Be an Ethical Entrepreneur, Marketer, and Business Builder

This 1 thing would have made the $70k minimum wage successful

The Gravity Payments announcement that the CEO, Dan Price, was taking a $930,000 pay cut to pay his team a minimum wage of $70,000 has recently caught headlines again because it doesn’t seem to be working.

It would be easy to point out the obvious problem with this approach, the same one Walmart is experiencing when they raised their minimum wage, that when you pay people for just showing up, you violate the social contract that employers and employees have that more talented, hard-working employees should earn more.

In other words, when people don’t earn a raise, (i.e. it’s just given to you as a minimum) it upsets those who have earned a similar raise or a very close amount.

However, that’s not the biggest problem with the Gravity Payments minimum wage.

The biggest problem, as-is generally the case, was Price’s ego.

If Mr. Price’s primary motivation was improving the way of life for his team members and he was happy to redistribute his wealth to do so, that would truly be a noble and generous act.

To ensure it’s success he only had to do 1 thing:

NOT TELL ANYONE

That’s it.

Had Price met with each person individually on his staff who was making less than $70k/year and told them, “Hey, I think you deserve an increase in pay and we can’t afford to do it all at once but over the next few years, we’re going to work hard to bump you up to $70,000/year,” it would have likely been an extremely successful adjustment.

  • The longer term employees would not have felt unfairly treated because other, less-effective team members were now making as much as them.
  • The people who received the raises would have actually worked harder (particularly if he gave them specific, actionable feedback as to WHY they received the raise).
  • The public, political pundits and the press would have not ever known about it to debate it and his customers wouldn’t have left because of his perceived socialist experiment.

Price, unfortunately decided to take a different approach.

He setup a video camera, held a company-wide meeting, recorded himself announcing the minimum wage to his team and then shared that video with the media heralding himself as a generous and benevolent leader.

His actions fall under a simple concept I try to live by, “If you have to tell people you’re smart, funny or nice, you’re not.”

In other words, because he had to prove to the world that he is such a great guy and an example to be modeled by CEO’s everywhere, his plan backfired.

If he was a looking only to improve the lives of his team and never told anyone that he took a $930,000/year pay cut to help them, he would have been a great leader because his concern would have been solely for others.

So the question is, if it was that simple to execute properly, and it was, why didn’t he do that?

Since I don’t know Price, my insights about him come mostly from his actions however these 4 explanations are more of a reflection on shortcomings all successful entrepreneurs will struggle with at some point in our growth.

  1. Ego – “Pride comes before the fall”, are words that ring true for all of us and who wouldn’t want to become the national face of such a hot topic?
  2. Greed – Let’s face it, when you stage something like this along with video recording the meeting and interviews on national TV, you are trying to get free exposure to your business. There’s nothing at all wrong with free publicity. Unless you do it at the expense of your team while claiming it’s for their benefit. My guess is Price took a calculated risk to temporarily reduce his pay and then increase his income again (through a salary increase, dividends, a stock sale or sale of the entire business) as a result of increased sales coming from the low-cost PR.
  3. Political Agenda – Being a 31 year old with a 7-figure salary tends to inflate your self-worth so potentially he thought he could be the first person to prove socialism works. Or maybe he just thought of it as charity since he was donating his own salary and profits. (And by me mentioning this am I hypocritically pushing my political agenda? Sorry, it’s hard not to do.)
  4. Lack of leadership – As Simon Sinek reminds us, great leaders eat last. It doesn’t work the same way when you do something good so you can get personal media attention to show everyone how great you are.

This may look like I’m picking on Price…

Ok, I am.

But, unfortunately, this would be an instance of the pot calling the kettle black as I’m surely guilty of ego-driven mistakes in business.

However, when a situation this unique and popular comes to the forefront due to national media attention, it gives us the opportunity to learn.

And that’s my goal. To articulate both the good intentions and poor execution of this strategy, and separate the 2.

Dan Price appears to be a sincere, hard-working, intelligent and successful guy and his mistakes in executing a $70,000 minimum wage don’t change that.

Hopefully, this will help him, and other business leaders, consider that you CAN achieve seemingly impossible things (like a $70k minimum wage) when you become a servant leader and put the needs of your team ahead of your own ego.

Dan, if you read this, I truly appreciate your good intentions and hope my advice can help you execute better servant leadership going forward since that appears to be your goal.

To humble, servant leadership, Bryan

The 3 Non-Leadership books every Leader, Teacher and Parent should read

I realize that might title is a bit redundant.

A great leader IS a great teacher and vice-versa.
In industries, like internet marketing, where the amount of information doubles every 8 months, the ability to teach your team may be the single most important aspect of leadership.

So with that in mind, if you want to be a leader on one of my teams, these are the 3 books you need to read and live.

Mindset: The New Psychology of Success by Carol Dweck

If there was a single book that taught you how to be a great teacher and thereby a great leader, this is it.

Each day we are all faced with success and failures and we respond in 1 of 2 ways:

  1. Fixed Mindset – Each mistake is validation that you aren’t smart, talented or good enough. Conversely, every success tells you that you are innately “gifted” which is very dangerous because then you stop looking for challenges where you might fail and therefore not validate your “gifted” status.
  2. Growth Mindset – Each failure and success are a means of learning. You either learned what you wanted (i.e. succeeded) or you didn’t (i.e. failed). Either way, you have more to learn, further to go and higher mountains to climb. Your mind is ever-expanding and intellect can always grow.

Our team has summarized this in our Culture Statements as:

Learning from other’s successes is extremely valuable however sometimes learning from our own mistakes is more memorable. We embrace our mistakes, learn not to repeat them, and therefore are constantly pushing the limits to get better.

If you only have time for one leadership or teaching book, Carol Dweck’s book is it!

The Talent Code: Greatness Isn’t Born. It’s Grown. Here’s How. by Daniel Coyle


It wasn’t blind luck that the greatest concentration of artists, sculptors and painters of all time just happened to live in the same area of Italy over a 60 year time frame in the 16th century.

It’s also not chance that the small, dingy school where Anna Kournikova learned to play tennis, at one time produced 4 of the top 50 greatest players in the world.

It’s by design that the Dominican Republic has an unmatched density of great baseball players and, amidst abject poverty, Brazil has produced some of the world’s greatest players and teams consistently for nearly 50 years.

There’s a system and a code to “talent”. It’s not merely innate and it’s not simply about working for 10,000 hours on something. It’s about mindset, commitment, and breaking down the skill or talent to it’s essentials.

Daniel Coyle tells you exactly how and it’s as inspiring a read as you may ever encounter.

Emotional Intelligence: Why It Can Matter More Than IQ by Daniel Goleman


Think for a second of the tests that you may have taken to measure your intelligence.

  • IQ Tests
  • SAT’s
  • ACT’s
  • College Exams
  • High School Exams

Of the tests listed above do you know which one most closely predicts success in life?
None of them. None can be correlated to job, income, happiness or any other measure of success.

But there is a test that can.

It’s called the marshmallow test.
Put a 3 year old in a room. Give her a marshmallow and say, “You may eat the marshmallow. Or you can wait a few minutes until I come back and I’ll give you 2.”

If she waits, she understands the value of delayed gratification – working hard and sacrificing now to receive something better in the future – and it will predict her future success more accurately than any other test.

That’s one of hundreds of examples that illustrate that Emotional Intelligence (EQ) is more important in our lives than IQ.

Goleman also provides great examples of how to teach 3 to 93 year olds how to improve their Emotional Intelligence and better empathize with those around us.

Those were listed in the order of importance so start at the top and work your way down.

To your success in becoming a great, teaching leader,
Bryan

Is it possible for your business to accurately track lead sources?

If someone sees my service truck while my radio ad is playing, and later sees my TV commercial, and then gets on their iPad and searches for my business, how can you possibly track the effects of each one?

By watching the “pulse” of your marketing through your online laboratory.

So let’s start with that heart rate…

When you fly over the red rock formations surrounding Moab, Utah you can’t help but be fascinated by the unique beauty of the area.

Park Avenue in Arches National Park near Moab, UT

The sun setting on Park Avenue in Arches National Park near Moab, UT

Arches National Park is truly one of the most beautifully mysterious corners of the planet.

It’s one thing to see it from the comfortable, encapsulation of a commercial jet at 30,000 feet.

However, sitting in the back of a small prop plane with the door removed for effortless mid-air exit and a man strapped to your back, the thoughts of the intense beauty fade into the background drowned out by the idea you’ll soon be hurtling toward those red rock formations at 120 mph.

For a fleeting moment, you consider the wisdom of this particular adrenaline rush…
Then, over the roar of the wind, you feel the “signal” from a wild-eyed, greying jump instructor looking for the “OK”.

You’re only option is to give the thumbs up and juuuuuuuuuuuuuuuuuuuump.

If you’re a data-junky like me, when you go skydiving, you wear your Garmin GPS watch with heart rate monitor.

Looking at the data, it wasn’t hard to tell when we stepped out of the plane.

My heart rate spiked!

Interestingly enough, when you have the monitoring tools in place, your marketing impact can actually be tracked the same way as your heart rate.

Just as your heart rate is an important measure of overall fitness, your online activity is the core of any marketing plan. When you launch marketing offline that generates interest in your market, you can see that spike in activity online.

Tracking your lead sources

Is marketing so complex that it’s become harder to track lead sources instead of easier?

If you understand the goal of each lead source, you can track the effect of each lead source more accurately than ever before.

All marketing is not independent of each other. If executed well, all marketing works together with the focal point being the internet.

Have you ever put a call-tracking number on a TV ad, radio ad, or billboard? Did you get many calls? Probably not.

But did you measure the effect that had on your online search volume?

Just because you didn’t receive calls doesn’t mean that marketing didn’t work because most people do not respond to TV commercials by immediately placing a phone call. Instead we get online and do some research.

The exciting part is, my heart rate monitor doesn’t care if I’m running, sky-diving, or car racing, it still measures the change in my heart rate.

Your online search volume can be tracked the same way when you have the right tools in place to measure the impact of all of your marketing.

The Optimized Marketer’s Funnel

Now you need to understand the GOAL of your marketing.

To address this you need to use the Optimized Marketing Funnel.
Optimized_smallGraphics
Unlike your normal “Sales Funnel” an Optimized Marketing Funnel is upside-down. The wide part is on the bottom instead of the top.

The problem with the traditional funnel is that it doesn’t really help us understand the marketing process because:

  1. Everything you put in the top of a funnel comes out the bottom.
  2. Everything you put in the top of a funnel naturally moves along thanks to gravity.

Unfortunately, in the real world neither of those 2 points are true, which is why an upside-down funnel is so much more useful.

Now that you have an upside down funnel, imagine all of your inquiries are being fed in the bottom and are climbing their way up the walls.

For anyone to come out the narrow top of the funnel we need a driving force to help them out. That force is a combination of your Value Proposition and Branding.

Without that force, people will just naturally fall out.

For example, if I see your TV ad and go online to search for your business but you don’t show up in the results, guess what happens? I fall out of the funnel. Naturally. With no effort on your part.

  • What if I see your Google Ad but I like one from a competitor more? Fall out…
  • What if I click on the Ad but your landing page doesn’t solve my problem? I’m falling…
  • What if I fill out a form on your website but you don’t call me back for an entire day? aaaaaaahhhhhhh…

That little image of an Optimized Funnel brings up a few crucial points.

  1. You will naturally lose people at every step in the process so you should measure every step.
  2. The goal of each marketing piece is not to generate a lead. The goal of marketing is to have the prospect go to the next step and move them further up the funnel.
  3. You can measure what works (and what doesn’t) at every step and use that information to improve the entire funnel.

Without defining and understanding that your goal is to get the prospect to take the next step, you’ll never be able to track the effectiveness of your marketing.

Here’s why…

If you run a TV ad, your prospects go online to search for you and they can’t find your website, you won’t get any inquiries and you may say, “See, that darn TV didn’t work!”

In reality, you can measure that TV did indeed work but your web presence is what failed.

Let’s take this one step further and define the goal of each marketing medium.

All of your marketing should be categorized as Interruption Marketing or Response Marketing.

Interruption marketing simply means that, as a consumer, you didn’t ask for me to market to you but I did anyway. Television, radio, direct mail, billboards and even online display advertising are all Interruption marketing.

The goal of Interruption marketing is to generate interest. Period. If you define its goal as generating a lead, you’ll have almost no way to track how well it works.

Google Changed Everything

Google did something amazing and a bit scary to the marketing world. For the first time in history, we, as marketers, are able to read the minds of our prospects and respond immediately.

Google is our therapist as we type all our problems into that magical little search box.

In Response, we can market to people with a problem for which we have the perfect solution. That is Response Marketing.

The defining characteristic of Response marketing is that the consumer is asking you to market to them. Yellow pages, email opt-in lists and remarketing campaigns can also be considered less precise forms of Response marketing.

The goal of Response marketing is to generate a contact or inquiry.

Measuring the Net Change

To determine the effectiveness of your marketing, you can only measure when something changes. An engineer or scientist conducting experiments might refer to this as “isolating each variable”.

With a heart rate monitor strapped to your chest, it’s very easy to see when something changes. You engage in some cardio and your heart rate goes up.

However, if you never measure your resting heart rate, it’s hard to tell just how much of an impact different workouts have on you.

In marketing, if you are running radio, TV, direct mail, branded delivery trucks and search marketing at the same time, and you ask my team to tell you which is working, it’s nearly impossible.

Why? Because nothing has changed. Your heart rate is never at “rest”. We haven’t isolated any variables.

Instead, if you are running radio, delivery trucks and search marketing, and then ask us to track the effect of an upcoming TV campaign, now you have a baseline and a change to measure.

Even when our customers don’t tell us about these changes ahead of time, we often notice the spikes in our data shortly after an effective offline change.

To your success in accurately tracking your marketing,
Bryan

P.S. To my knowledge, there’s no other company that offers this level of data analysis for small businesses with internet budgets as low as $800/month. Contact me if you’d like to increase your leads by only investing in marketing that you know is working.

The 3 Videos Every Leader and Manager Must See!

Simon Sinek – Leaders Eat Last

Power corrupts and absolute power corrupts absolutely. There’s no harder challenge for leaders than to ignore their power and instead focus solely on serving their team. Simon is being interviewed by Glenn Beck and tells the best short story I’ve ever heard to help keep leaders grounded by the fact that they exist to serve not be served.


Dan Pink – Drive – The surprising truth about what motivates us

Autonomy, Mastery, Purpose – Every human being desires these 3 things and Dan breaks this down with unbelievable clarity. He also shares the downsides of commissions and incentives in many job positions.


Shawn Achor – The Happiness Advantage

Everything you know about success and happiness is wrong. You will NOT be happy once you are successful. The truth is, you will be more successful if you are first happy.

15 Must-Follow Rules for Retiring Wealthy

retirementAs someone who has owned 4 businesses before my 30th birthday, family and friends regularly ask me about investing, retirement planning and overall, what are the best ways to have more financial security.

Follow these simple rules and you’ll be well on your way.

Top 15 Rules for Retiring Wealthy:

  1. Always spend at least 10% less than you make. Always have a savings plan and understand that most people who “look” wealthy are just in a bunch of debt. Don’t be that family. Look comfortable and BE wealthy.
  2. Spending, Saving and Giving are all habits. If you spend every dime when you make $2,000/month, you’ll spend all that you have when you make $20k/month. Develop spending, saving and donating habits immediately!
  3. The quickest way to “make” money is to pay off debt starting with the highest interest credit cards and loans first. It’s a guaranteed Return on Investment (ROI).
  4. Never put more on a credit card than you can pay off each month. If you can’t pay it off each month, shred the credit card and pay with cash or debit cards for everything.
  5. Once the high-interest debt is paid off, save up 3-6 months in savings for a rainy day.
  6. Know your budget and don’t break it. How much are your housing costs? gas, grocery bills, Starbucks purchases, gym memberships, car payments, insurance, cell phones, internet, cable TV? Track your purchases every month (Mint.com is a decent way to do this) and make sure they are under budget. Reward yourself with a dinner out or other fun activity for each month the budget is met. Just make sure the reward is also budgeted. 😉
  7. Compound interest is the most amazing invention in the world so invest early and often.
  8. Max out any employer matching 401k’s or IRA’s. It’s like getting a guaranteed 100% ROI.
  9. Never consider your primary home an investment. By the time you pay utilities, taxes, maintenance, interest, and insurance a home is nearly always a loss. However, that’s not the goal of a home anyway.
  10. Short-term investing is extremely hard to do well. Long-term investing is extremely easy to do well.
  11. Learn how to minimize taxes legally. Taxes are your biggest individual expense BY FAR.
  12. Statistically speaking, money managers don’t know jack. Very, very few are accurate over the long-term.
  13. The most expensive thing in life is ignorance. Investing, like everything else, takes some homework and a commitment to learn.
  14. Never buy toys with debt. If you can’t afford to pay cash for motorcycles, quads, dirtbikes, jet-skis, razors, boats, vacations or anything else non-essential, then you can’t afford to have them. In other words, ONLY consider debt to buy a home, business, primary vehicle and some college degrees.
  15. Delayed gratification is the number one predictor of long-term success. It’s more accurate than IQ, EQ, SAT’s, ACT’s or any other tests ever administered. In other words, spending an extra $10k to get a nicer car today can mean having $50k less when you go to retire. Discipline yourself to be an expert at delayed gratification.

Here is one of the best articles I’ve come across for a nearly foolproof plan for a healthy retirement. It lists out exactly where to invest your IRA and 401k dollars each year.

Start with the book that is referenced, If You Can: How Millenials Can Get Rich Slowly, as it is only about 35 pages long, costs less than $6 and is available for Kindle.

Warren Buffet (one of the top 3 richest men in the world for several decades) told us 30 years ago the simple secret to investing and he predicted, quite accurately, that almost no one would listen.

Do you think there are any other investing or money-management rules that are missing?

To your healthy and secure retirement,
Bryan

photo by:

Optimize Your Marketing Budget with 1 Simple Concept You’ve Never Heard

When Search Engine Marketing (SEM) was invented, the entire marketing world was instantly and forever changed.

For the first time, we could actually read the minds of potential customers as Google became our therapist to solve all our problems.

Psychographic and demographic information paled in comparison to responding in real-time to the thoughts of consumers. It created an entirely new type of marketing – Response Marketing.

Prior to that, we really only had Interruption Marketing.

The difference?

Response Marketing presents a message to a consumer in response to an action he or she has taken.

Interruption Marketing presents a message to a consumer without any input from the consumer.

Here are a few examples of both…

Response Marketing Examples:

  • Search based – Results shown in search engines like Google, Yahoo, YouTube and Amazon
  • Survey based – Whether on a website or in an email
  • Event/Action driven communication – You spent $100 at a business so they send you a 10% off coupon for your next purchase. You bought a pair of running shoes so they recommend some running socks.

Interruption Marketing Examples (everything else):

  • Display Advertising (Google Display, Facebook, LinkedIn)
  • Billboards
  • TV (though Google is working on changing this to response)
  • Radio
  • Newspaper
  • Direct Mail

As the founder of a company that specializes in Search Engine Marketing and Scientific Websites, obviously I’m going to tell you Response Marketing is the best way to spend your money…

However, that’s not true…

Yes, Response Marketing CAN be an amazing, cost-effective, and powerful form of marketing but it can only work if a few conditions are met.

  1. People must know they have a problem.
  2. It’s something people actually research. When was the last time you did a Google search for toilet paper?
  3. There are many people searching for it.

When you understand the difference between the 2 types of marketing you will better know when to invest in and how much to spend on Response and Interruption Marketing.

For now, forget about ONline vs. OFFline marketing since both can be Interruption or Response marketing.

Let’s look at a few examples starting with the extremes.

When should your entire marketing budget to be focused on Response Marketing?

When you have a consumer who knows he has a problem, researches the solution to that problem online, and there are a sufficient number of people searching online to meet your sales goals.

Most often this occurs in highly competitive industries in competitive markets because then it’s just a matter of being the BEST online.

Think of it this way, if you are the only one in your market selling your new widget inventions, very few people are searching for your widgets because they don’t know about them.

However, if you have 20 competitors selling a similar widget and at least a few of them are marketing, people in your area will be searching for your products. All you have to do is have the BEST online Response Marketing out of your competition.

When could your entire marketing budget to be focused on Interruption Marketing?

When people have no idea your amazing product or service exists and so won’t be searching for it. My business, Optimized Marketing, is this way since our scientific approach to online lead generation is completely unique and we only work with very specific industries.

With Interruption Marketing you have a very difficult task ahead of you. You need to generate enough interest in a very short amount of time (the time of a billboard, radio, TV or direct mail ad) to get someone to take an action.

Historically, that action was to contact you and sign up for services.

Unfortunately, that’s a large leap to ask someone to take. A much smaller leap is to generate enough interest through Interruption Marketing that she is curious enough to search for you online.

In other words, when looking at the entire Sales/Marketing Funnel for your business, at some point, all marketing can turn into Response Marketing.

If your web presence hasn’t been optimized to convert those searchers to contacts, that gives your competitors a great opportunity to steal the leads your Interruption Marketing is generating.

And vice-versa.

How much of your budget should be allocated to Response Marketing?

As much as gets a solid ROI. Then put the rest into Interruption.

There are 2 major factors in determining how much to invest in Response Marketing:

  1. How many people are searching for your products.
  2. How much you can spend and still get a great ROI.

If only 100 people each month are searching for what you provide, SEO and SEM are going to provide very little help for you. Your goal at this point is to get more people searching through Interruption Marketing.

However, if you spend $1000/month online and get 20 leads at a cost of $50/lead and your other marketing is generating leads for $75, keep increasing your Online Response Marketing budget (i.e. SEO, SEM and online testing) until your lead cost is higher than your other sources. A previous blog addressed how you can learn to balance out your online lead volume and cost.

Once your Response and Interruption lead costs match, invest more in Interruption knowing that your online Response system is already well-optimized to handle the increased searches.

Your 3-step summary to optimizing your marketing budget

  1. Implement a testing strategy to get a strong ROI from your Response Marketing.
  2. Keep increasing your Response Marketing budget until the ROI no longer makes sense.
  3. Invest in Interruption Marketing to increase the volume that your optimized web presence will be able to turn into contacts for you.

To better balance between Response and Interruption marketing,
Bryan

P.S. If your service-based business has at least a $1000/month online marketing budget and you would love to turn your online presence into an optimized Response Marketing machine, get in touch.

Why WhatsApp is NOT everything that’s wrong with the economy

By WhatsApp Inc. (http://media.whatsapp.com/) [Public Domain], via Wikimedia CommonsFacebook recently purchased a startup with no profits for $19 billion dollars in the largest tech acquisition in history.

The venture capital-backed, tech startup world is rife with problems as I’ve blogged about before.

However, Robert Reich has brought up one of the more popularly alleged economic problems.

He claims the problem is that tech companies like WhatsApp are hurting the economy by not creating enough jobs.

In Reich’s words:

Productivity keeps growing, as do corporate profits. But jobs and wages are not growing. Unless we figure out how to bring all of them back into line – or spread the gains more widely – our economy cannot generate enough demand to sustain itself, and our society cannot maintain enough cohesion to keep us together.

In other words, Mr. Reich is saying, “55 employees were able to make a business worth $19 billion dollars serving 450 million people and that’s not fair. Why do such a small group of people deserve so much?”

Of course, he offers no solutions other than to mention income inequality implying that it’s the fault of successful companies like WhatsApp for being successful.

Venture backed start-ups with insanely high valuations, minimal revenue and no profit have all sorts of issues.

But not creating enough jobs is not one of them.

Remember the Luddites rioting to destroy new machines that made the textile industry more efficient back in the 18th century?

Richard Arkwright invented his cotton-spinning machine in 1760 which became one of the main instigators of the Luddite riots.

After all, the cotton-spinning machine would displace the jobs of all of the seamstresses who used to make the clothes by hand, right?

In 1760, there were about 7,900 persons in England engaged in production in the textile industry. In 1787, 27 years after Arkwright’s invention and only 8 years after Ed Ludd destroyed 2 stocking frames allowing his name to become synonymous with all the machine destroyers, there were 320,000 people employed in textile production in England.

Why did more efficiency results in a 4400% increase in jobs?

Because with increased efficiency came lower prices so, instead of having 2 sets of clothes, people could afford to have dozens.

The same complaints have been lodged against every major technological advancement.

Every time we progress, the Luddites come out claiming this time the new increase in efficiency is going to hurt the public by reducing jobs.

The exact opposite is true.

About two centuries ago, the majority of America was an agrarian (i.e. farming) society.

However, the invention of farm machinery didn’t result in the majority of Americans starving because they were no longer needed on the farm. In contrast, less people on the farm meant more people inventing, building, and creating other things.

At its core, economics is very simple.

If something increases efficiency it’s good for the economy. If it decreases efficiency it’s bad.

WhatsApp figured out how to connect 450 million people with only 55 employees. That sounds hyper-efficient to me.

Our knowledge-based economy has seen the fastest and greatest improvements in efficiency and leverage the world has ever known.

The end result of that increased efficiency is always an improvement for society.

Massive fortunes were made by Rockefeller, Ford and Carnegie when we transitioned from an agrarian to an industrial economy.

More recently, Gates, Zuckerberg, Page and Brin have been richly rewarded in our transition from an industrial to a knowledge economy.

Would we all be better off if none of them were allowed to reap the rewards of their creations?

You have 2 options

Become a Luddite, slow down technological innovation, and reduce the reward for being an innovator by asking the government to intervene.

OR

Learn what it takes to excel in the knowledge-based economy and join the successful companies that are improving our lives.

Time will prove, once again, that Robert Reich, despite all of his experience, power, and prestige, is no different than Ned Ludd whose name became synonymous with the machine destroyers’ failed attempt to halt progress.

The problem is education

The problem is not our exponential increases in efficiency.

The problem is an education system that was built at the beginning of the industrial revolution and is still designed to teach students to be good “workers” instead of great thinkers.

As the owner of a marketing tech company who has been almost steadily hiring for 2 years, I can assure you that the education or degree of people who succeed on my team is irrelevant.

A particular degree, or college education at all, cannot predict job success as well as cognitive reasoning abilities, emergent leadership, the ability to learn quickly, a passion for your expertise and a willingness to make mistakes while admitting when you are wrong.

Google recently revealed their top 5 hiring attributes and indicated that the number of people at Google without degrees is increasing.

So whether it’s Twitter, Google, Facebook, WhatsApp or my company, Optimized Marketing, fast growing companies that understand how to leverage technology are coming to realize that relying on someone’s particular degree or level of education is not a good predictor of future job performance.

In other words, our education system isn’t reliably producing people with the skills we need.

The problem isn’t successful companies.

The problem is we haven’t yet learned how to educate students for the knowledge economy.
Don’t blame successful entrepreneurs for not making more jobs.

Celebrate their success and start teaching more people how to do the same thing.

There’s a reason Ken Robinson’s below TED talk explaining how schools kill creativity is the most popular TED video ever with over 25 million views.

Mr. Robinson’s talk is popular because he’s right.

Whether creativity comes in the form of becoming the dance choreographer who wrote Cats or the founders of a successful startup company that sells for billions, creativity is the solution.

Taking away the rewards of creativity, as Mr. Reich seems to be implying, would further hinder creative pursuits and not help anyone.

Imagine what the next 100 years will look like if we are all allowed to “come up with original ideas that present value”, as Mr. Robinson defines creativity.

To your passionate, creative success,
Bryan

P.S. For more examples of technology increasing employment in various industries, check out Henry Hazlitt’s Economics in One Lesson.

All Great Businesses are Inherently Moral

This fact has been proven time and time again by modern business and human psychology experts.

No business that exists exclusively for profit, without the advantages of corporatism or cronyism, will ever be very successful and certainly not over the long-term.

This is not my opinion. This law of business is as well established as the laws of gravity.

By a great business I very simply mean a profitable enterprise that lasts for an extended period of time. An unethical business can fool people for a short time however it cannot fool them for very long, particularly in the age of social media.

Business experts from a few decades ago called this vision and mission. Brad Sugars in Instant Team Building insists on vision, mission, and culture points. Tony Hseih in Delivering Happiness calls on vision and culture statements. Mike Michalowicz in The Pumpkin Plan has his immutable laws. Sam Carpenter references his Rules of the Game in Work the System.

Jim Collins in Good to Great discusses the requirement of all great businesses to have a “Hedgehog concept.”

One of the primary findings in, Built to Last, that contradicted the teachings of many MBA programs, is that businesses that have survived and excelled over time were often the ones that were centered around a core business concept, not a great product.

Let me summarize a major portion of all of those books very succinctly…

The compass for lasting business success always points you in the same direction.

The compass for long-term business success will always point you in the same direction.

Every great business expert knows that a business MUST be motivated by something more than profit to inspire your team, stay focused and even maximize profits.

If you’re still not convinced, pick up a copy of The Loyalty Effect by Frederick F. Reichheld and read about the numerous studies that have shown that companies who downsize in the interest of short-term profits rarely ever recover and often their stock prices suffer for a very long time. Obviously there are necessary times to downsize and appropriate ways to do so, but to simply improve next quarter’s earnings is not one of those times. As a general rule, downsizing is best treated as a last resort.

In The Millionaire Mind, Thomas Stanley discovered that the #1 thing millionaires attribute to their success is “being honest with all people.” (And 88% of the millionaires he surveyed achieved their wealth through entrepreneurship.)

Marcus Buckingham’s research in First, Break All the Rules: What the World’s Greatest Managers Do Differently demonstrated that pay is not even in the top 5 reasons people stay at or leave a job. Through 20 years of research with 20,000 managers and over 80,000 interviews, he has developed 12 questions that do show what motivates people and pay doesn’t even make the list.

In other words, money is not the primary motivator for people and all businesses are run by people.

Dan Pink takes it a step further in the below video. Through extensive research in the psychology of motivation he shows that for someone to truly excel they need Autonomy, Mastery and Purpose. If your boss, the corporation, or the government is dictating what you should do, there goes Autonomy. If your “hedgehog concept” is to maximize profit, then you’ve thrown Purpose out the window.

A non-crony entity that exists primarily for profit will never be a very successful business and every great business leader knows this. The idea that companies should be immoral is as old as Machiavelli and it was as wrong then as it is now.

If you work for someone who runs an immoral business, start educating them that there is a better, more prosperous way. As a matter of fact, help every business leader and employee you know appreciate the long-term business benefits of running an ethical, moral business.

It’s truly the only path a business can take to succeed over the long-term.

To your ethical business building success,
Bryan

P.S. My team’s number one culture point is Love and we try to live it as best we can. It’s not easy and we don’t always succeed but it is our most core value. I highly recommend you infuse it into your culture.

The best way to grow your business without venture capital or outside investments

In our current internet economy, you can flesh out the viability of almost any idea for very little money.

These are the first steps. Get customers. Get revenue. Get profit.

Bill Gates sold DOS before he owned it in the Pirates of Silicon Valley.

Bill Gates sold DOS before he owned it in the Pirates of Silicon Valley.

Your best option is to sell something you don’t have. Yet.

Bill Gates did this in the movie Pirates of Silicon Valley when he sold DOS to IBM before he bought it. Watch the movie. It was brilliant.

When I started my Performance Engine Tuning business, I got my first client and check before I invested a penny in the $2500 oscilloscope I needed to troubleshoot engine sensors.

When I started business coaching, I got my first 2 clients before I had any coaching systems in place. I quickly made them from the systems I had developed at my previous business though, and 3 years later those clients are still with me.

When I launched my internet marketing business, I received my first check to build a website before I knew how to build a website (unless you count that one I built on GeoCities in 1996).

Are you seeing a pattern here?

In all of those instances, I delivered what I promised and more, even though I had nothing to provide for my clients when they first paid me.

The only way to know if you have a good idea is to find someone to pay for it.

Get cash without giving up ownership or taking on debt.

Raise capital without losing any ownership or starting your new business by taking on debt.

If you absolutely need capital to make your idea work, probably the best option for “selling” your idea and finding customers is CrowdSource Funding with websites like KickStarter.com.

CrowdSourcing is brilliant because people give you money before you have a product.

  1. You get money
  2. You prove your idea has a customer base
  3. You retain 100% ownership and control.
  4. You even get some free marketing in the process.

KickStarter lends itself more to product-based businesses where you can provide an easily replicated product to your KickStarter investors.

In some instances you do need cash. Let’s say you have a complicated software product that is hard to “sell” without showing people it’s available.

Then do what ZenPayroll.com did and write some blogs, get some articles written about you, market on Google Adwords and Facebook ads to send people to a landing page where they can opt-in to your email list to be kept up-to-date on your products.

ZenPayroll started doing this before they had a product to sell. I signed up for their email list months ago and look forward to when they have a product that works in the 4 states I employ team members.

Building an email list isn’t nearly as good as getting money out of people, however having an email list with thousands of names on it before launching your product is a huge advantage.

Even authors know that you build your crowd first, through blogging and social media, before you write your book. That way when your book comes out you know it will sell and publishers will be lining up to work with you.

With the cheap 3d printers, you can build, test and sell prototype parts one at a time without expensive manufacturing contracts.

The bottom line is, there are dozens of inexpensive ways to get customers or very interested prospects before you have a product.

The Scaling Trap

Like all of my businesses that I mentioned above, do everything manually first, then once you know their are people willing to pay you, start systematizing, automating, and streamlining so that you can eventually scale.

NEVER scale your business before you have paying customers.

Here are a few other great options for your first business.

  • Start in an incubator. There are hundreds if not thousands of colleges around the country with incubators. These often provide cheap rent and access to professors and other entrepreneurs who can provide you with good advice. It’s also a good way to network with other startups to find new clients.
  • Buy an existing business. Five years after buying an existing business, 80% of them are still around. The reason for this is pretty simple – no one buys unprofitable small businesses. So if you’re buying a business, all you should have to do is “fix” a few things in the business to increase its profitability. If possible, buy a franchise. It’s also easier to get funding to buy an existing business with SBA 7a loans.
  • Grow the business profitably. This is the route I’ve always taken and the one promoted in Rework by Jason Fried. Only grow as fast as you can maintain profitability. This forces you to bootstrap and quickly weed out inefficiencies. The fewer inefficiencies, the more profitable you become, and the easier it is to grow in an ever improving cycle of growth.

How to raise money for your startup

Debt is not inherently bad and, when well-planned, can be very useful.
One of my first businesses was a house I bought in college to rent out rooms to save on my own rent.

For that business, I had to take on debt to buy the home.
It was a great investment and the same can be true for a lot of business debt however not all sources of capital and debt are equal.

Preferred methods of obtaining capital in order of highest to lowest preference:

  1. CrowdSourcing – You get money, retain 100% ownership, have not debt and receive free marketing.
  2. Banks – They generally charge very reasonable interest rates, you still retain 100% ownership, and they don’t tell you how to run your business.
  3. Family and Friends – Be very careful with this as you don’t want to sacrifice valued relationships and you don’t want to invite your friends and family to “dictate” what you should do with your business. Ideally you won’t need this until your 3rd-4th business once you have a proven track record of success and you’ve made most of the dumb mistakes we all inevitably make.
  4. Employee Owned – Employee-owned businesses can provide a great source of cash as well as a highly-committed team.
  5. Venture Capitalists – Once you’ve proven to have a profitable business, have worked out most inefficiencies, and are ready to scale, this can actually be a reasonable option.
  6. Go Public in an IPO – You only do this when you need 10’s or hundreds of millions of dollars. The costs to meet SEC regulations alone will run well over 6 figures annually so this has to be your last resort.

Most people get hyper-focused on one or 2 common ways to grow a business. That tunnel vision comes from a lack of understanding all of your options.

Widen your gaze to put together the best growth and funding plan for your business.

To your business-funding success, Bryan

P.S. My last blog addressed some major downsides of Venture Capital however, I disdain people who point out problems without listing any solutions. Hopefully this article provided you ideas on some better alternatives.

photo by: Tanzen80

Avoid Venture Capital and Outside Investors for your Startup

One of the most exciting days for a startup company is the day they receive money from an investor. The day someone believes in your idea so much they show up with their checkbook. The TV show Shark Tank unabashedly captures the exuberance that comes with that financial backing.

This guy is not your friend.

This guy is not your friend.

However, the opposite should be true…

Instead of popping open champagne in celebration, a lonely evening with a bottle of scotch would be more appropriate. Getting VC money, particularly if your business is pre-profit, is practically a kiss of death.

You have a better chance of winning at craps in Vegas than your company does of succeeding and becoming profitable after your VC check.

Let me clarify that VC money and outside investors, are the same thing. Whether money comes from a major VC company or your father-in-law, outside investment too early is the real problem.

The facts are simple, 75% of venture backed businesses fail according to research by Shikhar Ghosh, a Harvard Business School lecturer.

By comparison, overall only 55% of business startups fail after 5 years. In other words, venture backed businesses are 36% more likely to fail than startups overall in the first 5 years.

So if you’re spending most of your time as a startup seeking out VC funding, you are, statistically speaking, setting yourself up for failure.

Why are so many startups obsessed with outside investments?

The answer is pretty simple. The VC’s want you to be.

Anyone familiar with silicon valley knows of Peter Thiel and how he made his billions on Paypal (a company he co-founded) and Facebook which he bought into in 2004 for $500k in exchange for more than 10% of ownership.

What most people don’t realize is that he’s also invested in over 40 other companies of which you’ve probably never heard of any of them.

This is how venture capitalists work. Even if only 1 out of 4 businesses last, they can still be way ahead of the game. More importantly, they can still win big with an IPO even if the business fails shortly thereafter.

In other words, they don’t much care if your business succeeds.

Why do VC-backed businesses fail at such a high rate?

The Business Genome Project studied over 3200 startups to find out why they fail and their results should be common sense…

The #1 reason 74% of startups fail is premature scaling.

In other words, pre-profit, pre-revenue, or sometimes pre-customer start-ups start hiring and investing in infrastructure.

This is, quite frankly, insane!

Until you can get a sale and a customer, you have no business whatsoever trying to “grow” your business through hiring.

The reason these VC-backed businesses fail is the same reason government is so inefficient. The startup is now playing with someone else’s money.

The founder now no longer feels the pain of losing everything or the need to scrape by on table-scraps when he has $1,000,000 in the bank today after having $0 yesterday.

In the 2 years since my internet lead-generation business started, I’ve had numerous offers from investors that I’ve never accepted for one main reason:

The only thing more money would do for us now is make us less efficient more quickly.

This is true of every business in the early stages.
Even the 25% of VC-backed businesses that succeed are made less efficient with large checks.

As a start-up, you lose either way.

If you get VC money, most likely you’re going to fail. If you don’t fail, then you just gave up a very sizable chunk of your business and control.

The whole concept that to be successful at business you must take risks is ridiculous. The greatest entrepreneurs rarely take major risks and any risks they take are painstakingly calculated. The Heath brothers discuss this in their free Kindle book, The Myth of the Garage.

High risk examples of VC-backed businesses

If you’re still looking forward to that first VC check, let me give you a few examples of businesses that went that route.

  • SnapChat – Valued at $4 billion dollars with $0 in revenue and no plans for generating any revenue.
  • 4Square – Valued at $600 million dollars with $2 million in revenue.
  • Living Social – After being one of the hottest tech startups in the country, it posted a $566 million 3rd quarter loss in October 2012 and I wouldn’t bet on it being around in 10 years.
  • Groupon – Which IPOed at over $26 to drop all the way to $2.60 only to now start rebounding back to $10.65 while still losing $.15/share.
  • Yodle – Though this business is currently profitable and will probably stay that way, they took a major gamble when they took a profitable start-up with $700k in revenue and leveraged it until it wasn’t profitable again until they had over $100 million in revenue. That’s an extremely large risk to take. I do commend them, however, for proving the business model first.
  • Zynga – IPOed in December 2011 around $9.50 before being hyped up to $14.69/share and since tanking to $2.09 and hovering between $2.60 and $4 for the last 52 weeks. Not surprisingly, it’s still not profitable.

Even when you take a group of industry veterans who should know better and put them together to make a “super team”, the injection of too much money too quickly inevitably causes inefficiency and often failure as we saw in the case of BlueGlass SEO.

This list could go on all day. The number of great business ideas and innovations that have been harmed by too much money too early is far larger than those helped.

The concept of riding your idea to change the world a la Mark Zuckerberg is so strong, here’s a list of companies who turned down $100 million dollar buyout offers including Viddy, 4Square, Qwiki and Path.

Keep in mind, many of the VC’s who invested early in the businesses above made a killing when those companies went public or simply sought additional rounds of funding. They made their money on the hype of the IPOs not on the profits of the businesses.

The point is, it’s good business for the VC’s but rarely good business for the businesses themselves.

Private Companies with Higher Profit than their Peers

Here are a few examples of how growing profitably has created great companies.

  • Chick Fil-A – $400 million in revenue with no outside capital investments (privately owned)
  • Leo Burnett – $600 million in revenue with no outside capital investments (privately owned)
  • State Farm – no outside capital investments and now has over 18,000 agents.
  • Northwestern Mutual – privately owned and the largest provider of individual direct life insurance in the US

All of these businesses were case studies from the book The Loyalty Effect.

What’s most impressive is that the author didn’t seek out privately owned companies with no outside investments when searching for the most profitable businesses within an industry.

Instead, once he found the most profitable businesses in an industry he realized those were a few things they had in common.

He then examined these businesses and their industries and learned that avoiding outside investments was a major factor in their successes.

Lessons from VC’s

As of the end of 2012:
Apple’s Market Cap was $392BN on Revenue of $156.5 BN for a multiple of 2.5x revenue
Amazon’s Market Cap was $115BN on Revenue of $61BN for a multiple of 1.88x revenue
Netflix’s Market Cap was $12BN on Revenue of $3.6BN for a multiple of 3.33x revenue
Facebook’s Market Cap was $64BN on Revenue of $5.1BN for a multiple of 12.5x revenue
Recently 4Square’s Market Valuation was $600 million on Revenue of $2M for a multiple of 300x revenue

In other words, to match the revenue multiplier of Facebook, 4Square will have to grow its revenue by 2,400% to $48 million.

Maybe 4Square has something up its sleeve to grow revenues 24 fold in the next few years… After all, these VC guys have made billions so they know what they are doing.

Not exactly.

It’s a gamble. A big one. One that’s reliant on public opinion more than actual business fundamentals. That’s what VCs bank on. That’s why Thiel quickly sold the majority of his shares when Facebook went public while making $1 billion dollars.

In other words, early-stage VC’s couldn’t care less if most companies they’ve invested in fail. All they need is for the company to go public to cash out. Even then they only need a small percentage of their investments to go public to make money.

Take the story Tony Hsieh told in his book Delivering Happiness.

After making $30 million on his first web venture, he became a VC and lost almost all of his money by investing in around 30 different ideas. He finally decided to take Zappos over himself and pour in everything he had left in terms of time, money, and passion.

Considering he grew Zappos to over $1 billion in revenue before selling to Amazon, you could say that one paid off. But he was extremely close to losing everything.

He didn’t have to drive himself to the brink of bankruptcy (something he seemed to learn as well) to build a profitable business.

Most ideas don’t need millions of dollars prior to turning a profit to prove a concept. That’s one thing that made Zappos unique. The founder who came to Hsieh with the idea actually proved that it worked by creating his own crude website, selling shoes, and then going down to local shoe retailers to buy the shoes and ship them off.

That method wasn’t profitable but it did PROVE that people would indeed buy shoes online. Once you know that, it’s a lot easier to determine how buying shoes at wholesale, eliminating expensive store fronts, and utilizing an efficient nationwide delivery system can make internet sales of shoes highly profitable.

Considering Hsieh seems to have forced out the original founder (a topic he doesn’t explain in his book) that’s also more proof that VC’s are rarely your friend.

Unfortunately, the rare stories of companies like Instagram and 4Square, along with Shark Tank and the Inc 500, do not put the focus on how to grow a business profitably. They put the focus on securing funding, top-line growth, and cashing out.

That’s how the VC and early-stage outside investors like it.

Unfortunately, that’s very rarely what’s best for your startup.

To your startup success, Bryan

P.S. People who point out problems without providing solutions rarely fully understand the issue. Hopefully my next blog on funding your startup will provide you ideas on some better alternatives to venture capital.