An Entrepreneur's Lessons Learned

It’s been about a year since I closed up my consulting shop – Economic Information Services. The company provided business consulting services, focusing on Central Asia and Ukraine. Basically, our job was to develop local projects in these regions and find investment capital for them from international sources.

I occasionally find myself comparing work with my current company with my previous venture. Over the last couple of weeks, I’ve been recording retrospective thoughts about how I’d do things differently, and wanted to document them so my readers might pick up a useful tip or two. So here goes…

Understand the concept of “search”

Clients find you when they have a question. One aspect to my business about which I was certain – I knew as much or more than anyone about how business in these parts of the world was done. I attended conferences and events talking to companies considering overseas projects and partners. But I never put myself in a position to display my market knowledge to any of these people until I was engaged in a conversation with them.

I chose to build a traditional website (a.k.a. “a completely worthless use of time and resources”) and spent about $2000 to develop and launch an online marketing brochure that no one read, visited, or could find. Any time that I wanted to update the site’s content, I sent the new content to my web developer, waited a few days (or weeks) for the update, then paid an invoice for anywhere from $250-$500. Not too bright.

I set up Google Ads for key terms such as “Kazakhstan economy” and “Kazakhstan investment.” After 3-4 months of $300+ billing, I saw absolutely no ROI. This doesn’t mean Google Ads doesn’t work. It means that I didn’t know how to use the application effectively. I didn’t use Google Analytics to track incoming clicks. I never thought to research what keywords people searched. I hoped, and thus wasted about $1500 on this failed effort without ever understanding what I was doing wrong.

Had I built my website around a blog, I could have updated the site daily with new content - articles, commentary, observations, essays, and on-the-ground observations from my business travel there. Content, content, content. Given the relative obscurity of companies focusing in this part of the world, my company’s search result rankings could have been among the top in Google.

I failed to embrace search, and as such, I was the one searching for clients instead of the clients searching for me.

Skip marketing. Proceed with selling.

Forgive me Father, for I have sinned. I spent $6000 to host a cocktail hour at an investment conference organized by the Embassy of Kazakhstan.

I thought that this was the way to build a brand – show strength, success, and deep pockets. Hosting a cocktail party is a great way to waste $6000. You can’t possibly talk to everyone that attends. Inevitably, uninvited guests will show to poach free food. The important people that you want to talk to already have a line of people also waiting to talk to them. But you leave the event feeling like you made progress because people know who you are now. Fact is, they don’t even remember that you were there, let alone were responsible for the shrimp cocktail and bruschetta that they downed all night.

Small consulting companies don’t have time to build a brand. The clock is ticking – find clients that are willing to pay for your services.

Charge for services earlier in the client relationship

I was a busy guy. I was up at 5:00 AM nearly every day to talk to our local office in Kazakhstan about what happened that day or what projects they uncovered. I would spend my day translating business plans for local projects; setting up meetings with business organizations, investment promotion agencies, and government contacts for upcoming travel; and providing research to US companies I’d met at conferences and seminars that were interested to learn more about the region and business opportunities.

But I never asked for the business. When someone asked if I “could find out this and that,” I never told them the price or sent an invoice. I put myself in a middle-man situation – representing projects for local clients that couldn’t pay, and talking to potential investors that didn’t want to pay. I did sign some contracts and make some money, but some self-assurace could have improved the revenue flow substantially.

One of the most challenging aspects to consulting is converting a non-paying contact to a paying client. While you need to establish confidence with the client early in the relationship’s development, you also need to be firm about the way that you make money with the client. If they can’t understand it early in the relationship, then they never will.

It’s hard for firms to find good people to do good work. I was both and never leveraged this opportunity to develop clients for myself.

Consulting is not scaleable

I occasionally contacted a friend of mine, an entrepreneur in the technology sector that successfully exited a company that he started. He’d often give me some general pointers on developing my business that were helpful, but I ignored the most important advice he gave. Early on, he looked at my website and asked me if there was something I could do to make the company more scalable - maybe offer some sort of service or product through my website. At the time, I said to myself – “doesn’t he know that I’m in the consulting business?”

Looking back, he knew exactly that I was in the consulting business, and that’s why he asked if there was a way to scale somehow.

Given the depth and breadth of my market information, there was an opportunity to develop a simple project database or a series of industry overview reports. Had I understood the concept of search, those looking for “investment projects in Kazakhstan” or “telecommunications Kazakhstan” would have found my company and possibly purchased access to the reports or project database. At a minimum, setting up a more functional website would have help with client lead development. These aren’t products that would tally much per month in revenue, but in could have provided some minor cash flow, and could have given me a way to qualified leads for myself.

See how this is all related? I do. Now.

Convert Visitors to Leads

Related to the previous point, I could have developed a clear value-proposition on my company website – such as offering a free report by industry (which I developed for a conference and never used otherwise), and perhaps I could have grabbed some contact information from those directly interested in business opportunities in this part of the world. Giving away a market report isn’t going to get you a six-month consulting contract, but at least it would have enabled me get in touch, begin the process, and most importantly, expand my network of contacts.

Developing this process also enables a clear ROI for marketing and sales efforts, to understand more on what gets you clients and what doesn’t.

Accounting Good, No Accounting Bad

Keep better accounting records. Like most entrepreneurs, the mind-numbing activity of tracking receipts and expenses every month lacked the glamour that I sought in running my business. My solution? Ignore it. And at the end of every year, I scrambled to organize my receipts, enter my expenses into Quickbooks (okay, so my wife did all the Quickbooks work….), and crank out some semblance of a balance sheet for my accountant. No methodology for understanding how and why I spent money, and how to determine its return.

When the audit came around from the IRS, I scrambled to prepare (and thankfully passed). When it came time to apply for a home mortgage last month, I was nearly dead in the water. (We’re still working out the details of the loan, but it’s looking positive...)

Know when to quit.

I know - not something you hear often.

Write down your dropout clause at the same time as your business plan. You owe it to yourself and your family to avoid the double-down philosophy of the Atlantic City gambler. Be responsible. Objectively find the point in your venture when you know you’ll stop, and stick to it. I know that there are successful entrepreneurs out there that have cashed in their 401k savings (yes, I considered it), maxed out credit cards, tapped friends and family for loans, and gone to other extreme measures to overcome a dearth of failures. Remember that you only hear about the successful ones. BusinessWeek and Wired don’t write articles about the other 99% that are still paying off their debts from failures past.

Two years into my venture, I reached a decision point brought about by financial constraints (read: “running out of money”). These two years included several trips to Kazakhstan (with a six-month stint to get things going there), meetings, bids on government contracts, meetings with government officials, conferences in Washington D.C., meetings with local project owners, subs-contractor submissions through beltway bandits, meetings with contractors, and a few meetings. (Did I mention the number of meetings that I had?) This activity resulted in a couple of small, sporadic contracts, but nothing that provided long-term financial stability.

An angel investor who believed in me and my company, decided to front the cash for another six months of operations. During that period, we won a sizable local project sponsored by the Kazakhstan government. “Yippee!” I thought. When that project was finally finished about a year later, I was faced with the same financial constraints. We couldn’t find new projects because we were tied up with the first one, local market dynamics didn’t change much, and our ill-conceived method of client development described in detail above left us without the next income source. It was then that I decided to close the doors.

Usually, you’ll hear from successful entrepreneurs that the mistakes were the most beneficial to their long term growth. That’s sort of true. It’s not the mistakes that offer the opportunity for growth, but the acknowledgement and deconstruction of mistakes.

There’s a difference between believing in something, and knowing it. (I once believed in the Easter Bunny...) Blind faith is important – you must always believe in yourself or your idea. Being blind to the obvious signs that your venture isn’t working is downright foolish.

I believe in myself, and that’s why I decided to close the shop. Good entrepreneurs know that there’s more than one good idea. Let the failures work for you, not against you.

Using Salesforce

I'm in process of migrating to Salesforce.com for our company's CRM. Here's what I know so far:

1. Salespeople there are meticulous during the sales process. I'm hoping this is because they're using Salesforce for their CRM.

2. You can get a user "seat" for about $65/month, and set up billing quarterly, semi-annually, annually, or bi-annually. Bi-annual prepayment gets you a discount.

3. I posted a "user case" on my profile, and received a call from a tech guy within a couple of days. He left me a voicemail because I couldn't take his call. I called him back and left him a voicemail. Another tech guy called me back about an hour later and walked me through the answer to my question. He was clear and thorough.

4. If you are using a contant/registration form on your website and you want to fully integrate Salesforce into your sales processes, you'll need to pull out the contact/webform on your website that exists and replace it with the Salesforce "web-to-lead" form.

That's all for now. Still haven't migrated our contact data over because of the day-t0-day fires, but I'm cautiously optimistic. Would be nice to be able to employ a consultant to handle the migration for us. But seeing that we're paying less that $1500/year, I'm not about to pay $2-3K to have someone come in and do this for us. (Though maybe I should, but cash flow is always the challenge in start-up land...)

That's me on IPTV!

My video interview on IPTV on Real Estate Zealot.

Keep in mind that this is my first video interview about Altos Research. This was a one-take deal (i.e. "do-the-best-that-you-can-and-hope-it-comes-out-right") at a Beer for Bloggers session at the recent Inman Real Estate Connect Conference in New York City.

I'm pleased with the outcome. Of course, I am the sales guy at Altos Research, so I should be able to communicate our product the first time, every time....

Sales Incentive Programs

I am currently working with Altos Research, a real-time real estate information service based in Mountain View, CA, in a part-time role. Currently, the sales force consists of the CEO, me, and well, that’s it. My role with Altos is to develop the overall sales strategy and long term organization.

We were discussing the longer term issue of sales territories as the company grows, deliberating over much revenue per sales rep should be the base of a territory, and then looking at how to compensate salespeople. Altos is a service with low customer attrition/turnover – probably less than 5% of the customers that sign up as paying customers cancel their service subscription, with an equal percentage that will likely upgrade their service plans, thus increasing the revenue per customer. A 95%+ retention rate! One of the reasons for this low attrition rate is the incredible level of personal attention and service that we have been able to provide to each customer. A key objective in the long term strategy is to replicate this high level of service as the company grows.

Our discussion turned to a philosophical conversation on how much to focus a bonus/commission structure for future sales representatives on new customer acquisition vs. growing a given territory base.

The key factor to remember with sales people is this – whatever compensation program that you establish for your salespeople is exactly what you will get. If your compensation program rewards new customer acquisition, then you’ll get new customers. But if you do not have a dedicated customer support team – and most start-ups rely on their sales reps to double as customer service reps - you’ll also have to deal with a higher attrition rate as your overall level of customer service will decline.

Salespeople are inherently selfish people, and I mean that in a good way. They often view themselves as the free agents in your company that are seeking to maximize their personal return – that’s why they work on commission/bonus and that’s why they are willing to take lower base salaries as a percentage of compensation than anyone else in a company. So, if your sales programs are focused more on new customer acquisition, then you absolute number of new customers will certainly increase. But at what cost? There will be a trade-off that will be evident in a higher churn rate. If your market has a finite number of potential customers, a high churn will impact the long-term growth of your company. Unless to you able to expand into new markets, you’re sales reps will eventually reach the end of their call list, and going back to prior customers that have dropped your service in the past may be a far more challenging sale.

Finally, it is important to take a look at you customer acquisition costs versus customer retention costs. If your acquisition costs are high relative to your retention costs, and your service is one that provides the ability to constantly upsell and upgrade your current customers, a sales program that drives this behavior in your sales force is probably a better option.

Breeding Partnerships

Last week, I traveled to Canada (including Winnipeg, Regina, and Saskatoon) with a representative from the Ministry of Agriculture of Kazakhstan to continue work on a current project we are undertaking. The representative is the director of an agricultural research facility in Astana, and the goal of the trip to parts north was to discover possible partnerships that may exist between Canadian agricultural organizations and universities, and those in Kazakhstan.

Working on projects such as this, it is always amazing to me what can be accomplished in a single meeting between two interested parties with legitimate stakeholder opportunities in a newly developing project. In this case, Canada is a global leader in grain development, processing, and milling technologies (among many other agricultural sectors).

One example is a meeting with held yesterday at the Western Canadian Farm Show in Regina, Saskatchewan. We met with a representative from the University of Saskatchewan that is responsible for developing international partnerships and liaisons. After discussing the goal of the project in Kazakhstan and the desire to establish connections with their research institutes, we were able to verbally agree to sign a “Letter of Intent” to begin working together that will be signed in the upcoming weeks. For the University, this is an opportunity to transfer know-how and technology to an important international market, and for the Kazakh counterparts, this is an opportunity to expedite the development of their agricultural research facility in Astana.

The meeting was established through significant planning and research from our end on behalf of the ministry to uncover possible linkages between the two parties and countries – planning that began with a simple cold call to the director of the Grains Research Laboratory at the Canadian Grain Commission (CGC) in Fall 2006. Many phone calls, emails, and rescheduled trips later, we were able to procure this and other highly successful meetings during the course of the week.

Not knowing much about grain and grain production in Canada, I relied heavily on the idea of “Investigative Selling” – asking many questions to uncover the possibility of partnership development and understanding the mutual benefit on both sides. This is a topic on which I will write further, but with this successful trip just concluded, I wanted to share this positive experience to those seeking partnerships from organizations and companies that may not appear to be a good match or may seem impractical because of geographic constraints.

Most importantly, it emphasizes the importance of treating partnership development as you would sales development. Without clearly presenting the benefit to the target organization, the chances for moving the relationship forward can be diminished. Fortunately, I was able to find the right person at the CGC who was willing to be proactive and consider the seemingly odd proposal of considering a partnership with a research facility in Kazakhstan.

And finally - if you've never visited Saskatoon in the summer - you are in for a very pleasant surprise. Wonderful city with great people and surprising restaurants. We were in Saskatoon on the first day of summer and finally saw the day creep into night at 11:00 PM, and morning arrive well before 5:00 AM.