Tag: startup myths

9 Startup Myths Part 3 of 3

Peter Cauton

This is part 3 of a 3 part series. You can find part 1 here, and part 2 here.

7) Bigger is better

Last year we were up to around 15-16 people. This year, while we’ve lessened our headcount to around 10-11 people,  we’re set to double last year’s revenue level. Guess which situation I’m happier with?

Early on, it was always an assumption of mine that the successful companies are the bigger companies – bigger headcount, bigger operations. So expansion was one thing I was conscious about. I also remember the saying that you MAKE room for an A-player in your firm even if there’s isn’t exactly an urgent opening.

This was until I experienced needing to fight to meet payroll. This was something that I’ve never experienced before – if I didn’t make a sale, my guys don’t get any money for the month. Remember, recruitment in a startup entails selling dreams and encouraging people to take risks. The LAST thing I wanted to do was to face them and tell them we don’t have any salary for them for this month. So we did everything we could to meet payroll (and thank God that in our 7 years, we’ve never missed payroll – I find this to be nothing short of a miracle, especially during the early years). We also exhausted all means necessary before having to actually hire a new person.

This also allowed us to look at opportunities in a totally different light – how do we help this new client and make it work with only our current manpower? We forced ourselves to reconsider our assumptions and leverage everything we had (technology, network, processes) into making it work.

The results?

Larger revenue per employee. Lower costs. Better efficiency. A more versatile team. A smaller team which feels more like family than anything else. If, 5 years we experience much revenue growth and we’re still at 12 people?  I’d be ecstatic.

8) There will be no more jerks

The term I wanted to use was this one (an interesting book – talks about the negative bottom-line effects of employing jerks, even super-talented ones). I changed my mind, thinking my kids might end up reading this someday.

So, jerks it is.

You know the type – every company would seem to have them – pompous hotshots who humiliate and specialize in public lashings. After 10 years of encountering people like these in all the corporations I had worked for, I said to myself, “No jerk shall ever set foot in my firm! If one of them slips throughout the cracks, I will fire the person immediately.”

You know what, we’ve actually never hired a jerk (well, maybe one teetering on the edge). Our office has always been a fun, light place to work in.

Alas, while our firm has largely been jerk-free (not a small feat, as there are stealth jerks who don’t register during the recruitment process), I had forgotten that I was now exposed to more of the outside world – clients, suppliers, partners, government agencies, etc. While a large majority of the people we work with are fantastic people whom we love interacting with, there are always one or two exceptions to the rule.

Sigh. So I guess there will always be jerks. The trick is learning how to manage them.

9)You can do it part-time

Sure, you can do small businesses and lifestyle businesses part-time. But a startup? (definition here)

In a lot of ways, growing a startup is like parenting. You need to spend TIME with your baby – nurturing, guiding, supporting. Like a parent, there will be some point where your startup baby can fend for itself without you. But during the formative years? Your startup will not grow to its fullest potentials if you are an absentee startup parent. Name one uber-successful startup with part-time founders. There has to be someone full-time.

He's going to need your full-time help...

What made STORM work was that for the last 7 years, either Pao or I were at it on a full-time basis at any point in its existence. Now that we are both back at it full-time, we are experiencing tremendous growth. That’s no coincidence.

So Peter, how can you do these other startups if you are full-time in STORM?

Just early this year I’ve had illusions that I could somehow pull this off – being CEO of multiple firms, in effect. This is a fool’s errand, I have quickly come to realize. For these other, newer startups to work, I know I will have to groom quarterbacks. I can coach, but only from the sidelines. Someone else needs to quarterback.

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9 Startup Myths Part 2 of 3

Peter Cauton

(The following post is the second of a 3 part series. You can find part one over here)

4) Business Plans Are Important

Yup, it's for dummies alright.

What 4 years of college business teaching hammered in me was that I needed to create a business plan for my startup. I needed to put everything in writing and project my financials – on a short-term, medium term, and longterm basis. So during our first foray, we spent several days crafting an 80+ page business plan, crammed with a boatload of projections and analysis. We had a five-year sales forecast with assumptions on pricing, costs, and market. We had complete projected financial statements across those five years. It was a nice plan. It was something you could submit to a marketing class and get an A with.

It was also a complete waste of time.

The investors we gave it to never read it and instead asked us for a “simpler” 2-page summary. Moreover, after our initial effort to draft this plan, we ourselves never bothered to look it again.

Why? We really had no idea how people would react to our company. None. Our initial product, a fully customizable flexible benefits system, was a first in that 2005 market. Who knew how people would react? Our assumptions were guesses.

Remember this very important quote from renowned entrepreneur Steve Blank:

No plan survives the first contact with customers.

True enough, the moment we talked for the very first time with potential customers, we threw the initial plan (our 80 page masterpiece!)  out the window almost immediately. Almost all our assumptions were wrong. 2 weeks of work flushed down the toilet in seconds.

So instead of a crafting a long, static business plan, draft a short, flexible 2-page one. Use common sense to check if your numbers look alright. Take note of your assumptions.

Then, MOST IMPORTANTLY, immediately talk to potential customers and check out all your assumptions. Most of them will be wrong. Using what you learned, redraft your 2-pager. Rinse and repeat. Test and iterate till you get your model right.

5) Things Stabilize

Pao and I always thought, “OK, in time, we’d stabilize.”

Uhm, no.

What we’ve discovered instead is that every year is different. Vastly different. The moment we’d think that, okay, steady na tayo, let’s just stick with this, the market throws us a curveball and forces us to change things. Twice, we’ve decided to kill off certain services, only to have a huge company come and ask us for exactly those services. When it happened a second time, we even joked that the best way to make a business line profitable is by killing it off. Once, we were excited to bring out this new retention tool in the market. We made a big launch and started getting new clients. In a few months however, the recession came out of nowhere. Retention was the last thing on our clients’ minds, and one by one, our clients pulled out.

Bring it on!

Running a startup involves navigating your firm through a sea of constant change. So, while there’s always that huge problem which can sometimes threaten your very existence, thank God there are always even more opportunities to seize and take advantage of.

Yep, it isn’t for the faint of heart, but hey, you can bet it’s so much more exciting – and gratifying – than being a cog in the machine.

6) You need to pump money into traditional advertising

For years, I would always bemoan the fact that most of our clients came from word-of-mouth. I would always say, “imagine if we did active marketing instead of…nothing” And I would dream of big marketing campaigns – but couldn’t do it either because of a lack of time, a lack of budget, or both.

Eventually, we did direct marketing campaigns and sent an untold number of letters and email to potential customers. For all the time, money, and effort this necessitated, we got meager results – we got very few clients through this route. I then realized when I was in corporate I would just shred unopened sales letters, and delete sales emails before I read them. I hated spam.

In the meantime however, the “nothing” marketing strategy was churning out client after client. There would be phone calls from strangers referred by people we worked with, even people whom we didn’t work with, but with whom we shared an interaction or two with. Our biggest clients are almost all from referrals.

It turns out, it wasn’t “nothing” at all. The good work we poured in with our current clients – the service levels, the innovation, how we made it easy for people to relate and work with us – created ripples we never realized were spreading. In 2011, we spent I think the least amount on traditional marketing as we have had in the last 4 years, yet, this year is shaping up to be our best revenue year ever, by far. This has really made me reevaluate what I think I know about marketing. The rules are changing.

Last three myths next post!

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9 Startup Myths Part 1 of 3

Peter Cauton

For the next three days, I’ll be talking about 3 assumptions I discovered were completely wrong as I went through the startup process:

1) You need a ton of money to start

Nope, you don't need it.

Back in 2005, we were rejected by 2-3 investors before we said, “The heck with it, let’s just pool our own money and start.” My initial cash-out as an owner was P30,000.00. Far cry from the hundreds of thousands we thought we needed. It turns out it was enough.

Nowadays, you could start firms with even less, as the cost barriers continue to fall.

Last Thursday, I had a productive brainstorming session with an old friend of mine who was in the printing/publishing business. I suggested, “Why don’t you try building a 2.0 version of your current business on the net?” He told me he thought it would take around P2-3 million to do a web startup.

I told him I could connect him to tech people so he can knock zeroes out of his initial investment assumption.

Web startups are the most cost-effective startup type of them all. If you can program, you can build an e-commerce website for less than a pittance and start a business. You don’t know how to program? Sell your startup idea to someone who does and offer her substantial equity. She can instead work on the website for the equity instead of you paying a salary or a fee.

A great entrepreneur will ALWAYS find a way to get things done without a huge initial investment.

2) You will be your own boss

This was one of the first myths I discovered just wasn’t true.

When Pao and I started, we immediately made business cards which said “CEO” and “COO.” Yeah, we just loved the sound of that!

The moment we worked with clients though, it became very apparent who the real boss was. Needing to prove ourselves and earn trust in the market, we needed to over-deliver every time with every new client. That usually meant being under the beck and call of each client who chose to work with us. They were the real bosses and dictated everything.

Oh, you want this 4 month project crammed into a month?

Sure, no problem!

Oh, so you want me to do this 20-slide presentation which isn’t in the contract we signed? For free?

Sure, no problem!

Even the titles themselves worked against us. Once, Pao was in a presentation with a bank executive,  to whom he gave his “COO” biz card. Upon looking at the card, the client smiled and replied, “Oh, COO ka pala eh, ibaba mo naman young presyo.”

From then on, we just changed our titles to “Consultant.”

3) My corporate life would prepare me for startup life

When we were starting, I thought my 10-year corporate experience would help me run things in STORM.

Wrong.

There is nothing in my corporate career that could have prepared me for life in a startup.

Here’s the big difference: in corporations, unless you are the CEO, you think only as far as your function is concerned.

Going up the corporate ladder in human resources, I only thought as far as HR was concerned. Yes, I was trained to be a “strategic business partner” and know the business better – but I never made decisions for anything beyond my departmental role, and I would always look at things through the lens of my function.

In a startup, you learn veryveryvery quickly how and why every decision affects every other business function. Since resources are extra-scarce in new startups, you are forced to make (quick) decisions considering ALL the affected functions. Nothing in isolation.

Let’s say you want to implement a particular marketing plan. You then make an analysis that you would need someone full-time on it for 3 months. You could do it yourself, but then who would do current consulting work you are doing for a current client? Let’s say you consider hiring a person instead, what would that person do after the 3 months are up? What sort of person will you need? Do you have enough money to afford her? Who would train her? What happens if she’s successful and lands projects within the first month? Who would do the account management for these new clients?

Corporations train us to do work on a per-department basis. Sure, you have your management trainee programs – but each of these trainees is ultimately assigned to a home department after their tour of duty.

Startup work demands immediate holistic, systemic thinking. A corporation trains us in a singular function, because this is the most efficient way to structure things (like an assembly line).

This is why I’ve always said to friends that in a single year in a startup, I learned more about business than a decade in corporate.

Three more myths busted in part 2!

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