Thursday, March 15, 2001

No more Mr. Nice Guy:

"Nice guys finish last."
--Leo "The Lip" Durocher (actually a misquote, but too good to pass up)

Sometimes you have to be a bastard.

Most of us like to believe that virtue is its own reward, that the good guys will beat the bad guys, and that things will turn out fine in the end. Guess what? We're wrong.

That may work for the Disney Channel, but it doesn't work for business. Business is war. Sportsmanship doesn't count. If your opponent trips, don't help him up--kick him while he's down and cut his throat.

The great Michael Jordan understood this. Michael was the greatest basketball player of all time, due in no little fact that he was one of the meanest basketball players of all time. Former Bull Scott Burrell was once asked why he was running hours of drills. "Because Michael said that he'd beat me up if I didn't." When asked why he, a grown 220-pound elite athlete, feared such tired braggadocio, he replied, "Because he's Michael Jordan, and I believed him."

But being a bastard to your competitors is fairly intuitive. What made Jordan great was his willingness to terrorize his own teammates--when the occasion called for it.

I'm not recommending the yelling and screaming, Bobby Knight approach to management. What I am recommending is having the balls to make unpopular decisions and force them through.

It's a given that your employees aren't always going to agree with what you do. If they did, you could simply replace them with robots. However, when you've made a decision, they must swallow their dissent and comply. And if they don't, you have to punish them or even fire them.

It's easy to be a nice guy. Spending money is easy. Delaying product launches is easy. But so is going out of business.

Note: Because I am traveling to Las Vegas for a bachelor party, I will not be publishing on Friday, March 16. Fear not, loyal reader, I will be back on Monday.

Wednesday, March 14, 2001

In praise of midgethood:

I'm not referring to height (I'm 5'11" myself), but to the size of your venture. One of the most disastrous myths from the dot-com era was "Get Big Fast." I remember hearing this from my professors when I was at Harvard Business School. The problem is that size may sometimes be an evolutionary advantage, but it always restricts flexibility. The dinosaurs learned that lesson the hard way.

The "Get Big Fast" philosophy was predicated on two assumptions. One, that vast amounts of capital would be available, and two, that behemoths would dominate the world of business.

The proponents of this philosophy, most notably, set about constructing businesses of T. Rex proportions. No amount was too great to spend on marketing, hiring, or building. Revenues and growth were everything, and profits were for wimps.

And then, the sky fell in. Like a giant asteroid plunging to Earth, the Nasdaq cratered. The shockwave that ran through the capital markets dried up the supply of funding.

Then, like the lumbering dinosaurs of old, the Get Big Fast proponents began dying out. With their gargantuan size, they couldn't adapt to the suddenly frigid funding climate. $1 million can easily get a small, nimble 5-man company to profitability. Bronto-sized CMGI lost $1.2 million an hour this past quarter.

Yet when the dust cleared, there were plenty of survivors. A recent survey by Verizon indicated that 55% of small businesses with a Web site say that they broke even or made a profit on the web.

Small businesses have lower overhead, greater flexibility, and faster time-to-market.

My own experience reflects this. Sadly, my company fell into the same Get Big Fast trap. We hired like mad, bought like crazy, and quickly grew to 40 people. Our burn rate skyrocketed, our strategy ossified as different managers defended their fiefdoms, and I grew frustrated with getting less done by managing others than I could have gotten by doing it myself. In my defense, we learned. We fired all but 8, slashed our overhead, ditched our old (failed) strategy, and carved out a path to profitability. But we never could have done it if we had stuck to our saurian ways.

Dinosaurs died out. The mammals survive. Which do you want to be?

* No offense to Billy Barty and he rest of the little people. After all, without you, we wouldn't have the Wizard of Oz, Charlie and the Chocolate Factory, and, of course, Time Bandits.
This post was intended to appear on March 9.

Nasdaq 2000:
Last year, the Nasdaq index hit 5,000. Today, just 12 months later, it flirted with 2000.

What does this mean for an entrepreneur? Everything, and nothing.

Everything, because the supply of funding has dried up. VCs have to nuture their previous startups that can't go public. Angels are suddenly poorer (and in some cases, poor!). Corporate investors decide to stick to their knitting. And even doctors and dentists decide to splurge on espresso machines instead of seed investments.

Nothing, because the chances of any particular startup going public are so small as to be irrelevant. If your company is successful, it will probably be acquired for its potential or its cashflow, neither of which depend on the capital markets.

In fact, if you can start a company on a lean budget, this may be the best time to begin. The lack of funding has deterred the casual competitor, and you may reap a windfall if you sell your company for undervalued stock and the market rebounds.

Of course, that's easier for me to say, since I haven't invested in the market since 1998. It would be far more difficult to maintain perspective had I used my business school loans to buy dot-com stocks on margin.