Startups recognise that neither a good nor an exceptional product or new idea alone is enough to succeed.

They need to retain customers (as well as recruit them) and they need to retain great staff / people (not just recruit them either). And successful startups are able to do both of these  - all at the same time – again and again… and again….

1. Customer recruitment (and retention)

Thanks to the work of the likes of Steve Blank and Eric Reis, it is broadly accepted amongst the startup communities and accelerators that customer (or market) development is just as important as product development.

However, this masks a key insight. That is, that it is not enough to recruit new customers but essential to also re-recruit or retain those customers too.

The key to both recruitment of customers, and their retention, is a combination of building appropriate products as well as effectively communicating with your customers. In order to do this, the startup needs to accurately identify their market or markets where a market is a collection of customers.

Those startups that identify everyone as their customer – usually stated as ‘this is a product for everyone’ usually fail.

Those startups that can be more specific and say ‘all universtity students’ are our customers or something similar have a much greater chance of success – even if, after time, the startup identifies other related markets – such as teachers at universities or parents who pay for their children to go to university or third party agencies who work with or relate to universities.

It is one thing to identify and successfully recruit customers but it is another to be able to retain those customers.

In digital startups this retention is usually is measured as a return rate to the website – how often do those customers return? Often the rate of return is a function of how well the product is re-marketed (email newsletters or facebook updates / pages are typical ways to lift the return rate) as well as the rate at which new releases are launched or new messages are communicated.

All mature businesses know it is 5 times easier (albeit it, the rate can be higher or lower in certain sectors) ot retain a customer than to recruit a new one.

Great, so, let’s say your startup has both a customer recruitment AND a customer retention strategy coupled with a product development strategy that supports and extends the effectiveness of the marketing effort.

Is that enough for success? No!

2. Staff/ team recruitment (and retention)

There is another area of business which is just as important – but is largely overlooked – at least until recently – by the startup community – and that is the recruitment and retention of partners, influencers and staff.

And, just as the effort to recruit customers is significantly greater than the effort to retain, this same rule also applies to the recruitment of the people who make the business happen.

Now, these people might be partners – usually defined as owning an equity stake and accepting a below market rate salary (or frankly, no salary at all); they might be influencers, such as non-exec directors (who may have a small stake ) or business angels (who will invest a seed fund of cash and take a larger equity stake – but rarely more than 30%); or they may be staff – ie. people paid a market rate for a full time or freelance role.

Most startup accelerators correctly emphasise the recruitment of customers – albeit, some place less emphasis on the retention of customer; but few startup accelerators place any specific emphasis on the recruitmet of the people who make the business happen.

Why is this?

Well, because building a successful startup team is hard to do – and even harder to do well!

Many startup entrepreneurs have very high expectations of future potential partners and over value their own work or the startup they have built so far. Equally, finding a way to not only recruit, but also keep, the key people in the business is crucial.

To retain great people you need to reward and motivate them appropriately. This is, of course, much easier than it sounds.

The essence of acheiving this is a balance of

• What does this person contribute (time, skill, money)
• What stage is the business at (concept, pre-revenue, early revenue, seed funding, full funding or expansion funding)
• What does this person need to grow (often, people will work for less or work harder if they sense that they are ‘getting somewhere’)

We then need a method of ensuring that where the contribution is made in one act (ie handing over the IP of an idea, a proto-type or, the handing over of a sum of cash) that this contribution is protected. Whereas, when the contribution is based on an investment of time over the next four years there needs to be a method for returning equity if the time contribution is not made.

To do this requires a balance of equity or salary share among the partners, founders and funders that reflects the relative value of each contribution.

The key here is that each person’s contribution is relative – that is, relative to what the other parties bring.

This is why a concept startup will, for a £50k investment have to give up 50% to 70% of equity, whereas an early revenue business might only give up 25% to 30% for £100k of funding).

The point here is that what each party brings needs to be clearly understood both in absolute terms (what is it that they are bringing) and relative terms (how important is that contribution to the startup) and comparative terms (how does the value of this contribution compare with the contribution of others).

This is hard to do and requires real negotiation between the parties. This negotiation also explans why building  a startup team takes a long time and also, why so many startups underestimate the commitment required to get this element right.

When we took the decision to build the startup acceleator Idea Alive, we elected to build in this people recruitment, retention and negotiation into the heart of the accelerator.

You’ll also find that over half of my book – 100 Rules for Entrepreneurs – is dedicated to the recruitment, retention and incentivisation of the team and staff.

Summary

Once a startup has understood and mastered the basics of product development and customer development, the key factor that determines startup success, above all else, is the ability to recruit and retain the right people around your business.

Hence, in addition to a great product, every startup needs two things -

• the ability to recruit and retain customers and
• the ability to recruit and retain people who drive, build and influence the business.

Here is a puzzle – how do you pay a startup team before you have any money?

Well, the obvious answer is that you can’t – but, nevertheless, the team needs motivation and hence, that is why the conversation begins with equity.

Or does it?

One alternative is to create a debt for hours worked to the company – which can be redeemed at some future stage.

However, a company with no sales but lots of debts quickly becomes unattractive to investors even if it does start to make a few sales.

So, for the early stage startup we find ourselves back with equity and the question of how do we share it?

How do you compute a chunk of equity for effort, sweat, work and ideas/ inspiration?

3 Key Principles

From my work with the idea alive startup accelerator and the Equity Team Tool, we’ve discovered that a transparent and logical process is critical to the success of sharing equity amongst a founding (and usually, a late joining) startup team.

In our view, there are 3 key principles that need to be resolved.

What do you contribute?

How important is the contribution of each team member? Is it ‘important’ or ‘critical’? Important might be defined as ‘making a measurable difference’ whereas critical would be ‘we will fail without this skill delivered at a high level’.

Now, don’t make the mistake of thinking that bookkeeping, for instance, is critical – because without it the business will fail to file accounts and become illegal / get closed down. No, bookkeeping is an example of something that needs to happen – sooner or later – but it can be done quite badly and the business will survive. Equally, an investor joining the business is likely to help you sort this out quickly.

Instead, ask ‘is design important or critical’? So, most people either can or know someone who can knock up a logo and a website – therefore, the design element has to go well beyond what the team might be able to do themselves. Hence, unless the brand is especially important or their is a device that is very sensitive to usability, then design is probably ‘important’ rather than critical.

Where design does become critical is in the area of gaming – or serious gaming – where the usability of the product / service is critical to success of the business. However, at this point we are no longer talking about generic ‘design’ but specific ‘usability design’.

Equally, within a startup teams you need someone to cover each of the roles of visionary, hustler, people matcher, feed back expert, product development expert and fund raiser. These are the roles that we can identify with the eTeamTool – and the capacity to assess who in your startup team has those attributes (or ‘could’ have them with support) and who you might need to add to the team (and pay equity, of course) is critical to solving this equity conundrum.

Clearly, to solve this question you need to be able to identify firstly, what the startup requires and secondly, what attribute each person brings – is it a key entrepreneurial attribute or is it an important (or critical) skill?

 2. How long or how much?

The next question to ask is how long will that skill or the commitment be required?

Here again we can distinguish between a founder or startup attribute – such as delivering the vision and the passion – which is required for a good long time or a skill, such as design, that might be required to deliver on a project and then not required again until the next part of the product(s) development cycle.

Of course, in reality, design will require a series of iterations and adjustments – but it is still likely to be a less intense involvement than the person setting out and leading the vision for the business.

3. What stage is the business?

Finally, we can now ask ‘what stage is the business at’? We split this into 3 parts – the not paid, the underpaid and the fully paid parts.

If you have a director joining the business once everyone is paid a market rate salary, should he or she get the same shares as the director who joined at the beginning and work unpaid – and took substantial financial risk as a consequence – or a different amount?

Well, unless you want to risk large scale warfare amongst your core startup team, you must find a way to resolve this.

At this point, you might be tempted to re-calculate the early entrepreneur’s works at a day rate and create a debt. However, this doesn’t resolve the ‘took the risk’ factor that the entrepreneur – working for nothing – had to face the risk that the enterprise would end without paying him anything – and yet he continued.

Business Angels are often dismissive of this point – well, it suits them to be so, because they come in later. However, if you treat the early risk takers harshly, then you are potentially storing up future problems for the team – and those problems can damage growth.

It is far better to create a reasonable mechanism to recognise the risk that the early entrepreneurs took with their start up.

So, where does that leave us?

Where this process leaves us is with a three dimensional model and a requirement to assess each person against both skills (critical and important) as well as startup attributes (again, both critical and important).

You can use a tool like the Equity Team Tool to help you do this – or you can attempt it on your own.

Either way, spending time getting this right – documenting the steps – and getting everyone’s agreement – will significantly improve the motivation of the team and the quality of the working relationships.

Equally, if you are wondering why your startup team isn’t working the way it ought to, then perhaps you need to lift the lid on the roles, contributions and commitments of your startup team.

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Want help assessing and agreeing your startup equity structure? Think your team would respond to an independent view and rational process of assessment? Then get in touch with me, Neil Lewis at Media Modo or click here if you want to join a startup accelerator that will help you build your management team and resolve your equity shares.

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The Lean Startup movement gets that learning underpins all innovation – and startup success.

The lean startup concept also understands that the learning is about finding out what ‘doesn’t work’ as much as ‘what does’.

In this way, it resembles an experimental process of hypothesis (also know as a guess) followed by empirical test followed by acceptance, rejection and reformulation of the hypothesis.

So, as this sounds rather scientific, can science teach us anything about lean startups and innovation?

What can top physicist Richard Feynman teach us?

Watch  this short video and find out…

In this old video, you can just about hear Feynman explain that the search for a new scientific law (or for us, innovation) starts with a guess!

Then, we work out the consequences of the guess – ie. is it significant or insignificant? This helps us choose what to focus on as we want significant innovation rather than insignificant innovation.

Then we experiment to see if our guess is right.

In the lean startup case, we test markets and customer response and reaction. As Feynman says we compare our ‘guess’ with what we ‘observe’ to see if it works.

And, if our guess disagrees with what we find when we test – it is wrong!

That is the essence of science, and, of innovation and success startups too. Only Feynman knew this in 1964 – and we are just discovering this now in the startup and innovation field….

Wonderful podcast with great stories – which distill all wisdom into ‘sometimes it is smart to quit, sometimes not’. Love it!

You can read (or listen) here…

What is the purpose of innovation? Is it..

• To create new products…
• To create new customer demand…
• To build strong teams capable of constant innovation…

… or all three?

Well, you guessed it, it’s all three…. but to find out why is this an important question we need to go back a bit…

Until recently, the job title – New Product Development (NPD) Manager or Director was very common. However, now we see these roles increasingly re-titled as ‘Innovation Director’.

In the past, this role was about Research and Development (or R&D) – very product focused and very focused on the area of science or technology that was chosen as a strategic priority (chosen, that is, by executives rather than customers).

Equally, roles previously described as ‘brand development’ are now often called ‘Innovation Directors’ too. So what’s this about?

Well, the brand director is responsible for the customers or market places experiences and views and opinions (good will, if you like) towards the companies products and services.

The fact that this role is also being re-titled with ‘Innovation’ is why we are now a little confused.

Add into this mix the point that the third core purpose of innovation is to create teams of people (who are able to invent, match to market etc…) and that explains why we are confused about innovation.

Okay, so what is going on?

Quite simply, there is a recognition that developing new products is a cost centre – developing new brands or customers is (often) a cost centre too – and that businesses – no matter how large or small – need more profit centres.

The profit, of course, comes when you have the right product, right market demand and the right team. And the shift in job title tells you that, starting from different positions, there is an increasing recognition that these roles need to become about building self-sustaining sources of profit.

The only problem is that, put like this, it quickly begins to sound like the CEO’s job. Which of course it is – and this explains why some people believe the CEO should also be the Innovation Director.

Nevertheless, the take away point here is that successful business is based on successful innovation – that is, building self-sustaining sources of profit. And, the key to profit is the ability to balance product, market and team.

Leave out any one of these key elements and the business (and product) will almost certainly fail.

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Want help building an innovation engine to create sustainable profit? Contact me…

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Click here for more information on the startup workshop…

“Success is going from failure to failure without losing your enthusiasm. ”
     - Abraham Lincoln -

Every three years we seem to undergo a fundamental shift in thinking.

So, 6 years ago (2005) we had the concept of extreme programming – or rapid development.

Then, 3 years ago (2008) we were given the concept of rapid customer development – by Steve Blank.

So, its 2011, what will we get this year?

A few sign posts are around – such as Mike Marples (Twitter investor) view that

“[the internet has] fundamentally democratized the process of innovation. So what it costs to prove or disprove an idea has been fundamentally altered.”

So, perhaps we now have rapid innovation?

Well, if defined as innovation of products and services then I don’t think so. However, defined as rapid innovation of business, and then yes, I think this may be true.

You see, rapid innovation has been around since rapid programming was first expressed in 2005. What we have been lacking since then, is rapid development of a business.

Now, a business consists of three critical parts
- customers,
- products and
- a team.

We’ve solve rapid development for the first two – so this year, the next step is the rapid team development.

A key sign of this is the growth and success of startup business accelerators (those replacing incubators). The difference between the two is that incubators provide infrastructure such as office space, computers, connectivity etc (a bit like building roads) but accelerators teach drivers how to drive.

All we need now are something to drive (or businesses).

Okay, the startup business accelerators teach people how to build a vehicle – but, really, do we need to build each vehicle from the ground up each and every time?

Well, clearly, this is the area where greatest time is lost and hence, there is the greatest opportunity for rapid development.

Think for a moment –  what is a business if it isn’t the product and customers?

Well, it is ‘the team’ – hence building better business teams – faster – has to be the next logical step in rapid innovation. And, based on precedence, 2011 is the year when we’ll get it.

Many (but not all) entrepreneurs feel that selling is scary, horrible and not nice!

However, this view is typically based on a misunderstanding of what selling is really about.

Yes, there are hard sales people who will flog you anything they can (actually, anything that generates a large commission) but these people tend to burn out – as do their businesses.

Instead, non-pushy people can become great sales people simply by thinking about sales in a different way.

Here’s how…

For this piece I am indebted to Geoff McClure who provided me with great definitions.

Firstly, according to Geoff,  ”selling is about solving problems”.

Anyone have an issue with that? Of course not. So, think ‘problem solver’.

Of course, before you can solve a problem, you have to identify it. Hence, Geoff defines generating leads as ‘finding problems to solve’.

So, the act of building a sales pipeline is really about finding people who have a problem that you can solve.

What might these problems be? For businesses they might be;  lack of sales, falling profit margin, marketing costs, costs going up, inability to hire the best people, lack of funding etc…. For individuals it might be, need to build a pension, need transport, need to heat home, need to eat, need a holiday.

In the current climate these problems might be defined as ‘affordable’ – so I need ‘affordable transport’ etc….

So how do you generate those leads? Again, Geoff tells us to ‘create “Noise” about the solution’.

“People buy solutions to problems – from people who listen, who can show how their products solves the problem.”

Lastly, sales people do need to be enthusiastic about their solution. And yes, they also need to be persistent unfortunately!

But there is an ocean of difference between the pushy sales person who wants to solve HIS problem (ie a sales target or commission) vs the persistent sales person who wants to solve YOUR problem and does so by listening carefully.

As Geoff says

“Given a lead, two ears, some thought and enthusiasm anyone can sell.”

So there you have it.

Selling is not so scary – when you turn it around and see it as problem solving, and it all starts with listening – not talking!

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Why not take a look at our other article about sales and sales people
http://www.ragstowreckages.com/2011/01/what-do-you-call-an-entrepreneur-with-a-great-idea-but-no-sales/

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The worst mistake I’ve made – and now see others make – is to think that if I build it (a great product, web service etc…) that the customers will come.

They will not.

Sadly!

Okay, Google is an exception – but do you really want to play 1/1000 kind of odds?

The most common reason why a business doesn’t take off or move forward is because of a lack of sales.

Yes, some will say it is the lack of funding and it is true that the funding will run out – but only because the money spent so far has failed to generate sufficient revenue to either make the business break even, nor, to persuade investors to keep funding the business in the hope of future revenues.

To often a business has a great idea or piece of research, but is not making enough sales or is not engaging with its market early enough..

If, having built your splendid product or service, you expect buyers to flock towards it then you are make the classic error of engagement with the market at the END of the product / service development cycle – instead of DURING the product development phase.

Above and beyond the ability to recruit great people to support your business, this failure to engage with your potential customers DURING the product development or research phase is the principal reason that businesses fail.

Note, the harsh truth here – businesses do not fail because they lack funding – there is plenty of money available to back great ideas and strong entrepreneurial teams. No, instead, entrepreneurial businesses close because they lack either the right team to commercialise their business or fail to engage with the market soon enough.

Or, to put it another way, the money runs out before the ‘great’ idea is adopted and bought by the market.

Hence, the issue with standard business plans

Too many biz plans make the assumption that you begin by hiring senior marketing or sales director. Of course, this is a 3 month search and then you need to allow them to give notice too. That makes it a minimum of 6 months before any real work gets done.

And, following the same pattern, you can not hire a marketing manager, web manager, account managers, SEO managers etc…. until you have your sales or marketing director in place. So, recruiting a team might take a year.

Can early stage businesses afford to wait a year before it starts to market? No!

This corporate recruitment approach has shocking outcomes for early stage businesses…

1. One year of time required to build a sales and marketing team

2. Significant costs are incurred both in the recruitment costs AND also the cost of running the rest of the business whilst you wait for your sales and marketing to *finally* get going.

But it can get worse – you might hire the wrong person and you might only discover this when you review the quality of middle management that he or she hires.

Or, that you don’t need a super salesman – what you may need is a super digital and new media team.

In this case, you’ve wasted 6 to 12 months, tens of thousands of pounds and now have to unravel your mistake before you can begin a second 6 month process of recruiting the right team. In the meantime, your competitors are on your trail and you’ve burnt through your funding with precious little to show your investors to support an additional round of funding.

Okay, okay, you can see – this isn’t going to work. We can not simply build great products and services and then hope we can find a place in the market.

You see, smart VCs and Business Angels will not fund businesses with this kind of plan.

Instead, VCs – especially in this current environment – want to invest in business that have ALREADY delivered sales. And, have built product and service innovation into the DNA of the business. That is, that they are responding to market needs and developing products – or accurately forecasting where those needs are moving.

The circular argument to avoid is this: You can’t get funding without sales, you can’t hire without funding, exactly what is he to do?

The answer?

Well, the answer is to forget the idea of hiring a senior marketing or sales director.

Instead, hire a freelance or contract team to deliver a short term project – quickly – and use the results and insights to improve your products and services and/ or change and adjust your marketing strategy.

So, put together a small team of key individuals – all working freelancers or from small key agencies – and give them a fixed budget and objective to deliver.

This approach will allow you to test your market early-on DURING your product development and to use the customer insights / preferences and behaviour to create better products that meet customer needs more directly.

What is the benefit of this freelance approach?

The benefits are simple

1. Your products and services can get to market in a matter of weeks instead of months and years

2. You will know almost instantly if your products and services will succeed, and if not, you can quickly stop your marketing spending and avoid very costly product / service development mistakes

This will then allow you to go back to the drawing board and improve your products / services or adjust your marketing strategy until you can sell profitably.

3. This approach will massively appeal to investors and hence, by demonstrating that you are able to find a far cheaper and lower risk way of taking your products and services to market, you massively increase your appeal to investors.

To sum this up, the freelance / project approach is faster, cheaper and you are more likely to succeed and get funding.

Okay, convinced? Then how to do you do it?

How do you implement a freelance approach to sales and marketing?

You now have two choices.

1.) You can either build a contact list of freelance marketing, sales, IT, PR, writing, design and sales people – such that you can quickly build teams to deliver your marketing projects

or…

2.) You can hire someone else to run the project and recruit the freelance team for you.

If you want to go down the DIY route – then sign up to the next Enterprise Freelance Fair in Liverpool on the 16th March or Cheshire/ Daresbury on 31st March – where you can meet a wide range of freelancers from many different walks of life who can help deliver your marketing and sales projects

or… if you don’t want to engage with freelancers directly, and have the money to do so, then hire Project2Sell to put the team together for you and project manage the piece of work.

Regardless of which path you choose to take (and you may choose to do both – ie. directly recruit key freelance talent whilst outsourcing certain projects) you no longer have the excuse for your business not getting into its market place.

Now, no one can guarantee that when you take your products to market that the customers will want them, but, even if this is the case, you can find this out early (before investing your entire life savings) and either adapt your products/ services or start with an entirely new idea.

Either way, your chances of success in your current or future business will be massively increased.

That’s why ‘HOW’ you engage with your marketing and sales effort is such a key determinant of whether you will succeed or not. It is also why lack of funding is not a good enough excuse anymore.

So, don’t believe in the myth of ‘build it and they will come’ – instead make your engagement with the market an interative process that feeds and supports both the development of your product / strategic AND your marketing strategy at the same time.
If you can achieve this – and this is no mean feat – then you are far more likely to succeed and to be able to raise any additional funds that you might need.

A dreamer? An inventor? Someone who never makes it?

So then, how do you become a successful entrepreneur?

You need to open your shop or market stall or website.

In simplest form, success as an entrepreneur is when you take a great idea AND turn that into revenue (and then into profit too!).

And, interestingly enough, this is the point where many good ideas and inventions fall by the wayside – they just don’t get from the creators den into the market place, or if they do, they arrive too late or don’t fit what the market is willing to pay for.

And that’s why I am offering to help a select few entrepreneurs.

If you’d like the opportunity to learn how to commercialise your products, services and proto-types, and to do this from someone who has been there, done that, got the T-shirt, then drop me a line.

I have a small number of places for an initial free programme including advice, access to key people and events. After the initial free programme, we can discuss terms and decide to whether to proceed further or not.

If you’d like to know more, please drop me a brief line telling me why I should pick you.

Here are the key criteria

1. - you don’t need to live in the NW of England, but you must be able to reach the region for events and meetings
2. - you should have a clearly articulated idea and be talking (or getting ready to talk) to customers
3. - preferable your product or service will be built or at least in the form a prototype
4. - you need to own the product / service / idea
5. - you need to be willing to learn
6. - you need to be able to work with others
7. - you need to be able to turn up on time and keep to deadlines

If your business is just an idea, then this programme would not be for you.

So, if you are ready to move from the invention phase to the real business building and entrepreneurial phase, then please contact me for more information via the Media Modo website.

The IMF has provided entrepreneurs with a wonderful example of how to get it wrong.

The number of times IMF economic forecasts have been trashed is very surprising. In fact, for a bit of fun – have a look at this google search – IMF Forecast Wrong .

You will see that the IMF failed to forecast the economic meltdown in 2008 and then equally, failed to estimate the cost of bailing out the banks getting it wrong by Trillions of £ or $ on each occasion.

Famously, their forecast for central and Eastern Europe in 2008 were so bad (and damaging) that the head of the IMF personnally apologised to the Austrian government (as Austria was criticised for heavy investment in central and eastern europe).

Okay – that’s enough fun – what does this tell us, the entrepreneurs?

Firstly, macro economic thinking is deeply flawed. This doesn’t stop it being a major business, of course and lots of big salaries and some profits somewhere?

Secondly, most forecasts – including entrepreneurs’ business forecasts – are wrong. Yes, just plain and simple, wrong!

All data driven forecasts (in the IMFs case – economic modelling and the Entrepreneur’s case – the spreadsheet) are wrong because they can only use the past to predict the future.

So, what should the entrepreneur do?

If you speak to a VC fund and ask them how they choose their investments, they will tell you that they back smart ideas, great people and a powerful emerging trends.

The notion of a smart idea and great people is well documented, but the idea of backing a powerful trend is interesting.

What the VCs are saying is that a business that will receive funding is going to be riding on the back of a long term demographic or consumer behvaviour trend.

Why?

Well, the VCs already know that the business forecasts they are presented with are rubbish. They already accept that many of their investments will fail (and their forecasts will turn out to be as valid as the IMFs).

Therefore, the VCs need to ensure that when one of their investments takes off – that it takes off big time. It needs to have the potential to become huge. And for that, the business needs to tap into a new trend in consumer or business behaviour.

So, the message that the IMF teaches us is this – don’t make your forecasts too complicated – they will almost certainly turn out to be wrong.

Instead, focus on establishing and proving an emerging trend – a growing desire to buy convenience food – the emergence of freelancing and entrepreneurial activity – the shift to mobile communication and impact on social media – the success of TV talent shows – the green energy shift – Government outsouring – consumer trends to value etc…

So, make the trend spotting your key focus and how your business taps that trend – and use the spreadsheet to manage your cash.

That is because the spreadsheet will keep you in business (stop you running out of money) but the trend forecasting is what will help you raise money – and potentially – have a huge success on your hands.

The competition from emerging market businesses mean that entrepreneurs in the UK and other developed economies need to grow agile and flexible businesses.

The future offers entrepreneurs more rapid shifts in demand – both up and demand – and a better connected world which will deliver price and service competition faster than before.

To survive in this environment, entrepreneurs need to avoid the rigid structures and bureaucracy of employment and adopt either entire or heavily freelance / contract based workforces.

Successful investment proposals come in many shapes and sizes – they may be long documents – or they may be short documents. Sometimes, there is little or no document at all (although this is more rare).

The key thing that all proposals do is they find a sweet spot between the conflicting demands of putting together the best team, developing the best product and creating a profit with return to shareholders.

These three elements – team, product/ service and finance (ie cashflow, investment and profit) are like the base elements – fire, water, air and earth. Without them, nothing can be created – but equally, they are in conflict.

Team, product and finance in conflict?

Yes!

Think about it, a top team might include the CEO of a FTSE 100 company – but he or she might cost you £50k to £100k per year. Can you afford this? Or, perhaps, would you want to afford this?

Equally, you might be able to design or develop the perfect product is only you had £1m – but, would you be able to make a profit?

Lastly, if you cut costs so far that you have no money to spend on sales and marketing, how will you ever launch your product or service?

Hence, these three areas are in conflict – more spent on marketing means you need to raise more money and will offer lower returns in the short term (although, with the prospect of better returns in the future).

Equally, you want to build a non-exec and management team with the right experience, knowledge and contacts. But, are they all committed to your project? Will you be able to pay or reward them sufficiently? And, if you are giving shares and options away to your management team, have you left enough on the table to make the investment attractive to investors?

That’s why the search for funding is really about the push and pull between these three factors.

And, that’s why, when you take our questionnaire – Is My Business Ready for Investment - you’ll begin to see whether your proposal has adequately dealt with all three elements – team, money and product – and therefore, whether your business is truly investment ready.

Of course, many entrepreneurs don’t take finance – but, they still go through the process. Why? Simple – they are investing their time and money and so want to know that they are making a good investment.

That is why, even if you don’t want to take on external finance it is still a great idea to ask – Is My Business Investment Ready?

So, now is the time to take the survey and find out…is my business investment ready?

Hmm… yes, this might seem strange to ask about cutting at the beginning of a new year – but shouldn’t we be looking set goals to expand and grow, you might ask?

Well yes, but, before you can grow, you have to cut out the deadwood or the slow growth businesses, products and services in order to focus on new opportunities or expand those things that really are working.

At this time of year, it is customary to layout a set of goals for 2011. I suggest you put at the top of your goal list ‘cut or prune any favourite projects that aren’t working’.

Okay,  you might ask, what is the difference between cutting and pruning?

Well, in the words of Jack Welch of GE fame, any business (or product/ service) that isn’t working should be fixed, sold or closed.

What you must not do is duck the decision. If you can’t fix it, then you need to sell it (if it has revenue or value) or just close it.

So, if you have been true to your entrepreneurial spirits in 2010, then you will have set up some pet projects that you really believed would work, but for some reason, they didn’t succeed. And if they haven’t succeeded yet, then you either need to prune them, sell them or close them.

Yes, I am doing this too.

I am closing two digital web magazines.

The first, Official Property Guide, was a good idea – selling advertorial to property agents and developers – but it the property market is horrible and agents are suffering terribly. Just no point in continuing. The idea is good, so perhaps in 5 years time….

The second, Wealth Manager International, was another good idea. There is a growth market in this sector but the website needs investment of time and money. I’ve decided that this area of publishing is not core to our strategy in 2011 and hence, whilst this is a good website, I’ve decided to close it.

A third website, which has been successful but is in a non-core area will be tidyed up for a sale later this year.

The good news is that this pruning or cutting reduces my costs and has helped me refocus my main business – Media Modo - on one area, and that is, helping entrepreneurs, freelancers and business angels to succeed in 2011.

As a result, we are now ready to launch an innovative and affordable Non-Exec Director type service for launch and fast growth business in the North West of England and will be following this with an Entrepreneur Accreditation service soon.

Lastly, don’t forget that the growth of Twitter and social media means we are great at announcing our new plans and wins but rarely do we see someone saying that they are cutting or pruning. However, this doesn’t mean it isn’t happening.

Take a leaf out of Diane Hall’s book - the Frazzled Freelancer of Enterprise Freelance Fair when she says

This is actually very cathartic, to admit that I’ve made mistakes.  We’re all human. It’s how we overcome them and use the experience to shape future decisions that gives us that wonderful thing called experience. 

Click to read the review in Better Business

As a serial entrepreneur who has been head hunted to turn businesses around I would like to see this book as a reference in every business library

These insights into what can go wrong when an entrepreneur’s first business booms then busts? Priceless! As is conviction, knowledge that it needn’t break anyone, true entrepreneurs just get over it! Start again!

Start up, student or seasoned entrepreneur, there’s valuable advice in 100 Rules for Entrepreneurs! Highly Recommended
 

It explains the concept behind the book and how it can help new and old entrepreneurs learn from my mistakes.

Giving up equity to partners is dangerous. It will cause you major problems in the future – if your busines is successful – if you don’t get the splits right from the outset.

Find out how I split the equity on my first business – and why it became a problem.

Then, don’t do as I did!

What kind of business will be successful coming out of this recession?

And, how do we build it?

That is the big question for every entrepreneur who is either starting up now – or already on the journey.

So, what will happen… and what do we do about it?

The end of Jobs

Firstly, jobs – they aren’t making these any more. The statistics show this to be true – UK self-employment has grown strongly to over 1m in the past couple of years, whilst PCG – the trade association for freelancers – estimates that there are 1.4m freelancers in the UK (excluding casual trades such as construction or hotel workers).

Equally, the US jobs market has demonstrated that despite the economic bounce following the near catastrophic fall in 2008, there has been no over all increase in the number of jobs.

Similarly, anecdotal evidence points to the fact that the US is rapidly becoming a freelance economy too with a sharp rise in the number of people opting for a freelance lifestyle.

Okay, so from this, we can see that the end of jobs is near – the opportunities of the future will not be salaried positions but something different.

Work of the future – a video game

JP Rangaswami, BT’s Chief Scientist, forecast at a recent BVCA event in Manchester that work of the future will be more like a video game. In fact, he predicted that we would be actively ‘gaming’ or perhaps working on a number of video games (sorry, projects) at any one time.

What he is really saying is that all work will become project based. A project will have an end goal – such as reach the top level and defeat the evil genie – and that there will be a series of levels to work through and challenges to overcome at various stages.

The arrival at the final destination is not certain in time – so this is not a 3 month project – but a project to solve certain challenges and deliver a solutions or outcomes – so it could take a week or 6 months.

And, we might play/ work on a number of different games/ projects for a variety of different businesses at the same time.

So what does the entrepreneur do?

Firstly, if you are starting out – don’t fall into the old trap of hiring jobs. Instead, take everyone on on a freelance or contract basis.

Not doing this – because you feel that you can control employees or can protect your IP – is a critical mistake. It is an error which I made and it resulted in me closing a company that had grown to £4m turn over. The sharp changes in our market, rigid employment laws and hidden growth of entitlements end employee rights meant that we closed the company instead of re-investing it in.

It was better to clean and tidy up – and begin again. So, now, my business is entirely virtual and freelance. My strong recommendation is that you don’t repeat this error.

So, what does the entrepreneur do? The entrepreneur must become adapt at setting the objectives of each project and hiring in the right people.

Of course, hiring is an extremely difficult and dangerous (ie we get it badly wrong half the time and fail to get the best/right person 85% of the time).

Therefore, build your resource with freelance talent and outsourced resources. This will ensure that you can switch it on or off according to how the market responds to your product.

For instance, high quality marketing will also include feedback on how your product/ service is received – and that means that you may wish to stop the production line and begin to redevelop or rework the product.

With freelance marketing talent – you can start and stop – to fit your production – but with employees you can not.

Sudden growth / demand in your market might be followed by intense price competition – with freelance resource – you can respond – profitably – to this. With large fixed pay roll, it will cost around £100k to restructure your business each time your market shifts.

Do you want to set up future costs of £100k for restructuring? Obviously, not.

All of this is leading to what companies will look like in the future.

When I say ‘look like’ what I really mean is that as usual many companies will fail and what we will be left with are the successful businesses. These will be highly flexible businesses that have solved how to engage freelance talent and resouce.

The virtual businesses will be the agile businesses able to take advantage of opportunity with low cost of changing direction.

It means, of course, the end of firms as we know it. Instead, we will join project teams, be given certain objectives and set on our way.

The smart entrepreneur is preparing for this. Why? Well, watch what the big companies are doing – they are slowly laying off staff – first the IT department, then HR gets outsourced. Next up will be the marketing department.

The shift is already taking place, wise entrepreneurs recognise this shift and are positioning themselves to take advantage.

What are you doing with your business?

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Do you want an efficient way to recruit the freelance talent to lead your business – without it costing you a fortune?
http://www.enterprisefreelancefair.co.uk/
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Oops! Did I mean FIRED?

Actually, no!

As Lord Sugar’s new edition of the UK’s The Apprentice gets under way this week, we have to ask ourselves why do all these thrusting young entrepreneurs want a job?

What is it about the mystical value of ‘I’ve got a job’ that makes them delighted?

Is it the sense of ‘I’ve won , phew, safe at last, never going to have to work so hard again in my life’?

Or is it that these thrusting entrepreneurs who join the programme are really just sales directors in disguise using that old trick of applying for the next job to get an increase in pay?

This the question I’m left with – if these contestants truly were entrepreneurs then why are they accepting a job?

Is this programme really about getting a job, after all?

Perhaps, to be fair, the job is seen as temporary anyway but an opportunity to learn alongside some very successful business people?

Still, putting the show to one side for a moment, why is so much of our culture focused on achieving a job or employment?

Governments talk about saving jobs, newspapers report jobs created and jobs lost. People who have jobs can (or used to be able to) get a mortgage and buy a house, buy a car and run up credit card debt on holidays and too much shopping.

A job, perhaps, is seen, subliminally as a ticket to spend. That might explain why everyone wants one. And answers the question of why Lord Sugar’s show is really just a job candidate contestant show.

This modern obsession with jobs is also one of the biggest barriers to entrepreneurial activity – that is, lots of work, little pay in the early days and lots of opportunity to lose money.

Fathers-in-law are in favour of jobs, because it means (or used to mean) job security and the ability to safely raise a family. The fact that this no longer applies sometimes takes longer to reach the older generation.

Perhaps it is time for Lord Sugar to express his deep regret at tying people to employment; by burdening them with massive tax rates, the illusion of wealth via debt and credit cards and the subsequent disappointment when the job career fails to develop as hoped, and all the wasted years that could have been fruitfully used trying and failing and trying again to create a business with long term residual value.

Lord Sugar, next time you deliver the bad news, I hope to hear you say…

“…with much regret and a heavy heart, you are HIRED!”

… and to your winner, you can rightfully say, “congratulations, you don’t need a job“.

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Looking for freelance jobs and contracts? Want to meet entrepreneurs looking for local freelance talent?
http://www.enterprisefreelancefair.co.uk/category/freelance-events/
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* I am much indebted to my youngest daughter and her very good school friend who came up with this headline. They are both 11. Who says the young can’t make it in business?

Instead of just being a way to save costs, freelancers are discovering that they bring original ideas and solutions to their clients. But does it work? Can freelancers help avoid failure and stimulate innovation?

To find out, we are conducting a survey with an analysis of the results and some thoughts on how businesses, agencies and departments might go about resolving those challenges and find new ways to innovate and grow. Please complete our survey and in return we will email you the full results once analysed.

She says that had she not experienced the failure, she might never have gone on to write one the worlds’s most popular series of books.

JK Rowling’s most memorable quotes, taken from the video, include

I talk about the benefits of failure – simply because failure means a stripping away of the inessential – I stopped pretending to myself that I was anything other than what I was and began to direct all my energy into the only work that mattered to me – the one arena in which I truly belonged – I was set free…

it is impossible to live without failing at something unless you live so cautious you might as well have not lived at all – in which case you have fail by default.

The knowledge that you have emerged wiser and stronger from set backs means that you are, everafter, secure in your ability to survive.

You will never truely know yourself until tested by adversity. Such knowledge is a true gift and it is worth more than any qualification won.

Rock bottom was the solid foundation on which I rebuilt my life.

What can entrepreneurs learn?

Firstly, failure is a part of life and a part of business life. It might be small – you missed out on a contract or sale. Or it might be bigger – your business fails. It might affect your marriage and it affects your finances and the car you drive (or perhaps, for a few years, you just walk).

Secondly, to avoid failing, means taking no risk at all – so means could never achieve anything thing and therefore is failure by default.

Thirdly, having experienced failure, whether small or great, the opportunity is to use it to strip away the inessential parts – to know yourself and focus on what you do brilliantly.

Only when you know what you can do brilliantly can you truly be successful.

Hence, failure is the rock on which all future innovation and long lasting success is based – just as JK Rowling said.
Thirdly,

Google Chief Exec, Eric Schmidt say ‘we celebrate our failures. This is a compnay where it’s absolutely OK to try something that’s very hard, have it not be successful and take learning from that’.

An early innovation that got replaced?

Stock investors have rediscovered Warren Buffett’s investment principle of ‘never lose money’ and entrepreneurs are now focused on how to avoid small business failure, rather than searching for growth at all costs.

So have we all become neg-heads? Not at all, instead there is a new realism to what it means to grow a successful business and that it all begins with understanding business failure and how to avoid it so that your business has time and space to innovate.

Okay, so what are the 5 ways to avoid small business failure?

1. Take no debt 

Debt ties you down and stops you being flexible. However, in my experience, the worst problem is that it encourages entrepreneurs to hold onto a business idea that isn’t going to work and it stops them looking developing that idea into something that can make money.

For most entrepreneurs, debt involves putting up prized assets, such as a home. This then involves your partner or family (most probably) in the outcome of your business and they too become emotionally attached to your business idea not failing.

Strangely enough, taking debt removes your freedom to fail and the learn from that business failure – because something as important as your home is on the line. Don’t do it – give yourself time to fail and learn from business failure – this is the only way to create a truely unique product, service or business.

2. Make your costs as flexible as your contracts

Next up – costs! These are a big issue in the early days because whilst customers and clients may buy from you once, there is no guarantee that they will buy again.

Equally, in a tough economic climate, most businesses will not provide a contract but want to buy your services on a drip feed or bit by bit basis. In this case, if you lose a contract – or it simply isn’t renewed – then you need to be able to adjust your costs just as quickly. This means – no fixed costs!

Examples of fixed costs include permanent staff (but not freelancers, and you can now advertise freelance jobs free), office space, cars and phone contracts. None of this necessary. So why do so many entrepreneurs make this mistake? Well, somehow having an office to go to, or a car to ride in gives a new entrepreneur (or ex-student / ex-employee) a feeling of comfort. So fight the feeling! 

I can tell you it is far more comfortable to know you can pay your bills than have a soft expensive chair to sit on.

3. Take no partners nor shareholders

Partners and shareholders require rules – lots of them.

The rules need to cover how the business is governed and run, how the money gets spent, who gets the profit and salaries and what happens when it goes wrong. Sound simple? It isn’t. 

Imagine setting up a government – democratic-ish – where some people have more votes than others – on a small island and then you’ll have some idea of the complexity. Imagine that as the island becomes successful it grows, more land, more people (some with votes, many without), a few ambitious barons and yes, you have idea of the increase in complexity that follows initial success.

Now, many small businesses take on partners to dish out shares because at the outset when they are worthless. Well here is the bad news, as soon as the business is worth something, then you’ll need all the rules and constitution of a small island.

Yes, after an intial success, your business will almost certainly fail if, for instance, you have some partners or shareholders on a free ride whilst other are working their socks off.

Of course, if you are raising 10m GBP or US Dollars, then you’ll need partners, shareholders and a constitution – but at least you can now afford the lawyers to set it up and run it correctly. Anything else is a massive distraction to be avoided like the plague.

4. Reward people for great work with more work (not profit share, stock options)

Okay, mistake number four; you’ve got your partners and handed them large chunks of shares, now you’ll be thinking about giving more shares to your employees. C’mon, this does not make sense.

You reward great work by paying on time and a renewed contract. Simple. Why pay a second time in the form of share options?

Share options distract your team from growing the underlying value of the business and encourage them to see a quick sale on a hyped up valuation. The result? The business will take on massive risk in order to grow as fast as it can whilst also massively increasing the risk of out right business failure.

Of course, the option holders don’t lose out if the business fails, they just move onto the next opportunity. It is the original shareholder(s) who lose out. Therefore, the incentives of a shareholder / founder and an employee on a stock option deal are in conflict and yes, poor decisions/ risk management is what you’ll end up with. This is a recipe for failure not for success.

5. Don’t forget – it is all about product, price and perception – nothing else matters

Hopefully, you’ll now be ready to buy into the idea that debt, fixed and inflexible costs, shareholder partners and stock option incentives are a route to business failure. The essential problem with all of these is, that whilst they can all be resolved by patient management, they are a huge distraction from what really matters – product, price, perception and the sales that come from that.

Now, partners, shareholders, fixed costs and share options all have their place in large or very large ventures – or those that are funded by Venture Capital. They just don’t have a place in small, innovative start ups.

So, the biggest cause of small business failure is the inability to focus on what your business does.

So, focus on price – that means, deliver the best price whilst producing a profit and constantly drive your costs per product down so that you remain competitive and can grow. Equally, a program of constantly enhancing and improving your product is critical too.

Customers will stay with you if they see the product they buy gets better – whilst the price remains static / low or even better, falls. Lastly, this will allow you to concentrate on the perception your customers have of your business and your products and services. Now, you may think this is about marketing, and it is, but not big advertising and promotional marketing. Instead, it is all about how your customers – current, previous and future – think about your business, products/service and customer service.

Another way to think about this is to simply call it innovation. You need to innovate, constantly and re-invent your business, products and services. Look, great pop stars such as David Bowie, Madonna etc have done it all their career. You need to do the same.

Conclusion?

So, the cause of small business failure is largely down to an inability to focus on what matters – product, price and perception – which is often caused by a mix of debt, rigid costs, partner/ shareholder complexity, share options.

This ability to innovate around your business or technology or what ever you do is the key and is the result of being able to avoid the key reasons for small business failure.

So, let’s learn from these mistakes. Innovate and avoid these things and focus relentlessly on what matters.

Does it's singular purpose make it successful?

Why do you have a website?

Is it because everyone else has one, so you thought you ought to have one too?

Anecdotal research tells us that 80% of websites don’t have a clearly defined purpose. So, if you’ve made the classic mistake of building a website and are now wondering what to do with it, or even, whether it works, then read on…

What is the purpose of your website?

In our last article, we talked about the cost of a visitor to your website, and how this can vary from a couple of pence or cents to anything up to 10 GBP or over 15 US Dollars (such as the UK Government’s www.UKTradeInvest.gov.uk website).

Whilst this information on costs shows a massive variation, could it be that the 10 GBP per visitor cost to the UKTradeInvest website is money well spent? Well, perhaps it is, but firstly, this will depend on what the website is for, or put it another way, what the website is attempting to achieve.

In a similar way, if you were asked ‘what is the purpose of your website’ would you be able to give a clear and confident answer?

To help solve this problem, we’ve taken a look at the web and can come up with this list of reasons or purposes for any website. Which of these purposes fit your website(s)?

• Digital business card (make the phone ring – could be a one page site with you phone number on it)
• Digital brochure(static content and generate enquries – might be anything from a 6 or 8 page site )
• e-commerce (to sell products online – which will a database driven website)
• Magazine (to promote corporate messages, update on relevant news, demonstrate brand values, generate brand loyalty or to sell advertising and membership services – such as this one or www.EnterpriseFreelanceFair.co.uk - and requires a CMS or Content Management System)
• Community(to allow community to connect to each other – independent of the media and either promote your corporate messages or sell advertising such as LinkedIn or Facebook etc… but could also include smaller communities – such as teachers)
• Deliver internal or service data (so a corporate intranet, an added value customer service site – such as DHL giving real time tracking of a parcel or a Government website – with the purpose of improving your product/ service)
• A redirect site (if you buy a .com and a .co.uk domain, you’ll want to redirect one to the other, or you may set up a corporate home and redirect traffic to your sub-domains, a bit like www.MediaModo.co.uk)

Okay, let’s take some examples. www.DHL.com – this site combines a number of the above purposes - so it is a corporate brochure, an e-commerce site and also it delivers data about the movements of your parcel or shipping.

Equally, our favourite high cost site www.uktradeinvest.gov.uk (which costs 10 GBP or 15 US Dollars to run) is very complex and appears to attempting to deliver the purposes listed above – it is a brochure for the UK, it is attempting deliver information both in magazine format as well as a data driven service. It also appears to have a community aspect to it too with login and restricted parts of the website.

Now, we don’t know the cost metrics of the DHL website, but given the size of its business and customer base, the costs are probably a lot lower per visitor than the UKTradeInvest website.

Other sites, such as www.number10.gov.uk (which only costs 2p or 3c per visitor to run) have a very simple purpose and that is a Magazine to promote corporate or Government messages.

So what can we entrepreneurs learn from this?

Again, we don’t have access to the ROI (Return on Investment) measures for the different websites, but it is absolutely clear that the web lives up to its promise of being cheap and simple if – and only if – you build websites with a single purpose – such as the www.number10.gov.uk website.

Once you go beyond the singular purpose,  and if your website begins to manage multiple roles and has a number of different purposes it will become very complex (and anything complex has a higher risk of failure) and much more expensive per visitor.

If you are a large company with a large number of customers, then the complexity may pay for itself on a cost per visitor basis. But if you are not a DHL, but just an inward investment agency or national based business, then the costs will be too high in most cases.

The advice then, if you want to build economically viable websites with multiple purposes and don’t want to pay 10 GBP per visitor, is to create separate website for each purpose and then a single / central brand brochure website which directs traffic to the correct website.

There is still some work to be done on multiple domains and subdomains – but this will cost far less than then integrating complex ‘heavy lifting’ computer systems into a single domain / home page.

The alternative, again, if you don’t like this complexity (and its associated cost) is to make a radical decision and choose just one purpose – then build a website that meets that purpose.

That - single purpose websites - after many years of getting it wrong and thinking the web is a complex place, is what successful entrepreneurs are now doing. So, do you now have a clear purpose in mind for your website?

How much does this visitor cost?

Do you know how much your digital visitors cost?

Well, if you are working for the UK Government, you will now know how much a single visitor to your website costs – and it can vary by a factor of 48,900%.

Yes, that’s right, the cost of visiting www.number10.gov.uk cost just 2p per visitor – compared to the cost of visiting www.UKTradeInvest.gov.uk which cost £9.78 per visitor.

You can read more about the analysis provided by the Guardian’s data blog.

How can you use this data?

Well, the first question to ask is whether the £9.78 spent on a  visitor to the UK Trade Invest site was good value or not, compared to a visitor to the Number10 website – costing 2p.

We could at this point fall into a lengthy discussion about time spent on the website and therefore, the quality of the visit – but I think that we should approach this a different way.

Firstly, a Number10 is essentially a PR/ News selling site. That is, its function is to push a set of news stories in a way that is beneficial to the UK Government. If it can successfully influence the media agenda, then it is doing a good job.

Equally, the purpose of UKTradeInvest is to bring investment to the UK or support exports. A single investment could be multi-million pound – and therefore, the site is selling a key product – trade to or from the UK - to potentially very high end users.

Okay, let’s look at the costs. Number 10 spent 400,000 GBP on its website last year – that’s around 30,000 GBP per month – or the costs of a medium sized magazine.

On the other hand, UKTradeInvest spent 5,000,000 GBP on its website last year. Now that would pay for the print, distribution, editorial and production of 25 copies of the London Evening Standard. On Editorial costs alone, it would probably get you a 64 page daily newspaper for most of the year.

So, let’s get back to the value argument – take a look at www.­uktradeinvest.­gov.­uk - which will immediately redirect you to a different domain name. The site’s home page – looks cluttered and static. Clearly there are logins and databases behind it – but it looks really hard to use.

It is quite possible that UKTradeInvest has spent a lot of money developing tools – but the figures suggest that no-one is either finding or using those tools. Perhaps because no one really want them?

Take a look now at http://www.number10.gov.uk - and you can really clearly see what this website is about – and why you might want to browse or come back.

The point then is this – very high visitor costs are probably a sign that readers/ browsers simply aren’t engaged with your website. Perhaps this is because it is dull and static (like the UK Trade Invest) or more probably, people/ visitors don’t really know what to do when they get there.

And this brings it all back to the strength of the brand!

To make your digital business work – or any business which relies on digital communication – you need to clearly define and understand the message you want to communicate – then deliver that message and as a result build a strong brand presence.

If you fail, you’ll end up with exceptionally expensive websites that aren’t being used.

So, let’s go back to our brands – and let’s review what we are trying to do – and let’s see if we can achieve a cost of 2p per visitor?

By the way, average time on the site – per visitor – for Number10 is over 5 minutes. UK Trade Invest achieves 6 minutes. Both of which are high scores, but I’d rather be paying 2p per visitor – wouldn’t you?

So what do we do?

Let’s use this information then to set some goals. Websites that cost 2p per visitor and where the visitor stays longer than 5 minutes are a success and will be a clear sign that your have a strong and clear brand and are delivering your website to a high quality relative to the cost.

New start-up digital businesses are going to take some time (or get very lucky, quickly) to reach these kind of figures – but this does set a goal for what we should be aiming at.

Now, would we be willing to share data about the cost per visitor to our websites? Hmm… there’s a tricky question. Answers below please…

In some ways this is good – as it is a fast growing sector with very high levels of innovation (and failure rates). On the other hand, it means that we see the same errors of strategic business thinking repeated again and again.

So, to help out, I’ve laid out the three key mistakes that I’ve seen after 11 years working in digital innovation.

You may have some of your own – so please feel free to contribute.

1.) 1 in 100 Chinese customers

Many business plans start with this fallacy. They begin with the population of the world, or a country or a business sector and then say – ‘if we could only get 1% of that market’ then we’d have a business worth £x million.

Of course, this is designed to make ’1% of that market’ sound tiny. But this is because you are working top down.

Take China for instance. The population is 1.3bn people. Okay, so 1% is 13 million. Is that a lot? Well, it is greater than the population of London. It is around half the UK’s working population. 13 million is also around about the peak level of TV viewing in the UK of the England vs Slovenia world cup football game.

So, when a start-up business begins with a huge numbers and asks if you could take just a tiny part of it – 1% say – they are making the mistake of working from the top down.

Instead, it is better to ask, what does it cost to gain a single customer? From which you can then ask what it would cost to reach 13 million viewers – well advertise around a major England football match – but to win 13million customers is going to require constant marketing and conversions of leads from your advertising. To give you an idea, a single 30 second TV slot reaching 13 million world cup fans would cost £300,000.

The error then, is to work from the top down. Begin, always, with what does it cost to acquire 1 customer? And then argue whey you customer acquisition costs will reduce as you gain size and momentum.

2.) If I build it – they will come

This is the Google error. Okay, okay, Google had one massive success – the search engine – and ever since, every product has failed to deliver or failed to dominate its market in the way that you’d expect the Internet giant to do, given their brand reputation and quality of engineering.

Take a look at this great article about why Google projects fail – and you’ll find that it is because Google does not do marketing. Amazing really, as their income is entirely dependent on classified advertising that they themselves don’t do marketing.

Apart from one success, Google has delivered many greatly engineered products – but doesn’t lead the market in any of them.

That is because Google still believes that if they build it – the customers will come. Well, that simply isn’t true for anything but the most ground breaking of products (such as search). All the other products are great - and could be excellent if they included marketing.

So, why don’t business start-up entrepreneurs include the marketing? Well, simple – because the costs are huge! And, if fully costed, probably make the idea untenable.

Therefore, the successful entrepreneur has two options – reject the business idea – or do it anyway, but use stealth marketing. That is use the new (and therefore) cheaper channels – such as PR or social media or digital marketing – using freelance contracts. But you do need to be very good at this.

Either way, for consumer products, marketing will be 50 to 60% of your costs (okay, this may include commissions to 3 parties) and for industrial products, this might drop to 15 or 20%.

Nevertheless, fail to include enough marketing spend, and unless you have an utterly amazing product, you’ll end a failure.

3.) I haven’t built anything, haven’t done anything but if you give me lots of money, this will all change.

You may laugh, but this is the most common mistake.

Often it comes from someone who is thinking in a corporate way – ie. build the plan and then persuade – rather than an entrepreneurial way – ie. let’s have a go and see what happens / we learn (but without spending too much money or time.

The difference is massive.

One the one hand, you have a highly practical ‘go out and make it happen’ approach – which whilst it will be messy, will actually deliver some results. And those results – either good or bad – can be used to devise the next step in the business strategy.

On the other hand, you have a planner who shows no sign of being able to implement something on a tight budget.

Now, no matter how much cash you raise – your budget will always be tight in an entrepreneurial start-up business. In fact, if you can’t run a tight business, you shouldn’t set yourself up as an entrepreneur.

So, the reason that so many business plans don’t get cash – is because they don’t get started. Investors and business angels want to speak to your customers to see if you are any good. If you don’t have customers – there is no one to speak too – and the risk level on your business idea goes through the roof and the investment cash stays in the pocket.

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What do you believe are the biggest start-up mistakes? Let us know by adding your comments below….

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Doherty’s approach was simple; when asked about his target audience, he explained that he used social media to encourage loyal customers to assist him in building his connections with major retailers.

Mr Doherty’s company now supplies all major supermarkets with his jam, and he credits his social media marketing approach for his success. So don’t underestimate the power of the digital world.

He explained that he felt confused that the Tories should wish to diminish entrepreneurial motivation, but acknowledged that there is a problem with ‘individuals who manage private equity funds who somehow magically turn their commissions made by creating gains for their clients from normal income into a capital gain.’

It seems as though that the Coalition are struggling to make distinctions between enterprising individuals and tax-dodging schemers. Hopefully George Osborne’s speech tomorrow afternoon will clarify a few things for Rags to Wreckages readers.

In this 2nd of the 7 point plan for growing your business in 2010, Lewis talks about the importance of rapid product and service innovation and the three key factors of:

- delivering smaller incremental benefits
“your brands need to stand out – so start delivering smaller improvements earlier”

- getting to market faster
“gain the advantage for longer – by getting to market early”

- learning about how your markets have changed with regular product and service releases
“social media is your best research tool – if you have something to sell”

Click here to see the full set of videos on how to grow your business in 2010

Okay – the logical conclusion of this is therefore; no employees (so no rights) or no England football games.

Stupid, but true.

As a freelancer, yes! Employee? No!

So, you have a budget and a team to deliver your business or organisations marketing and sales goals – but when one of your team leave, you are left short handed and without key skills.

How do you keep growing your business, make more sales and deliver better returns with less budget and a smaller team?

Every business has been asking themselves this question and now, public sector organisations as well as businesses dependent on contracts from the public sector, have to face up to this same conundrum.

So what do all business and organisation leaders need to do?

Okay, essentially, achieve more with less (ie increase efficiency or productivity).

Any new business or marketing spend is classically defined as being half good and half bad – and that we never know which half is bad.

But this saying only applies to businesses buying traditional 3rd party advertising campaigns.

More and more marketing and customer retention activities are digital and therefore, in the control of the company (through websites, social marketing, networking, email marketing, customer relationships etc…) such that the cost has become principally a staff cost instead of an advertising space cost.

This change which has taken place over the past 10 years has seen web managers and digital marketing manager roles created where previously there were none.

It also means that companies and organisations are committed to spending on monthly salaries, offices, employment taxes and add on costs, whereas before, if sales turned down, they could cancel an advertising campaign over night.

Hence, businesses are carrying more fixed cost liabilities than ever before. And therefore, how do they urgently reduce their fixed costs and yet grow?

A key solution is to engage with more marketing talent on a freelance or project basis. Now, this might be with an agency for larger firms, or an individual for smaller businesses.

However, the critical point is that this is a resource that is bought only when needed and can be turned off quickly if no sales or insufficient sales come from any campaign.

Hence, the business can regain the ability to switch campaigns or trial different campaigns much more easily and with less risk.

Of course, any sales and marketing activity needs to be co-ordinated, but the freelance talent pool has developed now to the point where it is perfectly possible to hire in these high level project or campaign management skills too.

The fact that so many campaigns are now digital delivers added benefits too.

Firstly, a far greater ability to switch projects on and off, and adapt the products and services to the changing needs of the consumer. Also, handled right, it should also mean that the cash can be diverted to those activities that are giving a better return.

Secondly, it is much easier to collaborate from distant locations on digital campaigns, than traditional ones. Therefore, freelance working is much more natural on digital campaigns – as well as cheaper and more efficient.

All in all then, the job freeze and shift to digital marketing which is leading to wider dependence on freelance talent could be a blessing in disguise as it allows businesses to engage in a more efficient way of finding, developing and selling to new and existing clients.

Bring it on!

Can you do this?

Okay, we know the answer lies with outsourcing – but how much can you outsource and how do you do it safely?

Here are our 7 key tips for successful entrepreneurs… 

1. IT support should be outside of your company in most cases. If you are concerned about access to IT support staff, hire a local company. If a problem occurs, you can always take your machine over to their office or meet them for a coffee.

 

2. 80% of your total marketing staff costs should be outside of your business. If your internal marketing team are ‘doing’ marketing rather than ‘co-ordinating’ then you probably have an opportunity to increase productivity

 

3. Human Resources and training are probably outside your company already, if not, then this is an obvious next step. HR is a highly sensitive area and the laws keep changing. So, you need a specialist who spends 5 days a week on this topic and can also turn up in your office at short notice (staff problems are always at short notice), hence, resource this skill locally.

 

4. Finance – you are more likely to in-source finance help – that is, ask a bookkeeper to come and help you prepare your monthly accounts in your office. You can arrange this yourself, or you may prefer a freelance Finance Director to do this for you. In some cases, the Finance Director will actually do the books for you – this makes sense if you have very few items or are setting up your accounts

 

5. If you are contracting with senior freelancers, don’t forget that many will also carry out more junior activities (such as a Finance Director will do bookkeeping) at a lower rate – so you don’t have to pay their full rate for everything.

 

6. Write your stop doing list. This is the list of things that you are no longer going to do because they no longer work, but you’ve kept on doing them hoping they might start working again. Some things just stop working – so accept it, stop trying it, and move on.

 

7. Find a way to meet more local freelance talent faster. Find a local event – such as http://www.enterprisefreelancefair.co.uk where you can meet 40 or so freelancers in a couple of hours. Event such as these will massively increase your flexibility and are a great way to find new, more productive, ways to innovate and grow your business.

 

Feel free to add your own tips below….

Sticky going...

What shall we call this period – between the first recession and whatever is to come in the form of substantial public sector cuts and reductions in government spending?Shall we call them the treacle years? The years of trudging along with heavy boots - just about keeping the forward momentum of your business but demanding constant and focused effort?

Sometimes it seems that way.

Okay, so how do we first survive and thrive in the treacle years?

Here are my 5 key tips – feel free to add yours at the end…

Firstly, it is important to recognise that the stodginess of business isn’t your fault. That’s good, so we can stop beating ourselves up about it.

Secondly, having accepted that there is a limit to what we can do, we can start to focus on our spending or cash burn. If you have enough cash for another 12 months – find a way to make it last 24 months. If you have cash for 2 years – see how you can make it stretch to 4 years.

Thirdly, recognise that you need to find new markets - those markets that have some growth in them. We live in austerity times, so austerity products at austerity prices work. Equally, some luxury sectors are growing fast too – because whilst customers cut back on everything else, they still want some treats.

So, your task is to find the growth sectors and move into those sectors.

Fourthly, innovate. Innovation isn’t expensive – if it is, then something is going wrong. Instead, innovation is about a mindset – about a desire to improve things – and use the fact that you have little or no money to find really creative ways to innovate.

Fifthly, put back your retirement date by five years. By giving yourself another five years you’ll create a little thinking space which will help the creativity and also you’ll ensure that you are planning for a marathon and not a sprint.

Lastly, learn to love the taste of treacle. That means, become really really good at what you do – so that you can charge a premium for it – or your products – and make a profit and grow market share.

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Got any tips for surving the treacle years? Feel free to add them below
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In this first video of the 7 point plan, Lewis deals with three key points

1. We are now learning to live with tough credit terms (as per pre-dot.com boom)
Lewis talks about the forecasts that net lending will remain negative until 2011 and that the new credit terms are here to stay.

2. Our markets appear slow but actually, most markets are shrinking fast, with a few growing quickly too
Lewis discusses how mature markets are getting squeezed either by lower prices which maintain demand, or higher prices coupled with much lower demand – both of which means shrinkage of market for most businesses.

Equally, there are a few key sectors which are growing rapidly, digital media, freelancing, green technologies etc… and that successful business needs to be connecting with if it is going to achieve growth.

3. And the Good News - slow or no competition (no one has any money, which makes it easier to start new ventures….)
Lewis agrues that the old notion of “early mover advantage” is gone. In this business climate it is more important to take your time and get your proposition right.

…click here to watch all the videos from the 7 Point Plan – How to Grow Your Business in 2010..

“Review IR35 as part of a wholesale review of all small business taxation, and seek to replace it with simpler measures that prevent tax avoidance but do not place undue administrative burdens or uncertainty on the self employed, or restrict labour market flexibility.”