I'd like to share something with you.
Every once in a while, I sit down and consider where I currently am,
and how I got here. This time, I decided to make a list, and thought
"hey, maybe I should share this list, someone might find it useful".
And so I put together the things that I've been fortunate enough to
learn about business during this last year.
A little background: About 4 years ago, three young guys fresh out of
university decided to start an IT business. They did it without any
funding of any kind, and with only one client. They were nuts…
I was one of those guys, and I smiled ever so slightly when I heard
that we did our second seven-digit year a few days ago. I didn't smile
too broadly, because it's only a start, but this is what I've learnt so
far:
Lesson 1: Commodity markets are for big players
You can't build a successful business from scratch on the back of
selling commodities. OK, not totally true, you can if you have access
to large amounts of capital, but then you're technically a big player.
Running a small business? Drop the commodities, and get into the
business of specialisation in areas where you can distinguish yourself
- there will be plenty of time later on to exploit large commodity
markets.
We started out selling all sorts of IT stuff as a "reseller": PCs,
networking infrastructure, etc etc. Then we realised that most
"resellers" are actually redundant in the supply-chain, and that in an
ideal market situation, they wouldn't be there, end-users would be
buying directly from manufacturers (or their distributors, who can buy
in bulk). Yes, you heard me: 99% of all small "IT solution providers"
that focus on selling, repairing and upgrading hardware & software,
installing networks etc are redundant. The only small businesses that
can prosper long-term are those that specialise in areas that aren't
commodity-based (like businesses that build just websites).
Lesson 2: Scalability is king
Some people struggle to make a living. Others, like doctors and
lawyers, earn pretty decent incomes for themselves. Unfortunately,
their incomes have ceilings. Get rid of the ceiling: if you want to
accumulate true wealth, you need to distance yourself from the notion that you need to work for every cent that you earn.
Scalability, in principle, is a relative concept. Trading in
products is scalable to some extent - if you hire more salespeople, you
can reach more customers, churn more revenue, build capacity, and hire
even more salespeople (or spend more money and smarts on reaching more
customers in other ways). This kind of scalability is limited though…
Sure, you reach economies of scale at some point, which enable you to
earn more revenue relative to your input than you did at a previous
stage, but you still need to input more. I like exponential scalability
more...
Serving 10 000 customers with only a fraction more effort than it takes you to serve 10 customers? That's scalability, and one of the best ways to make serious money.
Lesson 2.1: Don't scale before you need to
Building a scalable system with the assumption that you'll only get
a return on it once you have the huge numbers you're aiming for is not
always wise. Here's what I suggest: Very carefully consider what will
be needed at a large scale, keep it in mind, and then build a smaller
version of it first. Don't over-expend if you don't need it yet.
Lesson 3: Sweat procedures, it's worth it
Open-source advocates and start-up types hate policies and
procedures. They say it kills spirit, that it's part of corporate
bloat. Sometimes, maybe, but it's also a crucial enabler of
scalability. If you only have smart, post-graduate geniuses working for
your business, you might not need procedures. Unfortunately, businesses
that only have geniuses working for them aren't all that
scalable. You need people to run the market-facing systems that your
geniuses create for you, and those people need procedures, otherwise
the business can't be efficient, and things very quickly fall apart.
As my one partner once said:
Post-optimisation is the mother of all f#$&-ups.
Pre-optimise with well-planned procedures, it's worth it.
Lesson 4: BECOME the customer
A while ago, Jennifer discussed getting closer to customers by talking to them.
Sure, not a bad idea, but it's even better actually becoming the
customer for a while. I did it a few times this year, even getting into
arguments with my guys about features that I wanted in our products
(both the scalable and non-scalable ones). We sat down and looked at
both sides, added things that were worthwhile to add, and explained to
our customers why we weren't adding things that weren't.
Lesson 5: Specialize, and then share
Don't be scared of letting go of things that other people are better
at. Partner up, let other businesses do the things they're good at -
and then focus on doing the things you're good at.
I've seen it so many times: businesses who are scared of losing
income if they don't offer everything their customers want. Sure,
there's always a case for complimentary services, and one should
generally consider each situation, but don't be silly. If you know
someone else is better at it, let them do it. We're Microsoft Partners
(and I believe one of the smarter ones in the Western Cape), and we
specifically point out to other partners that we're not competing with
them - we show them what we do (generally, very few others are good at
these things), and then mention that we gladly partner up with them
when our clients need things that they're good at. Microsoft encourages
this in their partner channel, and I agree with them.
Lesson 6: Rock stars get the chicks
It's one of those things. Perception rules the world, and this is only a bad thing if you don't know how to manage perception.
OneNote is 500% more kick-ass than Backpack, but Backpack gets the BusinessWeek article and rave reviews. Why? Because Jason Fried is a rock star.
Next year, watch out for a new band in the world of the Information Worker and scalable web services. Rock on.
And, finally,
Lesson 7: Commitment commands respect
People are strange things. They easily get caught up in hype,
emotion & social habits.
Businesses are built on people. Thus they're vulnerable to the
instabilities of people, but also to the strengths of these same people.
Leadership can't be taught. It evolves. Management theory makes up
2% of what's needed to create and maintain vision and motivation within
an organization. The rest is determined by gut feel, experience, and
commitment. Commitment in the form of a never-say-die attitude, in
exemplary dedication to the task at hand, in practical things like
forsaking sleep for 24 hours to resolve a crisis, in taking a pay cut,
in truly caring about a better future enough to drop everything else to
make it happen.
Respect - earn it through commitment.
That's it. 2006 is going to be a sweet year.