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Startup Drinks - May 27, 2009

It’s great to see so many startup enthusiasts out in force and we’re set to do it all again, as we do on the last Wednesday of every month. You are most welcome to bring friends and colleagues. We’ve been seeing 60+ people through the doors and I would love to keep the pace!

Let the drinks and networking begin at Brutopia this Wednesday, 27 May from 5:30pm until whenever.

You can register soon at techentreprise! Techentreprise helps you to connect with the people you meet and even post your own items.  But wait, there’s more! You also get a gorgeous name tag on the night and satisfaction of knowing that you’re helping us to plan the best event possible.

Translating Strategy Into Action

In previous posts I talked about how to create a simple, strategic plan without falling down the rabbit hole of arguing about mission, vision, objectives, goals, strategies etc. I also talked about how to actually get a group of people to agree on a set of goals which is always fun and never easy.

cc Fenris Photography

This post talks about the crucial last step: translating your strategy into real action.

1. Follow-through - Once you have your plan finished, schedule monthly or quarterly review sessions right away and make sure people know in advance that they will be expected to report on their performance vs. the goal set in the plan. Send a meeting invite for a specific date and time along with an agenda right away. This tells people this is not a drill.

2. Make people uncomfortable when they don’t deliver - There have to be consequences when people do not deliver. For most companies, having to stand up among colleagues and say either “I didn’t deliver” or “My forecast sucked” is a powerful enough consequence. Don’t be afraid to be tough on people who don’t deliver, including yourself!

3. Reward people when they do deliver - Make a point of congratulating people when they deliver what they promise. It sends a signal that this is important to your company. It seems like common sense but most companies only focus on fixing the negative while taking the positive for granted.

4. Reward people when they deliver part 2 - Put your money where your mouth is. Tie bonuses and option grants to good forecasting and good delivery. If you have compensation tied to anything else you are sending mixed signals.

5. Be prepared for naysayers - People who were cooperative during your planning sessions will become less cooperative when the rubber meets the road and they have to explain why they missed their targets. They will question the planning process, claim that the strategy has changed, and blame external factors (e.g. The Downturn). You need to shut these people down quickly. Decide if you want to be a company with great performance or great excuses.

6. Get the whole company on board - Make the plan (and all the brainstorming materials) available to everyone in your company. After every review cycle, publish the results (good or bad) so they can be seen by all. Apply the same planning discipline to departments, your Board of Directors, and individual employees.

It’s probably fair to say that there’s no such thing as Really Simple Strategy Planning (sorry). In reality it’s a time-consuming process that’s bound to create some conflicts within your startup. But the payoff is huge if you can create a company culture that encourages thoughtful strategy development and hard-nosed dedication to performance. If you don’t have this mindset in your company it may be time to ask why not.

Getting the most out of your accountants (we fired ours)

We recently received a bunch of invoices from our accountants that had the following line item: “Accounting: $2000″. There was no backup and the bill came 3-4 months after the work was done. When we asked for an explanation we received an indignant email from the accountant asking why we were questioning their billing practices. Our answer was: you’re fired.

I’m not suggesting you fire your accountants. On the other hand, don’t be afraid to demand great service from your suppliers. Here are some things I always look for:

1. Prompt Billing - You probably think it’s crazy to demand more invoices but getting a bill every month means you can keep an eye on your expenses. After three months it’s too late to regret what you’ve spent. If they can’t get their act together to bill you monthly that’s a red flag.
2. Detailed Bills - Anyone who generates hourly fees must provide a breakout of what those hours were spent on. As in a timesheet. Lawyers already have software that does this so don’t believe anyone who says it takes too much time. No details, no payment.
3. Freebies - Our ex-accountants billed us every time they answered a question (with no timesheet backup of course). This discourages clients from relying on them as a trusted adviser. Look for people who don’t mind answering a few questions once in awhile, off the clock.
4. Value Add - I’ve referred clients to our ex-accountants but they certainly never reciprocated. I had low expectations until I met our new firm who, before signing anything, referred a client to us. This is great relationship building. If you’re not sure about your firm’s value-add potential, get customer references.

I had a great experience with our lawyers yesterday where we were discussing some templates for legal agreements we need. They made it clear they weren’t charging for the meeting, would not charge for the next brainstorming session, and would give us fixed fees for all the work they would do. They even offered to donate some time to kick things off. All of this was unprompted.

It’s time to get a bit more demanding with your suppliers, just as you’re being asked to tighten your belt. Be fair and reward great service but don’t tolerate anything less than excellence.

Anyone have any good/bad stories to share about service providers they rely on? You can hide the names to protect the innocent.

Bootstrapping Part 1 - Outsourcing

Not everyone agrees that bootstrapping a startup is the best way to go (I do). But the economy has recently made you a bootstrapper, whether you like it or not. Mark has already posted a great article about bootstrapping which I encourage everyone to (re)read.

One good way to achieve bootstrap success is to ask yourself what needs to be inside your startup. Most entrepreneurs don’t ask themselves what really needs to be inside vs. outside because they fall prey to the following myths:

1. Contractors are always more expensive - Most people compare the high hourly rates contractors charge with a computed hourly rate taken from a person’s salary. Usually there’s no competition: salaries are cheaper by the hour. But you have to factor in hiring costs, overhead, benefits, and management time as well. Be realistic about these costs, especially the opportunity cost of your time, and you’ll probably find that contractors are efficient. Try not to think about the fact that some of your hires won’t work out…

2. I can’t outsource THAT function, it’s too important - That’s usually the wrong question. The real question is whether outsourcing a key function might actually give you superior results. E.g. you might not be able to attract the best CFO to work with your little company but you could probably get that person to help you with a specific project, e.g. fundraising.

3. We need to retain knowledge - Find good people, write good contracts and give contractors a reason to work with you long-term. Don’t forget that most startups don’t have any formal knowledge management tools anyways. Plus key people regularly walk out the door. The point is you don’t automatically get knowledge retention just because you have payroll.

4. But we’re a software company, we need to have developers! - Whether you run a software company or a funeral home (a great recession-proof business by the way), the goal of your company is still to make money. If you can build a better product with less money by contracting out you’ll have more money leftover to re-invest in making your customers happy. I work with a San Francisco-based company whose products are used in some of the largest hotel chains in the world. They’re profitable but still have no HQ. Their R&D is in Montreal, their VP Operations is in Chicago, and their CEO is in San Francisco.

5. We can’t give up control - You’re probably assuming, incorrectly, that a) you have more control over employees than contractors and b) more control = more performance. First of all, most control you have over employees is coercive, i.e. “do it or you’re fired.” The problem is, the more you use this control the less people will like you and want to work for you. Contractors, on the other hand, are used to being paid for performance, especially for fixed-bid contracts. They often have more incentive for doing a good job. Sure you can bonus employees for good performance but you can’t cut their salary if they underperform. Sometimes giving up some control gives you a better end result. If you’re not a developer yourself it’s almost always better to outsource to someone more experienced. Hire a great external team and they’ll save you from yourself.

So in summary, ask yourself the hard question of what really needs to be inside your firm. Don’t forget that employees imply a lot of overhead costs and risks, including the risk of sitting idle if things don’t work out as planned. If you’re a first-time entrepreneur outsourcing the headaches of building and managing a staff for the first time will pay off in spades as you focus on your products and your customers. There are risks in outsourcing too, so be diligent and get good references. But when things get tough don’t forget that “supplier credit”, i.e. slowing down your payments to suppliers, is a source of short-term cash flow. I wouldn’t try doing that with employees…