Friday, July 27, 2012

Building a Business from the Problem Up

Today, many entrepreneurs believe they can build a business from the middle: focusing on branding, marketing, sales, and promotion long before they have defined The Most Important Parts:

  • What is the problem the product or service is intended to solve?
  • Who is the customer who considers this a priority problem (besides yourself)?
  • Is the customer willing to pay, in cold hard cash, to have this problem solved?
  • How many customers are out there, in the real world?
Too many of today’s business entrepreneurs are focused on the viral social media hype that they hope will attract advertisers whom they (again) hope will pay for the eyeballs from a Tower of Babel frenzy. As Facebook is learning, the costs to sustain a “give it away for free marketplace” have only one trajectory and that is upward.  If there is no viable problem, solution, customer, or market, then there is no viable revenue model to sustain the business for the long term. If there is no viable revenue model, then focusing on branding, marketing, sales, promotion constitutes a focus on the costs the business inevitably will need to self-underwrite.

What does it take to “start from the very beginning?”  What is a worthy problem vs. a trivial problem?  A worthy problem is something that people value enough and for which they are willing to separate themselves from the money they possess.  Either the customer, directly, has the problem and is willing to pay for “a solution” or an intermediary is willing to pay to access customers with a problem the intermediary’s product can solve.

The most successful customer-based problem is one based on essentials: the need to eat, clothe oneself, educate oneself, find employment, or find housing.  Secondarily, customers with more discretionary earnings tend to be willing to pay for higher levels of comfort, convenience, safety, or personal satisfaction.

Customers are willing to pay for food.  When customers have more discretionary income, they are willing to dine out (pay an intermediary) to increase the variety of food or to add the ambience of dining out.

Some companies will access customers by paying for advertisements for THEIR products or services. When a business has no essential product or service, but only relies on revenues through advertising, that would be “the ad revenue model.” In the case of a real business, payment for ads is a cost of business compared to a primary revenue model (diners’ purchases of meals). In the case of too many online businesses, ads have become the hoped-for total source of income.

The focus on ad revenue models presumes that companies have an infinite desire to pay for access to customers.  Ad revenues from traditional sources (print, radio, TV) have fallen precipitously.  Therefore, companies are searching for alternative methods to access customers.  The Internet, email, mobile phones, and social media all represent potential or alternative access points.  But, companies have metrics to test the viability of their ad dollar expenditures, as GM’s withdrawal of its ad support of Facebook would testify.  If Facebook customers are not clicking on GM ads, (i.e., therefore are not using Facebook to buy the primary product that GM considers its essential source of revenue – auto sales), then that means Facebook is not delivering the customers who have an essential need or interest in buying cars. GM has no incentive to continue to throw good ad money at Facebook if social media doesn’t deliver the customers. The same is true for Google ads or Yahoo ads.  

What are real problems for which customers are willing to pay money to get the solution which an entrepreneur might provide?  Customers buy phones to solve the problem of communicating anywhere. They buy clothing that presents them as professionally- or socially-desirable beings.  They pay health insurance premiums now to reduce the risk of having to pay more exorbitant health care costs without insurance.  They buy auto insurance to avoid losing the privilege of driving should they be found not to own insurance. They pay for over-the-counter or prescription drugs in the belief that these products will relieve some symptoms which they consider undesirable. They pay Internet service providers to give them email addresses; software to send, receive, and save communications; and access to additional applications for which they are willing to pay additional amounts.  They are willing to pay to acquire music, movies, and books digitally that heretofore they were only able to access offline. Some customers are willing to pay to arrange dates. Some customers are willing to grocery shop online – but apparently not enough compared to offline grocery shopping.

Where do customers draw the line between real problems vs. not real problems?  It might depend on whether customers have a reliable stream of income themselves – how much discretionary resources they have. If large numbers of customers are out of work, they will forego solutions to their current problems until or unless they can increase their incomes or else somebody gives them their solutions for free.

Alternatively, it might depend on how much the online services “save” them elsewhere – time to search and locate a product, time to access or purchase it, time to deliver it, or the cost of gasoline and auto wear and tear vs. online access.

Would people really be willing to pay to access Google maps if there were a fee?  Not likely. But, a few people (or more likely companies) are willing to pay to access greater functionality of Microsoft mapping software or sophisticated geo-mapping software from ESRI or SAS.  The problems these companies address with the purchase of greater functionality means they can increase revenue streams from THEIR paying customers – which is why they are willing to pay.

There is an old advertising adage: you can have something fast, cheap, or good – choose any two.  That tends to define the nature of real world business problems for which people are willing to pay cold hard cash for solutions.  Can you save the customer substantive time (fast)? Can you save the customer costs (cheap)? Can you provide the customer with more or better features or functionality (good)?

We need to do a better job of bringing potential entrepreneurs back to earth to evaluate and dissect what are the real world problems that contemporary businesses potentially could solve. Not every business person needs to be a brain surgeon or rocket scientist – for which we as a nation are willing to pay significant funds to attain the solutions to problems as they provide. But, could we walk down the food chain a little bit and try to define real work scale problems that are at least a bit more worthy of solution than an incessant desire to view cute kitten video clips, baby pictures, or digitally destroy animated vehicles and their occupants?

The definition of substantive, value-laden problems worthy of addressing with real world business solutions constitutes a bottom up approach to entrepreneurship.  If we can’t start there, starting anywhere higher on the spectrum of entrepreneurial activity is simply a formula for failure as a business.

Thursday, July 26, 2012

The Social Agenda

It was a small item in Robin Ferracone’s July 10, 2012 blog entry, How Compensation Committees are Preparing for the 2012 Proxy Season. (here) So small, in fact, that many may have missed it.

Farient Advisors reached out to Fortune 500 compensation committee contacts (clients and non-clients) to discuss their planning for the upcoming compensation planning year (July 1, 2012 through June 30, 2013).

“Judicious time management” was a consensus area of focus. “The social agenda” however was one area compensation committee chairs were not interested in spending their time.  One chair was quoted at some length to clarify their thinking:

“… committees (and boards in general) ... remember that they represent and serve the interests of shareholders – [those] who almost universally have only a financial interest in the corporation, and who have a social interest only to the extent that those social policies affect their financial interests.”

This perspective contrasts dramatically with the hype and hyperbole spoken and written advocating social media in the boardroom.  Tapping the pool of young social media wunderkind for corporate board roles has become as au courant as the latest fashion from Paris runways.  But, social media per se is a rabid time-consumer, with marginal, unverified value for strategic planning.  This is why compensation chairs focus their consideration of social media and the social agenda on those issues of import to the people or institutions willing to put their money into the balance with social issues.  To the extent that shareowners express their interests in the value and returns of a social agenda, boards and comp chairs will heed their input.  But a social agenda without substance or foundation for strategic corporate benefit is just a waste of time.

It’s nice every now and then when someone has the courage to say that the Emperor is butt-ass naked.

Keep Her in the Game

Take a look at the Gatorade commercial video developed for The Women’s Sports Foundation: "Keep Her In The Game (By artandmotion. Artist: Angus Cameron Client: TBWA\Chiat\Day)

Now, tell me your “visceral” (gut) reaction.  (Go ahead, I’ll wait! I’ll share my own thoughts in a moment.)

After you’ve viewed it – maybe a couple of times to be sure you hear the messages over the loud-speakers – go to ESPN W (the women’s sports network) and do a search on “Keep her in the game” to read some contemporary, first person stories by women athletes about what sport opportunities have meant for them in their lives, avocations, aspirations, and careers.

The Keep Her in the Game video just as easily could have been written about young girls walking away from STEM fields (science, technology/computers, engineering, and math).  Research tells us that young girls leave those areas of study in like numbers and for the same reasons.

So, young women who exit sports prematurely don’t learn as much about competition (how to win, to lose, to be a good sport, to come back and play another day), about choosing sides (negotiating, dealing), or about team-building (the essence of delegation, trust, assignments, positions, collaboration).

Young girls who exit STEM studies prematurely cut themselves off from some of the most lucrative -- let alone intellectually challenging and satisfying -- fields of endeavor that modern society has to offer.

If 85 percent (or some significant majority) of young women exit, prematurely, in favor of following other women and messages into beauty and fashion fields, should we be surprised that they become avid consumers rather than investors?  Should we be surprised at small percentages of women reaching the top positions at company CIOs or COOs? Should we be surprised at the numbers of women pursuing today’s business board leadership opportunities? And why should we apply quotas – now – 20, 30, or 40 years later in a belated attempt to entice them back into the challenging roles they walked away from earlier?

Better we should work hard, today, to Keep Her In the Game – whatever the arena of challenge that might be.

Women’s Sports Foundation - http://www.womenssportsfoundation.org
Sally Ride Science - https://www.sallyridescience.com/
Anita Borg Institute for Women and Technology - http://www.iwt.org/

And before I forget, here's P&G's tribute to Moms - those who work very hard to "keep them in the game":
http://www.youtube.com/watch?v=NScs_qX2Okk&feature=player_embedded

Wednesday, July 11, 2012

To Ensure That We Succeed

(Originally posted to the GMI3D Blog in April 2011)

Director registries and databases contain the names and information about either existing or potential board of director candidates.  Women and minorities interested in the pursuit of independent director roles have argued that nominating committees and director recruiters, historically, have “reached into the same barrel” to find candidates for board roles.  When existing boards and nominating committees only tap the same resource pool (whether it’s personal Rolodexes or existing director databases), the argument goes, we should not be surprised if the results are consistently the same homogeneous board candidate list: white, male, CEO, aged 65 years or older.

My research has uncovered several efforts to establish “diversity director databases” since the early 1990s. See: GMI 3D Diversity Database and History of Women Board Registries. What does the research tell us about how we might work together to ensure that the current effort succeeds?

First, we have to define what we envision “success” to be. The 3D registry would be considered a success if it attracted competent, capable, experienced and willing director candidates from a diverse pool.  Sources of competence include individuals with some core-level business-related education and training in the fundamental skills of corporate governance.  Sources of capable talent include individuals who have been told they might consider corporate governance as part of their career trajectory.  Sources of experienced candidates include individuals with some track record in organizations, committees, teams or other entities where collaborative efforts produce performance-oriented results. Sources of willing candidates are a bit more challenging. Where and how do you find individuals with a passion for leadership, an enthusiasm for business-building, and the desire to share one’s business acumen and insight to enable another business to thrive and grow?

We cannot simply assume anyone, warm and walking, will meet this standard.  The database expects talent to apply and to be referred for this most arduous of tasks -- serving as a corporate director. Those “gatekeepers” at business schools, governance training programs, senior management, C-suite coaches and mentors, and director peers on existing boards have a fundamental duty to encourage talent that they observe performing to sign up, show up, and speak up about their interest in serving on a corporate board. We must encourage the very best talent to apply.

Second, we have to determine who is using this resource? The 3D registry would be considered a success if it were viewed by business entities (public and private), search firms, and the shareholder community to be a quality, reliable resource for talent.  Nominating committees need to affirm, publicly at a minimum, that they included the 3D registry among their search resources.  Search firms -- more than the one or two corporate members of the Advisory Board -- need to include candidates from, and refer candidates into, the 3D registry. The shareholder community needs to tap the 3D registry as one of several resources for candidates.

We cannot have the 3D registry become simply a tool of advocates and activists, as well-intended as they may be. If the 3D registry is to be a credible source of independent-minded talent, then independent-mindedness must be the priority selection criteria.

Third, we might consider some form of anonymity for director searches, at least for the early round of considering basic credentials and due diligence about qualifications. Nominating committees may need to screen out all references that might indicate gender, age, race, color, etc. in the early rounds of inquiry about possible director talent.

Finally, we should expect reportage from the 3D registry administration about its growth in headcount and successful placements. Additionally, we should expect reportage of at least the categories of those who use the 3D registry as well as (perhaps later) the scale or size of entities inquiring.  If we do not see positive growth in headcount, placements and inquiries, within a short period of time, we should begin asking why is the tool not being utilized?  Perhaps, this might be an appropriate element of governance scoring.

There is a clear and present need for diversity, independence, and competence on today’s boards of directors. Female candidates are one source of that talent as are minority candidates.  The real challenge is to motivate boards to pursue that rich pool of potential candidates which matches their skill requirements and also to motivate diverse board candidates to ensure they are prepared, qualified, and actively pursue (through all the channels available to them) those board opportunities which match their skills and competencies.

The 3D registry is one of several important tools available to Nominating Committees to access today’s savvy resources. It also is potentially a new, rich and objective source of information and insight into today’s much tougher challenge of finding qualified directors who are able and willing to serve at the helm of our corporate boards.

Thursday, July 5, 2012

Nobody Likes to Swim in a Swamp

At lunch with a professional woman the other day, I heard her proclaim “Who’d want to serve on a board anyway?  They’re all so corrupt!”  Then, today in my in-basket, I see my Favorite Curmudgeon, Ralph Ward, warning women director candidates, “’be careful what you wish for -- you might get it,’” board expert and commentator Ralph Ward advised a group of female business hi-pots in New York June 29” …Ward noted that “if you view gaining a board seat as a major career goal, you may want to think twice.” 

For shame, Mr. Ward.

I’d like to congratulate all those who depict corporate boards uniformly and without exception as filthy swamplands populated only by stale, male amphibians ready to pounce on innocents -- especially fragile, risk-sensitive female business executives! With fear-mongering of this caliber, pointing to the boogie men ‘neath the bed (director liability, time demands, conflicts with “day job” commitments, and bosses who demand 1000% dedicate to HIS company), why should anyone be surprised that women might actually hesitate to take on corporate governance roles today?

If talented, competent people (especially risk-savvy women executives) hold their noses and balk at the prospect of service on corporate boards because of hype like this, then we deserve the corrupt boards that will dominate our economic horizon.

The NYSE has about 8,500 listed companies, while NASDAQ has another 2,766 company listings. Conservatively, at 8-10 directors each, that’s about 96,000 to 120,000 mostly honorable, dedicated, and conscientious directors who have been painted with the same dripping, slanderous paint brush of uniform incompetence and lack of ethics. That doesn’t include the OTC, private, and entrepreneurial companies with thousands of advisory board or fiduciary boards of directors.

Could Mr. Ward’s game possibly be that old standby: “Women really belong in the kitchen preparing meals for us tougher men.”  “Women are too fragile to serve in the military.” “Now that we’ve returned from the wars, the Little Women can return to the home where they’ll be happy.”

Every time we hear another not-for-profit rant about “how few women there are in leadership,” we do a great and grave disservice to the many thousands of women who are at the oversight helm of major US corporations.  We diminish their presence and their contributions to quality corporate governance. Now, we add to that chorus these new scare-tactics whose only purpose can only be to propagate fear, rather than educate talent to accept today’s challenges of governance service.

There is no doubt that American levels of litigation are insane and unhealthy, but does that argue for scaring away women, who now represent significant shares of the law profession including General Councils on whom board must rely for advice and risk assessments?  Give me more women capable of managing risk effectively at today’s global corporations. 

There is no doubt that corruption exists in small percentages of American corporations, but does that argue for keeping out of our boardrooms some of the best and brightest talent we might find in terms of ethics and experience? Give me more women capable of blowing the whistle on insider trading, financial fraud, and ponzi manipulations.  

There are exceptions, certainly, and we ought to thin out the flotsam and jetsam among the pool of unworthy corporate directors. But not all directors are corrupt, and not all boards evil.  Let’s agree to stop trivializing our governance problems.  Let’s stop searching for quick fixes that have zero substantive foundation in fact or evidence.  

In point of fact, the US corporate governance universe stands on a par or ahead of many others in the world’s search for “best practices” that work well in a very imprecise business marketplace.

If we want more talented women to pursue corporate governance opportunities with enthusiasm, then perhaps it’s time we took a little more pride in the economic engine of growth -- American corporate governance -- that women corporate directors have helped build and will build for decades to come, if we have anything to say about it. 

Mr. Ward should know better.