Continued from yesterday… a return-to-basics call that gives permission to do the uncommon to achieve the uncommon: consistent profitability (or doubling of it) in 3 months or less.

6.  Repetition is Usually Redundant- Good Advertising Works the First Time:  Use direct response advertising (call-to-action to a phone number or web site) that is uniquely trackable, fully accountable advertising, instead of image advertising, unless others are pre-purchasing to offset the cost (e.g. “If you pre-purchase 300 units, we’ll feature you store/URL/phone exclusively in a full-page ad in…”).  Don’t listen to advertising salespeople who tell you that 3, 7, or 27 exposures are needed before someone will act on an advertisement.  Well-designed and well-targeted advertising works the first time.  Cancel anything that cannot be justified with a trackable ROI.

7.  Limit Downside to Ensure Upside- Sacrifice Margin for Safety:  Don’t manufacture product in large quantities to increase margin unless your product and marketing are tested and ready for roll-out without changes.  If a limited number of prototypes cost $10 per piece to manufacture and sell for $11 each, that’s fine for the initial testing period, and essential for limiting downside.  Sacrifice margin TEMPORARILY for the testing phase, and avoid potentially fatal upfront overcommitments.

8.  Negotiate Late- Make Others Negotiate Against Themselves:  Never make a first offer when purchasing.  Flinch after the first offer (“$3,000!?!” followed by pure silence, which uncomfortable salespeople fill by dropping the price once), let people negotiate against themselves (“Is that really the best you can offer?” elicits at least one additional drop in price), then “bracket.”  If they end up at $2,000 and you want to pay $1,500, offer $1,250.  They’ll counter with approximately $1,750, to which you respond:  “I’ll tell you what… let’s just split the difference.  I’ll overnight FedEx you a check and we can call it a day.”  End result?  Exactly what you wanted- $1,500.

9.  Hyperactivity vs. Productivity- 80/20 and Pareto’s Law:  Being busy is not the same as being productive.  Forget about the startup overwork ethic that people wear as a badge of honor… get analytical.  The 80/20 principle, also known as Pareto’s Law, dictates that 80% of your desired outcomes are the result of 20% of your activities and inputs.  Once per week, stop putting out fires for an afternoon and run the numbers to ensure you’re place effort in high-yield areas.  What 20% of customers/products/regions are producing 80% of the profit?  What are the factors that could account for this?

10.  The Customer is NOT Always Right- “Fire” High-Maintenance Customers:  Not all customers are created equal.  Apply the 80/20 principle to time consumption, also.  What 20% of people are consuming 80% of your time?  Put high-maintenance, low-profit customers on auto-pilot… process orders but don’t pursue them or check up on them.  “Fire” high-maintenance, high-profit customers by sending a memo/email/letter detailing how a change in the business model requires a few new policies:  how often and how to communicate, standardized pricing and order process, etc.  Indicate that, for those clients whose needs are incompatible with these new policies, you are happy to introduce other providers.  You may be thinking, “But, what if my largest customer consumes all of my time?”  Recognize that 1) without time, you cannot scale your company (and, oftentime, life) beyond that customer, and 2) people, even good people, will unknowingly abuse your time to the extent that you let them.

11.  Deadlines over Details- Test Reliability Before Capability:  Skills are overrated.  Perfect products delivered past deadline kill companies faster than decent products delivered on-time.  Test someone’s ability to deliver on a specific and tight deadline before hiring them based on a dazzling portfolio.  Products can be fixed as long as you have cash-flow, and bugs are forgiven, but missing deadlines is often fatal.  Calvin Coolidge once said that nothing is more common than unsuccessful men with talent.  I would add that the seconf most common is smart people who think their IQ or resume justifies delivering late.

originally by Tim Ferriss  www.fourhourworkweek.com/blog

The financial goal of a startup should be simple:  profit in the least time with the least effort.  Not more customers, not more revenue, not more offices or more employees… more PROFIT.

Based on Tim Ferriss’ interviews with high-performing CEOs in more than a dozen countries, here are the 11 basic tenets of the “Margin Manifesto”… a return-to-basics call that gives permission to do the uncommon to achieve the uncommon:  consistent profitability (or doubling of it) in 3 months or less. 

1.  Niche is the New Big- The Lavish Dwarf Entertainment Rule:  Several years ago, an investment banker was jailed for trade violations.  He was caught partly due to his lavish parties on yachts, often featuring hired dwarves.  The owner of the dwarf rental company, Danny Black, was quoted in the Wall Street Journal as saying: “Some people are just into lavish dwarf entertainment.”  (Is that the quote of the year, or WHAT?!?!)  Niche is the new big.  But, here’s the secret… it’s possible to niche market and mass sell.  iPod commercials don’t feature dancing 50-year olds, they feature hip and fit 20-30-somethings, but everyone and his grandmother wants to feel youthful and hip, so they strap on Nanos and call themselves Apple converts.  Who you portray in your marketing isn’t necessarily the only demographics who buys your product.  It’s often the demographic that most people want to identify with or belong to.  The target isn’t the market.  No one aspires to be the bland average, so don’t water down messaging to appeal to everyone… it will end up attracting no one.

2.  Revisit Drucker- What Gets Measured Gets Managed:  Measure compulsively.  Useful metrics to track, besides the usual operational statistics, include CPO (“Cost-Per-Order,” which includes advertising, fulfillment and expected returns, chargebacks, and bad debt), ad allowable (the max you can spend on an advertisement and expect breakeven), MER (media efficiency ratio), and projected lifetime value (LV) given return rates and reorder percentages. 

3.  Pricing before Product- Plan Distribution First:  Is your pricing scalable?  Many companies will sell direct-to-consumer by necessity in early stages, only to realize that their margins can’t accommodate resellers and distributors when they come knocking.  If you have a 40% profit margin and a distributor needs a 70% discount to sell into wholesale accounts, you’re forever limited to direct-to-consumer… unless you increase your pricing and margins.  Look for hidden costs by interviewing those who have done it:  will you need to pay for co-op advertising, offer rebates for bulk purchases, or pay for shelfspace or featured placement? 

4.  Less is MORE- Limiting Distribution to Increase Profit:  Is more distribution automatically better?  No.  Uncontrolled distribution leads to all manner of headache and profit-bleeding, most often related to rogue discounters.  Reseller A lowers pricing to compete with online discounter B, and the price cutting continues until neither is making sufficient profit on the product and both stops reordering.  This requires YOU to launch a new product as price erosion is almost always irreversible.  Avoid this scenario and consider partnering with one or two key distributors instead, using that exclusivity to negotiate better terms.  From iPods to Rolex to Estee Lauder, sustainable high-profit brands usually begin with controlled distribution.  Remember, more customers isn’t the goal; more profit is.

5.  Net-0… Create Demand vs. Offering Terms:  Focus on creating end-user demand so you can dictate terms.  Often one trade publication advertisement, bought at discount remnant rates, will be enough to provide this leverage.  Offering terms is the most consistent ingredient in startup failure, so cite startup economics and the ever-so-useful “company policy” as reasons for prepayment and apologize, but don’t make exceptions.  Net-30 becomes net-60, which quickly becomes net-120… and then you’re out of biz.  Time is the most expensive asset a startup has, and chasing delinquent accounts will prevent you from generating more sales. 

Remaining six to come tomorrow… STAY TUNED!

originally by Tim Ferris,  www.fourhourworkweek.com/blog

“Elevator Pitches” by Techcrunch:  This is where founders and CEOs get a chance to pitch their startups directly to the TechCrunch audience.  Elevator Pitches is a community video project by TechCrunch that allows entrepreneurs to pitch their startups to the general public.  Their visitors then have a chance to comment and vote on the pitches they like the most or least.

If you are interested in submitting a pitch, create a video no longer than 60 seconds in length.  A technology startup’s CEO or founder should use that time to explain the company’s products and how they are intended to make money.

Imagine you’re in an elevator and have only one chance to convince a VC or executive that you deserve a follow-up meeting.  Be sure to focus on your company’s big picture while avoiding too much detail about particular products.

Wow!  What awesome way to practice your pitch and vet comments to improve it even more BEFORE you’re in front of that big VC firm, angel investor, or private equity group. 

I had drinks on Tuesday evening with a buddy of mine from my UBS days five years ago.  He is now a managing director at a hedge fund.  While we were enjoying wine and pizza appetizers at Palomino, another buddy of mine who is a freelance financial consultant came in with a very wealthy restauranteur.  Hugs and handshakes and “a pleasure to meet yous” all around.  Then, they were joined about 15 minutes later by three other guys who also manage a hedge fund that specializes in emerging restaurants.  The point of this story is that while people like to do business with people they know and shop at companies where they have some sort of connection to another person, the same is true for finding startup capital.   

The old adage for raising money is that investors invest in the team first and the product/service second.  Therefore, if investors are primarily investing in people, then what they are really investing in are relationships built on trust.  This is why entrepreneurs tend to raise money from friends and family first.  Though it’s not easy, trust can be created from scratch.  That said, if you’ve burned through all your immediate prospects with whom you have significant pre-existing relationships, you need to be prepared for the consequences:  fundraising will take a long time.

As an entrepreneur looking to raise capital, the approach cannot be to simply sit back and email executive summaries blindly.  An email, even a pitch, is not a trust building event.  It’s really just a foot-in-the-door.  The best entrepreneurs understand this difference and figure out ways to use it as a launching pad for relationship development.

If you’re serious about raising money, you need to be serious about developing relationships.  Instead of emailing, attend events to meet people personally.  After a pitch, follow-up religiously with contacts… why not invite them to coffee to find out more about what they do and who it would benefit them to know?  You could possibly be the gateway and then they owe you a favor… a great position to be in! 

Taken from Alexander Muse of Texas Startup Blog.  Martin Plaehn presented the following list of ‘Do’s and Dont’s of Entrepreneurship at the University Venture Fund’s annual conference.  Pay attention:

Do’s

1. Do ensure for yourself (as founder or chief) that you are addressing a real market and a sustainable one; where the exchange of value is transacted and measured in U.S. currency
2. Do only hire for pre-identified expertise, operating need, and the energy to accomplish excellence; if you get more, great; don’t hire otherwise
3. Do always know your cash level, weekly cash spend and receipt rates, cash-runs-out date, and close-up liabilities amounts; start finding funding choices when you hit t-minus 6 months until operating cash runs out
4. Do money deals with money people (e.g. Angels, VC’s, banks, and credit unions); do product deals with product people (eg. Commercial companies); and do risk deals with risk people (e.g. Insurance companies). Don’t get these confused. If a product company wants to invest in your company, can they afford to take the whole thing? If not, then not.
5. Do ensure that at least one of your early formal investors has the financial wherewithal to keep investing in subsequent increasing rounds many years down the road; do make sure your different investors are really compatible
6. Do always accumulate choice; two by definition, three of four is better; then make decisions and have a back-up
7. Do let the stress of overload and/or capacity strain the triggers for expansion; demand flexing the edges of the system is usually the truest sign of real growth
8. Do track revenue and cost per employee; have trigger thresholds for when to add staff or subtract. Human efficiency and innovation is what creates value

Don’ts

1. Don’t hire of goodness of heart or friendship
2. Don’t hire anyone who you and your team are not genuinely excited about
3. Don’t tolerated mediocre engineers; for that matter, mediocre anyone. An early sign of mediocrity is when you downgrade tasks and expectations to align with an employee
4. Don’t count on your investors to take care of you when things get rough and/or protracted
5. Don’t over interpret or count on the stated operating “value-add” from investors during their solicitations during fundraising
6. Don’t build out your staff or infrastructure in expectation of rapid growth; be strong enough and tolerant of market back-pressure or order/service backlog
7. Don’t keep the same sales and marketing execs if the business isn’t growing or charging for growth; no sales and marketing VP was ever fired prematurely
8. Don’t over delegate to consultants, accountants, or lawyers; even the great ones are only as good as you are as an engaged client; read and understand everything; if left alone, you must have a point of view, right or wrong

Sometimes CEOs are so busy trying to keep their business alive that they forget the people that got them there. Don’t ignore your stars. If you ignore them and assume that they will just keep on giving above and beyond for too long, they will go elsewhere just to be appreciated. And, they’ll even take less money for it.

Every business owner out there has experienced this scenario: an employee with key knowledge walks into your office and says, “I love you and I love working for you, but I have an offer I just can’t refuse.” Most of the time, the CEO finds extra money or whatever is necessary to keep the employee. My suggestion is to be proactive about keeping key people in the first place.

Pay increases and performance bonuses are more than extra money to an employee. It’s your way of saying, “You are valuable around here and I appreciate you.” Try giving that key employee 1/4th of the money you would have to give them in the “I’m quitting” scenario. See what kind of loyalty and morale you build then.