Identifying Pain In Your Business

When you’re starting a business, there’s a world of pain out there that you can’t fully envision. But it does become clear in a relatively short time as you develop processes and systems to run your business. Pain, in this context, is the discomfort that comes from processes and practices that take time, energy and financial resources from your business. Painful processes not only distance you from your customers and the best suppliers in the marketplace, but they prevent you from using your staff resources in the most efficient way possible. You have to identify key sources of pain within your business and wipe them out through automated solutions. Such solutions can give your company the agility it needs to launch a disruptive solution within a chosen industry. Automation doesn’t just block distractions—it fuels your entire business. The key here is to move from the general to the specific. Focus on every aspect of every operational procedure from order inception to completion and determine which components can be improved upon and which are already optimally efficient. Start with your employees. Ask what slows them down. You’ll hear loud and clear about manual processes that are inefficient—they tend to stick out like a sore thumb. Don’t waste time digging—just walk up to your people and ask them. They’re at ground level. They deal with your systems on a minute-by-minute basis; they know where your problems are.

Automate, Automate, Automate

The order management and administrative costs of a new business can be more expensive than any other category of your overhead. If you’re starting up a new company, it’s best to set up an automation strategy from day one. Create a customer and supplier solution that reaches from your organization into theirs, makes their lives easier and collects specific data that will be valuable to your organization every step of the way.

Automation is not just for large companies. You have to start automated from day one, even when you are small. According to information on PayStream Advisor’s website, by the end of 2006, only 10 percent of small and 25 percent of medium-sized businesses had implemented an automated expense control solution compared to 40 percent of companies with $2 billion or more in revenue. The irony is that smaller organizations really need automation to grow quickly.

As for physically creating the system, the process works no differently than creating any other form of custom software in your organization. If an out-of-the-box solution won’t do for the long term, create a functional spec first, build a prototype, bring certain customers and suppliers into the system to test its flaws and capabilities and if necessary reconstruct the system once it is fully functional on a more robust, scalable and secure platform.

Focus on these key automation opportunities:
• Internal accounting functions
• Order management and processing
• Lead and proposal generation
• Customer and supplier records
• Customer feedback and marketing information
• Administration
• Order tracking
• Digital asset management and repository
• Salesforce data
• Legal and compliance

We don’t believe, as some purists do, that you can automate humans out of the equation. But think about how much more productive you can make a business out of the box by focusing on optimal tasking for staff as opposed to nuts-and-bolts manual operations. When you automate your processes you optimize the human capital that you have working at your company. This too creates a significant gain in productivity in that you are able to utilize your personnel more effectively.

You will always be paying people to work in your business, but why would you want to hire gofers when you can focus your recruitment on strategic thinkers, good managers and creative people who can keep the automation ball rolling? Allowing people to keep the more interesting and challenging parts of their jobs while dumping the menial tasks might actually help you retain talented employees and attract new ones.

There’s a Time To Be Objective

When you actually launch a disruptive business, your mood needs to change from passionate to objective. This means you need to distance yourself a bit from your love of the concept. Your primary concern at this stage should be: Does this idea have value and can I make money at it?

There are two specific tests that we apply to any business we have launched to determine if it should make it through the Law of Objectivity.

EBITDA neutrality. EBITDA (Earning before interest taxes and depreciation) is a key measurement in determining whether a business is working and whether or not there is arbitrage. In simple terms, EBITDA neutrality means that your operating income (revenues less expenses) is equal to or greater than zero. We pull out certain items from this test (interest, taxes and depreciation) because they are non-operational in nature. For example, you might pay a lot of interest to a bank, but if you make money over time and retire your bank debt, that component will disappear. Hence it’s not related to the core operations of the business.

If you can’t achieve EBITDA neutrality within 12 months, that’s a signal that you’re doing something wrong and you should either shut the doors or make a radical change. We believe that if you can’t get to breakeven in a year, don’t desperately look for solutions; the odds are your business is broken. While this is not always true (i.e. Google reportedly lost money for more than a year, as did Genentech—two of the most valuable companies in the world), most of the time this philosophy is accurate.
Winning customers. This key test is obviously much simpler and far more decisive. In simple terms, if you can’t win customers you don’t offer value. If you take a product to market and you can’t get your key audience to respond in six months or so, you might also want to consider closing up shop. Again, while this is not always true (some businesses purposely don’t solicit customers for a longer period of time and they have solid economic reasons for it), it is usually spot on. Certainly once you begin selling your product, if people aren’t buying within six months, it means something is wrong. It could be your sales approach or salespeople, but in our experience it often has deeper implications regarding the viability of your model.

Even a bad salesperson can usually sell bottles of water to someone who is dying of thirst in the middle of the desert.

Technology Accelerates the Law of Adoption

Because our proprietary technology is constantly measuring the behavior and decision-making of our customers and suppliers, we’re in a position to know what they value at any given moment. We don’t assume it will be the same thing they will value six months or even six weeks from now. Adoption is a living, breathing instrument that must be nurtured.

If shipping customers are thinking about turning the way they buy freight upside down, we don’t wait for them to tell us. Our technology tells us. Our systems are continually built to pick up cues—changes in usage requirements, order patterns and other behavioral data that allow us to analyze, suggest and develop solutions that evolve as customer needs evolve. Customer service shouldn’t be based on response—it should be based on anticipation.

We’re living in exponential times, but we’re also living in increasingly customer-centric times. Your customer base—consumers, businesses, governments and virtually every person and institution in between—is growing increasingly impatient. They don’t want to have to live with pain for very long before a solution appears to take that pain away.

These forces (pain, fear, speed and customization) are in a constant state of conflict. On the one hand, consumers are impatient and they want relief quickly. On the other hand, they want the relief tailored to them even if it costs them time. And finally, regardless of their pain or their lack of patience, they are resistant to change. Adoption is the result of successfully bringing relief and harmony to these conflicting forces in an effort to win clients.

To get adoption you need to blend art and science. Science allows you to view ordering and usage patterns with an eye toward revolutionizing process and disrupting an entire industry. Art is all about the ability to see through conditioned, almost Pavlovian responses to old-industry questions in an effort to uncover opportunities to build value.

Putting Process Under a Magnifying Glass

Disruptive technologies need to serve as bridges that span all aspects of your operation to your suppliers, internal operations and most important, your customers. Automation is the connective tissue that pushes down cost and builds efficiency. If you fail to find these opportunities for mass automation throughout your operation, you’ll risk disruption from a competitor with a more fully integrated solution, because the more fully integrated and automated you are, the lower your internal cost of operations and the more efficiently you can price your products to gain market share.

Automation needs to extend not just inward but outward to your customers as well. Conventional systems that address customer automation or connectivity have typically taken one of two major approaches: They’ve connected one system to another through integration or they’ve added Customer Relationship Management (CRM) as a way to track and analyze their customer base. We do both because it is exponentially more beneficial to not only track your customers’ behavior but also integrate with their operations every chance you get. If your model is truly disruptive, you’ll likely gain market share in the early stages of your model as customers test your solution.

Yet from day one, it is essential to connect your business to theirs with an easy technology solution that assures maximum stickiness. If a competitor is coming after your customers with its own disruptive solution, it’s your best defense to be as technologically ingrained as possible inside your customers’ organization. If customers are thinking about leaving you, the process should be both cumbersome and risky for them because your systems are doing so much behind the scenes that your customers rely on, that they are hesitant to just up and leave you without serious consideration.

To make CRM and customer automation really effective, you can’t stand outside your customer’s building waiting for them to tell you something. That’s why you need your automated solution to invade your customers’ work environment. You need your system to solve deficiencies within their system. This is how you make yourself

The Design Process For Our Solutions

We build technology systems like a kid builds Legos—one block at a time—until our vision starts to take shape. As we discussed previously, we have utilized rapid application software in most of our business technology prototypes that we’ve allowed our customers to test at each stage of development.

We’ve used rapid application tools like FileMaker to build our prototype systems. In each case, the process is similar:

We determine the business requirements that are necessary to bring our idea to life. In other words, we gather tons of information and data and we try and design at 30,000 feet what we want the system to do.

We draft a functional spec that details what each screen is supposed to do, how it is supposed to look and how the system is supposed to perform.

We model a database and test it to determine if we can extract the necessary information that we are going to need in order to gather data that should provide us an informational advantage.

Then—and this is the part that is atypical—we build an entire functioning system using a rapid application toolset that by design will only be used for a very short period of time, at most three–nine months.

We build a working prototype system that is fully functional without security or scale and start conducting business through the application—taking orders, managing procurement and tracking inventory so we can test its workings and incorporate what we learn.

We let our customers become our power users and through their real use of our system we essentially let them design the final product that we’ll use to code the secure and scalable system for mass deployment.

These initial prototypes are not scalable enough or secure enough to run Wal-Mart, but who starts off at the size of Wal-Mart? We build complex solutions by starting with simple technology applications that rely on the richness of their data and the architecture of the business solution to add value. Then we enhance the interface with lots of bells and whistles, which are often much easier to develop but viewed by our customers as much more valuable, given that they enhance their experience more than the guts of the system which they can’t see or touch.

As our customers find flaws or issues, we modify the system at speeds that are simply unattainable unless you are using rapid application tools like FileMaker. Through this process, we take a working prototype and mold the application in real time to the desired final product within months, instead of years.

Protecting a Disruptive Idea

When you incubate a new idea, especially one that could disrupt an entire industry, you have to assume that others will try and derail your model at some point, especially early in your development. We’ve obviously spent considerable time in previous chapters pointing out examples of product innovators who couldn’t maintain their momentum. The question is: What can you do to protect yourself during the stage in which you are new and vulnerable?

You have to protect your intellectual property at all times. Talented legal and strategic advisors are critical. You should only be sharing sensitive information with those that have signed non-disclosure agreements. Every employer or contractor you hire should sign an Employee Innovations and Proprietary Rights Agreement that guarantees that everything you pay them to develop belongs to you. You need to hire talented employees, especially early on and you have to try and keep your first-generation employees happy and engaged so they don’t leave. Departures only slow you down and force you to spend more time educating and training at a juncture in your lifecycle when time is the most precious. You need more than a few key suppliers in case of problems—and there will always be problems. If you are reliant on a small number of suppliers you are vulnerable. Find redundancy in your supply chain. Make sure you have plenty of cash on hand and do whatever it takes to avoid crippling debt at the outset of starting your business. There is no substitute for financial security. If you’re developing on a shoestring budget and one thing goes wrong, you could find yourself out of business or severely handicapped in your execution. You need to keep your ideas relatively quiet until you have amassed enough strength and scale that you can thwart off competitive threats. It’s a very small example, but I try to avoid sending our business plans or financial models via e-mail. Some people might think this is crazy given how much we love technology, but I always send them via overnight mail. Sensitive data online is vulnerable the minute it leaves your firewall. I’d rather ship a hard copy with a responsible carrier. While it might sound a bit paranoid, it’s added protection against the widespread dissemination of sensitive information when a business is young and therefore fragile.

This is what we call constructive pessimism—building a company while steering around potentially lethal business obstacles. Technology-driven companies have to be especially secretive early on and protective of their value proposition.