The Entrepreneur’s Manual Summary
PDF, Chapter & Review of Richard White’s Book
The Entrepreneur’s Manual: Business Start-Ups, Spin-Offs, and Innovative Management
Author: Richard White
Wealthy Founder Problem: Being wealthy is a significant handicap in a start-up situation. Almost all of our largest and best-run companies were begun by people who couldn’t afford failure. Since they couldn’t afford it they didn’t tolerate it — and therefore succeeded. The hungrier you are, the less you will allow half-hearted attempts.
Milestones of a Start-Up:
- Discovery of a viable market segment
- Formation and development of an outstanding and well-oiled founders team
- Proper market penetration
- Growth stages to industry leadership
- Freeing of the founders so they may pursue their required lifestyles
Management by objectives (MBO) means that executives set the company’s objectives in clear view of every employee, so company goals come before individual’s goals. In other words, it’s the vision thing. Maxims:
- Surround yourself with the highest caliber people.
- Enjoy the task of delegating authority.
- Insist on planning for both yourself and your subordinates. Be jealous of your time and budget it skilfully.
- Have the courage to make decisions. Also, have the courage to reverse them.
- Know your responsibilities in-depth. Assume the corresponding authorities.
Management by exceptions (MBE) means that one sets up standard processes to handle routine cases efficiently, with management time being spent only on exception cases.
That management work is then naturally incorporated into an update of the standard processes through process improvement. MBE also includes a process for flagging important “exception” cases, such as too high a return rate or too many late shipments or too high an employee turnover. Maxims:
- Skill at recognizing problems is just as important as your ability to solve the problems once they surface. Implement control systems which “flag” problem areas before they affect effects.
- For every effect, there is a cause. Cure causes and the effects will be cured and remain cured.
Management by motivation (MBM) allows employees to make as much in rewards as they do in pay, but also includes many instant-by-instant intangibles like even-handed praise and constructive criticisms. Maxims:
- Nothing breeds success like success. Recognize successes (small, medium, and large) and compliment those who are responsible for them, and illuminate them for all team members to see and imitate.
- Let your people know you — what you stand for — and what you stand against. Have a short fuse for dishonesties, failure syndromes, insincerities.
- People who do things make mistakes. The more a person attempts, the greater number of mistakes you should expect.
- The best managers are outstanding salesmen.
- Success is comprised of both drive and ability. The function is multiplicative.
Foundations of Building a Company
In a free enterprise economy, there are always more dollars searching for viable and developed ideas than there are ideas searching for dollars.
Your company must be the image of what your industry needs…the industry will not conform and be the image of what your company needs.
Oftentimes competition can’t handle new upstarts. The old bromide, “That company really hasn’t been in business thirty years…it has been in business one year thirty times.”
Effective Output Efficiencies: What percentage of output would you guess that most companies realize if everyone gave his fullest to his company?
Self-Discipline: The hurdles you must clear are unforgiving to the disorganized person. Before you start each day, lay out the day’s priorities and force yourself to stay on course.
Zest for life: Don’t disguise your zest for living. Enjoy yourself openly.
Growth industry: Address a growth industry and your chance of getting VC increases by a factor of 10.
Experience: Do homework on the industry you want to attack, but you needn’t have all the experience most experts say you need. Indeed, sometimes fresh eyes and lack of experience in the industry is the helpful thing.
Lockerroom Lawyers: They say everything is illegal. If something seems logical to you, if it appears ethical, and if your actions will benefit all parties, you are probably safely within the law.
Establish Personal Mini-Incomes: Establish side personal streams of income to supplement your main job.
Your sales price is totally a function of your product’s value as seen by your customers. In no way is your sales price a function of your costs to produce your product. Fortune magazine launched at the height of the depression and the founders were extremely depressed about what price they could charge.
They debated whether they should charge 15 cents or 20 cents. There was a printing error in the first issue, and the price listed on the cover was $1! Sales were greater than expected since the logic was, “any magazine that sells for a dollar in these hard times must be really valuable
Develop Your Personal Requirements: Since your start-up is nothing more than a vehicle which will allow you to meet your life’s requirements, your company must be in complete harmony with your personal lifestyle needs.
Your company’s objectives must be in harmony with your inner self.
Select a Growth or Glamour Industry
If the financial communities feel that an industry is a growth industry, they will invest in it heavily enough in years to come to make it a growth industry.
If the financial communities feel that an industry will plateau and become stagnant, they will withhold essential funds and stunt that industry’s growth’s so that it will indeed plateau and become stagnant.
Market Gap Analysis
The process of determining which areas in the market have demand far exceeding supply. The challenge in this process is never finding gaps — there are many of these — but deciding which one to pursue. Segment your target market and then segment again. Focus, magnify, refocus, remagnify, refocus again, remagnify again, until the large growth industry is divided into handleable portions.
List the problems that exist in each of these segmented markets. Decide which of these meet your personal/business objectives.
Start testing the gaps — figure out if there’s real demand. Remember, 50-70% of your gaps may be mirages, 10-25% will probably be only targets-of-opportunity (not long-term growth), and the balance, long-term viable gaps.
When asking people questions to figure out market gaps, use open-ended/broad questions.
Do market research by doing trade show pre-sales (set up a booth and try to engage prospects based on sales literature alone) or “seminar jamming” (go in a group to a seminar and ask all the questions about whatever you want to talk about, de-rail it in favor of your desired sub-topic).
Develop Your Founders’ Team
50-60% of your probability of success depends on the caliber of your management team.
First-rate men hire first-rate men, second-rate men hire third-rate men, these third-rate men will then employ the bulk of your company’s employees who tend to be fourth rate people.
You need to attract talents, disciplines, and personalities which complement…not duplicate…each other.
Regardless of how large, how old, or how established your company becomes, there is room for only one management team. There should never be factions.
Theorem Two: It is essential that all of your managers have mutual respect for each other…and it helps a lot if they also like each other.
Some idiot at some time must have said that you cannot receive both friendship and respect at the same time from the same person. Respect and friendship aren’t disharmonious. Familiarity breeds contempt is a false bromide. “You may either be respected or you may be liked but never both” is bullshit.
“Doves, sparrows, and other low flying birds flock together and can be caught in bunches. However, eagles soar alone and must be gathered one at a time.” – Ross Perot, on hiring the best
Interviewing candidates: Meet for breakfast or lunch and observe his social graces – after all, if you acquire a clod width no social graces, it’s a minor handicap. After putting the candidate at ease, ask, “So Joe, what do you want from this thing that we call life?” Pay attention to his ability to communicate, to be forceful, and his mental organization. Other penetrating questions:
Tip: make co-founders sign various short agreements. Instead of one long contract, break it into several bite-size / easily understandable contracts (non-disclosure, expenses, non-compete, etc).
When should a man be fired?
- I am your boss. You discover that I have a conflict of interest which I haven’t disclosed to our company and which is costing us 10% more in purchases. What should you do?
- How should we set up and sustain new product development? Who should be responsible for its administration?
- How should we motivate and sustain our non-key workers?
Thomas Edison liked to hire young engineers and scientists to work in his laboratories because he felt the young mind was uncontaminated. Also, young people made him stay young.
Difference between meetings and sessions: Meetings are close-ended occurrences which are confined to specific agendas and topics and are run by discipline. Sessions are open-ended in nature and frequently creative in scope. No meeting should be allowed to turn into a session. Fine those who show up late to meetings.
Disharmony factors: Nothing will destroy a start-up faster than pettiness, one-upmanship, internal politics, or dishonesties. Show little patience with gossip and ego trips. When you have a personal problem, talk to the offender in private and keep the discussion between the two of you.
Your company image: Your company is going to project an image regardless of whether you plan for it or not. You develop different images to those with whom you come in contact (key employees, no key employees, sales networks, customers, vendors, VCs, etc). You can acquire 50% of these images by just telling people that this is the way that you are.
Rig Your Company’s Incentives
You will realize as much from your people as you allow them to produce.
When you give people stock, refer to it in the number of shares (not percentage) – feels like more.
Do frequent blind performance reviews — allow people to vent about co-workers in a survey/form anonymously, about how other people can improve.
The frequencies of rewards and punishments are more important than the size of the pats or swats. A monthly review is far more than 12 times as effective as the yearly review.
When a man has to be fired, there should be two men fired. If it’s a new man, then the man should be fired along with the man who hired him. If it’s an old employee, then the man should be fired along w/ the man who supervised him.
If everyone is responsible for a task, then in truth no one is responsible, and the task will not be completed properly.
Your Business Plan
- Plan should be a working document on how you are going to build your company and a sales tool to attract investment.
- Don’t write your plan as if you are begging and likewise don’t write it as though you are tolerating an outsider leeching from your profits.
- Avoid superlatives such as “fantastic sales” — it’s easy to transmit enthusiasm w/o sounding like a high school cheerleader.
Making Marketing Make Sense
- “Marketing” and “sales” are in no way interchangeable. Marketing men must understand sales (though they frequently make lousy salesmen) whereas even good salesmen rarely understand marketing.
- Never attack your market universally. Segment it!
- Your product’s value (sales price) has nothing to do with your costs of producing it. Your sales price is totally a function of your product’s value in the eyes of your customers.
- Your sales volume will be directly proportional to the number of effective sales calls made by your sales force.
- True sales engineers constitute 1% of the pack (most of order takers or high-pressure one-shot salesmen). This type of individual thrives on evaluating his customers’ needs, tailing your products or services to answer those needs, etc.
- Salesmen develop an uncanny ability to read their customers’ minds and tell them what they want to hear. This is not a characteristic that they can turn on and turn off at will. Therefore, it will carry over into their dealings with you. The firm that leans only on their salesmen for sales forecasting, market testing, and customer feedback is vulnerable.
- Most outstanding salesmen are relatively unstable individuals. Most have extremely high drive/energy levels (be sure they don’t burn out); they must sell all the time; though they have high self-confidence they also require constant attention/adoration; they need to dominate; continuously looking for an employer who satisfies their inner needs.
A key to marketing success is to determine your product’s marketable differences and stress these differences to your customers.
Sales training is a forever thing, an ongoing requirement as long as your company exists.
A considerable percent of your marketing and sales efforts (and budgets) will be invested in training, re-training, and re-re-training your salesmen.
In every team selling effort, you must have your horses lined up and present a solid front, or every time an experienced negotiator will force you to fragment.
The unwritten law of sales is always to respond the same way the inquiry was made unless the situation warrants a faster response. Ie, call back if they called you.
Nothing ever happens unless somebody sells something.
Stages of the sales process:
- The Preamble – while the customer thinks that your salesman is trying to set a mood with small talk, amenities, and jokes, in truth the professional is swiftly determining what authorities and responsibilities his customer has, plus his abilities, confidence, attitudes, and moods, plus his rationality and mental speed, and finally, what strategies and techniques might work the best.
- Establish the customer’s need — figure out what the need is. Don’t assume will automatically see the value.
- Induce the customer into making objections, asking questions, or getting his concerns on the table. This makes the customer feel that he is truly part of the sales process pathway.
- Soft close, then hard close, then reinforcement (“congrats on a great decision”)
Sometimes sales pressure can be effective if done right. Every buyer is a human being, every human has built-in sales resistance, sales resistances are irrational/undefendable fears that rarely surface to exposure. To overcome these barriers subtle but very real pressure must be applied, proportional to the buyer’s sales resistance.
Use the phrase “please OK this agreement” instead of “please sign this agreement.”; Use the phrase”agreement” instead of “contract” Keep your agreements in everyday English or else prospect will always forward drafts to legal Dpt for review.
Different types of sales closes:
- Assumptive technique – “I know you’ll like it once you hear all the details”
- Impending Event technique – “If you don’t buy by Thursday, something bad will happen”
- Inducement Technique – buy within X days and an add’l bonus is given
- Clarkson Close – Get customer to say “yes” several times to agreeable questions, until he says yes to the whole thing
- Objections – get customer to document objections and deal with head on
- Check with the boss – Call “boss” get better discount or assurance that certain feature will be there
You’re not after all the business. You are after all of the profitable business that you can handle.
A trick to make the competition fight on your terms: Write a letter to a competitor saying “We consider ourselves superior in both price and support, we see no need to cut our prices to ‘buy sales.’
When a company must resort to price cutting, it is admitting that either its product and service are inferior (and therefore a lower sales price is essential to compensate for this inferiority) or it is admitting that its management and sales force is inferior and doesn’t know how to sell.
Therefore, when you see us in a competitive situation, you’ll know that we are going to attempt to beat you in product performance, not prices.” This can induce them to hold prices; it also impresses competitor’s salesmen and this opinion transmits to their customers.
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