SOPHISTICATED FINANCE

Entrepreneurship Class II--Identifying Customer Need

I believe that the hardest part of the new business development process is to identify and understand the customer need (and then to determine if it is a large market opportunity). I teach my students a number of techniques or processes to use to find the customer need. One of my favorite techniques is Gerald Zeitman's seven metaphors, which I discussed in this post from June 2008. Another technique I like is what I call the Nintendo Approach, which I discussed in this post. This weekend I came across another technique--Abundance Scarcity (link).

If you are looking for a new business idea, first look at what is abundant. Automobiles are everywhere in the U.S. so let's use automobiles. Now let's look for the scarcity. Auto sales people have the lowest integrity rating of any profession in the U.S. according to several polls. People hate the process of negotiating to buy a car. The scarcity is an enjoyable, honest process to buy a car. Voila! Auto Nation! Auto Nation provides high quality used cars at a fixed price (no negotiating) and is the market leader in their industry. The customer experience at Auto Nation is much more than just "no negotiating" but the entire process reinforces an enjoyable, honest car purchase. Google might be another example. An abundance of information but a scarcity of what you wanted...until Google. This logic is still valid as evidenced by all the companies focusing on content aggregation.

Some people start entrepreneurship courses by focusing on creativity. Dr. Jeff Stamp is a good example. He has a new venture called Bold Thinking which combines his extensive experience in creativity with the value creation process in a new business concept. (More on Bold Thinking in a future post.) I prefer to start the course with techniques or processes, which I call "originality". Originality might be defined as taking existing things and putting them together differently (think Auto Nation). Few of us are going to discover penicillin or the theory of relativity, which would clearly be examples of creativity. Many of us have the ability to take things we understand and re-organize them into new concepts, particularly if one tries the techniques discussed above.

Whether you focus on creativity or originality, Marcel Prevost's quote is still true.

"You have to see the invisible to do the impossible"

If you do not understand Prevost, read about Israel Kirzner's "asymetry of information", the special skill that separates entrepreneurs from the rest of us.

Worsterer.com

In the spirit of supporting the south Florida tech community I bring your attention to a new site--Worsterer.com. This site was developed by some FIU alums who previously worked at Yahoo Latin America. When you have to vent and 144 characters on Twitter are just not sufficient, Worsterer.com is the place to go. Check it out for a good laugh or if you need to vent.

Some quotes from the site are below. (Click on the image to enlarge.)

 

South Florida Social Media Events Calendar

The following events, courtesy of tonight's Refresh Miami reminder, may be of interest to Florida readers.

PRSA - "Strategies for Success" with Peter ShankmanSep 2

Social Media Club South Florida - "Who 'Owns' the Client's Social Media: the PR firm or the Interactive Agency?" Sep 8

SFIMA - Online Advertising Sep 10

AWC - "Your Image as Art: Personal Branding" Sep 16

MoMo Miami: "Takin’ it to Main Street: Engaging Consumers with Mobile Services and Solutions" Sep 17

SFTA: "IT Women: “Game Changing Technology”" Sep 24

RefreshMiami September Meetup: "Startup 101 - How to Start Your Web Biz" Sep 30

User Groups:

Miami Ruby Brigade Sep 21

South Florida iPhone Developers Group TBA

Miami Drupal Group TBA

Conferences and Workshops:

Hands-on Social Media Training Aug 28 - Learn how to create the social media strategy for your organization.

Día del Blog Aug 30 - Aug 31 - Este proyecto (sin fines de lucro) tiene como objetivo generar un espacio de encuentro virtual para bloggers en ocasión del día Internacional del blog; donde se discutan, expongan, compartan – interactivamente - temas en torno a la blogósfera y la Web Social, y aportar de esta manera en algo a su desarrollo integral y evolución; así como a la alfabetización digital de los internautas hispanohablantes.

RE BarCamp Miami Sept 14 - The Real Estate BarCamp experience places a heavy focus on the practical use of emerging social technologies that real agents can use to generate real results. REBarCamps attract leading minds and companies (locally and nationally) who “meetup” to share business strategies and tactics in a open, constructive, and excitingly controlled "chaotic" environment.

Hispanic Media 3.0: Social, Bilingual and Ready to Mingle PRSA - Sept 24 - In celebration of Hispanic Heritage Month, PRSA Miami will host a 2-hour professional workshop to discuss and explore opportunities in reaching Hispanics using social media followed by an hour of networking. The workshop convenes leaders in academia, agencies and brands who have created effective campaigns to reach the more than 48% of Hispanics who own a social media profile and more than 23 million who are active online, according to industry stats.

SMLatam Sept 29 - Oct 2nd - Esta conferencia les dará herramientas para entender lo que es Social Media y como éste afecta su empresa y su marca.

IZEAfest Oct 1 - Oct 4 - at Sea World Orlando: An interactive event designed to educate, inform and connect social media enthusiasts. use promo codes (case-sensitive) BarCampMiami for free tickets -- while quantities last -- and RefreshMiami for a 20% discount. For hotel information, go to http://izeafest.com/travel-info/lodging/ for a link to negotiated rates at the Renaissance.

Latism Orlando Oct 8 - Oct 9 - This event will provide a networking opportunity and conference presentation, bringing together the leading minds and innovators in social media and technology.

Florida Broadband Oct 8 - InternetCoast: Discussions about the latest broadband efforts around the State of Florida.

Tweetups:

Keep an eye on PizzaTweetups coming near you!

NuvoTweetini Aug 27

Palm Beach Post Tweetup Sep 2

Miami Herald Tweetup Sep 10

Twine Up Sep 12

Beer me, please - Sep 23

"Tweet Up Boca @ Saks Fifth Avenue" Sep 30

Also:

Check Doterati's website for many events in Orlando

Entrepreneurship Class 1

Yesterday was the start of a new semester at FIU. I have about 65 entrepreneurship students including 15 students participating remotely by video from another school. All the video will be archived, so I am thinking I may be able to do a video series of my entrepreneurship lectures.

I begin the semester by trying to dispel the illusions the students have about entrepreneurship. First, I explain the difference between self-employment and entrepreneurship. Entrepreneurship is about company building and ideally large companies.

Then I explain that entrepreneurship is not about epiphany moments but rather based on a rigorous analytical process, which is the five step process I teach and that forms the core of the course. I quote Peter Drucker, as follows:

“Entrepreneurial management is not natural, creative, or spontaneous but instead is based on a systematic, thoughtful approach….”

I then develop the theme that financial reward is a bi-product of entrepreneurship and executing one's passion should be the focus. Consistent with this theme is the idea that entrepreneurs should be building companies that are socially responsible and not just focused on profitability. The quote to illustrate this point comes from Eric Ries, a Venture Advisor at Kleiner Perkins (a world renown venture capital firm).

"Every startup has a chance to change the world, by bringing not just a new product, but an entirely new institution into existence. That institution will touch many people in its life: customers, investors, employees, and everyone they touch as well. I believe we have an obligation to ensure the resulting impact is worthy of the energies we invest in bringing it to life."

To conclude the first lecture, I show the TED video of Richard St. John on the "8 Secrets of Success". Richard's eight factors are recurring themes through out the semester. Just watch this very entertaining video to discover the 8 key factors.

Florida Growth Fund Interview

I recently interviewed Greg Baty, the senior man on the ground in Florida for Hamilton Lane, the Manager of the $250 million Florida Growth Fund. Greg's background is quite diverse and includes a five year stint playing for the Miami Dolphins, where he developed his love of Florida. He has also spent time as a start up entrepreneur, advisor to early stage companies and as a venture capitalist with Guy Kawasaki's Garage Technology Ventures in San Francisco. He is a graduate of Stanford Business School where he was a Sloan Fellow. Key points from the interview follow:

1. Hamilton Lane's strategic direction is to expand their discretionary fund management business, which includes programs similar to Florida with the states of California (CALPERS) and New York. Consequently, Greg and his team have complete access to the full resources and support of Hamilton Lane and their relationships with over 600 funds worldwide.
2. The Fund will initiate its own deals but must have a co-investor fund that sets deal terms, valuation, board seats etc. This is where Hamilton Lane's vast relationships with other funds can be used to develop the lead investor.
3. The Fund will focus on technology growth companies in Florida but may also invest in other sectors with significant growth and return potential.
4. The Fund will invest approximately $125 million of its $250 million capital in direct investment in companies at all stages of development--from seed to pre-IPO.
5. The Fund will not focus on any particular industry or investment themes
6. The Fund's priority is investor return and is not specifically targeting job creation or economic stimulus

The Fund has well thought out objectives and is already seeing a "tremendous amount of deal flow". My one recommendation to Greg was to consider a Spanish speaking associate on the team in order to fully develop relationships in south Florida.

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Miami, FL

Blog Recommendations

I have been working on this never ending accounting/finance project for a client and I need a change of pace. Therefore, today's post is a lazy man's post on some new blogs I have been reading that may be of interest. It's kind of an eclectic mix but diversity of information improves the quality of thinking.

1. Dashes is Anil Dash's blog about social media and related topics. Anil has been blogging since 1999 and is a co-founder of TypePad (which powers Sophisticated Finance), which may in part explain his long history as a blogger. His thought pieces are some of the most insightful analysis about social media and the Internet that I have seen. His frequent posts thanking everybody who quotes him are an excellent source of new blogs to add to your feed reader. (Hint: thank people who mention your blog)
2. A Major's Perspective is written by an active duty major in the U.S. Army who has done multiple tours in Afghanistan. A real American hero! Every day he posts a great quote--frequently related to patriotism. His posts about the people he has served with will bring tears to your eyes. Excellent writing. He should consider a novel.
3. TechDrawl is a blog written by a group of professional writers based in Atlanta. (For those who do not know, Atlanta is a small city north of 8th street that has more venture capital firms than the entire state of Florida.) The blog covers technology, entrepreneurship and capital raising in the southeast U.S. A frequent theme is how to succeed in a start up outside Silicon Valley.
4. Intellibriefs covers geopolitics, security and intelligence matters of an international nature. Most of the writing is a compilation of works by other writers and analysts. The pieces are very well done and thought provoking. Think of it as the CIA joins NPR. Highly recommended if you are interested in international matters or tired of the 7 pm news.

Time to get back to my accounting project.

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Miami, FL

Florida Growth Fund Update

Back in June I posted on the launch of the Florida Growth Fund. The Fund launched with $250 million in capital earmarked for venture capital investments in Florida. Funding was provided by the State of Florida Retirement Pension Fund under special legislation. The Fund is managed by Hamilton Lane, who manages over $100 billion in capital for private equity investments through third party funds and direct investments. Hamilton Lane's expertise includes all forms of equity investment including seed stage venture capital. Recent email correspondence with Hamilton Lane has provided the following additional information:

1. The Florida Growth Fund will be opening offices in Ft. Lauderdale and Orlando
2. The mandate of the fund is to invest in Florida-based equity funds and to co-invest in Flordia-based growth/technology companies

I am particularly pleased to see that the Fund will be co-investing in growth companies. Most out of state venture capital firms will not invest in start ups here in Florida without a local venture capital firm to co-invest and closely monitor the company. Florida Growth Fund will be able to play this local role through its two offices. This will increase the available capital in Florida not just from their fund but also the out of state venture capital firms.

I will be speaking with a representative of the Fund later this week and will hopefully have more to report on this positive development for early stage companies in Florida.

Columbia Business School Website

Everyone follows the musings from a certain business school near Maine. My alma mater, Columbia, has a very nice site on current thinking in management and entrepreneurship called Columbia Business School Public Offering.

Under faculty blogs, the postings from Professor Rita Gunther McGraith are particularly interesting. The work covered in another faculty blog, Socializing Finance, is cutting edge and includes writings by Daniel Beunza, who I wrote about in April 2009. These and many other blogs can be found at the Columbia website.

Catherine New, the Editor of the site, was kind enough to add Sophisticated Finance under alumni blogs.

Corporate Culture Understood

I will admit that I have never understood all the academic and professional interest in corporate culture. In my naive view of the world I always believed in five simple concepts:

1. Always be ethical
2. Always act in the best interest of the company
3. Work really hard
4. Hire the smartest people
5. Promote from within and develop your people

I always knew that many companies just paid lip service to culture and values. Until yesterday maybe I had seen one believable description of a culture or value system (Chase Manhattan Bank circa 1977). Yesterday on the NetSetter I read a presentation on the corporate culture at Netflix, a successful, publicly traded company. The thought that went into this presentation makes the culture believable. The clarity of thought actually makes it an incredible tool to understand what is meant by "corporate culture". The value system espoused is spot on correct. I would probably not change a word in this presentation. This presentation will become a classic in the teaching of corporate culture. Read all 128 slides, then study it.

The presentation is also an excellent introduction to human resource management. Reading it from that perspective should also be beneficial to any start up.

Miami, FL

Pundits Wrong About Facebook FriendFeed Acquisition

Back in December I wrote a Post "Will Facebook Survive the Future of the Internet". I basically questioned the viability of Facebook because it did not aggregate enough content about people of interest to the user. While the pundits and experts are explaining Facebook's purchase of FriendFeed as a talent acquisition, I think this conclusion misses the bigger strategic issue.

Every morning more and more people begin their day by checking email, Twitter, Facebook and blogs of interest. That probably takes 1-2 hours. After that much time, you have to get to work or get on with your day. Few people also have the time to check FriendFeed, Stumble Upon, Digg, etc. It's too inconvenient and it takes too much time to check another 5-10 sites for news, information or content from friends and business contacts. This is the pain!

I think Facebook acquired FriendFeed in order to quickly expand it's technology to aggregate more content for the people you are interested in. I imagine that within 1-2 years, FaceBook will offer users the ability to integrate content from 50-100 sites where they have content. This will enable followers to much more easily read and review much larger amounts of information from people they value. This efficiency, which is very responsive to a customer need, is the reason for the acquisition of FriendFeed.

I think the next step for FaceBook will be to start mining this greatly expanded wealth of data with semantic search or something like Calais. Imagine asking FaceBook for statistics on the number of subscribers that use three different models of cell phones or for the most popular articles captured by FaceBook on "viral marketing". That's where I think FaceBook is ultimately headed--to make the expanded content easily searchable for its users.

If I was Google, I would be thinking hard about how to increase the value of search. Mashed up Google maps is a nice feature but it may not sustain you if Facebook's content becomes searchable. FaceBook, the world's then largest recommendation engine on everything (content, posts, products, events) might be a formidable competitor.

p.s. Google, if you need help figuring all this out, just send me an email.

Miami, FL

Social Entrepreneurship is Just Good Entrepreneurship

Social entrepreneurship is the application of entrepreneurial principles to address the deprivation of social rights. Social rights, in contrast with natural rights or legal rights, are the rights arising from a social compact and include health, education and employment or economic well being.

The notion that social entrepreneurship provides a social benefit and for profits do not is to misunderstand what makes great "for profit" companies. Great for profit companies are environmentally aware, create large amounts of new jobs (which frequently go to the disadvantaged--unemployed), encourage their employees to be active in community affairs, donate goods and services to those in need, do not kill, maim or cripple employees or people in the community in order to increase profits and generally make the world a better place. As Google says "do no harm"!

For example, when Wal-Mart opens a new store in rural Florida (or Guatemala, or Timbuktu) 300-500 people have jobs, the pride that goes with providing for their families, the options that come with income and a multiplier effect that benefits the whole community. This Wal-Mart opening addresses many of the same social deprivations as the social entrepreneur.

This semester in my entrepreneurship course there is a semester long project to develop a business model for an organization that teaches science to disadvantaged children in Miami. This organization is a classic example of social entrepreneurship. However, never once will I mention social entrepreneurship or "non-profit". I will, instead, stress that applying the principles of entrepreneurship is all that is necessary to make the science teaching organization an economically viable entity. By focusing on economic viability, we will achieve the larger objectives of the organization--the same objectives that should drive every company.

I have done several workshops related to non-profits. The more I think and study about the notion of social entrepreneurship, the more I think it is a meaningless distinction. Yes--it may make you feel good to say you are a "social entrepreneur", but stop stroking your ego and get back to making your organization economically viable so it can carry out its mission.

"Every startup has a chance to change the world, by bringing not just a new product, but an entirely new institution into existence. That institution will touch many people in its life: customers, investors, employees, and everyone they touch as well. I believe we have an obligation to ensure the resulting impact is worthy of the energies we invest in bringing it to life."

Eric Ries,Venture Advisor Kleiner Perkins

Enough said.

Miami, FL

McKinsey: Asia and Technology Innovation

The emergence of China and India as economic and political powers intrigues me. I have watched and studied Asia for almost thirty years and many of those years I lived there. Considering just the sheer scale of their populations, I think that the development of China and India are going to stress the global socio-economic system in ways which we barely comprehend.

Eric Drexler from McKinsey has a new article "Asia and the Elements of Innovation" that discusses the trends in Asia and their positive affects on innovation. Drexler cites three factors for innovation to flourish:

1. Drive--a culture that hungers for change
2. Human Capital--an education system that enables people to reach their full potential
3. Mobilization--a regulatory environment that fosters entrepreneurship

Drexler's analysis is correct but it overlooks an important factor--ideology. As I have discussed before, ideology is more than just a regulatory environment and includes cultural norms and political philosophy. In the 1980s every Japanese Nobel Prize winner lived and worked in the U.S. Japan is a full fledged democracy with a very modern society, but the culture, and more specifically the academic culture, drove away the most talented scientists. I think that ideology is the area in which China and India need to make the most progress, especially if they want to foster innovation. The burden that India has to overcome is probably its caste system and China probably must come to grips with Communism or dictatorship. The favorable environment that spawns innovation and the resultant improvement in the standard of living will create a dramatic clash with their current ideologies. How these clashes manifest themselves will create problems on a scale that we have probably not seen since WWII.

The development of China and India is inevitable, but this evolution is not just about expanding consumer markets, manufacturing outsourcing and innovation. In the end, ideology in China and India will be the key factor.

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Miami, FL

Product Design Starts with Great Strategy

I have been reading Hartmut Esslinger's "A Fine Line". Mr. Esslinger's claim to fame is his design work for Apple, but he has also done meaningful work for large companies in software user interface and industrial design. The book is a must read for anybody whose products directly interface with the consumer and any aspiring designer.

What surprised me about the book is how much insight Esslinger has into developing competitive strategies, which in part explains why he has been so successful a designer. Essentially Mr. Esslinger first develops a strategy for the product or company and then uses that strategy as the guidelines for developing the new design. Reading this point, it probably sounds obvious, but in my experience few companies have a sufficiently well developed and well founded strategy to guide a design process. Think about why it has been so hard to develop a product brochure or website for your company (or product) or why the process is in draft thirteen. You lack a well thought out understanding of your strategy! You lack consensus on the strategy! You do not have a strategy! You do not know what a strategy is! Remember one of Esslinger's most important points. All design starts with strategy!

Esslinger also makes two other important points about developing a strategy.

1. Start with the customer experience 

   Every great strategy starts with the customer and not the economic environment, regulation, competition, etc. (Ignore what you probably learned in business school.) You must have a profound understanding of what need or job the product satisfies, how the customer uses the product, and the value proposition of the customer.
   

   Esslinger believes that design can provide the differential advantage, the sustainable competitive advantage, but if you can not afford world class design work I think there are other alternatives to achieve differential advantage (e.g.customer service). However, as he points out, all great strategy should produce a differential advantage.
   

2. Analyze the data to confirm your findings

Based on the understanding of the customer, Esslinger then formulates his strategy and design hypothesis. Then he confirms the hypothesis based on analysis.This is the experienced, expert approach--hypothesis then confirmation. For the less experienced business person, you may want to start with the analysis and then develop an hypothesis. Such an approach may reduce the risk of a premature hypothesis. Regardless of how you organize the process, Esslinger believes that great strategies come from great analysis of the data. Esslinger's story about designing fashion colored dental chairs illustrates the point about analysis of data brilliantly.

I have been a student of strategy, the process and the techniques for almost thirty years. Looking at strategy from a totally different perspective--design--was very insightful. And don't forget the most fundamental point that Esslinger makes--great design starts with great strategy! Also, before I forget--read the book.

Miami, FL

Information on Entrepreneurship

I have been teaching a course in entrepreneurship for four years at FIU. When I began I looked at a lot of course syllabus from leading universities, but found that a lot of the material was of little value to future entrepreneurs. I was forced to begin developing the course material on my own. Over the years I have refined the material and learned a lot about entrepreneurship. However, I am constantly on the look out for new ideas and good information on key concepts such as customer need, disruptive business models, scaling the business and the stages of business development. The stages of business development is a topic that I am very interested in but basically neglected by academics and entrepreneurs. (Would make a superb Ph.D thesis.)

One of the best sources of information on entrepreneurship--no laughing--is actually Twitter. The wide range of people--from students to professors to entrepreneurs to complete nuts--actually provides consistently good information not only on the most recent Guy Kawasaki post but also on great stuff from the past that I have missed. Every morning now starts with #entrepreneurship on Twitter.

One of the keys to successfully building a business is that when you find something that works you beat it to death to get the maximum benefit. For example, if a blouse sells well, you find six ways to sell the blouse again with slight differences (long sleeves, different buttons, different collar treatment, etc.) I have done this with Twitter. I now read the tags #emprendedor and #entreprenariat. The Spanish tag is particularly good and has also exposed me to a lot of interesting new web-based businesses I probably would not have seen otherwise. The French tag is a bit thin but the French Canadians have some terrific posts.

I am thinking of adding the Portugese and Italian tags for entrepreneurship as soon as I find the words for entrepreneurship ;) I don't read these languages but I can usually get the gist.

If you are interested in a particular subject, try the Twitter tag for it.

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Miami, FL

War is Not the Worst Thing

John Stuart Mill is arguably one of the greatest philosophers of all time. In the 19th century he wrote:

"War is an ugly thing, but not the ugliest of things. The decayed and degraded state of moral and patriotic feeling which thinks that nothing is worth war is much worse."

(Source: @majbc A Major's Perspective)

Former President Bush intentionally adopted a strategy to separate the U.S. population from the wars in Iraq and Afghanistan. Consequently, largely only the families of those serving share the pain and suffering. Whether these wars were justified is not the question or an acceptable excuse to treat this war as an "outsourced" event. Without a draft and with most WW II veterans dying off and Vietnam veterans aging, little of the U.S. population understands war first hand. We may have become the nation John Stuart Mill describes in the quote above.

Oddly enough the U.S. military understands this point. Military strategists are very concerned that the U.S. population could not withstand a war if there were, for example, large domestic power outages for a period of six months. We might capitulate to get back our creature comforts. Remember only 100 Americans (the U.S. Senate) have to vote to surrender. 

I see many returning veterans now at FIU. Many of these veterans need extra help in many forms. Embrace them, support them and thank them. It's your chance to receive a little bit of understanding and find the courage to persevere.

CM

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Miami, FL