The Entrepreneur's Mentor

Is Our World Real?

As often happens during the summer, I have immersed myself in the exploration of new subjects by reading as much as I can. I have become fascinated by the subject of the "synthetic worlds." Synthetic world are crafted places created by software designers that are designed to accommodate huge numbers of people. They put ordinary people in a strange environment, where they can act as they do in the real world, or in a totally different manner. And interestingly, what they do inside this world can gave effects outside of it.

The author that seems to have the best handle on this subject is Edward Castronova. He has written "Synthetic Worlds" and "Exodus to the Virtual World."  It is fascinating to read how thousands prefer their online world to the real one. For them, the online world is more real.

By analogy, some business leaders live in their own virtual world. They create their own reality  They bend the facts to their own view and perceive things in a way that satisfies them. The essentially create their own customized vision of what is going on. But their connection to the real world, the one unhabited by their companies and their employees, may be tenuous.

In my role as an entrepreneurial mentor, I have seen many company owners go through life thinking all is well. They have constructed their own stories - and they don't let the facts get in the way of their happy story. Is this any different from living in a virtual world where we fight dragons, conquer Black Knights and capture the heart of the damsel in distress?

Some CEOs don't even listen to direct evidencer that contradict their view. In retrospect, everyone can see that Bernie Madoff was running a scam. Why was everyone blind to it, even when evidence was so strong? We believe what we want to believe.

If you believe your employees love you and will be loyal forever, you will not listen to those who tell you they are not engaged or not productive. If you think your customers have a great personal relationship with you that can survive anything, you won't be on the lookout for dissatisfaction. You are living in a very dangerous world.

Business leaders have to test their assumptions and beliefs. They must be in touch with the facts. They must look at what is happening in the world and must question how that impacts them and their businesses. They must learn to accept that their virtual world is a nice aspiration but not the reality of paying the bills, feeding the family, building a nest egg and developing something great.

Rose colored glasses have their place. But that place is not in the day to day of running a business. Business leaders need to choose the real world for their business. They can exist in alternative realities in their time off, be they online or purely of the mind. An owner can not afford to be a guru on a mountaintop spouting visionary epithets unless there are others managing the business in reality and yet others translating the language of the alternate reality into something strategically or tactically based.

They used to say "pick your poison" in the old movies. Now it is "pick your reality." Choose well, because there is a lot at risk.

Costly Myths

I have recently come across a rather shocking book, shocking in the sense that it shatters a number of commonly held beliefs about entrepreneurs. The book is The Illusions of Entrepreneurship by Scott Shane. Shane is a professor at the business school of my alma mater, Case Western Reserve University.

Over the next few posts I am going to focus on these myths.

Before even getting into the meat of his book, Shane sets out some fairly startling facts in the Introduction.

• Contrary to common belief, entrepreneurs are not a rare breed. It is a common vocation, with more than 11% of American households owning a business.

• In the US, more people start a business each year than get married or have children.

• The typical entrepreneur is a married white man in his forties who has some college education, but not a degree.

• He lives where he was born, not in high-tech corridors.

• The new business is low-tech and is in an industry where he has much work experience.

• He has no big plans. He just wants to make a living.

• The typical entrepreneur starts a business to avoid working for others.

So, the picture of the wunderkind with a big new, innovative idea that blooms into a large employer and business powerhouse is much more the exception than the rule.  This is only the beginning of what Shane has to offer. And his findings are based on significant research.

Tough Choices

What to do now? You have been cutting cost everywhere you can and you are still losing money. If you are going to make it, you have to do something more. You have never had a layoff before, and you don't want to now, but what else can be done?

This is a tough scenario, one that many will face soon, if they haven't already. No matter how employee oriented a business owner is, there may come a time where this hard choice must be made.  So, how do you do it?

It might be worthwhile taking a moment and reviewing your company strategy and values. You want to act consistent with your values. People will remember any major inconsistency after all is said and done. Your stated values may give you a clue as to how to act. The idea of a layoff is to keep the company running as well and as lean as possible until things pick up. So those who remain behind must be providing valuable services for the company and the customers.

Some options, with associated pro and con arguments are:

• A cut in benefits across the board as a first step.
  • This could be a good stopgap measure but when employees have to pay their own medical insurance, car insurance, etc. they will be reminded of what they have lost and they will feel the impact in their checkbook.
• A cut in everybody's hours or pay rate.
  • This has the advantage of keeping everyone working (at least for now). If your workforce is a true team, they may appreciate this one and rise to the challenge.
    
  • It has the disadvantage of making everyone unhappy with a pay cut. A few unhappy characters can be toxic in the workplace and turn everyone sour. Gratitude for keeping their job becomes a memory, replaced by anger at having a pay cut.
• A straight percentage cut across the board in each department.
  • This shows "equality" of treatment and the employer's willingness to lay off even in "favored" areas.
  • The problem with this method is that it does not take into account where the company needs to maintain its strength. In retail it may be customer facing employees, in a service business it would be those providing the service (unless they are sitting on their hands because there is no business)
• Using a first in first out policy.
  • Offering early retirement to long time employees is an option. This clears out any "dead wood" that may have accumulated. It cuts what might be the highest wages. It makes room for the younger, aggressive employees to move up.
  • The down sides to this method are major. First, is the possibility of an age discrimination lawsuit. Second, you may be ridding yourself of organizational knowledge that does not exist elsewhere in the company. Do you have a sufficient knowledge base that you can afford to lose your old timers? Can those left behind carry on the company business with sufficient expertise?
• Using a last in first out policy.
  • This may seem like the most logical to many people. The newest get cut first. Termination costs will be relatively cheap. Entry level positions are typically held by young people who theoretically have less to lose and perhaps an easier time finding some kind of job. The company is giving up less institutional knowledge.
  • On the down side, you are leaving the higher earning employees alone, so you have to remove many more new employees to get to where you want to be. Does this leave you the right people to get everything done? Will the higher earning employees be willing to perform all of the required lesser tasks? You might be losing youthful enthusiasm and innovation.

There is no right and wrong. Each company may have a different solution. Consider what steps can be taken before a layoff is considered. Take them first. Then choose how you want to handle a layoff in a way that you and your company can best live with.

Can You Lose It As An Entrepreneur?

Some entrepreneurs start a business and are happy and successful in that single business for many years. Is there some point along the way where they stop being entrepreneurs? Does settling into a business mean that you lose your your entrepreneurial role? Does a true entrepreneur need to keep reinventing herself, keep building businesses off of new ideas? Is entrepreneurship a continuous state of new and different?

I offer the classical lawyer's answer- it depends.

A first-time entrepreneur can follow a number of paths.

1. She can start a business and have a difficult time or even go bust, decide being an owner isn't for her, and she will go and get a job, and live happily ever after as an employee.
2. She can start a business and have a difficult time or go bust, lick her wounds and begin to plot her comeback in another business. She will start a new company when she has the resources to do so.
3. She can start a business and have some degree of success. It satisfies her needs and she settles in, trying to create a fairly regular growth path.
4. She can start a business, find some level of success, and begin to use her creativity and entrepreneurship to expand her business into new products, services, geographical markets, adjacencies, etc.
5. She can start a business and enjoy the building process, but begin to lose interest when things settle down. She then looks at other opportunities and begins thinking about starting a new company. The thrill is in building, not maintaining. she may sell the first business, or she may juggle both, with most of the attention going to the second. This entrepreneurial persona creates more interesting scenarios.

• She can develop people in the first business to run it well and develop it further.
• She can use people from the first business to give them entrepreneurial opportunities in the second business.
• She can sell the first business to get rid of her "safety net" and further push herself into action.
• She can find a way to cobble multiple businesses together in a way that most people would not see.

I would argue that all of the above situations are ways in which an individual can be entrepreneurial. There is no narrow definition- instead there is a "big tent." Entrepreneurial spirit exists within most of us to some degree. If we are lucky enough to find the right situation to employ it, great things can happen for us.

Why Would I Need a Consultant?

Entrepreneurs as a group rank high in confidence. They are true believers in what they are doing and they see the path to success. And some can achieve this success without help from anyone outside their organization.

Some are extraordinarily talented or smart or focused. Others have hired well and have within their organization all of the competencies the organization requires to be successful under existing circumstances.

On the other hand, circumstances can change, and existing competencies cannot address the new circumstances. If such is the case, the wily entrepreneur must become better educated quickly, must hire new people with new areas of expertise or must look outside for consultants. To do nothing invites disaster.

My guess is that if a poll was taken among entrepreneurs, consultants would rank right there with bankers and politicians. They are a fact of life, and I might have to deal with them, but I don't have to like them. It has been said that consultants "borrow your watch to tell you what time it is."

I can't argue with that view as a broad indictment. There are many consultants that do not add value, that make recommendations and then disappear, and that leave a business more in disarray than in an improved state. Those folks just don't get it!! They don't get what entrepreneurs are going through emotionally, they don't have the emotional intelligence to get invested in what they are doing in a client's business. They remain detached from what is really going on.

I understand why many entrepreneurs shy away from hiring consultants, even when they need one badly.

So, what should an entrepreneur do? Do your homework. Search for a consultant that has experience in the area that requires work in your business. If you are not sure what is wrong, invite several different consultants in to talk. You can tell by their questions to you if they are "peeling the onion", digging deep to see the root cause of your problems.

Once you narrow it down to two or three, get written proposals and see how accountable they hold themselves for results. See if they stick around to implement their recommendations. See if they have clear cut objectives. See if you connect with them, and if they connect with you. Then choose.

Your job is to provide the information and they access the consultant needs and more importantly, to hold the consultant accountable for providing what has been promised. Even this year, I had an experience with an internet consultant that was frustrating and expensive. The terms of the contract were clear in my mind (and I am a lawyer), but in the end I got much less than what I thought I had paid for. I hired a consultant because i had no time to think about, much less handle my internet marketing, and I thought I bought a full-service solution to the problem. Boy, was I wrong.

So, be careful, but do not fail to act. Do not refuse to seek help for fear of choosing wrong. Act and choose wisely. And you will derive the benefit you desire.