This evening I had one of those AHA customer service experiences. I had flown into Bangalore from Chennai on SpiceJet‘s afternoon flight. Even as I was headed home in a cab from the airport, I realized that I had left my (simple ruled 200 page) notebook in the pocket of the seat in front of me. I pulled my boarding pass, which amazingly had the customer service numbers (both toll free and regular) on it and in a noisy call from my cell had a customer service request put in. Before I got home, I got a call from the airline (from their local person I suspect) to whom the trouble ticket had been assigned. She called me to say that they’d expect to get back to me within the next 24 hours. At this point I was happy to have just remembered where I had left my notebook and having called it in. Their acknowledging my call was just icing. So I figured.
However within the next two hours I had six calls from them. Six – that’s right, six (missed) calls from SpiceJet’s customer service department – spread over a 15 minute period. And once I got home, I saw that they had emailed me a copy of my formal complaint with the relevant trouble ticket info. And having been unable to reach me on my mobile, they had sent a separate email, informing me that they had found my notebook and it now awaited me (armed with the boarding pass and a photo ID) to be picked up. Wow! What a feeling it was and I am practically glowing still (in the dark as I write this) from that experience of nearly eight hours ago. And to think I had picked SpiceJet (the second time this week) for my flight primarily due to their value pricing – for those not familiar with crowded Indian skies they aspire to be the Southwest or Ryan Air of India, especially with the leader in that space Deccan now moving upscale after their acquisition by Kingfisher Airlines. Such service on the phone, on-line and in person was unbelievable – Good work, SpiceJet!
All this, when I had only spent a grand total of Rs 2350 ($55) at SpiceJet, contrasted with my experience two weeks ago of trying to get a spanking new (2-day old) Nikon that had stopped working, fixed. But that’s a whole another story. This experience certainly showed how some training, committed service providers and simple follow through can make excellent service seem trivial.
From my ninth article in the Start-up Logic entrepreneurship series in the Hindu BusinessLine
Every business sets out with a single premise and in the case of successful entrepreneurial firms this usually is a simple premise. If your business promises to deliver ‘hassle free online bill payment’ or to ‘keep all your contact information current automatically’, it keeps everyone in your company focused on what needs to be done. As an entrepreneur, you discover that just as you manage to get your ducks lined up, growth sneaks up on you scattering things once again. Read the rest here.
For a business to be viable, money is important. Most of us understand this intuitively and deal with it constantly in our own personal lives. Yet, as runaway individual credit card debt or a cash squeeze in a large company and the occasional sovereign currency crunch demonstrate, it is not difficult to lose sight of where the money goes. Even as capital and sales revenues supply money for your business, inward and outward cash flow management is critical for survival. If you don’t track and control the cash flow in your business, you may not keep your doors open too long, unless, as in the case of Chrysler, an elected government bails you out. It makes better business strategy to understand and manage your cash flow rather than rely on the government to help you with it.
As an entrepreneur, you likely began with an idea of a product or service. Soon, you are knee-deep in building a team, pulling together the product or service, finding and servicing customers. You may even have written a business plan and try to raise money. In addition, you are still trying to keep the company rolling forward. In a previous article, I asserted that having good people on board is the first step to managing the challenges your business will constantly face. The most life threatening of these will be cash flow management. As with the advice of any personal trainer (eat less, exercise more), cash flow management is easier said (spend less than you have, collect sooner than you need) than done, as many large and even profitable companies have found out.
Profit versus cash
To understand the criticality of cash flow, it is useful to begin with a simple business scenario. Ram Charan, author of What the CEO Wants You to Know, begins his book with the example of a street vendor selling fruits and vegetables in India. He poses the question: “How does he (the street vendor) know if he’s doing well? When he has cash in his pocket at the end of the day.” In the case of a cash-and-carry business such as a street vegetable vendor, profit and cash flow are closely tied. Most companies operate on credit terms, at least with their customers. In the case of start-up firms with no track record of good credit, this can be a bigger challenge with customers wanting 30-, 60- or 90-day credit terms and suppliers wanting advance payments or cash on delivery.
Imagine that on a holiday to Hong Kong you see these adorable ceramic animal sculptures that you know every woman would want for her home. You locate a supplier in China who can supply them for a mere Rs 100 each and you know that you can sell them for at least Rs 150, may be even as high as Rs 200. After all your expenses, you’ll still make nearly Rs 50 profit!
So you beg, cajole and wheedle Rs 4 lakh from your family and get a container load of the ceramic menagerie. Unfortunately, you have to pay your Chinese supplier up-front by wire transfer but the thought of that Rs 50 profit per ceramic animal keeps you rolling. Your largest buyers, unfortunately, also pay you only 120 days after receiving their supply of ceramic animals (what accountants refer to as net 120-day terms).
In other words, you have spent Rs 4 lakh on day one for the first container. The products are selling like hot cakes and you have sold all the ceramic animals you had bought within the first 30 days. Your customers, though, are yet to pay you (for another 90 days). Worse, they want to order even more animals from you. You scrape together another Rs 4 lakh and order that second container, whose contents too fly off the shelves.
Your accountant and books tell you that you are profitable, having bought Rs 8 lakh worth of animals, selling them for nearly twice that and making a net profit of Rs 4 lakh. However, your customers owe you nearly Rs 16 lakh and are not likely to pay you for another 60 days. You still have to continue to pay rent, the phone and electricity companies and salaries for your employees, not to mention returning the money you borrowed from family. Thus, despite being profitable you have run out of cash! And if you want to continue in the business, you need even more money.
So even simple and profitable businesses can get into trouble. Most real businesses rarely have products flying off the shelves, so they have cash tied up in goods bought but not yet sold (inventory); if the goods are perishable (vegetables) or time constrained (fashion) they may totally lose their value, resulting in losses or reduced profits. Most real businesses have to pay banks or lenders interest on the money they borrow; their profit margins are rarely as high as in this illustration. All of which means managing cash even in the simplest and, yes, profitable businesses is critical.
Capital as cash
Capital, and adequate capital at that, is the surest way to ensure that you don’t run out of cash. In the above example, if your customers are likely to pay you only on 120-day terms, that means you need capital for at least four months to be able to buy your goods, pay your routine running expenses and have some room to spare for unforeseen issues such as delayed shipments, broken animals or returned goods. So suddenly, you see that you need nearly half-a-year’s worth of cash outlay as capital — and this is for a simple trading business. As every entrepreneur has found, there are no simple businesses and you always need more money than you think.
The downside to capital, particularly equity capital, as the answer to cash flow is twofold — raising sufficient money may prove non-trivial and result in a dilution of your equity early in the life of your business. Debt and other methods of raising working capital might be more fruitful ways of planning and managing your cash flow. Banks offer various working capital funding mechanisms such as packing credit (a credit limit or a loan against orders you have secured from your customers) and bills discounting (providing you cash against bills you have raised on your customers). For a start-up, banks may require personal guarantees of either the company directors or third-parties before extending working capital facilities. Once you have built a track record and, more importantly, a relationship with your banker, it will be easier to grow and leverage such working capital mechanisms.
Cash flow is in the details
Even when you have raised what you deem is adequate equity and got your local banker to extend you various credit facilities, it is critical to pay attention to cash flow. More importantly, you need to build a culture where your entire organisation is well-educated about cash flow and comprehends the need to manage it. Every time a sales person makes a sale for net 60 days rather than net 120 or a purchase manager buys supplies on net 30- or 60-day terms rather than advance payment, they are managing cash flow.
Most entrepreneurial firms, especially in their early days, understand managing to cash. As they grow, a balance is needed between continuing to manage for cash flow and the need to spend money to sustain growth. There have been instances where companies have paid heavily due to their failure to educate employees adequately. An employee in trying to save Rs 10,000 (to buy a testing tool), delayed the shipment of a product to the customer who was ready to pay Rs 2.5 lakh for it, within 30 days. Of course, there have been times, as in the infamous Chrysler case or, more recently, the US Federal Reserve having to guarantee the bailing out of investment firm Bear Stearns, when the lesson of having to watch your cash regardless of your size is brought home hard.
This article first appeared in the Hindu Business Line in April 2008
For the first time since I began working, way back in 1988, I have quit a job without much idea of what I plan to do next. “Kidding apart, what do you really plan to do sri?” was the question one of my favorite engineers, posed to me. Obviously my earlier message that I might do some writing and possibly publishing was not serious enough. Another colleague, was more sensitive and subtler in his approach when he stated, “Sure we all have our dreams, yours maybe to write or publish, but what do you really plan to do?” So note to all of you out there who plan to make career changes, regardless of how vague or opaque your plans, it appears the world only wants to hear definitive things. I am still working on mine.
In this new life of mine, I have already achieved a first – a road trip with the family (to Mysore) without my laptop. Even on our last vacation (to Kumarakom, Kerala) I convinced myself (and the family) that I’d use the laptop only for journal writing and not for checking mails or doing work! I’m happy to report that not only did I survive, but I did not miss the luggable nor display any overt withdrawal symptoms. In an aside, actually got to read several essays from Stephen J Gould’s “An Urchin in the Storm” – had to read several of the reviews multiple times, but that’s fodder for another post.
In every entrepreneur’s life, there comes a moment when a bulb goes off, “Darn! We are a real business.” You’d think that having embarked with much thought (or for some of us with little thought) on the path of entrepreneurship, learning that you are a real business wouldn’t surprise you. Of course, such a realisation usually occurs when the problems of running a real business put in an appearance.
When you first start your business, it all seems more fun than work — figuring out what you want, whom you are going to make the journey with, whom your customers are and what they want and if you have raised capital, what prospective investors want. Notice, but for the first day, you haven’t had time to think about yourself.
However, soon each new day seems to bring up a number of issues, ranging from life-threatening cash-flow problems to stumbling product development, stuttering sales and marketing and the inability to hire good people fast enough. We will look at each of these issues, and how best to address them over the next few weeks.
Let’s begin with the good news – you are not the first entrepreneur to go through this. The bad news is that this knowledge does not make it any easier to get through this period. As with adolescence that every one of us has had to go through, companies too go through an equivalent phase. Only this seems to appear a lot sooner for entrepreneurial firms and, at times, more than once; as with any hormone-laden teenager this will be a time of monumental emotional ups and downs for your company and you.
The one thing that can help you navigate your way through these emotional rapids is having great people on board with you. I spoke of business being all about people earlier and this is truest in such times of corporate hormonal sloshing. Hiring, retaining and motivating great people is far easier said than done and fixing hiring mistakes always takes far longer than we’d like. The truth is companies that learn how to do this well are the ones that grow and prosper in the end.
Hiring people
Hiring even in the best of circumstances is time-intensive and can be emotionally draining. Nevertheless, it will be hard to over-emphasise the importance of hiring well. Brent Gregory, Fellow at Synopsys, and an ex-colleague said it best, “You can let 10 potential good hires go, but you don’t want to make one bad hire.”
Most of us, especially early in our careers, tend to focus on skills and competence when hiring. In times of great demand, we may end up lowering this talent bar, which is a mistake many an entrepreneur has come to regret. It is vital to first test for cultural fit and team skills – domain skills and competence are critical but insufficient indicators of a good hire. Paul Hawken, founder of Smith & Hawken, goes as far as to say, “Hire the person not the position.”
This may seem radical at best or naïve at the worst, particularly for those of you who are hiring for highly technical positions. All too often, interpersonal and team skills get overlooked when hiring for specialised jobs and the organisation invariably pays a high cost due to the resultant cultural and interpersonal conflicts that arise. This is truer still when hiring for senior or leadership positions.
As an entrepreneur, you should be personally involved in hiring the first 50 or even 100 people, as they will go on to build the DNA of your organisation. It is critical to get a large number of people, including the interviewee’s future peers and direct reports to interview a prospective candidate. Many companies make the error of hiring folks based solely on face-to-face interviews.
Hal Rosenthal, author of The Customer Comes Second believes in “placing candidates in situations beyond the normal scope of their work or in environments away from the work place – sports, driving or informal gatherings.” I have found taking a prospective candidate to the company volleyball game often reveals a lot more than two hours in a conference room. And for every hire, from the mail room boy to an executive director, always ask for and check references. More often than not you’d be glad you did.
People – Letting go
In a previous article, I spoke about how hard it is for most entrepreneurs to let go of a paying customer. The only thing that is harder is admitting that you have made a hiring mistake and letting go of that person in a timely manner. Despite the best hiring practices, you occasionally end up hiring the wrong person. Wrong, because mutual expectations were misunderstood; or the incorrect assumptions made by either party about attitude, competency, culture, the job or working in a team. Usually, the causes of such a mismatch are less important than rectifying the situation, at the earliest. No one enjoys firing or letting go of people – especially in small start-ups where there are few secrets and you get to know a individual at a personal level. This is the very reason for rapid corrective action.
The smaller your company, the greater is the need for zero tolerance of any violation of core values by a team member or worse yet, for being a deadbeat. More than the shock of termination of a poorly hired individual, the cost of delaying decisive action is far higher due to the loss of morale, the damage to your credibility as a leader and the overall emotional toll other employees pay. The upside of definitive action is that it communicates your values and beliefs in a manner no number of posters or lectures can and reinforces the expected behaviour in your organisation.
Growing together
Once you have built a team of fine individuals, hiring them would seem simple compared to keeping them happy and growing them with the business. Studies show that when a person joins a new job, he or she does so with high morale and much motivation to make a difference.
The onus is upon you to ensure that you do not demotivate them or undermine their morale.
The best way to achieve this is to provide clarity of purpose for both the organisation and the individual, provide them the tools and resources to do their jobs and remove the roadblocks or regulations that would hinder or disempower them.
For an entrepreneur who never met a problem that he didn’t love to tackle and solve himself, it takes some practice to let go and allow others to get the job done. This requires trust and confidence in your people, which, if you have done a good job during hiring, should be easy.
It is also important to create a learning environment, so that your team stays fresh, is challenged continuously and, in turn, creates a self-reinforcing milieu of teamwork, sharing and continuous learning.
Finally, ensuring that recognition and appreciation are a way of life in your business, will cement the whole team.
It’s worth keeping in mind Paul Hawken’s words about the people you want on your team, “… it makes no sense whatsoever to hire any but the best people you can possibly find. Your employees shouldn’t admire you. That is kid stuff. You should admire your employees.”
(The writer was founder and CEO of Impulsesoft Pvt Ltd, which grew from a boot-strapped organisation of two people to a global leader in Bluetooth wireless stereo music prior to being acquired by SiRF Technology Inc in 2006. Srikrishna, who has an MS and a PhD from the University of California in Berkeley, has more than 18 years of experience building and marketing semiconductor and software products. He writes for The New Manager on the travails and triumphs of being an entrepreneur. He blogs at http://designofbusiness.blogspot.com)
(This article was published in the Business Line print edition dated March 24, 2008)
The topic of first time entrepreneurs and specifically the experience of raising (or not) of venture capital is a recurring theme on a number of blogs, including Sujai in his Wireless India blog, Sramanamitra, Pluggd.in. To add to the discussion, here is a brief snapshot of my experience.
I have had the singular fortune of trudging up and down Sand Hill Road, Embarcadero Road and even places East of 101 the first time in 2000, about a year after we had started Impulsesoft to try and raise a series A with valley VCs. And then again in 2004, this time with a customer, with whom there were short-lived discussions of a prospective merger, to raise money as one (new) entity. While our business plan got better (not to mention our presentation skills) we had little else to show for it. We were of course flummoxed that direct competitors such as Widcomm were busy raising their series B, with pretty much the same game plan and San Diego burn rates. Luckily our inability to raise venture money was a blessing in disguise, for it turned out that we knew very little about communication systems (which is what we were building), product development (our first products were at least 18 months late) or even running a company.
In the intervening years, we spent a reasonable amount of time in India with both white-haired and as-yet-to-begin-shaving VCs. The most interesting insights I gained with the Indian VCs in the early years, was how new they were at it themselves; most of them were playing bankers without any venturing and many of them evolved to be investment bankers giving up any pretense of venturing. While we did get definitive term sheets (they wanted 40% of the company for a series A) as well as tentative offers (as early as 2001) from a interested corporate buyer, the best thing we did (in hindsight of course) was not raising any venture money. For had we raised money in 1999/2000, I seriously doubt we’d have survived the first industry downturn we faced in 2000/1 or subsequent periodic announcements by market pundits of the imminent death of Bluetooth. We saw funded Indian companies such as Karna, Kshema and Microcon being encouraged by their investors to merge or divide in an attempt to multiply. Others companies, such as SiliconWave (private and $90M raised) were picked up for a song; Conexant and Lucent quietly exit the Bluetooth business. Poverty, in addition to being character building was responsible for our survival. Of course, lack of capital did choke many internal initiatives so I don’t recommend it as a business strategy.
NS Raghavan, ex-CMD of Infosys through his Nadathur Investments did invest in Impulsesoft as an angel investor (and he truly was an angel investor) and provided us with a line of credit as well. That and good old revenue served as well for nearly seven years till we were acquired by SiRF Technology Inc.
A few months ago, I wrote about the need for communicating early and often and a recent article by Toni Bowers, Senior Editor, TechRepublic titled “Say what you mean, mean what you say” highlighted the sore need for clarity in these communications, even if done early and often! The readers’ comments to that post, due to their specific nature were extremely illustrative, reinforcing the core message of how critical clear communications are, particularly when it comes to individuals and dishing them unpleasant news.
Less than ten days ago two of my long-time colleagues, sat me down and after some initial politeness (“you have issues rather than you have a problem”) they got down to their core message “We don’t believe you handle unpleasant stuff well, what do you think?” Talk about a topic for reflection! The reflection has made me particularly receptive to Toni’s post and the discussion thread thereof.
Toni’s core message is –
Be direct and specific when giving feedback, particularly relating to problems
Don’t be heartless but use simple statements that preclude misinterpretation
Key points the commentators added include
Communicate expectations up front (my early and often mantra) to avoid misunderstandings
Don’t tell the team they have a problem, when you want to communicate to a particular person – do it one-on-one
Be open and interested to find out reasons for why you are where you are (ask and listen, not just talk)
As with all good advice, once stated it seems simple and self-evident. The fact that more of us don’t practice it consistently only points to the need for periodic reminders. Which brings me to the whole running water and rock metaphors of many Zen koans. The Buddha said (with regard to cultivating virtues) diligent practice will work like a “… small stream being able to pierce rock if it continually flows.” Alas this is true not just for virtues but for bad habits like poor or no communication, a constant stream of which can wear down the enthusiasm of even the most motivated team member.
Even one dinosaur brain manager or toxic teammate when not dealt with direct and clear communication can start a tear in the fabric of your organization’s culture. Subsequent failures of communications, however small, only grow this tear till soon all we’ll have left will be shreds! So whether rock or fabric, our organizational culture needs continual renewal through simple, clear and sustained communication – to grow and prosper!
“A customer is the most important visitor on our premises. He is not dependent on us. We are dependent on him,” said M.K. Gandhi. As with many of Gandhi’s teachings, it is hard to disagree with him, but harder still to follow his simple advocacy of direct action.
If your business involves direct interaction with the customers who walk in the door, Gandhi’s advice is a great place to start. However, it is just as likely that your business requires your going to the customer (selling credit cards, vacuum cleaners or consulting services), or shipping your product to customers you have never seen (software, books or mobile phones). Occasionally, as in the case of radio, television or newspaper columnists, it may mean “free” broadcast of your product and very little interaction with customers, if at all. In all these instances without a good number of paying customers, you will find it is hard to run a viable business.
The customer, someone who pays for your goods or services, is what defines your business. So how do you find customers — and having found them, how do you keep them coming back? Will there be times when you want to let go of customers — if so, how do you do it?
Finding customers
“Build it and they will come” may work in the movies, but definitely it is unlikely to work for most businesses. Even if you run a retail store, a barber shop or a restaurant in the most popular mall in town, finding a customer – especially the right, paying customer is non-trivial. And is best not left to chance. If you are not a retail store front but rely on direct or indirect sales folk or other marketing channels to reach your product or service to your customers, it is even more critical that you find the right customers and find them fast.
As an entrepreneur you have to recognise that first and foremost, you are a sales person – regardless of your job role or what it says on your business card. You will be selling to partners, employees, financiers, bankers, suppliers and most importantly to customers.
To find customers, particularly appropriate customers, you begin with understanding what it is you have to offer and who will be best served by it. This determines your target customer segment. For instance, “Mothers of young children will benefit from our childcare service” or “Companies with employees in more than one location will benefit from our Web-based HR tool.”
Now, it is relevant to address “How will I recognise this customer?” In other words, qualifying the appropriate customers within that segment. “Working mothers and mothers with more than one child will find our service particularly useful and be willing to pay for it.” “Companies, with more than 40 employees, offices in multiple cities, revenues greater than Rs 10 crore and profitable will be the most likely buyers.”
Once you have answered these two questions, then it is a matter of locating or reaching out to these qualified, target customers. In the example we have spoken of, we could reach the target segment of working mothers through hospitals or nursing homes, through children’s stores, through their workplaces, or even movie theatres that play children’s movies. And all this is without advertising, which I assume as a start-up, you will not be spending money on.
If you are selling to companies, it is important to go where these companies congregate, be it to a trade show or exhibition, industry associations and consortiums and to partner with companies offering allied services, so that their existing customers become your prospects. The most neglected and important way to find new customers is to ask old customers for referrals! Far too many entrepreneurs fail to do this and leave easy money on the table.
Keeping them
If you thought, finding good, paying customers is hard; keeping them can be harder still. The good news is that “It takes less effort to keep an old customer satisfied than to get a new customer interested,” as Michael LeBoeuf, retired professor of management at the University of New Orleans, says. There are three critical steps for keeping customers. Step one is providing them what they want, not just what you have to sell or offer. Step two is asking them for feedback and actually listening to them – not just to what they say and how they say it but most importantly to what they don’t say. No news is not always good news in keeping customers. Finally, step three is demonstrating through your actions that you have listened to them and improved upon your offering or service.
Letting some of them go
The hardest lesson I have found is that sometimes we have to let customers go. It appears to contradict LeBoeuf’s assertion, made in the previous section, that keeping a customer is easier (and hence better) than finding a new one.
If you don’t let go of the ones that are either not profitable, or not paying you on time and distracting your business with the overhead of running after them, you will find yourself in trouble soon. And these are the easy ones!
Even harder to let go are customers who are profitable, but don’t treat your employees well or with whom you have fundamental issues of values mismatch, the ones that supported you in your early days but are now sucking up all the energy of your company with little or nothing to show for it. And it is critical, that as an entrepreneur you spend time each month and each quarter reviewing and culling your customers.
Yes, you had better have other paying, profitable and prosperous customers to be able to do this – and that brings you full circle to finding new customers, keeping and growing them even as you continue to weed and cull those that are holding you back! So get out there and begin selling!
This article first appeared in the Hindu Businessline in March 2008.
These last six months, I have been doing a good deal of reading; on average maybe two books a week – at least one of which has been a business book! I have gone back to reading books that have been in my library a long while such as Paul Hawken‘s Growing a Business as well as reading new (to me) ones such as A Stake in the Outcome by Jack Stack and Bo Burlingham.
I ran across A Stake in the Outcome (ASitO) while browsing business books at the Easy Library (a great online library with a brick & mortar presence in Bangalore). Having read and been influenced by Bo Burlingham‘s more recent Small Giants, I began browsing ASitO at the library itself. As the saying goes, “When the student is ready, the Master will appear!” Certainly that’s how I felt as I scanned the book quickly right there and subsequently brought it home to read.
Chapter 3 titled The Design of a Business, begins:
Most people, I know, don’t think about the company they’re designing when they start out in business. They think about the products they’re going to make, or the services they’re going to provide. They worry about how to raise the money they need, how to find customers, how to deal with salespeople and suppliers, how to survive. It never occurs to them that, while they’re putting together the basic elements of the business, they’re also making decisions that are going to determine the type of company they’ll have if they’re successful.
I felt someone had just hit me on the head with a two-by-four. Every week I meet someone who is thinking about starting something. Nearly every last one of them talks about their product or service idea and if at all they talk about their company, its only when they intend to “flip-it” (“Built-to-flip” as Jim Collins speaks of as does Sramana Mitra in a recent blog entry). Jack Stack in contrast, states clearly that
Ownership Rule #1 The company is the product
It is worth pausing here and reflecting on his assertion. All too often I see entrepreneurs, young and not-so-young, pitch their businesses as I have heard Hollywood scriptwriter’s do! “Think Netflix but for Indian movies,” “Waiter.com meets iTunes,” “Google but for contextual search.” I’ll refrain from speculating whether the internet bubble begat this or this begat the bubble and what role VCs had to play in this. This focus on what a company does, rather than what a company will be, Stack asserts misses the opportunity to explicitly design your business from ground up. If you haven’t figured it now by now, I agree whole-heartedly.
In many ways, the practices of visionary companies that Jim Collins and Jerry Porras discuss in their book Built to Last have been explicitly operationalized in Stack’s company Springfield Remanufacturing (SRC). The big difference is that Stack’s direct writing style and first-hand experience makes this a gripping read rather than an dry business book. Also unlike most business books that appear to document management’s clever (often infallible) strategies, Stack walks us through both the good and poor decisions they made, as they set out to remake SRC. In the end (in fact in the epilogue), Stack quotes Herb Kelleher, cofounder and former CEO of Southwest Airlines responding to The Wall Street Journal’s question on what he meant when he said Southwest’s culture was its biggest competitive advantage.
“The intangibles are more important than the tangibles,” Kellher replied. “Someone can go out and buy airplanes from Boeing and ticket counters, but they can’t buy our culture our espirit de corps.”
ASitO walks us through SRC’s journey of building such a culture of ownership from that day in 1982 when Stack and his managers did a management buy-out of their struggling engine remanufacturing factory to twenty years hence when their 10cent stock was worth $86 (since then has grown to over $136). Most importantly the authors don’t romanticize the journey and are explicit in periodically setting our expectations with insights such as “Stock is not a magic pill” (ownership rule #4) and “Ownership needs to be taught”(OR #7).
ASitO is a must-read for any one contemplating starting a company or looking to effect change in their organizations through employee participation and a culture of ownership.
A much more detailed summary of the book itself can be found here
In a recent Forbes article, Nathan Bennett and Stephen A. Miles state,
Repeatedly we hear from executives that the talent pool is not nearly as challenging to navigate as is what we have come to call the “values pool.” We suggest that, […], the real shortage facing companies in the future will be less about finding individuals with the knowledge, skills and abilities to do the job than about finding individuals whose personal value system provides a fit with the company’s values and mission.
Anyone who has run or worked in a startup knows how true this is. In our own startup Impulsesoft, at the very beginning (circa 1999) there was no such separation of values and talent. When you are less than eight people, everybody better be able to pull their own weight – but then again the reason you do a startup (at least the reason we did) is to work with people who share your values and vision. It’s when you try to begin hiring beyond the first few – the core team, the importance of values becomes real apparent. We went through four distinct phases in our startup –
[i] can we get anyone else to even join us? we got started without a lot of forethought or planning. We even got our first customer signed up, before we bought our first computer. Now there was the minor matter of actually doing the work. It dawned on us then that with no money, no office and no clear grand strategy could we even get anyone else to join us. We talked a good story I can tell you that – but when our first prospective employee’s dad showed up to check us out, we knew we had a challenge on our hands. However values were paramount at this phase, as we felt we had the talent to get the job, any job, done!
[ii] lets focus on bringing only these three/four folks on board Once we had our share of new college grads (NCGs) come by, wisdom bloomed. We were not going to be able to do it all – hustle customers, write proposals and actually write code – let alone direct the still not-steady-on-their-feet NCGs. By now we’d been talking to ex-colleagues who shared our values and skillwise walked-on-water; they saw that we were not yet dead and realized there might be something here after all. Suddenly we had a core team, that was incredibly talented and well aligned.
[iii] how fast can we hire hands & bodies and bring ’em on board?
Suddenly we were a real business, with customers signed up for products we hadn’t built yet, and paying customers expecting us to support them with prototypes we had shipped as product. The software managers wanted more coders – the hardware folks more designers and everyone wanted more testers – we just went crazy trying to find the “talent pool” – if you could walk, string a set of C code together and didn’t drool excessively, we hired you! Even the talent bar probably got shaky in this phase.
[iv] what the hell where we thinking in phase [iii] When products still didn’t work as advertised and customers were no happier, having paid up even more money and our own managers ready to kill some of their staff, we began wondering what the hell had we been thinking? The questions now were how do we let go of these folks and get folks with the right values and attitude even if we have to teach ’em the right skills? The lesson we learnt was that though we had hired talented folks, they had come up real short in both attitude and vision alignment. Our hiring process about which we had become quite proud (It’s hard to get hired at Impulsesoft, we’d say) had become too much talent focused and too little value focused in phase [iii]; the fact that I am writing this today means we learned from this and while it hurt us, it didn’t kill us. But then again that’s the sort of lesson that stays with you.
Over the last several years, I have written about startups, entrepreneurship and business in general in the Hindu BizLine and Wall St. Journal. I have compiled these for easy access in the column below.
For a business to be viable, money is important. Most of us understand this intuitively and deal with it constantly in our own personal lives. Yet, as runaway individual credit card debt or a cash squeeze in a large company and the occasional sovereign currency crunch demonstrate, it is not difficult to lose sight of where the money goes. Even as capital and sales revenues supply money for your business, inward and outward cash flow management is critical for survival. If you don’t track and control the cash flow in your business, you may not keep your doors open too long, unless, as in the case of Chrysler, an elected government bails you out. It makes better business strategy to understand and manage your cash flow rather than rely on the government to help you with it.
I ran across A Stake in the Outcome (ASitO) while browsing business books at the 
You must be logged in to post a comment.