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Fireside Chat with Steve Blank, Hosted by Prof. Len Lodish
Customer Discovery and Customer Validation: Fireside Chat with Steve Blank, Hosted by Professor Len Lodish
A retired eight-time serial entrepreneur-turned-educator and author, Steve Blank has changed how startups are built and how entrepreneurship is taught around the globe. He is author of the bestselling “The Startup Owner’s Manual”, and his earlier seminal work, “The Four Steps to the Epiphany,” credited with launching the Lean Startup movement. During this fireside chat, Steve Blank and Professor Len Lodish discuss the Customer Discovery and Customer Validation phases of the Customer Development Model, a technique startups use to quickly iterate and test each part of their business model.
Barbara Corcoran on the Best Time to Start a Business
Entrepreneur, author, and Shark Tank investor Barbara Corcoran on the best time to start a business
Why Current Profitability Model is Unsustainable By Dr. Bill DeMarco
Profitability is the gaining of advantageous returns on investments. When I began my career decades ago, there was some discussion about the role of service to customers, service to employees, and service to the community as a major if not primary purpose for a business’s existence. That was still the era of mutual insurance companies, multi‐generational company employers, and company dominated towns.
“Defined benefit” (DB) programs were real and highly valued. The past few decades have seen a shift to fundamentally profit‐driven corporate models. Even mutual insurance companies, originally founded to perform some noble purpose for widows, orphans, and the general public, have almost all migrated to for‐profit models. “Defined benefit” programs have given way to “defined‐contribution”(DC) programs, which derive the funds for “benefits” mostly from stock investments. In Ontario over the past twenty years, pensioners rarely receive pension checks from funded company plans, because companies mostly failed to fund their pensions by taking “contribution holidays” If in surplus; or in the case of solvency deficiency, they were allowed to amortize unfunded liability for up to fifteen years. (Ontario Pension Benefits Act, 1990), Ontario pension law was not significantly different from other North American jurisdictions. Companies that took this course of action hoped to achieve higher market evaluations, stock splits, and other market‐related activities which would generate “money” over time, putting a happy face on quarterly and year‐end numbers. To illustrate this, I once had a major Fortune 500 company client which had a fantastic year‐end in Europe, driven in no small part by the strength of the American dollar vis‐à‐vis the German Deutschmark. Their European executives received large bonuses. In all these cases, irrespective of whether it was pension‐related or not, we have examples of a “fools gold” model of what good performance looks like. Like a drug addiction, these companies over time failed to see what was happening until it was too late. The Fortune 500 company I mentioned, like so many others, was eventually sold off in parts. They all failed to recognize what really counted was truly growing the business through innovative new products, superior customer service, increased sales, constant happy returning customers and more effective operations; for companies with underfunded pension liabilities, this is particularly more important than the risky roll of the dice they too frequently engage in.
Governments in both the U.S. and Canada, responsible for overseeing the funding of contractually agreed to pension plans, allowed this, frequently charging an administrative fee for deferring funding company pensions, placing those fees into government operating funds. All of this has led to a domino effect, not unlike families today relying on borrowed money (credit cards, lines of credit, home equity loans, etc.)…it looks good in the beginning until it comes time to pay the bills, or the income line slows down.
In the early to mid 1990’s, it seemed to work well for everyone. These diverted pension funds initially bolstered quarterly company and government numbers. Many pension funds even ran surpluses, while quarterly company profits looked rosy. As time went by, these under funded pension liabilities reached minor (1999) and major (2008) tipping points as stock values deteriorated. Coupling these events with the ever‐increasing number of retirees, companies frequently faced a perfect storm. The beat went on so relentlessly that by the end of 2011, 93 percent of federally regulated DB plans were under‐funded according to the Office of the Superintendent of Financial Institutions of Canada. The situation has gotten even more dire since then. For example, an August 2012 study by the credit rating agency Dominion Bond Rating Service Limited (DBRS) looked at 451 major corporate DB plans in the United States and Canada, including 65 north of the border. It found funding deficits of US$389 billion. DBRS noted more than two‐thirds of the plans were “underfunded by a significant margin” and heading into a “danger zone,” the point at which reversing the deficit becomes very difficult.
I am not attempting to be critical of stock holders or pensioners here, for they are on the receiving end of a profitability model which common sense would dictate is not sustainable for the long haul. Unfortunately, there end up being multiple victims in this scenario … including stock holders/pensioners who rely on recurring profits for sustenance and lifestyle choice.
There are fundamentally two ways of achieving profitability: (1) grow the business through the judicious design and distribution of market‐desired goods and services; (2) cut costs. The latter has become the dominant, and uninspired business/government means of obtaining more desirable numbers, because for all its heartlessness, it is easy to achieve and does not require much real business imagination. Of course companies need to be judicious with how they manage their businesses. However, there is an increasing obsession today with beating the analysts’ predictions, getting “bigger” at all costs, being the biggest in the industry at all costs, beating last year’s numbers no matter what, etc. etc. Company and government decision‐makers have become too often addicted to the opiate of what I call “cut‐cut, chop‐chop leadership”, as if there is an endless supply of physical and human resources to be cut, or suppliers willing to provide goods and services for almost nothing. In this scenario, the temptation to cut salaries/benefits is great since human resource expenses account for over 50% of overall company expenses, and the saving can go to the bottom line almost immediately.
Key business and government decision makers, including boards of directors, need to be weaned off of this addiction to “chop‐chop cut‐ cut leadership”, partly because of their fiduciary responsibility to sustain the enterprise. This management addiction is absolutely not sustainable for the long haul. In 1957, the average life expectancy of a company in the S&P 500 index was 75 years. Today, it’s just 15 years. There absolutely is a better way. It requires inspiration, courage, and real leadership where the enterprise is given a real purpose, recognition in high places that making money is a result not a purpose, and stakeholders at all levels give their willing effort to support that purpose. This is not a call to go back to a bygone era of any form of utopianism (welfare/ social / Nordic/ Rhine capitalism). Rather, it is a call for a common sense which recognizes that current profitability models are unsustainable, and that senior executives need to both think and behave for the long haul, rather than leaving this untenable situation for their successors to handle!
Let me offer an example. About twenty years ago, I was a senior executive at a major consulting firm. A client of our firm for many years was a global aerospace company, known for its decades of engineering creativity and performance. In recent years, they were having difficulty growing the business, mostly due to a risk-‐averse culture and leadership. The firm’s CEO and the board really needed positive year‐end numbers to beat the buzz on the street about the company’s financial underperformance. Since I was responsible for our Organizational Effectiveness Practice, our consultant responsible for the account asked me to come in to help the special ad hoc committee put together by the CEO to come up with some way to quickly improve the bottom line numbers. The reality was that the CEO had a white knight willing to “invest” several billion dollars for new research, subject to agreeable year‐end numbers. The committee chair was an executive vice‐president. He and his staff had come up with one recommendation, which they wanted me to put our firm’s reputation behind when he presented it to the CEO. The suggestion was to implement an early out program for all employees over 52 years of age. The amount saved in salary and benefits would marginally surpass the targeted amount sought. I asked one question: “Does an aerospace engineer with thirty‐plus years experience have more to offer the enterprise than an engineer with ten plus years experience? Why get rid of all that knowledge and capability? “ His response was they had that covered. They would hire back senior engineers as consultants as needed. If I was a stockholder, I would have been appalled…simultaneously paying out retirement benefits, generous exit packages and high consulting fees, while losing the resident capability that made the company great. I and my firm refused to support the idea. To no one’s surprise, the company went ahead with the plan any way. The company beat the street’s year‐end expectations… executives got hefty bonuses. Most importantly, the company was bought up by a competitor in a fire sale less than two years later. Truly a long‐term victim of risk‐aversion and “chop‐chop, cut‐cut” leadership!
So what is a better way? Is it possible to be profitable now and for the long haul? What does a sustainable profitability culture look like? It starts off with leadership which gives purpose to organizational effort while inspiring willing effort to support that purpose! Part Two will cover the specifics.
Startup Company Challenges, Dynamics and Best Practices with Tomasz Tunguz (Redpoint Ventures)
Tomasz Tunguz is a partner at Redpoint Ventures and the author of one of the most active and insightful blogs about startups on the internet today. Tomasz speaks to some of the more salient issues that he has written about and posted. These include trends in the early-stage financial markets; best practices when building a startup including marketing tactics, sales team construction, and unit economics; and more.
The Importance of Picking the Right Investor with Carl Showalter
CEOs on Career Success
Inclusive Growth for Entrepreneurs, Part One
Part 1 features an introduction by Bruce Kogut, Professor and Director of the Sanford C. Bernstein & Co. Center for Leadership and Ethics at Columbia Business School; remarks by Lew Kaden, Former Vice-chairman of Citigroup; and a keynote presentation by Sendhil Mullainathan , Professor of Economics at Harvard University and Founder of ideas42.
Inclusive Growth for Entrepreneurs, Part Two
Inclusive Growth for Entrepreneurs, Part Three
Inclusive Growth for Entrepreneurs, Part Four
Emily Breza, Assistant Professor at Columbia Business School, presented her work on the question if micro finance fosters business growth.
Christopher Blattman, Assistant Professor of International and Public Affairs and of Political Science at Columbia University presented on stimulating youth entrepreneurship in Africa.
Ronnie Chatterji, Associate Professor at the Duke University: The Fuqua School of Business, spoke about the dichotomy between the consistent messaging encouraging everyone to become entrepreneurs and the realities of what is necessary to become a successful entrepreneur from an business and policy standpoint.
Finally, Amit Khandelwal, Gary Winnick & Martin Granoff Associate Professor of Business at Columbia Business School presented a research experiment where a cost-saving technology was introduced to a company in Pakistan and the implications that credit may have had on the technology’s adoption.
Closing remarks by Bruce Kogut , Professor and Director, Sanford C. Bernstein & Co. Center for Leadership and Ethics at Columbia Business School and Gita Johar, Senior Vice Dean and Meyer Feldberg Professor of Business at Columbia Business School.
Tycoon Playbook Review
As a recent IRS report on America’s wealthiest proves, the surest way to becoming rich has always been and still is by building your own business. There are two basic approaches to building a business. One way is to focus on finding the home run product or service to build a single company around. The other way is to focus on accumulating many businesses over time. The first variation requires far more luck considering just how many failures there are relative to successes. The second variation is a simple numbers game based on the reality that once you have a system and team in place for acquisitions, you will have far more winners than losers over the long run.
This second path is often referred to as the PacMan strategy because you use your company to gobble up other companies. It’s the most proven path to billionaire status.
As with most things in life, the basic concept is simple while the devil is in the details. This is where the Playbook truly shines. The three month course reverse engineers the acquisitions strategy employed by tycoons and billionaires who made their fortunes through wheeling and dealing in businesses. Then it breaks down this complex topic into easy to understand and follow action steps. Equally importantly, it also shows you how to avoid the minefields. This is not a course built on dry academic theory.
The creator of the course worked for many years helping entrepreneurs and mini-tycoons to buy and sell businesses. In addition, he has also spent decades studying how they got started in the game and built their empires. As a result, the Playbook is rich in examples of actionable steps taken by tycoons to not only get going but to get it right.
What are the key rewards of the course in my opinion?
First, if you’re thinking that becoming wealthy requires an element of good luck in addition to work and perseverance, you are absolutely correct. The course reveals how you can maximize your luck if we agree that luck is a matter of being in the right place at the right time. It does so by having the second learning module reveal how insiders spot emerging opportunities well before the masses do. The eighth module teaches you how to take a calculated risk by revealing the do-able deal test for acquisition opportunities. Once you have digested these two lessons your ability to do successful acquisitions increases dramatically.
A second reward of the Playbook is in how it takes a complex subject such as acquisition finance, which intimidates most people, breaks it down into its constituent parts, and lists the many options you have available for buying a business. You need not be a mathematical genius to understand how tycoons acquire control of businesses. By the end of the financing section you will feel like an up and coming Kirk Kerkorian.
A third reward in taking the course comes from discovering the Golden Feedback Loop used by tycoons to disrupt and dominate industries. The GFL may not be available in every situation but the Playbook shows you how to recognize pre-existing ones and even trigger your own whenever possible.
Finally, the biggest and most important pay off comes from the details in how tycoons started down the road towards fare and fortune. The difference between them and people who don’t accomplish much is that they simply started and kept moving towards their goal. Most people never even leave the starting blocks.
The Tycoon Playbook contains the details of a billion dollar strategy. If you take the course and only apply 1% you will still be further ahead than most.
Any small business owner can begin to put these lessons into action immediately.
Building a Family Business that Lasts