Up and Running:

I was speaking to a group of entrepreneurs a few weeks ago when somebody asked me: “But what about this economy, these times . . . does it make sense to start a business now? Shouldn’t we all wait for things to clear up a bit?”

Ah yes, the voice of doom. It does us good to be reminded. And don’t think I’m making fun of the VOD, in any way . . . a business ought to be able to answer this kind of question at all times. Asking the question is a good thing.

I said that it depends. Startups usually develop around microeconomics, specific offerings to solve specific needs or wants. Usually they’re very much about you, your market, and your plans. Is it right for you? And have you done a good job looking at the market; have you done your basic numbers? Will they work for you?

This economic downturn is also a great argument for the simple essential of planning: planning where you’re going, if your business already exists; and planning what you’re going to start, if you’re starting one. Your planning should include the basic numbers, such as a sales forecast and expense budget, and those basic numbers should incorporate the impact of troubled times. Be very conservative.

What brings this up for me today is Economy to Entrepreneurs–Turn Back in The New York Times over the weekend. Reporter Julie Bick tells a good story about a woman who closed her business and took a job. She adds:

Amid the current economic turmoil, many entrepreneurs and small-business owners like Ms. Reed are debating whether it makes sense to seek safety in the corporate life–and deciding that it does.

Research has consistently shown that the share of employment and sales accounted for by small businesses tends to be more cyclical than for large ones, says David B. Audretsch, a professor at Indiana University and the director of the Max Planck Institute of Economics in Jena, Germany. When the economy expands, small businesses gain more than large companies. In an economic downturn, small businesses tend to be hit harder.

The pessimists, or skeptics, do us all a service. Think about these things: not just to worry, but rather to absorb the increased uncertainty into your planning and move forward, if at all, slowly and carefully.

The simple pitch at fairsoftware.net is very attractive: Team up (find people you can trust), sell, share (reward your team).

Our unique system is powered by a legally sound contract, the “Software Bill Of Rights,” in which virtual “shares” represent decision-making and revenue-sharing rights.

It’s easy to give shares to anyone who helps out in some way, large or small. You hire people with shares instead of cash, growing a team that is committed to the project’s success.

I haven’t used this new product/site offering, but I have been involved in the past with software development paid in part by revenue sharing. That worked for me. It took a fair amount of negotiation and legal work, which this new site seems to suggest it can help solve.

I heard about this site from a post titled Innovator to Watch on the Demo.com site, just two days after the fall Demo conference.

This is hard for me to post, because it–well, the headline, at least–seems so negative. Still, I’ve been dealing with a number of startups lately, and it seems like we all need a refresher reminder:

“I don’t know the secret to success, but I do know that the secret to failure is trying to please everybody.” – Bill Cosby

I watched John Jantsch’s Duct Tape Marketing workshop last week at the annual Small Business Development Center (SBDC) conference in Chicago [disclosure: Palo Alto Software publishes a Duct Tape Marketing-powered Marketing Plan Pro]. Much of what he does reminds me, brilliantly, of how important it is to understand . . .

1. Who is your target customer. In detail. Not just generalities and demographics, not even just psychographics, but who is this person, what drives her, what does she really want from you, what does she like to read, eat, watch? Where does he live, and with whom? What does he drive?
2. Who isn’t your customer. John had a great post on Duct Tape Marketing a couple of months ago, saying what to do in a recession is to focus down and more narrowly. This came up again in his workshop. Sometimes the secret to success is who isn’t your customer.

I was in a panel presentation not long ago alongside an expert in customer service. At one point, after she’d dizzied us with stories of Nordstrom retail clerks changing customers’ tires and taking as returns products that Nordstrom had never carried, somebody asked, with just a hint of exasperation,

“But how does a company stay in business like that? How do they make money? Who pays for all that?”

At which point, after a beautifully timed pause, the expert said:

“Yes, that is the question, isn’t it . . . and pay attention, because this is the most important thing I’ll say all night . . . you have to understand that not everybody is a customer.”

Which, at that moment, made everything else she’d said make sense.

Interesting … click here for more information …

Steve King at SmallBizLabs asked an interesting question recently: “Are Statistically Significant Research Methods Passe?” He notes that a growing number of surveys that show up these days are not statistically valid because they don’t start with random populations. Steve says they’re “based on informal groups of respondents rather than statistically significant population samples.”

He cites three drivers for this trend:

1. Cost and speed–It is much cheaper, easier and quicker to do surveys informally, rather than investing in the rigor of statistically significant research methodology. The appeal of doing 100 quick-and-dirty surveys instead of investing in one statistically rigorous survey is obvious.
2. The availability of easy-to-use Internet survey tools–Tools like Survey Monkey make it easy to do quick and simple online surveys. This has resulted in a substantial increase in the number of surveys conducted (and results published), which may or may not measure the population that the survey is trying to understand. Think of it as a litmus test without really knowing whose chemistry you’re testing.
3. There is value in the information produced by non-statistical surveys–While informal survey results are not projectable to a broader population, they can be useful. They provide something to react to quickly and cheaply which can help decision-makers and researchers think out of the box. Also, time or resource constraints often eliminate the use of formal surveys, and some information is often better than none.

I agree. And I especially like the fact that it comes from Steve, who is part of Emergent Research, a research and consulting firm that has published some very interesting work. If you’re curious, look at its studies of small business trends.

The key point here is his number three: There is still value, sometimes, even without statistical fundamentals. You just have to stick with common sense. If I remember my business school classes in statistics, if the sample population isn’t random then you can’t project results into the larger population. But if you have a non-random sample that’s directly related to your business needs, then so what?

What I say is, use it well and wisely, recognize that what you’ve got is based on a very narrow subset of the whole world; keep a healthy skepticism, but use the information.

My youngest daughter, a senior in college, says it’s urban myth that some college guy found out on Facebook that his girlfriend dumped him. I do remember, however, that she was up in arms when Facebook suddenly released News Feed:

News Feed [is] a built-in service that would actively broadcast changes in a user’s page to every one of his or her friends. Students would no longer need to spend their time zipping around to examine each friend’s page, checking to see if there was any new information. Instead, they would just log into Facebook, and News Feed would appear: a single page that—like a social gazette from the 18th century—delivered a long list of up-to-the-minute gossip about their friends, around the clock, all in one place. “A stream of everything that’s going on in their lives,” as Zuckerberg put it.

The quote is from Clive Thompson’s story the Brave New World of Digital Intimacy in The New York Times over the weekend. It’s a very interesting think piece, a thoughtful exploration of what’s going on with this and why. I’m not sure exactly why I think this is about our future, and ought to be related to business ideas; but I do.

News Feed shocked the users. Facebook protest groups formed. But instead of killing it, they added a privacy option, and here’s what happened:

Zuckerberg, surprised by the outcry, quickly made two decisions. The first was to add a privacy feature to News Feed, letting users decide what kind of information went out. But the second decision was to leave News Feed otherwise intact. He suspected that once people tried it and got over their shock, they’d like it.

He was right. Within days, the tide reversed. Students began e-mailing Zuckerberg to say that via News Feed they’d learned things they would never have otherwise discovered through random surfing around Facebook. The bits of trivia that News Feed delivered gave them more things to talk about—Why do you hate Kiefer Sutherland?—when they met friends face to face in class or at a party. Trends spread more quickly. When one student joined a group—proclaiming her love of Coldplay or a desire to volunteer for Greenpeace—all her friends instantly knew, and many would sign up themselves. Users’ worries about their privacy seemed to vanish within days, boiled away by their excitement at being so much more connected to their friends. (Very few people stopped using Facebook, and most people kept on publishing most of their information through News Feed.)

Social scientists, it turns out, call this kind of incessant online contact “ambient awareness.”

It is, they say, very much like being physically near someone and picking up on his mood through the little things he does—body language, sighs, stray comments—out of the corner of your eye. Facebook is no longer alone in offering this sort of interaction online. In the last year, there has been a boom in tools for “microblogging”: posting frequent tiny updates on what you’re doing. The phenomenon is quite different from what we normally think of as blogging, because a blog post is usually a written piece, sometimes quite long: a statement of opinion, a story, an analysis. But these new updates are something different. They’re far shorter, far more frequent and less carefully considered. One of the most popular new tools is Twitter, a website and messaging service that allows its 2 million-plus users to broadcast to their friends haiku-length updates—limited to 140 characters, as brief as a mobile-phone text message—on what they’re doing. There are other services for reporting where you’re traveling (Dopplr) or for quickly tossing online a stream of the pictures, videos or websites you’re looking at (Tumblr). And there are even tools that give your location. When the new iPhone, with built-in tracking, was introduced in July, 1 million people began using Loopt, a piece of software that automatically tells all your friends exactly where you are.

Why does it work? Twitter sounded so bad to me, when I first heard about it; I couldn’t understand why anybody would want to broadcast trivial little bits. But now I’m on Twitter (twitter/Timberry) and liking it. And Thompson, in his story, tells about a 39-year-old guy getting into Twitter:

But as the days went by, something changed. Haley discovered that he was beginning to sense the rhythms of his friends’ lives in a way he never had before. When one friend got sick with a virulent fever, he could tell by her Twitter updates when she was getting worse and the instant she finally turned the corner. He could see when friends were heading into hellish days at work or when they’d scored a big success. Even the daily catalog of sandwiches became oddly mesmerizing, a sort of metronomic click that he grew accustomed to seeing pop up in the middle of each day.

Hence, the paradox of ambient awareness:

Each little update—each individual bit of social information—is insignificant on its own, even supremely mundane. But taken together, over time, the little snippets coalesce into a surprisingly sophisticated portrait of your friends’ and family members’ lives, like thousands of dots making a pointillist painting.

Thompson goes on to look at weak links to a lot of people, as in Twitter, and social implications, plus some plain–but interesting–notes of gossip. For example:

She was aghast. “I’m like, my God, these pictures are completely hideous!” Ahan complained, while her friend looked on sympathetically and sipped her coffee. “I’m wearing all these totally awful ’90s clothes. I look like crap. And I’m like, Why are you people in my life, anyway? I haven’t seen you in 10 years. I don’t know you anymore!” She began furiously detagging the pictures—removing her name, so they wouldn’t show up in a search anymore.

Worse, Ahan was also confronting a common plague of Facebook: the recent ex. She had broken up with her boyfriend not long ago, but she hadn’t “unfriended” him, because that felt too extreme. But soon he paired up with another young woman, and the new couple began having public conversations on Ahan’s ex-boyfriend’s page. One day, she noticed with alarm that the new girlfriend was quoting material Ahan had e-mailed privately to her boyfriend; she suspected he had been sharing the e-mail with his new girlfriend. It is the sort of weirdly subtle mind game that becomes possible via Facebook, and it drove Ahan nuts.

“Sometimes I think this stuff is just crazy, and everybody has got to get a life and stop obsessing over everyone’s trivia and gossiping,” she said.

And I can’t resist concluding with his interesting concluding paragraph:

Laura Fitton, the social-media consultant, argues that her constant status updating has made her “a happier person, a calmer person” because the process of, say, describing a horrid morning at work forces her to look at it objectively. “It drags you out of your own head,” she added. In an age of awareness, perhaps the person you see most clearly is yourself.

I’m So Totally, Digitally Close to You – Clive Thompson – NYTimes.com:

There it is again, the same old problem of who owns the idea. And how to sell it. And why, in most cases, you can’t easily sell an idea. Ideas are too hard to protect. Today’s example comes from celebrity business, Kate Hudson getting sued for stealing product information.

A cosmetics company named 220 Laboratories says it developed a product for Hudson and hairstyle product guy David Babaii, who then stiffed the company and released the product, but without 220 Laboratories.

This is from BusinessPundit:

According to the legal documents, 220 Labs had researched and developed a product for Babaii over a period of about nine months, based on an oral contract. During this time, 220 Labs developed at least 10 custom products for Babaii, for which they sent him samples. They also sent Babaii ingredients lists, ingredients stories, pricing information, marketing ideas and promotional footage.

Almost a year after Babaii and 220 Labs had entered into their relationship, a 220 Labs competitor called Universal requested volcanic ash samples from the company, purportedly for a hair-care line. 220 Labs sent them the samples.

Babaii then released the product, called David Babaii for WildAid–featuring pictures of an earthy-looking Kate Hudson cavorting with baby wildcats–without giving 220 Labs the kickback it felt it deserved. Thus, the lawsuit.

If it’s true, it’s bad news and bad business; but it happens all the time. And maybe in this case 220 Labs gets satisfaction, perhaps because its chances are enhanced by all the visibility.

I’d like to write “What were they thinking?” . . . in giving away the whole idea without getting the deal in writing first. But that would be the pot calling the kettle black. I’ve made the same mistake myself–or at least a very similar one. I posted on that here.

What to do? First, get it in writing. Second, don’t share the information until the deal is done.

And, by the way, I’ve posted a video (actually a slide presentation) about ownership of ideas.

And thanks to BusinessPundit.com for the timely and thoughtful post on this, with a lot more details. Here’s the link: Kate Hudson Gets Sued for Stealing Product Information. Does She Have a Case? | Business Pundit

I’ve posted from time to time about the 20 million (or so) businesses in the United States with no employees. I like to think of these as the core, the bedrock foundation of entrepreneurship, the home-office and one-person businesses of today that will generate the growth businesses of tomorrow.

While that’s a nice notion, Steve King of Small Business Labs has an interesting post picking up on some SBA statistics that bring me quickly back to reality. If you rule out the businesses that report less than $50,000 in annual revenue, that number goes down to only about 4 million, not 20 million.

The SBA study is from 2002, six years ago, so the numbers don’t match exactly; their total is less than 18 million, while the more recent total is more than 20 million. Still, you can apply these percentages: 43 percent of the personal businesses had sales of less than $10,000 and 37 percent had less than $50,000. That’s 80 percent–that would be 16 million of the 20 million–that are probably more like hobby businesses, tax-related businesses or part-time businesses. That’s a good thing to keep in mind, for me at least, because I keep thinking 20 million.

True, the $50,000 cutoff is artificial, and there might be another 2 million or 3 million businesses that sell less than $50,000 per year but are still full and complete businesses. Some of these businesspeople make minimum wage or near that now but still hope for the future and keep going. Others undervalue revenue in tax-related tax planning–I don’t mean cheating, just, for example, living in the motel and drawing a wage that might seem lower than average wage because it includes food and shelter.

There’s also the phenomenon of tax-related businesses; businesses that spring up and last for a while and disappear, motivated more by tax law than by normal business practice.

I knew a young woman whose parents had a tree-climbing business. They lived in a tree in southern Oregon (or at least, that’s what she said. Maybe that was a metaphor). They were tree climbers by avocation, and made tree climbing their vocation as well. They sold tree climbing equipment on the web. I don’t think they wanted to grow the business much. They weren’t looking for investors. They didn’t want to sell stock or get acquired. They wanted to enjoy their hobby and make a living at it.

The other day a friend asked me for advice related to taking on investment to build his business, for the first time. He knew the investor. They’d agreed on the amount and the share of ownership in exchange. My friend was comfortable with the idea. But I wasn’t.

I worried about incompatible goals. Assume, for the sake of discussion, that the business in question is doing very well right now, supporting the family, growing well, and keeping its owner involved and happy. I’d thought he’d at least want to continue doing that for a long time, nurturing his business baby, keeping it healthy but also keeping it his.

I didn’t actually ask him whether he wanted to build a treehouse or a castle. But I could have. It’s a good way to get at the underlying tradeoffs involved. It relates to the idea of defining success. The treehouse can be a great place to be, happy, comfortable, a good view. But it’s no castle.

How ambitious are you? How much control do you want to have? How much risk do you want to take? Are you comfortable with maybe growing more slowly but not having to compromise with your investors?

Business schools normally teach about building the castle, not the treehouse. By that I mean that the classic business teaching about startups is to get financing with the right investors and grow fast, then turn it over into a stock offering or acquisition. That’s the castle. So as a result we assume formal business plans, pitches to investors and high growth.

When you take on an investor, it’s not really your business any longer. Minority owners have rights. And aside from the detailed legal elements, you have ethical and moral obligations toward those minority owners. You can’t just keep the business for yourself anymore. At some point, in fairness to the investors, you have to sell all of it, or at least more of it.

Like having the cake and eating it, you can’t own the business and have investors. You have to choose one or the other: treehouse or castle.

You can’t have a business and sell it too.