The Price of Failure

What’s the price of failure? This week, about ten billion dollars.

Or more correctly, that’s the value of success, after plenty of failures.

In many ways I’ve wanted to write this post for a long time. In part it’s about Dropbox, and I couldn’t live my life or run my business without Dropbox.

The wheel is good: electricity is useful – but they’re not Dropbox.

The other week Dropbox (it’s an online storage company if you’ve been living in a cave) secured some additional funding – just the $250m of petty cash. That funding put a value of $10bn on Dropbox and opened the door of the billionaire’s club to the company’s 31 year old co-founder, Drew Houston.

Let me quote from a recent BBC article on Dropbox and Drew Houston.

While studying computer science at MIT he happened on the idea of an automated gambling bot for playing poker. But it kept malfunctioning. “It kept folding my hand. It was an automated way of losing money.” Three years of work on [his next project] also proved fruitless. Then:

“I was on the bus from Boston to New York. I fished around in my pocket and found I’d forgotten my thumb drive. I never wanted that to happen again.”

So with four hours to kill and no USB flash drive Drew Houston started to write some code…

Initially potential investors were lukewarm – and after the money-losing bot and the three loss-making years on the previous project it would have been easy to give up. After all, why should investors want to back someone who’s already failed at least twice?

I’ve written about failure before on the blog. Failure isn’t failure it’s just another step closer to success. Failure isn’t failure, it’s just a learning experience. Every time you fail you’re one step closer to succeeding.

It’s very easy to trot out the well-worn business clichés, most of them written by people who have never been anywhere near running a business in the real world.

Everyone reading this blog will have failed at some point. Something they thought was an absolute certainty – the business idea that would catapult them to fame and fortune – will have gone hideously, painfully, expensively wrong.

It’s probably gone publicly wrong as well. And there’ll be no shortage of wise-after-the-event experts lining up to tell you where you went wrong. Plus an equal number celebrating that well known German defender Schadenfreude…

So coming back from failure is tough. It’s not just another step on the road to success, it’s a real blow – emotionally, financially and quite possibly physically. When you’re running your own business and you have so much capital – emotional and financial – tied up in it, failure can’t be anything else.

But we’re entrepreneurs: sooner or later we bounce back – and come up with the Next Great Idea that will catapult us etc etc.

Sometimes, though, it’s a good idea to subject the NGI to a little outside scrutiny – and this, I think, is one of the key strengths of the Alternative Board.

It was an absolute winner. It would transform my business. Move my retirement ten years closer. And add at least another nought to the value I’d get when I sold out. But by the time it had been round the TAB table I could see all the flaws in my idea. That Board meeting saved me tens of thousands of pounds and I will be eternally grateful.

I’ll obviously keep the identity of that Board member to myself – but it’s far from the only time I’ve had that said to me in a 1:1 conversation.

But just as importantly I’ve seen several boards have a ‘Dropbox moment’ when a member has put his Next Great Idea to them and as one they’ve said, ‘Yes. That’s obvious. And simple. And it’ll work.’

At that point there’s only one piece of advice the Board needs to give. Three words. The old Nike advert. Just do it…


Jam Tomorrow

We desperately need to do the kitchen. This work-top’s had it.

I know, I know…

It’s no use saying ‘I know.’ We can’t live like this. And that’s before we tackle the bathroom – which is barely fit for human habitation.

I know that as well…

So when are we going to do them?

Soon – alright? It’s just that I can’t afford to take the money out of the business right now…

I’d wager that all of us running our own business have had a conversation that went something along those lines…

As I said last week, entrepreneurs are by nature optimistic: they have an absolute conviction that tomorrow is going to be better than today. But the ‘jam tomorrow’ argument is a tough one. That feeling was echoed in a recent Board meeting – and in a separate one-to-one: it’s much easier to be resilient and optimistic – and to see the glass as half full – if you know the business is making some money and you can draw some cash from it.

After all it’s not just your spouse that you have to explain the ‘jam tomorrow’ argument to…

I realise there hasn’t been a pay rise for three years. But you don’t need me to tell you the state of the economy. And look at our order book. Look at the potential business we’ve got in the pipeline. You must be able to see that a year from now this will be a totally different company.

But ‘a year from now’ doesn’t pay for a summer holiday – and you’re not the only one who needs a new kitchen, bathroom or car.

However, there’s one more person you need to have the ‘jam tomorrow’ conversation with. And this one might be even harder than your spouse or your staff. The person you need to talk to is yourself. Yes, I wrote last week that entrepreneurs are naturally optimistic – but that doesn’t mean we don’t have dark days. We wouldn’t be human if sometimes we didn’t question ourselves – and wonder if it really will be jam tomorrow, or whether we’re letting down the people we love and the people we employ.

So what’s the answer to the ‘jam tomorrow’ question? Obviously it varies from business to business and entrepreneur to entrepreneur. But there are three things your answer cannot be:

It can’t be indefinite. You can’t answer the question by turning into Wilkins Micawber and saying ‘something will turn up.’ 99% of the time something will only turn up if you plan for it and work for it.

Your answer can’t be indecisive. When you’re asked about the new kitchen or the pay rise you can’t say, Soon – alright? No, I don’t know when. How can I know when in the current economic climate? As soon as things improve. Hopefully that won’t be too long… Your spouse and your staff won’t accept that – and they don’t deserve it either.

It can’t be a lie. As 10,000 Physics teachers have said, ‘There’s no point cheating, boy. You’re only cheating yourself.’ And there’s no point lying to yourself either: if the jam tomorrow is actually jam that’s three years away, far better to admit it to yourself and to everyone else. If you’re saying to your spouse, ‘I’m sorry, you need to put your dreams on hold for a while’ then you need to be upfront and open about it.

What the ‘jam tomorrow’ question does highlight is the constant need to set realistic and challenging – but achievable – targets. Hopefully that’s where TAB comes in: rest assured that every Board member round the table has at some point realised that it won’t be ‘jam today:’ but they’ve come up with successful strategies to make sure that it definitely is jam tomorrow.

Are you paid too much? Or are your staff paid too little?

A nice, non-controversial title for this week…

…Sparked by reading a review of Thomas Piketty’s book, Capital in the Twenty-First Century. I’m sure plenty of you have read it – only 700 pages and a bargain at thirty quid or thereabouts.

Just in case you haven’t, let me summarise. Piketty spends a lot of the book talking about inequality – specifically that the US is evolving into an oligarchy in which wealthy elites exercise far more power than they should. And he defintely has it in for overpaid CEO’s. I can see his point…

Henrique de Castro collected a $60m severance package when he was fired from Yahoo – on top of a $40m annual pay cheque. JC Penney paid its former CEO, Ron Johnson a salary 1,795 times that of an average department store worker.

In 2012 the average CEO in the US was paid 273 times the salary of the average worker. The growth rate of the CEO’s pay has been more than a hundred times faster than the growth of his average employee’s.

Even in a country as fervently capitalist as the US, this has started a few murmurings of discontent – and a few op ed pieces in the newspapers suggesting the previously-unthinkable. Should the US have a maximum wage as well as a minimum wage?

What about the UK? In the week when Barclays paid fat bonuses to bankers who’d overseen a slump in profits – and with a General Election on the horizon – expect to see the same questions asked here.

But all that’s a long way from North Yorkshire – and I can emphatically state (or I’m pretty sure I can) that none of the members of TAB York are paying themselves a thousand times more than the people they employ. But pay in small businesses is crucial – get it wrong and it can destabilise the whole team. Read this blog from Castle Employment in Scarborough: there are some really pertinent points, especially if you’re thinking of hiring a ‘superstar.’

The good news though is that confidence is improving and for the first time in a long time several of my clients have the words ‘pay rise’ on their to-do list. But even giving someone a bit more on their bottom line can be fraught with difficulties. Specifically, how do you keep the payroll fair?

However hard employers try, all too often people are paid different amounts for doing what’s basically the same job. The main reason is simple: ‘Bill’s been with us for ten years. It’s only right that we should reward his loyalty.’ Or maybe Bill joined before the business was as rigorously run as it is now, maybe – dare I suggest – before you joined TAB.

The problem is, that causes resentment with the new member of staff who’s doing the same job – and who may well feel that she’s doing it rather better than that stick-in-the-mud who’s been here for a hundred years.

So what do you do? Give Bill a smaller pay rise than everyone else? It’s a really tough decision, and one that you need to get right because there are two irrefutable rules about pay. First, nothing de-motivates someone faster than feeling that they’re not being paid fairly – and secondly, however much you try to keep it quiet details of pay packets always seem to leak out.

It’s a thorny issue, and one that’s going to get thornier as – touch wood – the economy improves and pay rises (maybe even bonuses!) move back up the agenda. If you’ve any thoughts, ideas or tips on how you tackled the problem then as always I’d be delighted to hear them…

…Because it would appear I have some ‘pay’ negotiations of my own to conduct. Dan and Rory have held a union meeting. The word ‘allowance’ has been mentioned. Several times…

You Never Get a Second Chance – to Make a Bad Impression

As the old cliché goes, you never get a second chance to make a first impression. But increasingly there’s an alternative ending for that saying: you never get a second chance to make a bad impression.

There’s many a morning that I find myself in York ridiculously early and – like everyone else these days – I’m soon carrying a cup of coffee. Also like everyone else, I’m a creature of habit – so I always go to the same place for my coffee. It’s near the car park and the latte’s not bad. Not great, you understand, but not bad.

And there’s the rub, as that well known management consultant Hamlet would put it. If you sell coffee, you are not short of competition. Move 50 yards to your right or left on any high street, or walk across the road, and there’s an alternative. In fact, any reasonably intelligent visitor from outer space who landed in our nation’s capital could only come to one logical conclusion: the entire economy of the UK is based on lattes, cappuccinos and whatever a double mocha grande is…

Back to the other morning. There I am in York buying my coffee; handing over my £2.10 – clearly I’ve lived in Yorkshire long enough now because there’s part of me that still can’t come to terms with paying more than two quid for a cup of coffee.

So it has to be good.

And it wasn’t.

I’m prepared to accept 6/10 at 7:30 in the morning. I’m not prepared to accept 3/10, which is what this particular latte was. And I could tell as they were making it: they simply didn’t pay attention.

Two days later I deserted. I was back in York, I bought another coffee. But I’d gone 50 yards up the road. I wasn’t prepared to risk another three.

I felt slightly bad about this seemingly trivial decision. But then I talked to a couple of friends and they said much the same. And it struck me that there was an important business lesson in the story.

I think we’re becoming an increasingly impatient society. I’m not saying that’s a good thing: but I am saying it’s a fact. Whatever we want, we want it now. Whatever we want to know, Google tells us.

And we’re becoming less tolerant of things that disappoint us. Even when we’re only spending a couple of quid, it has to be right. Exactly right.

The lesson for your business is clear: it doesn’t matter whether what you sell or the service you provide costs £2 or £2,000, it has to be right. And it has to be exactly right every time. You have to deliver what your customer or client expects and you have to deliver it remorselessly – because there’s always an alternative.

That’s why I’m such a passionate advocate of doing what only you do best. If you do that thing at which you are truly excellent then a) you’ll always be at the top of your game and b) your business will fun and profitable. And as my old ‘mentor’ Bob Townsend put it, ‘if you’re not in business for fun or profit, what the hell are you doing here?’

Decent cup of coffee in hand I’ll be back next week on Valentine’s Day. I repeat, Valentine’s Day. So maybe next time I’m in York I should be focusing on something other than the quality of my coffee…

Looking Back, Looking Forward

’Twas the night before Christmas…

Well, nearly. Just five sleeps to go as my children would say – and this year, Ed, try and remember the carrot for Rudolph…

I know you’re desperate to leave the office so I won’t keep you too long – but the last blog before Christmas is a good time to take a look back at 2013, and to see what 2014 has in store for TAB York and its members.

January seems a long time ago now – and the year did not start well. Business confidence was low and there were real fears of the UK slipping back into a triple-dip recession. Looking around the TAB boardroom table now – and speaking to people in and around York – exactly the reverse seems to be the case. Confidence among SMEs is gradually returning: slowly perhaps, but the glass is definitely half-full these days.

Plenty of TAB members have had tough decisions to make this year and I’m pleased to say that by and large they’ve got those decisions right. For a lot of you it’s been the year when the buck has well and truly stopped at your desk, and I know there have been a few sleepless nights over some of the choices you’ve had to make. Hopefully those decisions are now paying off.

In particular it’s always tempting when the economy is bumping along the bottom to change your relationship with customers and suppliers – to ‘buy’ business or accept second best from your suppliers. Don’t. Once you’ve done that it never goes back to the way it was when the economy finally improves. So an A* to everyone who stuck to their guns in 2013.

Of course, 2013 was also a special year for TAB York with Jackie and Julia joining the team. Or more precisely, turning a one man band into a team!

And the ‘growing up’ theme was continued at home: Dan has now started ‘big school’ – and all is well so far, thank goodness. My wife started a new job: and maybe this is the appropriate time to say thank you to Dav for all her support throughout the year – and to apologise for the times I’ve said, “Just give me a few minutes while I finish the blog…”

So what of 2014?

Well, the Reid family will be taking to the ski slopes in February. Borovets in Bulgaria may never be the same again. And of course, the Tour de France comes to Yorkshire – which is a tremendous coup for the region. Sadly it may give several middle-aged men who should know better the chance to slip into a pair of cycling shorts, but in terms of publicity and the ‘feelgood’ factor it’s absolutely brilliant.

It’s going to be an exciting year for TAB York as well. The plan is to reach 50 members, which would put us in the premier league of TAB ‘global.’ I won’t put a date on it, but that’s the first target.

And there are some ambitious targets among the TAB York members as well – which I’m really pleased to see. Several Board members have weathered the storms of the last few years and now find themselves positioned for serious success – and I’m delighted for them.

So despite 2013 starting off on a low key note it’s ending with a general feeling of optimism (unless you’re one of my sons, in which case it’s almost uncontrollable optimism at the moment. But no, we have not bought everything on your list…)

2014 promises to be exciting, challenging and full of opportunities – and I am seriously looking forward to seeing and sharing the success of my TAB members. You’ve worked hard; you deserve it.

And now all that’s left is to thank you for reading the blog throughout the year and to wish you and those close to you a very happy Christmas: and may 2014 be a truly special year for you.

What you can learn from a Cleaning Company

When I’m looking for inspiration for this blog I sometimes cruise around the internet. Sometimes it’s a waste of time: sometimes I find a gem. This week it was the latter.

Here’s the link to the article I found and here’s the company’s current website. But first, here’s the story.

It’s about a cleaning company in New York. Now in the age of Facebook and Twitter and iPhones and apps a cleaning company is about as unsexy as it gets. The CEO was a former derivatives salesman – what on earth was he doing starting a cleaning company? Especially one where – as the article freely relates – one of the main ways of getting business in the early days was pounding the streets and knocking on doors.

What I liked about the article was its openness about how hard it was in the beginning. The business idea was simple – a website that allowed residential and corporate clients in New York to book a cleaner online. But there were problems: the founders of the company were all non-technical – so the website and its maintenance had to be outsourced – and there was no money. It was a bootstrap business.

They made mistakes as well – originally they outsourced the cleaning to third party cleaning agencies. Disaster: “all of our 1* reviews are from those days.”

But eventually they got it right, and in less than three years from September 2010 to April 2013 monthly revenue grew from $15,000 to $300,000 – with expectations of turnover reaching $4m for the full twelve months. By anyone’s standards those numbers are hugely impressive.

So what did do right? And what lessons can you learn that will help in your business? Here are four that I picked out from the article:

• First of all MyClean saw a gap in the market and went for it – clearly, they’d tried to find a cleaner in New York and found out that it wasn’t easy
• They knew their figures: 7% of visitors to the website converted into customers – I know I’m always talking about your KPIs, but those are the sort of figures you absolutely need to know
• When the tech didn’t work, they didn’t give up. I dare say there are a few people reading this blog who’ve knocked on doors in their time. How many of us would be prepared to do it now?
• And above all, they got the one key basic of their business right. Whatever else went wrong, they made sure that the cleaning was right. That was the product they were supplying and it had to be perfect.

And now four lessons that MyClean themselves take from the last 2½ years:

• Pick a big market – they put the home cleaning market at $65bn a year. If you choose a market like that you only need a small slice to have a serious business: and as MyClean say, it leaves a lot of margin for error. It’s far easier to fail in a new or unproven market
• Turn what’s hard into what’s easy. Dav and I have a cleaner. Is finding a good one easy? Absolutely not: it should be, but it isn’t
• Focus on your strengths. No, the founders of MyClean weren’t technical – so they focused on what they were good at (sales and operations) and got someone else to do the techie jobs
• Focus on what is profitable: not on what is sexy. You couldn’t find a less sexy market than cleaning homes and offices – but it will always need doing and doing well. Is it profitable? Clearly – and as MyClean point out, there are now plenty of hugely well-funded start-ups trying to break into their market.

I think it’s a really interesting business story: a basic need and a very basic business. Yes, it was tackled in a new way, but that new way simply emphasised one of the key points I always try and stress through TAB – the fundamental facts of business will always, always apply.

PS Had my ex-boss from Diageo round for lunch on Saturday. What’s he doing now? Running a rapidly expanding cleaning company in North Yorkshire! So when you sell It’s Clean for a couple of million, remember who gave you the idea, won’t you…

Farming, Facebook and Fundamentals

I was driving along in the car – yes, I know I start a lot of the blogs in this way but, like most people, driving gives me chance to think!

Someone on Radio 4 was reading an anecdote called ‘The Parable of the Ox.’ At home that night I Googled it to get the full story, and found a couple of fascinating articles, one in the Financial Times and one here from a writer called John Kay.

In the early years of the last century country fairs in the USA used to have a competition – guess the weight of the ox. Kay builds on this original story (I really do recommend it) and compares the country fairs to the modern stock market, with people speculating wildly on the weight of the ox. The smart operators realised what was important wasn’t the actual weight of the ox, but what people thought the weight of the ox was going to be. (Or, to extend the analogy, it isn’t the real value of a share that’s important, it’s what people think the value of the share will eventually be.)

John Kay’s article includes one truly excellent paragraph:

Some, such as old Farmer Buffet, claimed that the results of this process … were divorced from the realities of ox-rearing. He was ignored. True, Farmer Buffet’s beasts did appear healthy and his finances were ever more prosperous. But it was agreed, he was a simple countryman who did not really understand how markets worked.

I’ve written before about my admiration for Warren Buffet – in particular I compared the sale of Instagram (a company which at that time had never made a cent in profits) for $1bn in the same week as Warren Buffet spent $2bn on a power plant that would supply power to homes in California for the foreseeable future. What can you say? Buffet is just a simple countryman, who doesn’t really understand how technology is changing the whole business paradigm.

After all, here are some ‘metrics’ that modern wisdom dictates you absolutely have to know.

How many ‘likes’ do you have on Facebook?
How many Twitter followers do you have?
How many people visited your website yesterday?
Where were they from?
And how long did they spend on the site?
How many Google+ circles are you in?

And the list goes on…

I’m not saying that these new measurements aren’t important. Far from it – I think social media has an increasing part to play in your marketing mix and you ignore it at your peril. But some of the gurus and commentators might just be suffering from ENCS – Emperor’s New Clothes Syndrome.

After all, just pop down to Tesco to your local independent butcher and try spending Facebook likes, Twitter followers and website visitors. I suspect the man in the stripy apron will be unimpressed.

Net profit is a different matter.

I know this is dreadfully old fashioned but whatever business you’re in you need a steady stream of new clients/customers and you need to sell a product or service profitably to those customers.

I was chatting to one of my Board members the other day: he’s in the financial services industry. You may be aware that they’ve just gone through (yet another) upheaval with the Retail Distribution Review. “RDR doesn’t really change anything, Ed,” he said. “We still need a regular flow of new clients; we still need to give them first class service and providing that service has to be profitable.”

Spot on. So I’ll make no apology for constantly reminding Board members of the importance of their basic KPIs. As Farmer Buffet might have put it, my job is to help you raise a fine, healthy ox – which you can sell for more than the cost of raising it. Not to worry about how many ‘likes’ your ox has on Facebook…

I wrote this on Thursday lunchtime. Later the same day it was announced that Warren Buffet’s company Berkshire Hathaway (along with private equity firm 3G) was paying $28bn to acquire Heinz. Baked beans and tomato ketchup – it doesn’t come much more fundamental than that.