This week’s topic for

the America’s Most
Promising Companies project from Forbes was submitted by one of my fellow
AMPC bloggers.

How
do I balance a need for strategic focus versus diversification and expansion of
my products/services?

This question gets at the heart of a classic entrepreneurial challenge. 

On one hand, it is essential to adjust the business to meet the changing needs of the market.  This may take the form of expanding or altering the positioning of the business to meet these changes in the market.  This may require expanding or even fundamentally changing what we offer to our customer base.  It may also lead us to change how we define who are customers need to be going forward.  Certainly, entrepreneurs should never allow themselves to become paralyzed within their original business model if the market is telling them that they need to evolve their concept to fit the reality of a dynamic market.

On the other hand, I see many entrepreneurs who suffer from what I call Entrepreneurial A.D.D.  For these entrepreneurs I find myself saying one word over and over:  Focus! 

So why do entrepreneurs lose their focus?  It has to do with opportunity.  While opportunity in the market is what launches entrepreneurs into business, it can just as quickly become their undoing.

What happens is this — once the entrepreneur enters the market they start to observe many other opportunities that exist in the marketplace.   Entrepreneurs, especially less experienced ones, start to see new business opportunities everywhere.  They feel compelled to pursue those opportunities even if it is not wise to do so.  They feel a desire, even a compulsion, to start additional new businesses even while their first one is still in the start-up phase.

Sometimes the opportunity relates to expanding into new markets.  The entrepreneur sees opportunities to move into additional markets that are not part of their current business operations.  The problem arises when the business and/or the entrepreneur are not yet prepared for this expansion.

For example, a former student of mine had started a franchised business that provides in-home care for the elderly.  During his first year in business, and even before his business had positive cash flow, he was approached about buying a distressed franchise operation of the same business in a nearby town.  When he asked my opinion, I urged him keep his attention focused on the first business he had started – he did not need two businesses that were operating at a loss!

But, he could not resist what he perceived as an opportunity worth a risk and bought the second franchise.  About a year later he called and admitted that it was a huge mistake.  He managed to get both businesses on the road to profitability, but was working 80-100 hour weeks and going much further into debt than he had ever intended.

Even more disruptive is when entrepreneurs pursue opportunities in entirely new businesses before their initial start-up venture is profitable.  I recently met with one entrepreneur who had five distinct businesses operating.  But, not a single one of them had reached profitability.  Luckily, we were able to develop a plan to shut down most of them so he could focus his efforts on his initial start-up business and build it to the point of positive cash flow.

The best way to avoid pursuing too many opportunities too quickly is to write down a clear mission statement and always remember one word:  focus.  If truth be told I believe that mission statements are most important as a tool to keep the entrepreneur on track than as a means to communicate to our team and to the outside world about what we offer. 

Given a choice between strategic focus and diversification for small and medium ventures, I will choose to push for more focus almost every time.

This
week’s topic for the Forbes America’s Most Promising Companies:

 

How
can I prevent my business from being too dependent on one or two key
personalities (e.g., founders) so it can continue to grow after their
departure?

The biggest roadblock to building a team that sustain a business even after the departure of the founders is their hesitancy to delegate. 

Letting go is tough for most of us. We have been with our business
all the way through its growth, through the good and the bad times. But
at some point, if we want our business to grow successfully, we have to
begin to delegate. At first it will seem that no one can do what you do
as well as you can. But just like raising a teenager, at some point you
have to begin to let go so they can learn and grow up. Your business
will go through this same difficult transition. If you don’t begin to
let go, you business may never successfully move into its next stage of
development.

Out of the challenge of delegation comes a second issue — “What exactly is the job description for a CEO, any way?”

For many entrepreneurs, this may be their first time as a CEO. That
title means very little in the early days, but as the company grows it
takes on more meaning. Defining your role and your style as the CEO of
your company takes planning and specific effort on your part. It may
even feel a bit awkward at some point, but you have to establish what
your role will be as the CEO. Play to your strengths.

This is often due to the fact that many entrepreneurs start their businesses because they like the
hands-on part of their business. Engineers like to engineer. Furniture
makers like to build stuff. As some point in the growth of the
business, the entrepreneur begins to move away from the hands-on part
of what they company does. This can be a painful and frustrating
period. Keep this in mind when you decide how far you want to grow the
business. It is OK to keep it at a size that allows you to stay in the
hands-on part of what you do.

When building the management team that will take over much of the running of the business, the most common mistake is to hire solely based on people’s skills and experience.  The technical ability of the person to perform the job should be the minimum criteria that get them to the first interview.  After that, pay most of your attention to their fit with your culture and their ability to continue it into the future.

This requires that you have a clear and concrete understanding of what makes up your culture.  Then use this to develop several open ended interview questions that can give you insight into how well they fit with your culture.  Don’t asking questions that lead them to answers.  Make them vague enough so they have to use their own values to build their response.

For example, assume that bootstrapping is a key part of the culture of your business that you want to ensure will continue into the future.  You might ask them the following: “Tell me about a time when you had
to accomplish a task when limited resources were available.”  If the
interviewee answers the question by saying that she always had more
than enough budgetary support in her old job, it might be difficult for
her to adapt to a bootstrapping environment not having worked that way
in the past.  Or, if she answers by complains about the availability of
resources in her old job, or about how her old boss was always cheap,
that is a good signal that the employee is not have bootstrapping as a
part of her work ethic.  On the other hand, if she speaks with
enthusiasm and pride about how she got the job done within the limited
resource available, she would more likely fit into the bootstrap
culture.

Barbara Weltman did an interview with me on her Build Your Business Radio Show.  Here is a link to where you can here it.  We talked about strategies for entrepreneurs in the current economy.

Inc. is putting on a conference for growing companies called GROWCO.

GROWCO happens on Wednesday, March 18, 2009, through Friday, March 20, 2009, at the JW Marriott Orlando in Florida. For more information or to register, visit http://www.growcoconference.com, or call 877.209.5412
 
This year, GROWCO will focus on how to:

• Grow when money is tight. In this economy, everyone’s feeling the pinch. GROWCO will show you how to expand without overextending.
• Find money you already have. Sometimes your assets aren’t immediately obvious. Meet some creative entrepreneurs who discovered cash in their companies, and learn how.
• Poach talent. A lot of your competitors are currently laying off staff. Now is the time to invest in your work force. Our speakers will show you how to invest without breaking the bank.
• Learn the magic number. At a time like this, watching your financial statements is crucial. Our speakers will teach you how to decipher the numbers to avoid the worst.
• Find funding. You need them to say yes, but the banks and VCs are saying no. GROWCO will show you how to approach sources for capital.

Speakers at GROWCO include:

• Ram Charan, an accomplished author, acclaimed consultant, and former professor. Ram can count Jack Welsh as one of his biggest fans.
• Jack Mitchell, recently celebrated his family business’s 50th anniversary. Warren Buffett said everyone would be better off if we followed Jack’s advice.
• Norm Brodsky, serial entrepreneur, author, and columnist for Inc. magazine. Norm is the founder of seven businesses, including a three-time Inc. 500 company.
• Tom Wujec, thought-leader and award-winning technology innovator, author of three books on creative thinking. 

One of the reasons that many entrepreneurs go into business is to create great places to work.  They want to create an environment where people are treated well and allowed to excel.

Winning Workplaces is a nonprofit committed to helping small and midsize organizations create high-performance workplaces.  They offer many good ideas on how to improve the work climate and culture in entrepreneurial ventures.  In addition to their website, they have a very good blog and a monthly on-line newsletter that you can subscribe to here.

When you first launch a business you should be ready to “dance with the market.”  And you should be ready to let the market lead this dance.

We enter the market with a plan in hand.  It is a plan that we may have agonized over for weeks, months, or even years.  We have done our research, created a carefully thought out marketing plan and operating plan that both help justify our financial forecasts.

And then a funny thing happens.  We assumed that the market wanted “A”.  But, if we listen carefully, we often find out that it really wants “B.”

Our Entrepreneur in Residence this week, Matt Meents, is a case in point.  Their company, Reside, originally was set up to build high-end websites for the real estate industry.  Although they did land some accounts with that profile, the market soon began to tell them that there was a wider market for what they offered beyond real estate. 

If Matt and his partner had stayed rigid in their plans, their company would never have grown the way it has.  The market wanted to help them grow, but they had to be willing to listen to what it really wanted and adapt their plans.   

The dance with the market never really ends.  Markets are dynamic, so you need to be ready to follow where it leads you.

It can be hard for entrepreneurs to get their heads around what a strategic alliance can look like.  After all, what could a small entrepreneurial venture offer to a big corporation?

A good example can be seen in a new alliance that involves one of my former students from the University of St. Thomas.  From the New York Times:

Is it possible for a global corporation to become a local favorite?

Origins is about to find out with its new concept store here where shoppers are encouraged to linger over a mug of steaming tea, get a free chair massage and appreciate a kind of slow beauty experience a world apart from a quick jaunt at a department-store counter.

“There are so many different pieces to this store that invite you to enjoy the lifestyle, enjoy the tea and incredible organic food, wellness services and experience the new products,” said Jane Lauder, the senior vice president and general manager of Origins, part of Estée Lauder Companies.

Paul Cattin’s business Pekoe Sip House, which operates two retail stores in Colorado, is providing the tea shop for this new concept. 

 

My column in this week’s Tennessean is about the changing nature of marketing as a business grows and evolves:

Entrepreneurs face the need to change their approaches to promotion and advertising to keep their businesses moving ahead. A good example of this can be seen in Evans Glass Co., a family-owned business in Nashville.

For years, Bill Evans Sr. relied on three methods of promoting the business. First, those pink trucks helped to make the business stand out as they drove around town. Second, he relied on word of mouth by actively building strong loyalty of employees and customers. And third, like most businesses in years past, he used Yellow Pages ads.

When Bill Evans Jr. took over, he decided that he wanted to expand the business. That required a change in advertising strategy.

Continue reading Marketing Strategies Must Evolve as Businesses Grow