The Entrepreneurial Mind
In this May 2012 file photo, Karen Kern pulls a pecan pie put of her kitchen oven in Garland, Texas. Kern has traveled the full circle of employment evolution — from full-time mom to employee to unemployed to entrepreneur — in about a year. (Brad Loper/The Dallas Morning News/AP)
Following the value proposition to entrepreneurial success
The value proposition — the collection of things a business offers to the target market to solve a problem or satisfy a specific need — is how an entrepreneur attracts customers away from the other choices they have among all of their competitors.
Most value propositions for new businesses come from some fundamental trend in the economy, in demographics, in technology or in society and culture. These trends lead to changes within industries.
For example, the widespread use of the Internet forever changed industries such as music and newspapers. Inflation in the economy both led to soaring healthcare costs and more recently begun to affect the food industry. Inflation has clearly shaken up both of these industries.
A fundamental role of being an entrepreneur is to find solutions for the problems and needs customers have that result from the change that follows disruptive trends like these.
Once the entrepreneur identifies the new business opportunity, the next step is to identify the specific offerings that provide enough value to customers to get their attention and motivate them to purchase from the new business.
It could be something about the product itself, such as its price and value, features, performance, durability or design. It could also be something about how the product or service is delivered to the customer, such as its method of delivery (in their homes, on-line, in an exciting new retail location, etc.) or the specific services offered to go along with the product. Or, it might be something about the personnel of the company, including their expertise, responsiveness, or reliability.
It is almost always best to identify and focus on one or two things that will make your business stand out to customers. Focus on the most important need or problem the customers are facing. Offer that feature to the customers with excellence in mind, making sure all employees understand its importance. And make that key feature the heart of all of your promotion and other communication with the customer.
The best way to develop the key features that are at the heart of your value proposition is to listen to your customers, as while you may think you know what the customer wants, most of the time you will not have it quite right. You will probably have to adjust your product or service to fit with what the customer actually wants or needs.
You may have started with something that is too complex and confusing to the customer. What you thought would be one of many features of your product may need to become the only thing you focus on.
Sometimes the entrepreneur starts too narrow, and what was thought of as the product or service is only one of its key features – you may need to broaden what it is you offer.
Or you may discover that what you offer is a great value, but you have not been selling it to the right target market.
Once your customers affirm that you are offering the right value proposition, it needs to become the focus of everything you and your employees do every day.
A view of the three-story D3 cafeteria under construction by the Broad Group in Yueyang, Hunan province is shown in this April 2012 file photo. According to Cornwall, each piece added to a business should make sense within the entire structure. Otherwise, it could be a drag on the system on the long run. (Broad Group/Handout/Reuters/File)
Starting a business? Structure is key.
The organizational structure of the typical small business evolves from a series of specific decisions to help manage the challenges presented by growth.
When there becomes too much else to do, the entrepreneur finally decides to stop doing the books and hires a bookkeeper.
As demand increases and more sales opportunities arise, a salesperson is hired to help. When more and more workers get hired, a supervisor is named to manage day-to-day operations. And when a new location is opened, a manager is brought in to help run it.
With each of these decisions the entrepreneur starts to create an organizational structure.
As the business grows, employees are organized into specific functions such as bookkeeping, sales and operations, and eventually someone is put in charge of each of these departments.
While the decisions an entrepreneur makes to handle each specific challenge may make good sense individually, sometimes it doesn’t add up to a complete whole after the structure has been pieced together.
To be effective, the organization’s structure needs to align with the overall market strategy that the business is pursuing.
In their classic book, The Discipline of Market Leaders, Michael Treacy and Fred Wiersema identify the three common competitive strategies of successful businesses. They conclude that there is a specific alignment of structure, culture and systems necessary to support the chosen strategy.
The first competitive strategy is operational excellence. This is what a business needs to be efficient, consistent and low-cost. Burger chain McDonald’s is a good example of this strategy, as its customers want the same food served quickly and inexpensively in every McDonald’s they visit. This strategy works best with what might be called a bureaucratic structure, where decision-making is completely centralized at the top levels of the business with tight controls to ensure consistent performance.
The second strategy is product leadership, in which the business seeks to be the leading innovator in its market. This is a common strategy of many technology businesses. The structure that works best with this strategy is one that is flexible and can quickly adapt to each new product offering. People are reassigned and reorganized to meet the unique needs of each new product.
The third strategy is customer intimacy. This strategy — as it evolves — must allow any employee to do what needs to be done to meet the needs of the customer. A common mistake of small businesses is that, as they grow, they try to pursue all of these strategies at once. This is never sustainable over the long run.
Each strategy demands a specific approach to organizing how work gets done.
A key to being a successful venture and managing growth is finding the competitive strategy that works best for the market, and then working to build a structure over time that supports that strategy.
There is no one best structure for all businesses. But there is a best structure for the type of market strategy that a business chooses to pursue. Find it.
Fruzsina Eordogh works outside a cafe in Chicago in this March 2012 file photo. Cornwall predicts that the next generation of entreprenuers will be multi-taskers who are more tuned into social media than any prior generation. (John Gress/Reuters/File)
What the next generation of entrepreneurs will look like
USA Today ran a story by Rebecca Walker on the entrepreneurial nature of Generation Y. They have three interesting profiles on Gen Y entrepreneurs.
Here are my thoughts that I shared with the author for this story, which regular readers have heard me say many times:
Generation Y is the most entrepreneurial generation ever. Parents raised their children to be independent. This generation feels a general sense of distrust for large organizations and government.
What will be really interesting to watch over the next decade or so is the next generation coming along — Generation Z.
These are the children of Generation X. They share some characteristics with Generation Y. For example, they seem to view entrepreneurship as a perfectly normal career path.
But they have some fundamental differences. Unlike Generation Y, they will probably not be seeking balance and meaning in life from their careers. They are driven, high achievers. They are the first generation for whom the constantly connected, social media world is ubiquitous.
Should be a fun ride as they start to enter university programs like ours. We will need to be adjusting our programs and probably our expectations as this group begins to replace the Gen Y folks in our classrooms. They will challenge us to integrate technology and social media in our classes. They will be looking for more high growth opportunities than the Gen Y folks have.. And we will have to get comfortable with their multi-tasking personalities.
This may be about the last generation I teach. By the time they have worked their way through the system it will about time for me to open my bait shop. I will always be teaching in some fashion. I will continue writing and will certainly honor the life time warranty I offer my alumni.
I will be leaving the next generation — will they be “Generation AA”??? — to my younger colleagues. Who knows what they will bring into this world!
A money changer shows some one-hundred US dollar bills at an exchange booth in Tokyo in this 2010 file photo. According to Cornwall, finding a friendly bank is crucial for small businesses, and there are online resources to help with the search. (Issei Kato/Reuters/File)
How to find a small business-friendly bank
“There is a bank on every corner. If you don’t like the answer you get from one, go to the one across the street.”
That is the advice my late father gave me a long time ago about finding a small business friendly bank.
Now there is a new tool to help make this process easier for small business owners.
“One of the biggest challenges that small businesses face is access to capital,” says Ami Kassar, CEO of MultiFunding, a small business financial advisory firm. “We decided to give small businesses a gift this year and help them find local banks that are friends of small business – Banking Grades.”
Banking Grades is a proprietary online tool that grades every bank on its commitment to small business lending. Using public data from the Federal Deposit Insurance Corporation (FDIC), Banking Grades compares the amount of a bank’s deposits to the amount of loans that bank has made to small businesses. These loans are $1,000,000 or less. “Based on our experience of helping small businesses find financing, we believe that a one million dollar loan is a good barometer of small business lending,” explains Kassar.
On Banking Grades, anyone can search for an FDIC-regulated bank by name, zip code, city and/or address. Banks that make the most loans to small businesses (proportionately to their deposits) receive an A. Conversely, the banks are not making small business loans, receive an F. There are thousands of banks in between. “It is our hope that small business owners will use this tool to find local banks that will lend to them. All banks have money, but the biggest one or the closest one to your store isn’t necessarily the one focused the needs of small businesses,” says Kassar.
Banking Grades gives an A grade to 2,693 banks in America. In order to receive an A grade, a bank needs to utilize 25 percent or more of its domestic deposits to make small business loans.
I tried it for my location. It was easy to use and, quite frankly, eye opening. I found out I was doing business with two banks that did not get very good grades!
Accoridng to Cornwall, small business like Bike Works in Fredericksburg, Va., shown in this April 2012 file photo, need to have a strategy to standout amongst the crowd of other businesses vying for a customer's attention. (Suzanne Carr Rossi/The Free Lance-Star/AP/File)
Making your new business noticeable
“You are gnats! You are like annoying little gnats flying around in the face of consumers.”
This is a message that I consistently tell aspiring first-time entrepreneurs.
Why the harsh words? Most first-time entrepreneurs have so much enthusiasm that they can become blinded to the reality of the challenges that every new business faces.
I tell them to think about the last few hours. How many small businesses did you go past without even really noticing them? What about all of the products in the convenience store where you got gas this morning?
How many of the service businesses that had logos and advertisements on the sides of their trucks did you actually pay attention to?
Many of those products on the shelves are the result of someone’s entrepreneurial dreams. A small-business owner spent hours agonizing over the business name and a logo, and yet most passersby barely notice it.
New business owners need to adjust their expectations. While starting a new venture is one of the most important and exciting things you’ve ever done, to the market your product is just one more in an already overcrowded sea.
So, new business owners need to get a sense of urgency. They need to develop a plan to become more than just another annoying little gnat!
To successfully launch a new business the entrepreneur needs a clear entry strategy, which is a plan for how the business is going to gain the attention of the market and start attracting customers.
If your business is going to take existing market share away from established businesses, you are going to have to do something better, faster or cheaper than the competition. Give people a compelling reason to change their buying habits.
Start small: Consider a niche strategy. This simply means the entrepreneur finds a small part of a market that’s not being served or that has been significantly under-served. It gives the entrepreneur a safer market to conquer a bit hidden away from established businesses.
But establishing a niche requires that you find ways to let the customers in that niche market know that your new business is now open and is ready to fill their specific unmet need.
Getting the market’s attention for a completely new product that has the potential to impress the mass market is the most difficult and expensive market entry. It requires extensive investment in advertising and other forms of promotion to build awareness for your new product and to educate the public about the benefits it offers.
No matter which type of entry strategy you pursue — and as excited as you may be about your new business — remember this: If you build it they may, or they may not, come.
You will need to work hard to find the most effective means to attract those initial customers.
Brigham Young forward Brandon Davies (L) passes the ball as he is pressured by Iona guard Lamont Jones (2) during the second half of their NCAA men's college basketball tournament game in Dayton, Ohio, March 13, 2012. In business as in sports, surrounding yourself with a team you can trust to take on certain tasks is essential, while trying to do it all yourself will lead to failure. (Matt Sullivan/Reuters)
When starting a business, delegate, delegate, delegate
But delegating often turns out to be easier said than done. There are three common mistakes that entrepreneurs can make when delegating.
The first mistake is being hesitant to delegate.
When first beginning to delegate to employees, some entrepreneurs feel that no one can do what they do as well as they can do it.
Employees don't seem to care quite as much as the entrepreneur does. After all, this is your business, and your reputation is tied to its success. To employees it is simply a job.
To overcome this hesitancy to delegate, entrepreneurs should remind themselves that sometimes "good enough is good enough."
While employees may not carry out the tasks delegated to the level of perfection you would, they can learn to perform these tasks well enough for the business to run smoothly and for customers to stay satisfied.
The second mistake is rushed delegation.
Rather than being hesitant to delegate, entrepreneurs who make this mistake seem as if they can't wait to get tasks off their plates. We see this quite often with serial entrepreneurs who are so eager to get to their next new business idea that they don't take the time to get their current one running properly before moving on.
These entrepreneurs delegate without providing proper training and without giving clear expectations for performance.
In the rush to delegate, tasks and responsibilities can also end up being assigned to the wrong person or even to multiple people simultaneously. This can lead to chaos and frustration.
To overcome rushed delegation, develop a clear and detailed plan that includes what needs to be delegated, whom should be assigned the task and what needs to be done to prepare employees for their new responsibilities.
This plan should be reviewed by everyone to makes sure nothing is left out.
The third mistake is undermining the delegation process.
Even after the delegation of tasks and responsibilities, employees will still tend to want to go directly to the entrepreneur to get an answer to a question or to make a decision instead of the person now assigned to that area. If the entrepreneur answers that question or makes that decision, it will completely undermine the authority of the person it has been delegated to.
I developed my "seven-second delay" to avoid this mistake. When I was asked for an answer or a decision I would always pause for a few moments to ask myself, "Is this still my responsibility or have I delegated this to someone else."
If I had delegated it, I'd answer by sending them to the employee to whom I had given that responsibility.
Delegation is a lot like raising teenagers. At some point you have to begin to let go so they can learn -- and grow up. With your business, if you don't learn to let go and delegate, it will never successfully "grow up" to the next stage of development.
In this file photo, a player puts a dollar coin in one of Resorts Atlantic City's dollar-coin slot machines in Atlantic City, N.J. Many business owners long to catch a lucky break. The trick is being prepared to capitalize on it, Dr. Cornwall argues. (Curt Hudson/AP/File)
When lightning strikes, proceed with caution
Most entrepreneurs dream of that one big break. For some businesses it is getting the one big customer. For others it may be betting that magical "shout out" from a national thought leader or big time media outlet.
Should you always walk through the door of opportunity that the big break opens for you? Sometimes yes, but sometimes no.
If the big break is what pushes your business forward to success. Business on Main has a video about a chocolate maker who got national attention for one particular recipe for beer infused chocolates. Orders went through the roof. And fortunately she was able to put in the twenty hour days it took to make her big break lead to success in her business.
But some big breaks end up becoming more nightmare than a dream come true. It can lead to demand that far exceeds your ability to deliver in terms of quantity and quality. Or it can fundamentally change your business in ways you never planned for.
One local coffee shop here it Nashville has had the opportunity to scale up in a big way through franchising. But the owner knew that it would compromise the quirkiness that has been the key to the success of his coffee shops. So he has said no to such proposals.
I have seen too many businesses actually ruined by what appeared to be the big break of their dreams.
Think hard to be certain that the break will allow you to scale the model and pursue the vision that you already had in mind. Some breaks require a fundamental change, not just a pivot, of the business model. If you pursue this type of opportunity make sure you do so with a clear understanding of what it means and how it will change your business.
A money changer shows some one-hundred U.S. dollar bills at an exchange booth in Tokyo in this file photo. Dr. Cornwall argues that a dynamic business model is key to profitability (Issei Kato/Reuters/File)
The best business model is a fluid one
Developing a sound business model is key to the successful launch of a business.
But you should never assume the business modeling is finished once the business begins to grow. Keeping a business model current is critical for long-term success.
A business model helps to ensure that all of the "moving parts" of the company are working together.
What is the value that is offered to the customers and what is it worth to them? Who is my target market? What do they expect out of me as my customer?
How do I get information to them, and how do they want to get the product? What are the key activities to make this all come together, and what will it cost? What are the resources I need to make this happen (money included)?
Developing a sound business model in a startup venture helps improve the chances that the business will survive the launch, begin to gain acceptance in the market and grow.
While a business plan may be important to secure financing, a business model is what will guide the entrepreneur through the inevitable trial and error of finding the best fit in the market.
Changes that result from forces such as technology advancement, demographic trends and new customer preferences can all require adjustments.
For example, a recent study by the Pew Research Center found that more than one third of all American adults now own a smartphone, which is changing customer preferences in how they want to communicate and engage in transactions with businesses.
These changes can have a profound impact and at the same time open many new opportunities.
Businesses expanding into new products or new markets should also give careful consideration to the business model.
I personally learned this lesson the hard way.
When we expanded our health-care business from Raleigh into Charlotte, N.C., we assumed that the business model we had developed in our first market would work equally well in the new market. However, we quickly found out that assumption was wrong.
There were significant differences in customer preferences and expectations in the new market. Unfortunately, we had made major commitments to space and staffing based on a flawed business model. As a result, our operation in Charlotte never reached profitability.
Even a more established business should revisit its business model, as every market experiences changes over time.
For most of its history, Best Buy had been a business that catered primarily to men, as they were the main purchasers of consumer electronics. However, a report in Harvard Business Review chronicles how over time more and more women became customers.
Best Buy found that these women were highly dissatisfied in their customer experience, as their approach to buying electronics was quite different from men's.
To remain competitive, Best Buy made significant modifications to its business model.
Don't assume just because you had your business model right when you opened your doors that it will always work smoothly. All businesses experience changes over time. Assessing and revising a business model is the best way to ensure that your entire business keeps pace.
Facebook CEO Mark Zuckerberg talks about the social network site's privacy settings in Palo Alto, Calif in this file photo. For every entrepreneur, Cornwall urges taking time to consider how to transition from working in the business to focusing on the big picture. (Marcio Jose Sanchez/AP/File)
Want your business to grow? Learn how to step away
Entrepreneurs face a difficult challenge in how they should be spending their time as a business grows.
The dilemma is commonly referred to as needing to "work on the business rather than work in it."
Typically, entrepreneurs are heavily involved in working directly with their customers during the startup phase. They do much of the work necessary to generate revenues. Tasks such as sending out invoices, bookkeeping and developing marketing materials are squeezed into their days as they can find time.
And if there's no time during the day, these things may get put off until the end of the day or the weekend.
But with growth comes the need to add more employees, and with a growing staff comes the need to develop procedures and systems to make sure that all the necessary work of the business gets accomplished.
This is when entrepreneurs' own job description needs to begin to change, as it is up to them to "work on the business" and make sure it evolves and develops.
However, for many entrepreneurs this transition in roles is much easier said than done.
Often it's the "in the business" work that led someone to start the business in the first place. The owner may have started a cabinet company because he loves working with wood. Or someone may have started a Web development company because of her design skills and knack on the computer.
It can be hard to let go of work you really enjoy doing.
Another issue that can get in the way of this transition for the entrepreneur is being uneasy with delegating important tasks to others. Developing good training programs, clear procedures and effective systems can help make that process a successful one.
I hear from many entrepreneurs that the process of moving from a hands-on role to more of a management role can create anxiety. They tell me that they feel they're not busy enough. Or they say that they feel as if they're not really contributing.
From my own experience, I can say that these feelings will ease over time as the business grows and the entrepreneur becomes more comfortable in his new role.
Some entrepreneurs are not sure what success looks like when working "on the business." They are more accustomed to checking things off the to-do list by working with customers and doing more routine work.
But creating effective systems and building a strong culture will become a bigger part of the entrepreneur's job. Any outcomes from these tasks will evolve slowly. Therefore, it will take a long time to see the results of these efforts.
It's best to view the transition of the entrepreneur's role in the company as a one- to two-year project. As you begin to delegate parts of what you do, replace them with things that will improve the business and help it grow.
Moving from working in the business to working on the business is best accomplished if it's viewed as a gradual process rather than an abrupt event.
Wake Forest MBA student and case writer Robbie Shappley distributes the IBM case to students competing for a $50,000 cash prize at the Wake Forest Marketing Summit. Cornwall finds that many aspiring entrepreneurs start with a backwards business model. (PRNewFoto/Wake Forest University Schools of Business/File)
Avoid the backward start-up
"I've developed this really cool product and I have applied for a patent."
"I want to show you this awesome app that I helped design."
"We've got a great idea for a website."
Those of us who work with entrepreneurs hear these types of introductions all the time when people come to meet with us. Whether it is a result of years of development and research, or a sudden inspiration that leads to a "eureka moment," these aspiring entrepreneurs have come up with what they hope to be the next big thing.
The problem is that many of these entrepreneurs have gotten the design of their business models backwards.
Rather than look to the market to tell them where opportunities are, they have come up with an idea and are trying to run full speed into the market with it.
Starting a business by trying to find a market for an already developed product usually leads to a long and often futile launch of the new venture. It results in a very expensive start-up process, as revenues tend to be very slow to materialize. Expenses just keep piling up as the entrepreneur tries to find a target market with customers who need the product.
The approach to starting a business that has the best chance of success is to look to the markets for ideas.
Start by looking at markets you already are familiar with from your knowledge, skills, and experiences. The best business opportunities come from solving everyday problems that you have observed from your previous work experiences, your hobbies, or things you see in your everyday life.
Look for groups of customers who share a common dissatisfaction with how they are being treated or who cannot find what they really want. It may be something as simple as a market that has not been given good customer service.
Look for markets that are ready to try a new product to replace the old ones they now using. That is what has led to the success of the Nashville-based app company Aloompa. Much of their growth has come in the music festival market, where their apps replace outdated printed programs.
Look for markets where something that has worked in other similar markets has not been tried in your market. That is what inspired Bob Bernstein to open Bongo Java, a neighborhood coffee shop in Nashville, that was like the ones he loved in his home town of Chicago.
Look for markets with "pain" and then develop a product or service that takes care of that "pain."
My favorite meeting with an aspiring entrepreneur is when they come to my office and say, "I have found a market that needs...."
I know they are starting down the right path to develop a business model that has a good chance of success.
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