I’m not talking acai, crush, or consumer scams. This post is about how to avoid the most common form of business failure. The moral of the story- “In God we trust… All others pay cash.”

A designer I know is a nice fellow. Great design skills, great intentions. Yet we paid him $6,000 cash up-front and he has yet to return a dime of it, despite promises over the last year. Initially, we paid him a few thousand dollars, against which he did decent work, but was slow in responding. Joel was busy trying to build a big company- hiring lots of people, big office, and big expenses. If you ever read the E-Myth, by Michael Gerber, you know of the girl who was an excellent baker, opened a bakery,  and was soon out of business. Great at baking cakes, but absolutely zero business sense.

This fellow was the same way. As a one person firm, he could easily keep track of his projects and he only had to worry about himself. But with no project management in place or any kind of structure, he soon found himself pursued by a number of angry clients- all wondering what when project deadlines came and went. He tried to hold them off by making assurances and then personally working harder on the weekends to catch up. But he was trying to do the work of a full team- and soon went out of business in the fall of 2008. He brought in new business partners and tried again- with the same results.

We worked with Joel on a payment plan, in the hopes that our investment in Pixel Envy wouldn’t be a total loss. I believe he paid us back about $200 of the $6,000 over the last 8 months. Since then, he has disappeared, ignoring our messages, in the hopes that this is one of many problems that would magically go away. Instead, that got him in more trouble, as it damages his personal credit, puts him in the hands of a collection agency, and tarnishes his reputation. He signed contracts that commit Pixel Envy to design projects with BlitzLocal and there is a paper trail where he acknowledges the debt.

What can you learn from his situation?

Just because you do what you love doesn’t guarantee success. If you want to grow beyond yourself- and form a team- then you need to know how to run a business. That skill has nothing to do with how well you know PhotoShop, Google Adwords, or PHP. It has everything to do with being able to organize projects for bulletproof delivery- making sure you have the right people in place and a system that has built in checks to prevent failure from happening. It means breaking down projects into concrete tasks that are assigned to people with due dates. We use basecamp for project management, but there are a dozen other tools that will track tasks and “whine” when someone is behind on something.

Last week, I had the pleasure of meeting Rob Hayes of First Round Capital at the TechStars office. They invest in seed stage startups. He said that the CEO has just 2 responsibilities- hiring the right people and making sure the company doesn’t run out of money. Two weeks ago, we had dinner with Dwayne Nesmith, who founded Viant- a web agency back in the boom days that grew to $100 million in sales. He laid out 3 types of companies that work in the agency space:

• Consulting companies that follow a cookie-cutter process. They do it the exact same way every time- a more sophisticated and expensive form of McDonalds. Should one person get run over by a bus, the project should be able to recover by putting another person of that function in. Easy to scale- look at Accenture or PWC or Iprospect.

• The high end consultant- The McKinsey model. You have a team of ultra high IQ folks who can be green berets. Not easy to scale, since there aren’t enough of these sorts of people out there.

• Finally, the franchise model, where each region operates independently of one another, but share in the name. Look at the Virgin group of companies started by Richard Branson. He doesn’t run any of these companies. Rather, he licenses his Virgin name out to a company and gets a cut of whatever they make. It’s a win for everyone, since Branson is a master salesperson, not a detailed company operator.

So look at the example of this designer who loved design, but failed at business. He jumped into business with a great attitude and great individual design skills- yet ended up broke with a bunch of unhappy clients chasing him. He didn’t decide up front which of these 3 models he’d choose to scale on. The choice for you might not be to hire other people. I know a lot of folks who make a lot of money by themselves without having to deal with the hassle of managing other people, projects, and partners. Just look at Markus Frind, who built Plentyoffish.com into a top 100 web property single-handedly.

If you decide to hire others, make sure you budget enough money knowing that about half of the contractors you hire probably won’t work out- it’s just human nature. We have lost a few hundred thousand dollars over the last 2 years from these types of incidents- most all of them good, well-meaning people.

Best ways to increase your success rate? Ask your friends who they use. Have a friend who is already skilled in what you are looking for interview candidates- if you want heart surgery, ask another heart surgeon, not a patient. Find folks who already have something going on and who would have to take a risk to join you (have skin in the game)

Best ways to increase your chance of failing? Hire kids who are in high school or college still- they don’t have professional level experience and will often flake on you. School competes for their time, too. Look at folks who have been at a big company for a long time- odds are that their edge died years ago. Hire folks who you can’t physically meet- offshoring can work, but this post is not about what could work, but where you are least likely to fail.

In case you are wondering, all the examples given are real mistakes I have made. I hope you can benefit from our losses.

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Update: We have heard back from this designer and a year plus later, he’s agreed to start repaying back the money we advanced him.  This is an encouraging sign of how people can perhaps change for good.

We fire a lot of people in our company.  I’ve noticed that those who have risked to most to join us are the ones most likely to succeed.  Ironic, since you’d think that people who take the “safe” route– work part-time to hold their current job or not move out to Colorado– have less risk.

Or perhaps you’d say that folks who decided to quit their current job and move out here were folks already confident in their skills– thus, it’s not a fair comparison.  Well, turns out that the folks who did come here were not necessarily more skillful or even guaranteed anything.  Nor is it true that this self-selects for folks who are unemployed and have nothing to lose.

I think the explanation is as simple as– those who have something on the line know they have to commit. A few hundred years ago, British soldiers wore bright red and white uniforms.  You’d think that camouflage would be a smarter choice, since the British soldiers stood out like targets.  If you’re dressed so visibly, then you have to commit to fighting once you’re out there on the field.

Put all your eggs in one basket– and watch that basket! The safety of stock market diversification is that you can spread your investments across many stocks.  Safer, right?  But what if you’re really done your research and you know what companies are going to succeed?  Diversification is for unquantified risk.  In the start-up world, would you rather own one company that just kills it or 10 companies that almost made it?

So don’t go the “safe” route– go for it!  Stand in the middle of the road and you’ll get run over.

Are you frittering your time away on something “safe” or perhaps spreading your time thin over 10 different things?

It’s 3:42 am on a Saturday morning and I’m almost done with my work. These techniques may or may not work for you, but I’ll share anyway:

• Don’t go to bed until you’re done: Why? In the morning, you won’t remember. New things will come up.  Knowing you must get your
  work done before sleeping brings more focus– it forces efficiency.  You can finish on a good note.  Downsides– you might have a morning meeting you can’t skip, which means you won’t get enough sleep. You risk becoming addicted to this approach and become a vampire.
• Meet in their office, not yours: That way you can leave easily. If they are in your space, not so easy. Plus, the walking around will do you good– it’s exercise, plus you see
  more tha
  n if you sit in your corner office isolated from what’s going on.  Being with the troops breeds egalitarianism instead of hierarchy.
• Follow up the same day: This is like point #1. When you go to a conference or some get together and come back to the hotel with a stack of cards, it’s easy to say you’ll follow up in the morning. Don’t.  You won’t do it nor will you remember who the person was and what you talked about.  An immediate response draws surprise, since it’s so rare for someone who gets your card to actually respond. Look at your own experience and judge if that’s true.
• Ask “So what’s the next step?”: This will quickly kill idle chatter, gossip, and complaining. You force yourself or your colleague to find the next action.  In meetings, this is especially effective, since most people are just competing for airtime to hear themselves talk.  The more people, the more of an issue and the more important to drive to action instead of endless philosophizing.
• Delegate: Yes, even if you could do it better. But don’t do it if they’re not reliable, able to self-diagnose issues (so you don’t have to keep checking in on them), or if it’s core to what your business
  does.  For example, don’t delegate or outsource product management and requirements writing– that’s defining your business.  If it’s
  not core– accounting, design, hosting, legal, whatever– outsource.  If it’s important, but not critical, then hire someone internal.  For an analogy on delegation, you can learn to scale up.
• Finish what you started: Don’t go to 90% and think that you’ll come back to it later.  That extra 10% will cost you 100% more time to do it later because of something called context switching costs.   Better to have a couple things actually complete than 10 things 90% done.  Knowing that you’ll finish what you started will breed massive confidence in yourself and those around you.  Don’t stop midway in a task to look for garage sales or denver strip clubs, no matter how tempting.  Keep going.  I wrote this blog post knowing that I would go to bed by 4 am– and this I’ve done.

We get several unsolicited resumes a day. Most go straight into the round file (the trash). I got one today that was so bad that I just had to blog about it, as it has all the classic no-hire reasons:

• serves as interface between executive management and engineering
• resume has every technology and language listed you can think of, thus, no skills
• background in data warehousing and web, a vast wasteland of failed implementations
• tons marketing speak, “solutions”, “executives”, “synergies”, etc…
• demonstrates zero understanding of our business, typical of the mass “pray and spray approach”

Here’s his cover letter, which I have left verbatim….

“I am capable of playing a great variety of roles; however my areas of greatest strength lie in guiding technical teams to deliver solutions that truly meet users’ expectations. My experience addresses all aspects of these efforts ranging from working with executive management on strategy and approach to helping developers resolve challenging technical issues and everything in-between.”

Do you remember that scene from “Office Space” where the Bobs ask Tom Smykowski, “So, what would you say you do here?” And the most that the useless Initech employee can come up with is that he brings the requirements to the engineers. When you look at this guy’s resume, it lists this…

Technical proficient with:
PHP, Microsoft IIS & ASP, XML, WebSphere, Java, JSP, JavaScript,
Apache, HTML/DHTML, AJAX, MySQL, Oracle, Teradata, SQL*Server, Oracle
Business Intelligence Suite, Cognos, Business Objects, Brio, Informatica,UNIX and Windows.

…along with every technology and language in the book. That’s called “buzzword bingo”. Yet, he’s not a programmer, based on this:

Senior technical leader, Manager/Consultant/Architect.
Extensive experience leading global teams composed of both technical and functional members of up to forty people working on multiple, concurrent efforts.
16 years of professional experience.

The economy is in the toilet, and so is the quality of candidates that come streaming in. But every once in a while, you find a star, and those folks are especially hard to find among the folks that are likely let go for good reason. The outlook for internet marketing is as hot as ever, and it’s still as hard to find folks, no matter what the economy. What’s your experience in finding good people?

If you have a tripod, which of the legs is most important? Of course, they are all equally important– if you take any one of them away, the item being supported collapses.  The same is true in hiring.  Do you want smart folks, trustworthy folks, or hard-working folks?  How about hiring an absolute genius who is lazy or a hardworking thief, or a trustworthy idiot?  Over the course of the last year, BlitzLocal has grown to 53 employees and it has been a tough road in finding the right people.  If you have been cursed with success, to have more great projects than you have people– then you understand the urge to hire people who aren’t necessarily awesome, but might be “good enough”.

The weakest link

And thus, you might be tempted to bring in folks who aren’t superstars.  You have a variety of justifications: we really need some one right now, we can train them later, every company needs to have some grunt workers, they’re “good enough”, he’s a nice guy, and maybe we can use them for another project later.  But when you’ve lowered your standards, you create a cascading set of problems.  At first, this person performs poor work– but that’s normal, you say, since they’re still getting up to speed.  After a few weeks, they exhibit some of the same problems, but you decide to give them more time– and carry them by not only training them, correcting the work, and eventually just doing it yourself.   At some point, you become exasperated and complain that you should have just done it yourself in the first place– would have been less time and the project would have been done well and on time.

Hot potato

At the point this person realizes that they aren’t cutting it, they’ll probably go into defensive mode.  Rather than accept any kind of responsibility, they’ll claim they’re too busy, that someone else didn’t complete something they needed, or that they actually did the work already– maybe you lost it in your email?  Whatever way that the dog ate their homework, you’ll end up wasting your time trying to get them to straighten up.  Their saran wrap shield is see-through and absurdly weak, but they don’t know that.  Maybe they told a fib along the way, but now that they’ve gone so far with it, they can’t back out now– that’s my story and I’m sticking to it.  I’ve had several folks say the nuttiest things with a straight face to me, in spite of chat logs and being caught red-handed.

But wait, there’s more!

Because you didn’t get rid of them right away– because you are a nice person who wants to extend multiple opportunities– this person feels that they can slide by undetected.  They have made friends with other team members– kind of like an a parasite that has set down roots into the host victim.  When they sense fear of being dislodged, they will politic and create turmoil– a smokescreen to perhaps confuse or distract you. After all, they have kids to feed, a mortgage to pay, and a general lifestyle to support that they’ve become accustomed to.  Keeping them around longer is telling them that their performance level is okay and even if it weren’t– that you’re not about to do anything about it anyway.  Perhaps you have a reputation as being such a nice guy that they don’t think you have the guts to call them out on it.  They might even be so bold as to steal from you, and then boast to their friends about how they did it.

Just say “No!”

Has this happened to you?  Joel Spolsky has one of the clearest rules of hiring.  If you’re not absolutely sure it’s a yes on the candidate, then the answer is no.  If you’re thinking “maybe”, then the answer is “no”.  If they have some great qualities in one area, but your instinct says that they’re either not trustworthy (they complain about how the last company treated them), not intelligent (can’t give clear explanations of what they actually did, or not a go-getter (talks too much about work-life balance and priorities), then the answer is no.  And if this person has managed to slip by– perhaps they were a friend of a friend, said the things they thought you wanted to hear, or made a great first impression with their professional clothes, then the kindest thing to do is let them go right away– don’t let them and everyone else suffer.

Another BlitzLocal colleague and I were discussing “leadership” and what that truly meant.  We came up with this analogy, which I hope you’ll enjoy.

Imagine you move rocks for a living.  The more rocks you move, the more you’re paid.  You don’t move rocks, you don’t get paid.  Thus, you understand the direct linkage between putting in time and compensation.  This is the hourly wage model– some rock movers get paid more than others, whether flipping burgers, working in a big corporation, or drilling teeth. The more teeth you can drill, the more you’re paid.  Are you a corporate wage slave or someone who is paid piecemeal?  This was me for twenty years of my life– a prostitute selling my time for money. Whether I billed $5 per hour or $250– it was the same thing. One day in the proverbial quarry, you decide that moving more rocks to get paid more was not the right answer.  At best, you might move 20% more rocks than the other guy in a particular day, but it wasn’t sustainable.  So you leave the quarry for 7 days, much to the surprise of your fellow laborers. In that time you move no rocks and make no income.

THE SHIFT

But when you come back, you are driving a bulldozer.  Now, in one day you are able to move 100 times what a single laborer can do. But to get that bulldozer, you had to temporarily earn nothing– plus spend money to buy the vehicle and spend time learning how to drive the thing.  Your fellow laborers, noses down, continue to keep moving rocks– they don’t look up to see you in the bulldozer. They have heard about bulldozers in the magazines, but never thought it was something possible for them.

You hang out with the other guys driving bulldozers.  You have newfound wealth, which is fleeting, since the crowd you run with also enjoys the same standard of living.  You’re right back in the middle of your peers.  It feels great to be 100 times more productive than you were before, but you’re not quite fulfilled.

ANOTHER SHIFT

So you leave the quarry again and disappear for 7 days.  In that time you move no rocks and make no income.  And when you return, you are back with 100 bulldozers and 100 other eager new bulldozer operators. You’ve opened a bulldozer training school!  Flocks of manual laborers who used to move rocks now come to be trained by you.  And you make a commission on the rocks they move, since these laborers didn’t have enough money to buy their own bulldozers.  These laborers are now moving 100 times what they did before, but given the costs of training, equipment, and your profit, they only make 10 times what they did before.  Still, they are happy.

And you are temporarily happy.  With 100 bulldozer operators moving 100 times as many rocks as a single man can do, you’re at 10,000 times your earlier productivity.  Your lifestyle has changed, too.  You have have a Granite Card by American Express and have a new mansion in Boulder. People admire you–you’re a ROCK star. They think that the secret to your success is getting stoned.

But it’s not enough– something inside you is not quite satisfied.  You can only train so many new bulldozer operators per day.  You’re still moving rocks in a sense, just mass quantities. Growth in your bulldozer school is directly related to the amount of time you’ve put in.  So one day you close the bulldozer school.  The press thinks you’ve gone mad– that you’ve lost your marble.

SCALE UP AGAIN

You disappear for 7 days.  And when you return, you’re holding a brochure in your hand– “How to Open Your Own Bulldozer Training School”.  You’re created a franchise model, where you are training up other school owners. You have first hand experience in training new bulldozer operators, so new school owners can rely on your experience.  You now have sold 100 franchises, each one with a happy owner training 100 bulldozer operators, who in turn do the work of 100 laborers.  That’s 1 million times leverage.

THE LESSON

You would not have been able to pull this off unless you had personal experience moving rocks, driving bulldozers, training bulldozer operators, and running a franchised business.  You were able to take your knowledge and multiply it.   If you didn’t intimately understand each aspect of the business, scaling up would have just multiplied losses.

Now examine your life and what you do.  Are you moving rocks or are you multiplying? Writing software is a multiplication process.  You can write one copy and sell it an infinite number of times.  You could hand-build a single PPC campaign for a client or perhaps write a campaign management tool that can do it over and over in an automated fashion.  But just like the rock moving analogy, if you aren’t a practitioner with hands-on experience in managing campaigns, your automation won’t be effective.  There are lots of guys selling software that builds websites, manages PPC campaigns, creates SEO reports, sends out emails, and any variety of tasks.

If you want to create massive value, consider the rocks that you are moving. Can you write software or processes that can make life easier for others– or perhaps do some task faster, more effectively, or at lower cost?  Everyone has something they know exceedingly well.  What is that skill for you?  You don’t have to be able to write code.  Software is nothing more than rules for machines, just like processes are rules for humans.

McDonalds is a software company that just happens to make burgers.  People go to McDonalds not because it has the most delicious burgers, but for the consistency of the food and the experience. You can take pimply-faced teens all over the world, minds distracted with their latest relationship dramas, speaking different languages, skilled or not– and still turn out that same value meal each time. That’s process for you.

NOW IT’S YOUR TURN

BlitzLocal is about empowering individuals to become entrepreneurs– we provide the tools and process to allow folks who know little about internet marketing, but are eager and willing to learn, to perform like experts. Our analysts are trained to help small business owners grow their practices.  We’re about the little guy helping the little guy.  Do you want to be a part of our team?  Contact me to find out more.

How about making a resolution to not make any more resolutions? Seriously, when you example instances of when people fail versus succeed, a few key traits stand out. I’ll explain at the end of the article– but first… I read a study where patients were told by their doctors that if they didn’t stop smoking or change their diets that they had months to live. The doctors explain what their patients would experience with heart disease, lung cancer, and other complications over the remaining months if they didn’t drastically change. You know what happened?

In the majority of cases, people didn’t change. You would think that would be a wake-up call, if any. But a factual recitation about how smoking causes lung cancer is something we, as intelligent human beings, all know. Yet folks smoke anyway. Or they overeat at meals, overspend their credit line, choose bad boyfriends, and make a host of irrational decisions. Why do they fail here, even when literally threatened with a life and death situation?

They make a public commitment, they involve friends in achieving their goals, they have specific goals in different timeframes, they connect emotionally with their goals, and they have a feedback loop. Incidentally, aren’t those the same characteristics that make videos games highly addictive? Aren’t those the same dynamics that cause folks to spend hours on Facebook or (insert your favorite social media site here), coming back day after day? Imagine if you could harness that same level of dedication and enthusiasm in your job, your diet, or any other goal you want to achieve?

How about for the low, low price of $1,995? No, how about just $599 if you act in the next 30 minutes? Operators are standing by now. How about actually for free with no strings and no free set of Ginzu knives? The answer is sparkpeople.com. Sparkpeople.com is a community for folks who want to achieve their fitness and life balance goals. And with great fitness comes success in all other aspects of your life. This site hits upon all the game dynamics mentioned above. Chris Downie, who founded sparkpeople.com originally as a weight loss site, had the community of enthusiasts to prove it.

Instead of the traditional monthly attrition rate of 35% that you see in most programs, he’s less than 1/10th that rate. I had the pleasure of meeting Chris several times, as he explained these motivation principles to me– and it’s amazing how many people he’s been able to help because of this. Look out Tony Robbins, here comes Chris Downie! And what a humble fellow he is. He walk the talk with his own lifestyle. It reminds me of the obese CEO of a famous athletic shoe company or the CEO of a major search engine that didn’t even have a computer their first year. If you want to spark your lifestyle into success into the new year, tap into SparkPeople.com to make losing weight and getting fit as fun and addictive as Facebook.

Perhaps a pessimistic title— I’ve had my fair share of failure, so I thought I’d share my understanding of what causes that to happen in companies and projects that I’ve worked on.  The main reason?  Not starting.  Yes, it really is that simple.  People have all kinds of reasons why they don’t start— they need to prepare more, they’ll do it tomorrow, they’re not ready to begin right now.  Or maybe there is pseudo-action– they will write a business plan, they want to go consult with friends, there is some learning they need to do first.  Or maybe they are Monday morning quarterbacks– more content to provide commentary on (or criticize) what other people are doing, I’ve been fortunate to work with many entrepreneurs who have been successful– they’re not necessarily more intelligent than everyone else, they just execute.  There is no such thing as a part-time CEO– you gotta be all-in.

So what are you waiting for?  What is the one thing you’ve been putting off?  Why are you here reading this blog? The difference between a dream and a goal is specific action and dates.  Stop talking and start doing.  And I’m going to follow that advice right now.