So you want to launch a business...

Price and Value

"It's not enough to create magic. You have to create a price for magic, too."

                                                Eric A. Burns

I love this quotation, of course, because it addresses the value of Magic, one of the Four Fundamental Factors governing the success of a business launch.  Every entrepreneur has to make some magic, and that magic must deliver substantial value.  It is one of the supreme challenges of entrepreneurship to attach a price to that value, to position the Magic financially so that it results in both a sale and a profit.  Over-price and there's no sale.  Under-price and there's no profit.  Deliver real value and you have a happy customer.

On January 13, 1981, I, Jim Flowers, solemnly vowed that I had taken my final lukewarm shower. 

At the time I owned an old house with galvanized iron water pipes.  For those of you who have never dealt with old plumbing, iron pipes rust on the inside.  Eventually that rust constricts the flow of water, often to a mere trickle.  That's truly annoying, especially in the winter, when a hot shower is like a first-class ticket to heaven.

I searched out (pre-internet, mind you) and engaged a free-lance plumber who vowed vast experience with old piping.  He looked at the location of my second floor bath, went to the basement, and quietly surveyed the various lines running from the hot water heater.  After what seemed like only a few moments, he reached up and tapped on one of the pipes with a wrench, not hard at all, just four or five gentle taps.

"Please go upstairs and try your hot water now," he said quietly.

I returned to report free flow of nice, hot water.  "OK," he chuckled.  "That will be $75."

In 1981 $75 was serious money, especially for 5 minutes of work.  Charging $75 for 5 minutes work took a lot of Moxie.  As I did an obvious double-take, he added, with a broad grin, "That's $5 for my time, and $70 for knowing where to tap.  Enjoy your shower tomorrow morning."

I nodded and cheerfully wrote out the check.  To tell the truth, I'd have been happy to pay much, much more.

Oh, and by the way...  The shower was fantastic!!

Six reasons to sell out early

Your company will probably be sold earlier than you expect, and for less than its maximum value.  Here's why.

1-  You will create a problem for a large competitor and they will offer to buy you out – to get you out of their hair.  Your alternative to selling at their price is to wait for them to grind you to a pulp.

2-  You will get divorced and the settlement will require liquidation of all your assets.

3-  You will suffer an untimely death; and your heirs will not want to run the business.

4-  You will be hit by a bus and disabled.  By the way, disability is much more likely than early death.

5-  You will have a falling-out with your partner(s).

And the biggie...

6-  You will simply tire of it and decide to quit.

I wrote about this particular phenomenon a few weeks back.  Here's an excerpt from that post.

In a recent post on Inc.com, Joel Spolsky recalls asking Jessica Livingston (author of Founders at Work) to speak about why start-ups fail.  "That would be boring," she told him. "They all fail for the same reason: People just stop working on their business."

Spolsky goes on.  "The more I thought about it," he says, "the more I realized Jessica was onto something. Why do start-ups fail?  As she pointed out, it's usually a collapse of motivation -- everyone wanders back to civilian life, and the start-up ends, not with a bang but a whimper."

Think about that.  "People just stop working on their businesses."

Wow.  They just plain run out of gas.  They exhaust their supplies of MOXIE.

So, you will probably sell out earlier than you planned, and realize less money than you expected.  UNLESS, of course, you anticipate the various contingencies and protect yourself and your business from their possible ill-effects.

Vendo ergo sum

Please quote me.  Vendo ergo sum.

With all due respect to René Descartes, pictured at left on one of his better days, his famous declaration of existence does not apply to businesses. 

"I think, therefore I am."  Or in Latin, "Cogito ergo sum."  Some careful translators and students of philosophy have rendered it from its original French as, "I am conscious, therefore I am."

For me, certainly.  For my business, not so much.

A business must be more than merely conscious.  To exist as a business requires that a sale be made.  Vendo ergo sum. 

An enterprise without a sale is at best a proto-business.  It might be an institute.  It might be a hobby.  But it is not, I repeat, NOT a business, at least not yet.

So, when in doubt, sell something.  It will amaze your friends, delight your family, impress potential investors, and get the attention of your targeted marketplace.  It's a really cool thing to do. 

Stop thinking.  Stop talking.  Stop over-developing.  Sell something.

GPS for entrepreneurs

Rule of thumb:  Without a Map, you WILL get lost.

And by Map I mean a well-conceived strategic plan, carefully vetted by your Mentors.

Now don’t get me wrong. I am not a big fan of inch-thick business plans, especially early in the process.

But I am definitely a fan of a clearly articulated set of  “rules to live by.” This where you lay out in a nicely organized fashion the bullet points that describe your Market, focus the power of your Magic, and communicate your Model, your Management system, and the way you handle the Money.

Begin with the Four Fundamental Factors Self-Check.  That will get you started on the right track. 

A simple guidebook will be incredibly useful, not just to you, but to everyone else in the company. They will read and use bullet points. They won’t read or use your version of The Encyclopedia Britannica. Later, when the time comes to prepare a big fat plan in order to raise serious money, you can just fill in the space between the bullets and re-order them a bit to fit the latest trendy format for formal plans. That’s not hard, just a task along the way to outside funding.

Search on "business plan."  Starting with the Small Business Administration, you'll find a gold mine of free resources to assist you in the mapping process.

You can also buy my little book.  It's not free, of course; but it's a good read at a fair price.  At least I think so.

Bootstrapping is strategic under-development

Velocity is great, if you are on the correct vector.

A while back I talked about strategic under-development as a cheap and fast way to get your product right.  Release 1.0 really is the ultimate market survey.  Bootstrapping, too, can be viewed as strategic under-development - for your entire business model.

Brian Armstrong offered this great tidbit on his blog about "how to quit your 9-to-5 to build a business and lifestyle you love."

Quoting Bijoy Goswami, Brian tells us

"Getting funding can be the death of a company. It’s like adding gasoline to your rocket ship. If it’s pointed in the right direction (i.e. you’ve got your business model right) then it can be great but otherwise it’s just going to take you in the WRONG direction faster."

Brian goes on.

"Bootstrapping is all about testing and refining your business model constantly. You’ll know when you’ve got it right because your customers will start PAYING you. It doesn’t matter if they SAY they like it, wait until they actually “vote with their dollars”. It pays to get this right before seeking any funding."

This is precisely why, by the way, many, if not most, early stage investors want to see real sales before they invest.  They want to have proof that the market will respond as you have predicted.  They want you to be on the correct vector before they fund your increase in velocity.