Stephen Shu, PhD – Page 20 – Professor of Practice of Behavioral Economics

September 30, 2009

Musings On Winning and Losing Moves Within Startup Situations Within Larger Companies

Though anecdotal, I've seen a slight rise in activity with companies looking to incubate new businesses or start-up climates within a larger company. These are challenging situations to get off the ground. Based on a mixture of consulting to a number companies in these situations and being involved with at least one of these situations as a manager within the company, here are some thoughts on winning and losing moves:

Structure: Having a start-up sponsor in name or position only (losing move) – Successful, external startups have managers that will fight to win, pave new ground, work out kinks, get the best resources, etc. If the sponsor is a senior executive that provides only oversight, does not push or provide guidance, and does not empower delegates, this could be a warning sign for an effort that will not bear fruit. If you have a start-up sponsor that provides political and boundary management only, then it might be a good idea (winning move) to get a powerful delegate that answers to the sponsor and can help to "fly cover" in the organization. Situations where cover may be needed include designing new marketing material, getting special access to the sales team, breaking new ground in the legal contracts area, and getting financial budgets approved outside of normal (overly conservative) control mechanisms.
Strategy & Goals: Failing to clearly articulate the ultimately goal and problem statement of the startup early on (losing move) – I guess an addendum to this might be making the strategy too complicated. For example, when faced with the startup options of creating new revenue, helping cross-sell other services within the larger company, reducing customer churn, or all of the above, I would tend to advise leaning away from trying to knock down too many of these at once. All options can be on the radar and should be part of early brainstorming & strategy sessions, but viewing the startup as a standalone business may be the best option of getting traction first.
Core Team Makeup: Failing to bring in new blood when new blood is needed (losing move) – At risk of disrespecting both large company employees and entrepreneur-types, these groups often don't understand one another. For example, entrepreneurs-types can lack respect for large company bureaucracy, but this is dangerous because buy-in and tapping into the resources (people, structure, assets) of a large company can be tremendous. On the other hand, large company employees can become accustomed to the culture, pace, and processes of existing businesses - these may be incompatible with aspects of a new venture. Bringing in new blood for a start-up within a larger company is often a winning move, and the resources need to be different & complementary.
Extended Team Resources and Horse Trading: Failing to capitalize on resources of the larger entity (losing move) – If entrepreneurial types are brought into the new business, there needs to be complementary intrapreneurs (winning move) that understand the structure of the large company and can help get things like data from business units within other areas of the company, identify potential A-team resources already within the company that can help (e.g., marketing, business development, project management, finance), or tap into key channels and partners external to the company (e.g., lighthouse accounts).

There are many more winning and losing moves to create startups within larger firms. What are your experiences? Where do you see pain points?

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September 23, 2009

Helpful Versus Hindering Lawyers – True Business Lawyers

Yesterday while getting some minutes on the elliptical machine, I was re-reading George Lois' advertising book, "What's The Big Idea". Two of the stories really cracked me up, and they led to write this perspective post on lawyers, more from a startup, venture, or new business initiative point of view.

The first story related to the incredible ad success surrounding Naugahyde (a synthetic, leather-like fabric or material), which had a fabricated, Nauga monster persona as part of the campaign. Click here for some pictures of the Nauga. George Lois, in true storytelling form, relates the whole positioning and art behind the Nauga solution. To make a long story short, he relates something to the effect that late in the game when the whole campaign is ready to roll, one of the lawyers raises a point to the effect of (off the top of my mind), "We're concerned that people may think the Nauga is a real animal … as a consequence, people may be misled into thinking we are selling real leather."

To put things fairly, some forms of advertising (e.g., TV) must definitely be run by lawyer. But who in their sane mind would think that the Nauga was a real animal? Baffled, George relates conducting some primary interviews with regular people, and that the research turns up no one who is confused that the Nauga is a real animal. They think he is crazy for even surveying them. The Nauga goes through, and everyone is lucky that George was there.

The second story has a similar flow. It is related to the logo by Jiffy Lube (see here) and how at the last minute one of the lawyers raises the point that the logo might look like a phallic symbol (and be a showstopper). George disarmed with the laywer with a statement to the effect of, "I don’t know what your peepee is shaped like, but my peepee sure don’t look like that!”. The rest is history, and the logo went through.

I've worked with a number of lawyers, and I definitely prefer the types that help the business development, entrepreneur, & creator-types come up with solutions as opposed to finding every roadblock that will stop a deal. Just finding knowledgeable lawyers that can find holes and weaknesses isn't good enough. The great lawyers, in my mind, are pragmatic problem solvers and solution creators, in addition to being definitive experts in the law. The great ones can engage in a working dialogue and help to calibrate the business risk of pursuing different options.

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September 15, 2009

Consulting and Management Method: Finding And Relieving The Bottleneck

When thrust into a situation where either resources are constrained, there are competing management choices, and paths forward are unclear, I often find a consulting method of "finding and relieving the bottleneck" useful.

For example, suppose a startup is trying to figure out how to ramp up sales from its first (non-repeatable) deals. Or suppose a company cannot determine whether sales or operations processes are the primary lever for stabilizing revenues. Yet another case might be that there is an incubator unit within a larger company that is underperforming – how might you approach the problem of fixing the situation?

At its core, "finding and relieving the bottleneck" is an analytical method used in production and operations. There are a couple of predominant ways that I look at operations by default, the former being a more quantitative method involving system & process flows and things like Little's Law, and the latter (which I strongly recommend) method using visual inspection and interviews with client management. Here I'll address the latter.

So back to the case of ramping up sales for a startup, where its first deals are largely non-repeatable because they were unique and early in the learning curve. Suppose you have 1-hour with client management. How might you help to tease out how where to start looking for improvements?

In a nutshell, the bottleneck method approach might simply be organized around finding where one gets the biggest bang for the buck in terms of making a change. I might ask the client if they had another resource or an additional day in the workweek, which of the following would ultimately result in more sales:

Refining Strategy – this might involve breaking the customer base into segments based on type and prospect awareness profile. Where's the lowest hanging fruit? What kind of marketing and sales material is each segment getting? If you had a choice to improve the marketing collateral or sales processes for the higher priority segment, which would you choose? Are there backlogs in the system (e.g., uncalled sales lead prospects), which would indicate bottlenecks? If you made the change, would it really address the end goal, e.g., getting more sales?
Changing Management Approach - in many situations, entrepreneurs may make the first sales, but they often have problems transferring knowledge on how those sales are made. Alternatively, they may have problems letting go of other areas that could be delegated or outsourced (e.g., finance and accounting, inside sales, meeting scheduling, and/or field sales). Would it be helpful to have someone shadow key executives to distill the sales processes and real value propositions that various customers are buying? If we could clone key people to offload some of the burden, would there be enough prospects and deal flow to make things worthwhile?
Adjusting Technology or Product - if the product were made less complex or if we simplified choices, would we get better yield and flow from the awareness to interest phase of the customer purchase process? Is there a way that we could get people to sample or experience the product before purchase to skip people past bottlenecks of overanalyzing things too much up-front?
Obtaining Financing for Expansion– if you focus time on more sales versus financing for expansion (presuming company has sufficient sales), what would you do and why? What if choosing one path doomed the other? Would the chosen path still be worthwhile? What kind of results could we expect by financing a new online versus a physical market for services delivery?

Optimal diagnosis clearly involves a mixture of tools and approaches, but the bottleneck method is an important method to learn in consulting because it can be increasingly used in facilitative situations where a client has substantial implicit knowledge (and such knowledge must be better formulated explicitly and transferred for company operations to scale).

I've also used this method in management situations (as opposed to in consulting situations only). The method can be particularly good when troubleshooting a problem that cuts across functional areas.

What are your thoughts? Have you ever used this type of approach? If so, how effective was it for you?

Update (9/19/09): Readers may also be interested in post by Seth Godin on the priority list.

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September 10, 2009

Musings And Dialogue On Entrepreneurs And Decision Making (Part 6)

The following backdrop and questions apply to this part of the series of musings and open discussion on entrepreneurs and decision-making (See Part 1, Part 2, Part 3, Part 4, Part 5):

Are entrepreneurs more willing to fail than other people? Does this relate to the exploration versus exploitation differences in the sense that entrepreneurs may simply continue exploring new opportunities until they find one that works? How should they trade off a willingness to walk away from a faltering opportunity against the need for persistence, on the chance that the opportunity can still be saved? Do you think this behavior explains serial entrepreneurs?

Here are my off-the-cuff thoughts on these exploratory research questions. Subconsciously and by choice of profession, entrepreneurs are generally more willing to fail than others, particularly when their entire livlihood and financial security are not at stake. This has been one of the most common perspectives that I had been ingrained with, particularly as it relates to debates on founder liquidity (and restricting it). That said, entrepreneurs (and particularly serial entrepreneurs) do not consciously believe that they will fail. They seem to generally have an attitude of "I will win".

To the decision-making question of "walking away" versus "persistence" for a faltering opportunity, I believe that entrepreneurs should consider leveraging mechanisms, such as:

having a good principal/partner as a founder that can complement the skillset of the CEO
seeking Board of Directors input
having an informal "godfather" (established in advance) that the principals or the CEO can turn to for important decision points and/or when disagreements arise in the management ranks.

As to what drives serial entrepreneurs, my thinking is that appetite for creation, personality type, need for independence, promise of financial gain, and ego tend to drive the serial-types more than decision-making tendencies of "walk away" versus "persistence". That said, often serial entrepreneurs have a personal investment philosophy that in the long-run, by starting and running ventures, eventually one of them will pan out very nicely, and they will have learned from their failures and flops. Failing is an important part of the process, and I even remember an executive recruiter for Sequoia Capital commenting to me during an interview for a position in the late 90s that the major downside to my resume at the time for being venture capital associate was that I had not "founded and flopped" a business.

What are your thoughts and experiences?

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September 8, 2009

Learnings From Losing The Contract

Earlier this quarter I had an opportunity to contend for a contract product management role associated with a company that provides software to marketing professionals and intermediaries (e.g., in the agency space). At risk of oversimplifying, the software that this company provides is somewhat new in its packaged form – the technology could be consider offspring technology (new product introduction) developed via consulting projects with big brands.

Now in my experience, the sales process for consulting projects is quite different from (interim or indefinite length) management contracts. Whereas the former situation often requires a pitch deck and a proposed engagement methodology, the latter situation tends to be more like a series of job interviews that provide the company a means to evaluate work background, problem solving methods, and personality and managerial fit of the individual.

On the balance, the interviews went pretty well (As far as I could tell, there were 3-4 folks into the final interviews). We had good discussions, with a lot of focus being spent on my perspectives and experiences with the product development process. We facilitated the discussion by breaking the discussion (impromptu) into the various phases of product development, ranging from ideation to opportunity screening and business case to design, testing, and rollout. We also talking about different methods and deliverables that were produced during each phase and different dynamics related to steering and organizational structure.

I got a bit blindsided about 80%-90% of the way in my final interview, however.

I was asked a question something to the effect of "what part of the product development process excites you the most?"I answered something to the effect of, "The part that excites me the most is interfacing with people, gluing people together, and facilitating people. I am not really the kind of person that gets the most enjoyment out of working as a solo person in the backoffice."

Unfortunately for me, the primary decision-maker indicated to me that he was thankful that I had characterized things that way. He indicated that he was looking for someone that enjoys working working in a solo mode. He said that perhaps I would be a better fit for the consulting organization and would be happy to refer me to the head of operations.

Unaware of any contract opportunities in the consulting area, my sales instinct was to express being open, but not to entertain the redirect so directly and immediately. Frankly, if one is trying to zero-in, my general recommendation is not to get redirected on the first, soft push.

So I tried to backpedal. I tried to explain that in expressing my strengthes in facilitating people that I did not mean to diminish my ability in keeping my head down and working on solo activities.

To no avail. At that point, I could read the subtle body language that the contract was already lost.

So where did things go wrong?

In my mind, the things that I lost focus on were the real job requirements. I focused too much on trying to highlight my strengths without focusing enough on fortifying around the unwritten job requirements. While I may have met the job requirements on paper, I probably did not do enough due diligence to figure out what type of contract product manager the company really wanted. As such, I was unable to frame my background in the proper light. Contract lost. Lesson learned.

Update 09/09/09: A link readers may also be interested in – Venture capitalist Fred Wilson posts on "Failure" as a badge of honor (at least in the U.S.)

September 2, 2009

Musings And Dialogue On Entrepreneurs And Decision Making (Part 5)

The following backdrop and questions apply to this part of the series of musings and open discussion on entrepreneurs and decision-making (See Part 1, Part 2, Part 3, Part 4. Note that there will likely be a total of six parts for this series with a recap summary of feedback at the end):

One difference between time and money is that money can be stored (inventoried) for future use, but time cannot – it’s use it or lose it. This allows money to be fungible; you can move it around as you need it. For large companies, time can become fungible by hiring or firing workers; entrepreneurs don’t usually have this luxury. How does the inability to store time affect entrepreneurs, especially in comparison to larger companies? What does this imply for time management?

Here are my off-the-cuff thoughts on these exploratory research questions. For permanent changes in capacity (e.g., related to building new capabilities or downsizing), my experience is that hiring and firing of workers is a more painful process in a large company. This has to due with all of the process, legal, HR, budget, management alignment, etc. that cuts across many groups. The larger company, however, has more resources and a greater margin for error. Larger companies may also benefit from having some supply-side agreements in place to readily outsource to consultants or contractors, although the complexity of these contracts sometimes makes it more difficult to source specific, single resources. The upshot, off-the-cuff, is I would hypothesize that larger companies would be somewhat slower in terms of making changes to capacity, that changes can be more efficient in batches, and that margin for error might be a bit larger (on average).

Entrepreneurial firms may be more cash constrained and have less margin for error. That said, they may be quicker in terms of hiring and firing if only because there may be fewer formal processes. What may be working against entrepreneurial firms are that since resources are constrained, they may not always use HR support (e.g., recruiters) in terms of sourcing candidates. To compensate for this fact, I have often found in entrepreneurial situations that one may rely on informal networks more for the hiring process. This may provide an improved screening process for entrepreneurs. The informal networking may also have auxiliary benefits for the entrepreneur (beyond the hiring process itself, such as getting sales leads or industry info) so entrepreneurs may be able to get multiple benefits more easily through the hiring process. All-in-all from a capacity model perspective, my experience is that large capacity changes are harder in entrepreneurial firms, and margins for error are smaller. Yet changes can be quicker, more customized, and dovetail with other efforts.

What are your thoughts and experiences?

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August 29, 2009

Musings And Dialogue On Entrepreneurs And Decision Making (Part 4)

The following backdrop and questions apply to this part of the series of musings and open discussion on entrepreneurs and decision-making (See Part 1, Part 2, Part 3. Note that there will likely be a total of six parts for this series with a recap summary of feedback at the end):

New research is uncovering differences in types of decisiveness – for example, someone who can’t decide which dessert they want after dinner may not be the same as someone who puts lots of research into buying a car. When does a lack of decisiveness come from the need to get more information, and when is it simply putting off a decision (procrastination)?

It is very hard to generalize. As context, my immediate gut thoughts are that, in general, there are both emotional (e.g., "in the moment") and rational factors (e.g., looking at data) that entrepreneurs need to balance in order to make good decisions. Successful entrepreneurs will tend to be those that either have good business instinct from prior experience in the industry or comparable market and have an ability to look at facts. Alternatively, successful entrepreneurs may be those that have exceptional, innate, outlier-type business instincts and abilities to judge and facilitate people which compensates for weaker abilities to in analyzing factual information systematically (alternatively they may partner with someone who has these skills). I think it would be the rarer exception for a successful entrepreneur to be someone who can only look at rational factors, but this could work in areas like the hard sciences where intellectual property and ability to appropriate profits is high.

With that as my frame, to the question "When does a lack of decisiveness come from the need to get more information, and when is it simply putting off a decision (procrastination)?" my thinking is:

If the entrepreneurial team has a balance of experienced emotional- and rational-based decision makers, then putting off a decision is procrastination when the team cannot articulate what additional information or context would be needed to make a decision.
Alternatively, if the entrepreneurial team is made up of primarily experienced, emotional-based decision makers, then putting off a decision is procrastination either when they have made similar judgment calls in the past with substantially less information and risk or when they do not identify what complementary resource they need to help with the decision (e.g., legal counsel).
Alternatively, if the entrepreneurial team is made up of primarily rational-based decision makers, then putting off a decision is procrastination (presuming context such as market timing is right) either when past experience and knowledge is needed (e.g., prior entrepreneur consultation or complementary resource such as sales VP) and not sought or when excessive analysis is performed.

The basic gist is that I feel that entrepreneurs procrastinate (presuming the market timing is right) to make a decision when neither can they articulate what additional information is needed to make a decision nor are they actively seeking the complementary resource (in terms of balancing functional and emotional/rational decision-making traits) that they need to make an informed decision.

What are your thoughts and experiences?

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August 27, 2009

Operations Case Study: I Should Have Fixed The Car Myself Instead Of Going To Gaudin Ford In Las Vegas

Remembering a number of bad experiences with getting maintenance services at a car dealer, I tried to make the case to my in-laws that it would only take five minutes and ~$25/strut for two struts to fix the hatchback on my 2007 Ford Freestyle. There was likely a gas leak in one of the struts that was preventing the hatchback to stay up when I opened it. Simple fix, even for someone who knows practically nothing about cars. My in-laws said that the broken part should be covered by warranty and that I should just take it into one of the local, Las Vegas dealers. I resisted a bit, really for no good reason.

The real underlying reason why I didn't want to take my car to the Ford dealer … I didn't want to be embarassed in front of my in-laws with poor customer service.

Unfortunately, Ford Motor Company did not disappoint me.

Actually, I should have heeded an initial warning from the one-star rating review out of five stars for Gaudin Ford. Nevertheless, Gaudin Ford is one of the largest dealers in Las Vegas.

Here's the play-by-play and the key events. See if you can find the operational process problems (if not, I suggest consulting Reengineering the Corporation from my crash course consulting reading list):

I call service department to see if they can take me at 9:30am
Phone operator for service department says "yes"
My father in-law and I drive the car 45 minutes or so to the dealer.
I get car there a little early, and the service manager does a casual inspection of the hatch issue as well as a walkaround of the car (e.g., to check depth of tire treads)
I get a printout saying that service is covered by the normal warranty and that I'll get the car back by the end of the day
Should be a quick job (my father in-law remarks). When will the car be done? Answer: something to the effect of probably late afternoon.
I ask whether they have the part to fix the hatchback. Service manager says that they should have it. If not, the parts warehouse should have it.
Well we don't want to hang around for 5-6 hours, so we ask if there is way to get transportation back home.
Gaudin Ford provides us transport back home, although we have to wait 30-40 mins longer than the original projection. Net-net ok so far.
No call back of status by mid-afternoon, so I call into service center to see where are things at.
Service manager says that there were a number of cars still in queue from previous day so my car hasn't been processed yet. Could I leave the car until tomorrow?
Thinking about transportation logistics, I say "ok", but I think to myself that they shoudn't have taken my job in the first place if there wasn't time to complete the job on time.
Next day comes – no calls by early-afternoon.
I call service center to see where things are at.
Service manager says that my car is just getting looked at.
I ask when will car be ready. Service manager says by 4:00pm.
I ask whether it can be done any earlier because I am in the area now (by chance) and it would be inconvient for me to have to come back much later. Service manager indicates that 4:00pm is the earliest.
My father in-law and I make the decision to drop me off at the dealer while we are in the area.
I arrive at the dealership and let the service manager know I'm there.
Thirty minutes or so pass, and the service manager tells me that they don't have the part and could I come back another time so they can order the part?
A bit frustrated, I'll tell him that I cannot since I have to leave town. I'll just take the keys and the car.
He says that he has to close out the job and that I'll be checked out at the cashier desk.
Forty-five or so minutes go by, and I wonder what's going on.
I visit service manager again, and he says that he'll check as to what's going on.
Thirty minutes or so pass, and I go to cashier desk. Cashier desk says that the checkout notice hasn't come yet.
I visit service manager again. He is surprised to see me. He says that he'll check what is going on.
I visit cashier desk again. Still no checkout notice.
I don't know what's going on. I'm baffled, and I'm trying to decide if I should go look for the car myself on the dealer premises. Could I be charged if I tried to steal my own car back?
I decide to stand there cluelessly for ten to fifteen minutes more, when the printout finally gets spit out of the printer.
I checkout with the cashier (no $ charges, just signature), present the papers to someone to get my car, and head off.
Dejected, I mentally prepare for when I will have time when I return to LA to have my car looked at.

So Ford disappointed me. Wasted my time. On top of it, the episode of poor customer service was in front of my in-laws (who have typically not bought American car brands, whereas I have practially always bought Fords).

The thought crossed my mind as to whether I should make a viral video about poor customer service, like was done with the video United Breaks Guitars.

That's shooting too big. Plus it's past my abilities as a musician.

My in-laws told me to Twitter the whole episode. They said that companies hate when you do "that sort of thing".

I'm not malicious, but I think a mini-case study is OK for a blog post.

In any case, I pose the question, "where did things go wrong?"