upper level leadership course using the Wizarding World of Harry Potter as an extended example to motivate participation and help students understand the concepts. Their class sounds amazing. My take aways were some examples of running a flipped classroom, some specific types of exercises that I can work into my classes to encourage that out of class work is completed, and most importantly, a new to me take on running teams in the classroom. They suggest larger teams than I’m used to using, and keeping the same teams all semester. I can see their points, but I’m not sure I’m ready to commit to doing that. I will give it some thought though.
9:45 Writing Better Theory: I showed up to a standing room only panel session. The line to get in was out the door and past. Security closed the door and ran us off, citing fire code concerns. I was really looking forward to that session. I asked if I could just put my pocket recorder in the room and pick it up later but they were unaccommodating.
12:00 The Future of Entrepreneurial Intentions Research: It was good to hear and be part of this type of conversation again. I have missed the theoretical world. I’m not sure if there’s a place for me in intentions research, but we’ll see. The people putting on the PDW think that they should kill the theory of planned behavior, and they made a good case. Their argument was that the world is complex, and TPB does not adequately explain or predict, from an empirical standpoint. They also discussed the iterative nature of the relationship between attitudes and intentions. I think most people agree that feedback loops are far more prevalent in the models that scholars put forward than they let on. But how on earth, even with panel studies, are you going to model intentions leading to attitudes, reinforcing intentions, reinforcing attitudes, heightening intentions, finally leading to action? It was hard enough writing feedback loops into design theory, where you have a well defined and well documented iterative prototyping process. Is TPB wrong? Certainly. I can tell you for sure that I was in business the first time almost before I made any decision, let alone formed an attitude about it. Besides that, I learned a little about a new data analysis technique called fuzzy set qualitative comparative analysis, or fsQCA for short. It proposed multiple solutions when they are present, I guess. Lastly, there was a long list of topics that need to be studied, the most interesting of which was the idea of collective intentions. We shall see if I find something in this area. They did say that for this research to be really interesting, it should be linked to performance. That made me smile, mostly because I say that about all research.
1:45 Creating a Shared Online Course in Creativity and Innovation: I mean no disrespect, but this PDW felt like 50% Why won’t you join our teaching collaborative, and 50% Please like my Facebook Page. That’s harsh, and I honestly got a lot more out of it than it sounds like. I did find out that people have similar problems and techniques for teaching C&I. The people hosting the PDW also have a lot of video content, some of it is even Min Basadur, who’s work makes up about half of my C&I class at South. It will be nice to get access to those videos and use them as outside assignments. It sounded like they have a bunch of course modules that could be plug and play, and are full of subject matter experts. I look forward to getting to know them better, and participating in the community they’re trying to create.
4:00 Fostering innovation in entrepreneurial ecosystem research: This one was long, and I was tired. Great stuff though, and I think I have a paper idea out of it. The panel discussion had three debates.
- Constructs, metaphors, and analogies — there was conversation for and against using the the ‘ecosystem’ concept. Points were made on both sides. I took from this the same thing that I took from my year-long conversation about what entrepreneurship was. It’s like Jim Fiet said to us, just define it and move on. The definition may be different in the next paper. As long as your work is internally consistent, you’ve done your job. (I’m paraphrasing. I’m sure what he said was shorter, and better phrased, but that was the idea.)
- Methodological Rigor — it’s lacking. Duh. Not to go off on a Fiet tangent with this post, but great men discuss ideas, lesser men criticize methods. Other issues discussed were what’s the proper unit of analysis, what’s the DV (hint, I think it’s performance…so either businesses started, cash taken in and spent, or maybe even Per Davidsson’s favorite variable, job creation. I like that one.), and can you generalize your findings and how. All great questions. Oh yeah, and what are the boundaries of the ecosystem, and what constructs are we examining.
- Theoretical Foundations — Maybe I was tired, and I’ll go back and listen to the recording of this later, but I could barely understand what was being said. It wasn’t accents or jargon, I just wasn’t tracking too well I think. They did give a nice list of theoretical lenses from which to examine ecosystems. I came up with a very doable paper idea (I think) just from the list. I think I can get data from snowball sampling smaller market ecosystems, then use standard SNA analysis to spit out potential variables like cohesiveness, and such, then perhaps set jobs created or dollars funneled to businesses as a DV and see what pops out.
Finally, this session introduced me to a potential new tool, Kahoot.IT, a instant feedback survey-game website. This might increase student engagement a bit.
6:00 Exhibit Hall Opening Reception: Went for 5 minutes. Didn’t stay, even though there were people there and companies I wished to talk to. One free drink was not worth fighting that crowd. So I had a nice dinner, retired to my room to work on other stuff, and now I’m putting this together before bed.
It’s the day before the start of the Academy of Management’s annual convention. I find myself in a Marriott Hotel in Atlanta. The bulk of the sessions that I’ll be attending over the next several days take place in this building, or right next door in the Hilton. I’m in a lovely little room with a view of part of Atlanta’s skyline. The room is a Staywell Room. I’m sure there’s a trademark or something, but I’m not sure how to do that on WordPress so imagine a little TM where it is supposed to be. The features of the Staywell room are not that important to me, but the upgrade was complementary due to a fair amount of travel hacking over the last several years. They have a filter on my shower to remove the chlorine from the water. I assume that this is the same chlorine that the city adds to the water, but I’m not sure. Maybe they add it on location, just to take it out of the water in their premium rooms. I have an air purifier in the room. I have an aromatherapy machine in the room. The lights have settings like relax, energize, and circadian. I’m pretty sure if I were a twenty something that I would find all of this tech pretty awesome. They do have tech in the room for me too. They have an iron and ironing board. I’ve already ironed my clothes for tomorrow. They have a coffee maker with my name (figuratively) on it. There’s a tiny fridge that now has some cheese residing in it, just in case I get hungry in the night.
I’m excited to be here. This is the first Academy I’ve been to since graduation that 1) I’m not paying the entire bill and 2) I’m not looking for a job. I can focus on the job at hand. I’ve got so many sessions on my calendar. I’m focusing on stuff that will make me better at my job. I’m attending some sessions on writing, some on entrepreneurial ecosystems, and some paper sessions in the areas that I’m researching. Tomorrow starts out at 8:00, and as I write this, it’s really today, so I’m going to bring this to a close and try to get some rest. I wonder if there is a light setting for dark.
Cleaning Out My Comments
Almost every comment I get is spam. Some of them are hilarious. Here are four at more or less random, because it amuses me to put them up.
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Comment Four (On a post that said only “I have a bunch of wonderful, attentive students” on another website I use)
As you will inevitably learn on your path to losing weight, effective weight loss is not only about watching what you eat, but much more about changing your lifestyle. This means changing your habits and how you approach your day-to-day life. Read this information to help you throughout the process.
This morning I was listening to the radio on the way to work instead of listening to a podcast, which has been my habit of late. Commercials came on, and as they always do they skirted the edge of the truth, and as they always do they made me angry. I’m not sure how or when I became aware of the manipulative tactics in commercials. But as I’ve grown older I’ve gotten more and more angry when I hear them, and the more likely I believe they are to work, the angrier they make me. I’m pretty sure I could do an entire series on the lack of truth in commercials, but today I want to focus on just one thing. I want to examine the idea of the middleman.
What is a middleman? Simply, a middleman is someone who is not at the beginning or the end of the process that gets you your goods and services. This is a really broad definition, but I believe it’s an accurate one, especially when so many different commercials in so many different industries claim to save you money by cutting out the aforementioned middleman. So, in one sense, everyone between you and your Cheerios that’s not a farmer is a middleman. Everyone that’s not swinging a pick in a diamond mine that gets a piece of your two months salary is a middleman. And I don’t know about Kellogg’s or Walmart but companies like “The Shane Company” claim to cut out these middlemen and bring their diamonds directly to you. Don’t read this as a screed against The Shane Company or even the diamond industry (although it seems highly corrupt, and stupid). This could just as easily apply to mattresses, vitamins, or computers.
Ok, so in the diamond industry, someone has to dig up the diamonds. (Working backwards from there we could look at equipment manufacturers, mining supplies, logistics companies and so on, but we’ll just begin, for simplicity’s sake at the digging in the dirt.) Ok, now the diamond is dug up. It must be cleaned off, graded, sorted, sold to someone who have it cut and shaped into what we think of as a diamond, and put into a setting. Once all that is done you need to be made aware that this lump of coal, for which you’re about to strike one and possibly two horrible bargains, exists. Then the bargain must be struck and the glittering symbol of your eternal love must be delivered unto your trembling fingers, which fortunately thanks to the rather severe lightening of your wallet, you’ll have no trouble carrying around for another two months while you wait for the ‘perfect moment’ in which to give it away. But I digress, back to the story at hand. Which part of that, exactly, can we do without? If it doesn’t get dug up, nothing else happens. The same with each step in the process.Someone has to cut it. Someone has to decide how much it’s worth. It must find its way to wherever you are. It must be available for inspection and purchase. It must be set in a ring. You must, must, be made aware that it exists, and that it is right and proper that you should ever so briefly own it so that you may use it as a magpie uses a bright bauble, to attract a mate to your nest.
The point is, that no link in this chain is unnecessary. No one can be ‘cut out.’ Why would you want to anyway? Well, the reason, at least the way it’s presented in commercial land, is cost. “We cut out the middleman to save you money.” Ok. without going deeply into how products are priced, and a TON of issues surrounding that, how could cutting out the middleman possibly save money? Every job that was done before still needs to be done. (Try buying your Cheerios from the farmer. Let me know how that works for you.) Presumably, in the modern world we’re going to pay people for each of those jobs, we’re going to have capital outlay for the tools, equipment, locations, and management associated with those jobs. We’re going to want to make a profit for our owners or shareholders on each part of the process, because after all, each part requires an investment of time, talent, and treasure, and those are the things that profit pays for.
So when we say we ‘cut out’ the middleman, that’s not really what we mean at all. What we really mean is that we internalize the middleman. If the job needs to be done, and it’s not done by an outside company (middleman) we must be doing it ourselves. Whether personally or hiring employees, someone is doing that job. We’re responsible for their salary, benefits & our share of their taxes. We’re providing a workplace & their equipment. Assuming our investments are just as important as other people’s we’re likely to pay ourselves a reasonable return on that investment. So all we’ve done is become the middleman ourselves. We’ve eliminated nothing.
That’s ok, and there are some savings to be squeezed out of this idea. It’s called vertical integration. The idea behind it is that if you control more of the process, from start to finish, you can capture more value from whatever it is and pass a portion of those savings on to your customers. (Of course you do this not to be nice, but because by passing some savings on you may increase the total spend of the customer and maximize your own profits, but that’s a topic for another day.) Think about your car for a minute. The company that makes it, no matter what company makes it does some things themselves, but has outside companies that do some things as well. Almost all companies do their own final assembly. Some may build their own airbags but most, as you can probably figure out from news about product recalls, buy them from a couple companies that specialize in building airbags. They either make or buy every component in the car because that is the decision that maximizes their profit. And that’s good. It makes for a very efficient process. It just doesn’t make for a good commercial. Or maybe it does. The savings here come from vertical integration AND the fact that it was a high markup business with pretty severe barriers to entry. But that is a story for another day.
When starting a business it is often difficult to get other people and businesses to take you seriously. Customers may be hesitant to buy from you. Suppliers may even be hesitant to sell to you and they certainly won’t line up to give you credit. Speaking of credit, a new business often has a better chance of finding gold at the end of a rainbow than they have of getting a loan or a line of credit at a bank. Even getting a business checking account is harder than it used to be. With that in mind I’ve collected some information to help you with starting a business that the public, suppliers, creditors, and even the government perceives as legitimate.
It turns out that convincing the government that you are for real is pretty easy, and convincing them helps to convince others, so we’ll start there. It may be surprising that the government is the easiest target but it shouldn’t be. It is in their best interest for your endeavor to be a business. They will get to collect revenue off of the work you do or the products you sell, so they want to make the process of you becoming a business as easy as possible. To convince the government you’re a business you just have to tell them you’re a business. Well, often you have to pay them some money too, but really that’s about it. But you have to tell them in a way they’ll understand. What they will want to know first is what kind of business you are. If you are going to be a corporation, limited liability company, or partnership, there are legal forms you file with the government, pay some fees, and poof, you’re a real business. (There are all sorts of long term consequences to this decision, so I strongly recommend hiring an attorney to help you make the decision and file the paperwork.) If you don’t want to be one of the more formal types of businesses you can elect to be a ‘sole proprietor.’ This is actually the simplest and most common structure used to start a business according to the Small Business Association. Becoming a sole proprietor happens differently in different states. Some are as simple as saying “I’m a sole proprietor” and hanging up a sign, or the modern day equivalent, which is usually making and publishing a web site. In other states you may need to pay a small fee and register with some governmental agency. This registration may be required to open a business bank account. When you are registering you should go ahead and get an employer identification number (EIN), especially if you think you might someday have employees. It’s an additional ‘signal’ that you’re legit. You can get an EIN on line at IRS.Gov, specifically here.
Next, let’s convince the banks that you’re in business. They’re still probably not lending you any money but having a business bank account separate from your personal one makes record keeping easier, and those long checks are pretty cool, especially if you get them in a book, three to a page. You can sit at home with the book open in front of you, wearing a translucent green visor and just soak in the ‘in business’ feeling. OK, when you go in to the bank ask them to talk to a business bank representative. That person will tell you what they offer and how much it will cost you. You will need a deposit to open the account. A check or transfer from your personal account is fine. If he or she looks at you funny (which they won’t) just say you’re taking an equity position in the new venture. That’ll teach ’em. They will ask you your business name, and will most likely want proof that it’s legit. This is where you show them the papers you paid the attorney (out of your personal account — damn!) for. The business name will go on the account. You will be the one signing the checks (with your own name). At this time they may ask you for a TIN, or taxpayer identification number. If you formed a company you’ll have one. If you got an EIN you’ll be able to use that. If you don’t have either of those things then you can just use your social security number. They may want to see your card, but no one has ever asked me. After that you should be set up. Handle this account with care. This is the beginning of establishing business credit.
Now, on to suppliers. Regardless of what business you’re in there will be things your business must purchase. Cleaning supplies, web hosting, products for resale, packing peanuts, transcontinental business class flights, something. Some of the things you may wish to buy may not be for sale to the general public. You may be entitled to different pricing if you’re a business. Often businesses receive credit terms for things they purchase. Things that you’re going to buy and then sell later at retail will be sold to you tax exempt. Let’s take each issue in turn.
To acquire things that are not available to the general public the company selling to you must agree that you ‘should’ have access to them. For instance, in some states it is illegal for most people to buy dynamite, but if you’re a building demolitions company you would be allowed to buy it. Often there is a license or certification process that goes along with this kind of product. If that is the case, seek out the licensing agency, complete the requirements and you’re in. Bonus, it makes you look more official. Sometimes there’s not an ‘official’ gatekeeper or policy, but some people just aren’t allowed access. For instance, there is no law saying you can’t own lock picking tools in most states. As a matter of fact you can buy them from many sources online. However, if you were to attempt to purchase them from a legitimate locksmith supplier it is unlikely they would sell to you unless they could independently verify that you were a locksmith. In the past, having an ad in the local telephone book was considered proof in that industry, but with the rise of internet advertising and the demise of the phone book you might have to prove you’re a locksmith some other way. Joining a trade association often serves as ‘proof’ in these situations, and is often a good idea as well. I’ve even had to answer questions that supposedly only a locksmith would know, kind of like a secret handshake.
Special pricing is usually a matter of buying in quantity. Sometimes that is making a large purchase, or sometimes it’s making a small purchase, and making sure that the company you’re buying from knows that you intend to make regular, ongoing purchases. The discount you’re receiving is for bulk, or sometimes, for doing the work of selling the product to the retail customer. The easiest way to get this is to just buy a lot all at once. The next best way is to become a regular customer. After you’ve been ordering for a while, inquire about discounted pricing. As with all negotiations, your results will vary by industry standards, whom you’re working with, and your negotiation skills.
Business credit is typically granted as business relationship are developed between your business and your supplier. You will almost certainly start out on a cash payment basis. Over time as you order and pay good will is developed. My suggestion for developing business credit is to do it early. The process I use is to fill out an application for credit with whatever company and then place a couple orders for cash while they’re processing it. Once they’ve received a few hundred dollars from me in business it’s easier for them to grant me a small credit line. I then charge something and pay it off right away. The purposes for this kind of credit, at this stage of your company’s development are to (1) build more credit, and (2) to facilitate your business’s operations. You’re not trying to generate interest free inventory loans at this stage. You’re just trying to establish that you’re a legitimate company and make doing business easier.
The last issue is avoiding paying sales tax on something you’re going to resell. If you’re going to sell products, and you don’t live in one of the five remaining states without a sales tax, you’re going to also collect sales tax and pass it on to the government. In most states if you’re going to be collecting that tax on retail sales, you don’t need to pay it on the wholesale amount you pay for whatever it is you’re reselling. The process I’ve been through in three states requires you to get a Sales Tax ID number. Remember 1200 words ago when we were dealing with the government? You should have gotten a sales tax ID number then. Sorry. So, get that number using your state’s process to do so, then give that number to whomever you’re buying whatever from. Now, this is important. It will be tempting to not pay sales tax on things that you are just going to use in your home and/or your business. DON’T DO THIS. It is a crime, and governmental types get more bent out of shape over this than they do for little things like arson, murder, or bigamy. Only kidding, but if you want to bring the governmental hammer down on your business just mess with their revenue stream. So, get the number and use it properly. With great power comes great responsibility.
Finally, everyone thinks you’re legit but your customers. How do you signal to them that you’re the real deal and not some random fly by night quasi-organized scam artist? Well, first, all this stuff you’ve already done helps. For example, when you sell something that people are accustomed to paying sales tax on and you don’t charge it that will send up a red flag. But you’ve covered that. If you have a retail location you can hang your business license. If you have a website, make sure that it’s professional and error free. This means that if you have a product or service offering you need a policies page. All the cool (i.e. real) companies have them. Local businesses have local numbers. Sure, this is easy to fake and lots of fake businesses have local numbers too. And sure, everyone can call everywhere now so what good is a local number. A local number is a signal. People consciously and subconsciously process signals like this to make decisions. Take credit cards. All of them. Online and off. It’s a hassle. The credit card company takes part of your money. Suck it up. Your bank can help with processing, or you can just use Square or something similar. From day one, manage your online reputation. That’s right, I’m giving you permission to Google yourself regularly, even daily if necessary. You will have bad things come up on the internet. Deal with them, then move on.
As soon as you can, join the Chamber of Commerce. Seriously, join the chamber. After you’ve been in business a year, register with the Better Business Bureau. Do things that you see other businesses in your industry and area doing. When you have the funds, engage in local marketing such as sponsoring a baseball team or whatever. Legitimate businesses invest in the communities that support them.
That’s about it. Well, not really. There are tons of things, but that’s all you’re getting today. This list should be good enough to get you started. If you need specific consultation, feel free to reach out to me. I’d love to help.
Hey all, I’m a veteran of multiple Startup Weekends and several pitch competitions. Pitching for Startup Weekend is a little different than your standard elevator pitch. With that in mind, the good people at The Container Yard have asked me to put together some tips on pitching for the this particular event. Since many of you are likely to need that info at some time I’ve decided to share it here as well. These notes were prepared from personal experience and several websites about elevator pitches and Startup Weekend. Nothing on here is proprietary, but I didn’t make the entire post up from whole cloth either. You know how writing is on the web these days….
Pitching for Startup Weekend
The purpose of the pitch at startup weekend is to recruit people to your team. With that in mind, one thing you can do is begin the recruiting process the second you walk in the door, or even before. Talk to people during the meet and greet. Share ideas. Try to get people excited about your idea, or if you find an idea you’re more excited about than your own, plan to join their team. Having a fantastic Startup Weekend is not all about getting your idea selected. It’s about learning. It’s about creating something new, whether or not the original idea was yours. This is a low risk learning experience, that just might turn into a new career or side hustle. But the things you learn there will be applicable to other businesses and projects for the rest of your life. That doesn’t mean you shouldn’t give the best presentation you can though, so here are some thoughts.
1. You get 60 seconds. They WILL cut you off.
2. This is a popularity contest.
a. Be likable – smile
b. Be friendly – SMILE
c. Be passionate – If you have trouble being passionate, be excited. If you’re nervous, that’s good. Just go somewhere quiet (it helps if you find a mirror) jump up, land on the balls of your feet and say “boy I’m excited, boy I’m excited, BOY I’M EXCITED!
d. Engage other people going to startup weekend in advance. Don’t ask them to vote for you, but when you find people that will be there let them know you’re going to be there too and you’re excited about sharing ideas and working on something together.
e. Only use humor if you’re self-confident enough to pull it off. If it’s forced you’ll sound like a dork.
3. This is also a performance.
a. Move. If something is huge, make big arm motions. If it’s frustrating, make a frustrated face and shake your fist. If something makes you happy, SMILE!
b. Modulate your voice. Don’t just talk. If there is a reason to be quiet or loud, be quiet or loud.
c. Consider your tone of voice in addition to volume and physical movement.
4. Here’s a sample pitch formula
a. Introduction 10 seconds –This should introduce you, your idea, and contain a title. The title is super important, there will be voting later and they can’t vote for you if they don’t remember who you are. You may want to invite people to join you here.
b. Problem 15-20 seconds – What problem are you trying to solve and for whom? Be as specific as you can in the time allotted.
c. Vision 20 seconds – This is what the world looks like for the customer with the problem solved. What makes your solution different or better than others?
d. Requirements 10 seconds – What do you need in terms of people/knowledge/skills/
e. If you have time, and you probably shouldn’t, re-invite people to join your team, and restate the name of the idea.
5. Practice before the event. You will suck. Then you will get better. Then you will get bored. Then you will get good.
6. A good idea is to write it down and memorize it.
7. When writing and practicing your elevator pitch will change. This is good. You’ll be putting what you’re saying into your natural voice and improving your presentation.
8. My personal preference is no notes. Notes detract from your passion. It’s really hard to passionately read a note card.