by Mike Southon and Chris West, Prentice Hall Business, 2002.
A copy of this book can be ordered online via the Ashridge e-bookshop.
The authors planned a successful business on a beermat in a pub. They give their simple recipe for would-be entrepreneurs and intrapreneurs (within companies) to provide a straightforward handbook on the steps to take and the issues to be considered.
(Reviewed by Kevin Barham in March 2003)
(These book reviews offer a commentary on some aspects of the contribution the authors are making to management thinking. Neither Ashridge nor the reviewers necessarily agree with the authors’ views and the authors of the books are not responsible for any errors that may have crept in.
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So you have a bright idea that you think has the potential to become a brilliant business. Mike Southon, a 'serially successful entrepreneur', and his journalist co-author Chris West show you how to make it happen.
Their book is aimed at any aspiring business person, either within an existing company or who is thinking of starting up on their own. Its title comes from the story of how Southon and two friends dreamed up a new - and ultimately very successful - business idea over a drink in a pub. They made notes on beermats as they had no paper to hand. The authors claim their book tells you the things that other books on entrepreneurship don't - the lessons that most people have to learn by 'bitter' (no pun intended, presumably) experience; the tricks that most entrepreneurs wish somebody had told them before they had started.
Most important, they say, success in business means following the right pattern. Like all living things, a business has a natural pattern of growth, that you ignore at your peril and that you must work with to ensure success. In outline, it will pass through three essential stages on its way to maturity (1) the seedling enterprise (2) the sapling enterprise and (3) the mighty oak.
Not everybody is cut out to be an up-front entrepreneur. Entrepreneurs are very special people - confident, charismatic, and ambitious; they have bags of energy, are obsessed with work, and are in a hurry to change things fast. They are also arrogant, manipulative, and often unable to complete things. Entrepreneurs can change the world but they don't do so alone - they need a team around them to support them and keep their downsides in check. When the enterprise is still a seedling, the entrepreneur will need a 'founding team' of four close associates or 'cornerstones' on which the business will be built, and who provide a mixture of solidity (deriving from their commercial or technical discipline) and entrepreneurial passion. Later, when the enterprise becomes a sapling, a dream team of 15 people will be required, also passionate and imaginative, but above all team players.
Alternatively, if you have entrepreneurial ambitions, but are afraid of packing in your job and going it alone, you could become an 'intrapreneur', setting up or joining an entrepreneurial division within your company.
So first identify which role you want to play. Entrepreneur, cornerstone, dream-team player or intrapreneur?
Once you have your business idea and have done some initial research and testing, draw up your 'beermat plan'. This has only three things on it:
The ideal team for a seedling enterprise is the entrepreneur, four cornerstones and the mentor. The cornerstones should consist of: the technical innovator or 'supernerd' (the brains behind the product); the delivery specialist; the sales specialist; and the financier whose job is to keeps costs under strict control. The entrepreneur's task is to keep the flame of the business's vision ablaze, both internally and when presenting the company to outsiders. The five team members should be equal shareholders in the company - a radical suggestion perhaps but a 20% stake will give them the right motivation, which isn't just financial but is about belonging.
Once the first sale is made, start building up a portfolio of customers. The aim should be to have 10 or 15 regular customers, none of whom is responsible for more than 15 per cent of your income, plus a backup list of 20 potential customers whom you are researching and getting to know.
Early pricing of a new product is a particular challenge. What really matters is how much the product is worth to the customer, which is closely related to how much money it will make (or, more likely, save) them. So the more you listen to your customer and know about your customer's business, the better placed you are to guess the right price for your product.
Once you've started making sales, you need a business plan. Internally, it focuses the team; externally, it assists in raising development capital. The plan should consist of (1) the elevator pitch; (2) the mission statement; (3) the tactical sales plan listing your next 10 customers and what you intend to sell them and when; (4) any strategic alliances needed to make the sales happen; (5) the delivery plan; (6) the people plan (probably the most important section); and (7) financial projections.
Where seedling funding is concerned, the authors recommend you avoid substantial outside funding, mainly because refusing to rely on it imposes a healthy financial and sales discipline. The best foundation for a successful business is to fund growth out of income. The book is particularly critical of venture capital houses whom they partly blame for the dot-com bubble; it sees them as far too interested in the money and far too little interested in what business is really about.
On reaching this phase, your business will change its nature as you take on employees, the beginnings of your 'dream team', to whom you must delegate real responsibility. The key dividing line between the phases is the number of people in the company, not turnover, profitability or any 'fancy' business ratio.
The sapling enterprise serves a niche market. Its customers come by personal recommendation; its style is personal, friendly, and deeply committed. Everyone in the business shares the vision and is prepared to put in the hours and effort to realise it.
You and your fellow founders are not just running and being the business any more; you're in charge of people. You have become managers. The essentials are to take responsibility, have a clear, well-thought-out formal review process and care about the people below you. If you make management a creative expression of who you are and what you believe, you'll succeed and enjoy it, say the authors. Business is ultimately about people so the most important thing about running a sapling enterprise is getting the culture and the individuals right.
The culture of a sapling enterprise is tribal. Think chiefs and warriors. Think close personal relationships; everyone knows everyone else well and they all get on. Think Friday night sessions at the pub, with informal awards for people who've done special things this month, etc. The pub incidentally is a good place for spotting potential dissent. Nip it in the bud, not by firing dissenters, but by talking to the individuals concerned and getting to the bottom of their problem.
Recruitment is the single most important issue for the sapling firm. So get everyone in the organisation involved in it. Use personal recommendations. Trust and enthusiasm are key qualities so look for these among people you like and meet. But watch out for cronyism by the entrepreneur. When you do decide to hire someone, introduce them first to everyone in the business - not just to the entrepreneur and the cornerstones. And if anyone expresses misgivings, don't hire them. Pick people well, motivate them once they arrive, and you won't have to dismiss people. They won't leave either.
Appraisal lies at the heart of good management and the authors dwell on it in some depth. It should happen every six months, they believe. Sit down with each team member and look at what they have achieved, what they can learn from it, and at what you expect from them in the next six months. Get some feedback about how you are perceived and talk about the company in general, where it's going and how you see the individual's role in that development. If someone fails to meet the goals set six months ago, ask what you can do to help them get it right next time.
As a leader, your two main jobs are strategic (the lesser challenge) and motivational. You have to work out where the business is going and decide firmly on the best way of getting there and get everybody else heading in that direction too. You have to understand what motivates people - in descending order: self- and peer respect; making a difference; challenge; advancement; and money (the latter does matter so pay people as well as you can afford). Give bonuses, but not individual ones - the discovery of big differentials will breed demotivation and distrust. Everyone's salary and bonuses should be public knowledge in the firm. People in the sapling organisation aren't envious (at least the authors hope) - they're quite happy for someone to earn a lot more than them if they think that person is adding an appropriate amount of value to the team effort.
Great leaders don't criticise failure; they encourage learning from it. They celebrate success; give praise, stay and look positive; are visible; and generate enthusiasm. They lead from the front and set goals - which means having a vision of where an individual can get to and helping them understand the steps they have to take to get there.
In the sapling firm, motivation is more important than strategic leadership because the aim, simply, is to grow. The means are happy, motivated people, carefully controlled costs and delighted customers. Creative thinking is not so much about product innovation as about finding uses and markets for the product. The entrepreneur will be thinking strategically anyway. The cornerstone's job is to downplay this and keep the entrepreneur focused on the job in hand. Selling is still about meeting the needs of a relatively small number of actual and potential customers - in sapling selling nothing beats personal contact.
The next stage - which begins when you pass 20 people in the team - is when strategy comes into its own. To become a mighty oak, you must believe that you have the capacity to conquer a marketplace - to become a market leader with a market share of 30% or at least a fighting number two. This means a regular flow of sales from a wide range of customers, sound infrastructure and organisation, and solid finances and a healthy credit rating. Most importantly, your 20 or so people must be crystal clear about why they are making the transition - because life will never be the same again. The biggest mistake is to ignore the change and to think things will muddle along as before.
Culture and people will still be important but now you are taking on employees, people who will not feel as much loyalty to the firm as the cornerstones and dream team. There are tough decisions to be made. The cornerstones and dream players will need to be replaced. They will probably not feel at home in the corporate world or they will continue to work at the same rate as before and burn out. Their place in the mythology of the company must be kept intact, however. Keep them on as unsalaried 'founder directors'. Get your mentor to help you find replacements for them.
The most difficult task is 'killing the king' - replacing the entrepreneur - but this has to be done. The entrepreneur's leadership style is no longer appropriate. Few entrepreneurs make the change from beermat to corporate boardroom wholly successfully. The entrepreneur must save face, however, so it will be important to arrange a 'golden escape route' for him or her. If you are the entrepreneur, go gracefully; don't let resentment or anger get in the way. Make a clean break, give yourself time to get over the loss, acknowledge what you have achieved, and get yourself back in balance.
Most entrepreneurs and cornerstones take their businesses into the oak stage with some kind of subsequent exit in mind. This keeps them going in the new, 'alien' environment. A common choice is to sell the business. This can be painful for the employees but there is usually a compelling commercial logic to a sale. Most markets begin fragmented with lots of small players, then begin to coalesce into mature markets with fewer but bigger players and a few small firms surviving in niche markets. You can't buck this trend. You have three options - grow to be a major player, get swallowed up by a major player or lurk in a niche. Or, you can watch your business be poached by bigger competitors and go bust. If you do sell, wealth should be shared out fairly among everyone who has created it. The authors suggest using a 'points' system whereby staff gain points in a pool which can be translated into money on realisation of the business's value.
Throughout the book the authors emphasise the importance of fair, open, ethical dealings - 'you fought hard but fair' - this can have a real commercial payoff but also keeps your conscience intact. They also believe that winning means putting something back into the world for the good of other people. Perhaps in writing this insightful and readable book with its wealth of practical tips, they have done just that.