Monthly Archives: March 2011

My first ever book review

There are a number of books which are considered to be essential reading for anyone Good to Greatrunning a business. Most of these are fairly dull and I’ve read some but not all of these because I normally prefer to read real life stories about people succeeding, or otherwise, in business. I have to admit that I often lie about the books I’ve read: Art of War… oh yeah I’ve read it (nope!), Ulysses (I did buy it, does that count?). Thankfully I’ve put at least one of these wrongs right recently and have read Good to Great, the seminal work by Jim Collins.

All I can say about this book is that if you haven’t read it, stop what you are doing (including reading this rubbish) and go and buy it. It is quite simply the best business book I’ve ever read.  To try to summarise this book is a bit of a con but I will share with you the things I liked the most about this book… first some background:

Collins and his research team looked at 1,500 companies in the US and analysed their performance. They sorted these companies into the 11 companies who consistently outperformed their competitors and the market, not just for a few years but over a long period of time. Companies like Gillette and Circuit City made the ‘Great’ list. Companies like Coca-cola and Smith Kline Beecham didn’t. Collins and his team then looked at the things that these companies have in common and explain in the book why they think these matter. There are salutary and useful lessons on more or less every page.

The key findings across all of the great companies that are captured in the book are:

  • Great companies have leaders who are humble, but driven to do what’s best for the company. Collins calls these level 5 leaders;
  • The key is to decide first who, then what: get the right people on the bus, then figure out where the bus might be going;
  • Confront the brutal truth of the situation, yet at the same time, never give up hope;
  • Be a hedgehog, not a fox: The book talks about three overlapping circles: What makes you money? What could you be best in the world at? and what lights your fire? The great companies focus on what’s inside the circles and nothing else.
  • They have a culture of discipline and stick religiously to what they are good at:
  • They use technology to accelerate growth, not as an accelerator in itself and only within the three circles of the hedgehog concept.
  • They make small, iterative changes that all build on each other like compound interest. Collins calls this the flywheel effect.

Some of the things that really stood out for me in the book where:

No-one who worked at the companies really knew what had happened or specifically when something changed. It just sort of ‘happened’;

There were no high profile, celebrity leaders at the great companies, nor where they any massive change programmes or restructures that take the focus off the prize;

The importance of momentum;

The importance of discipline, not getting distracted, sticking to what you know and executing the plan, even if the plan isn’t altogether sexy;

The importance of culture;

The fact that it’s still relevant. The book is quite old now and the obvious question is where the Google’s and Amazons of today’s world will rank but nevertheless, the fundamentals still make sense, even in a Facebook world.

The banks aren’t lending… bollocks more like

I hear a lot of entrepreneurs complaining about the fact that they banks won’t lend to their business and how badly done by they are as a result. I have a different perspective on this which Piggy Bankis that banks are naturally risk averse (seriously, they are) so they are more likely to say no than yes. In the world of a banker they have choices. Things like whether to lend £50K to you to do your web start-up or to lend £400K to someone buying a house or £1 million to a ‘real’ business with real collateral that they can secure themselves against. As a web entrepreneur you need to accept early that you are well down the list of people that a banker wants to see coming through the door. You are just too much hassle, not enough margin and way too much risk. if your business looks like a falling knife, no banker is going to want to catch it.

All of this means that its up to entrepreneurs to pitch their business in a way that can make sense to a banker and make him/her want to put their neck on the line and convince their boss to lend to you. This means you need to:

  1. Build a relationship with your bank manager so that they know who you are, what you are trying to achieve and so that they believe you when you tell them something.
  2. Know your facts about the government backed schemes that are out there and that they can get access to so that they can lend you the money you need.
  3. Have a plan that is realistic and credible, written in language that they can understand and that demonstrates what you have achieved already.
  4. Make them understand your business. This can be hard. Try practicing on your Mum first.
  5. Understand the numbers because this is all that they understand. You’ll be asked lots of questions about the numbers and if you hesitate with the answers or even get them wrong, your credibility will be shot.

Over the last 5 years we’ve raised two lots of funding from our bank to help bootstrap Learning Pool, taking advantage of government backed security schemes on both occasions. We were also refused funding from five banks in the very early days but I really think that’s because we didn’t follow the rules above. Securing bank finance has been really hard, time-consuming and pretty boring but ultimately we did it and it saved the company and allowed us to grow. Its well worth getting this stuff right.

In general, I think banks are willing to lend but only to viable businesses who can demonstrate that they have the ability to repay the loan in the short to medium term and to survive in the long term. If you are going to get any cash from your bank, you really need to be able to demonstate that you can do this so that you avoid that door being slammed in your face.

Refine your pitch, then refine it some more

I’ve met a few people recently who were pitching their new business. It struck me that Babe Ruthpeople often struggle to describe their business to an outsider in a way that makes it compelling and coherent. Getting the pitch right is one of the fundamentals of making your business work and over the years I’ve had some great advice on this, notably from Bryan Keating, Doug Richard and Bill Liao.

The basics of this are that getting your pitch perfected is the best use of anyone’s time and while it can be difficult and take a long time, it’s almost always free to do and is so completely worth it. Human nature means that businesses always do too much which creates a barrier to investment, sales and profitability. Having a well refined pitch can help avoid doing this and gives you a reason to stay focused and say “Nah, we don’t do that because its outside of what we’re good at”. A few gems that I’ve remembered:

1.       Narrow businesses succeed – make your business as narrow as you can early on & then execute relentlessly;

2.       Get your product to sell itself – this is possible only if customers will sell it for you so figure out what the single feature makes your product truly awesome and focus on that to the detriment of everything else;

3.       Write down a profile of your customers – give them names and tell the story about how they will use your product so you can understand how everything you do will help them or bring them to your company;

In all of this you need to teach yourself to describe:

1.       What your customers want. Customers buy a product for one of two reasons – to take away pain or to get competitive advantage. There are no other reasons. Decide why your customers will buy your product and build every feature with this in mind;

2.       Your story. It’s no good saying, that taxi drivers have a problem doing this or that. You need to be able to tell the story about the day you were in a taxi, saw that the driver wasn’t able to do something you thought was obvious or easy and you got out of the car in the middle of the street to go off and build your product. This is all about telling your story which, as Doug Richard points out, is the fundamental bit of making an early stage business work, not least because it’s the only thing you’ll have early on;

3.       Your promise. This is tied up in your brand and your company’s identity. Decide what you promise to do for your customers that no-one else can do or that you can do better than everyone. The promise might change a little in focus depending on who you’re talking to (bank versus customers) but if you get this right everything you do – your customer service, marketing, values and culture -  will flow from this. Everyone who knows says you should be brutally clear about this – rehearse it in front of the mirror and write it down. Also think how it will look on a web page or in a tweet as this is where most people will see it.

I think this stuff is incredibly important and it’s something that we work at every day at Learning Pool. Although we have grown a portfolio company we still try to make sure that we stay as narrow as we can to succeed while broadening the portfolio so we can grow. We also do A LOT of storytelling because it helps us achieve so much. Telling a story gives the people you are talking to a sense that things are real, they see the passion in your eyes for what you are doing and they learn to trust you. I sometimes feel sorry for the guys in the team who listen to me tell the story about the day we decided to build our first LMS product day after day but then I’m reminded… its 30% of our revenue and we wouldn’t have a bloody business without that story! Its also true and was one of the coolest days we’ve had at Learning Pool so its going to stay around for a while!