Here are two ideas that might help you succeed in your business.

Don’t Chase (Money)!

The other day, I was talking to a guy who has been busting his tail, trying to get his start-up off the ground.

This guy has been at it for more than a couple years now, and how he functions day to day I’ll never know. He’s got three kids and he is basically living off meager product sales as well as the sale of small chunks of his equity.

“Death By A Thousand Cuts” is one phrase that comes immediately to mind.

“Chasing money” is one of the most counter-productive things that a start-up entrepreneur can do. In my opinion, it is also one of the top reasons why businesses fail. Why?

Well, first of all, chasing money detracts from the small supply of time that an owner has available to spend building his or her business. Secondly, and because the people being “chased” know that you’re chasing them, they leverage this situation to their advantage. I have an axiom for this … in fact I think it’s in my Immutables … here it is (paraphrased):

“Watch a poker game and notice the player who is making the best decisions. Invariably, this will be the guy who has the biggest pile of chips before him. So, this guy doesn’t ever have to draw to an inside straight. Instead, he just plays a steady and conservative game. He can do this because he has staying power. And when you have staying power, you have the ability to simply walk away from anything you might consider to be a “bad hand”.

Now look at the people who are playing recklessly. These are the people who almost have to “score” on each and every hand. These are the people who are ‘chasing.’”

And when you’re chasing, you tend to capitulate on key points. This also means that you not only negotiate bad financial deals, but that you also tend to do deals that hurt you as much as they help. One example of this might be payment terms. At the end of the entire negotiation, “them’s with the money” (i.e., the other guy) takes one last stab at “them’s without the money,” (i.e., you!) and so it goes something like this --- “I guess I can agree with all of your points, but there is one last thing --- I really don’t want to pay for this whole thing up front."

And because the entrepreneur is by then bone-weary from chasing, he agrees. So, he ends up with less cash than he needs --- which means that he has to begin chasing all over again!

Finally, and because entrepreneurs are constantly turning over rocks to find such things as payroll money (which oftentimes is the reason they’re doing the chasing in the first place) they can easily and quickly lose track of the important things in their day-to-day operations. This in turn results in a poor or incomplete product, as well as high employee turnover throughout the organization.

In short, it’s a mess. And all because of chasing.

My advice is to either give this duty to a third party, or don’t even start your business at all until you have first raised all the capital (and more!) that you will need.

I said two columns. Here’s the other one.

“Avoid Beauty Contests”

Let me now slightly change subjects to a topic that’s somewhat related: Beauty Contests.

Beauty Contests have become extremely popular in the last decade or two. When I started out in business in the early 70’s, I really don’t think that there was much more than the Kiwanis or Rotary “Person of-the-Year” awards. And, these awards were given to business people who also did great humanitarian work. Today, we’ve got (fill in your favorite title) “Blank-of-the-Year” Lists for just about every imaginable category.

Among others, we’ve now got such Beauty Contests as: Businessperson-of-the-Year, Entrepreneur-of-the-Year, Government Worker-of-the-Year, Humanitarian-of-the-Year, Salesperson-of-the-Year, and, of course, Employee-of-the-Year.

Add to these such BC’s as: “Finest Fifty,” “One-Hundred Fastest-Growing,” “Best New Companies,” “The Greenest Fifty,” and of course, “Best One-Hundred Companies to Work For.”

I’m sure there are more. I just don’t really know any more, as I personally stopped participating in, and going to, these ego-fests many years ago.

If you stop to think about it, entering these contests is really quite irrational. Here’s why:

• First, and in order to compete, you are oftentimes asked to provide to some judging panel your most confidential sales and production data.
• And guess what? This judging panel is oftentimes made up of accountants! Top-flight accountants from some of the area’s best accounting firms, no less. So … you’re giving unfettered access to your books to a staff of highly-qualified CPA’s who, and strictly in my opinion, can next report back to their management exactly which of these companies are extraordinarily profitable and/or well-run. Again, and in my opinion, this can easily turn into a salesperson from that accounting firm later on soliciting your business.
• Beyond providing this confidential data, many “contestants” are also asked to provide information on their proprietary products and services. I don’t know about you, but I’ll do this for my accountant and/or for my lawyer. But, I won’t do it for the accountant and/or lawyer I met less than an hour ago.
• Also in order to contend, contestants are oftentimes required to put together some sort of presentation or visual. Even those who aren’t asked to do so, do it anyway. All of this takes time, costs money, and generally takes core people away from the day-to-day of making your business go! And for what? For a laser-etched piece of wood with your company logo on it?
• And finally, let’s not forget the “gentle pressure” applied by the awarding entity. For example, you will almost certainly be pressured into buying extra seats at your table (at about $250 a head). You might also be “gently pushed” into a request to buy an advertisement in the evening’s program. A full pager here will cost you a couple thousand dollars.
• Oh, and let’s not forget your customers and suppliers. Especially your suppliers. Each and every one of these individuals is often also asked to buy seats at your table or congratulatory ads in the evening’s program.
• I’ll give you just one example of a good friend of mine who had just started a business that was called upon by expert witnesses to make courtroom videos that depicted accident scenes. He was a semi-finalist in one of these beauty contests and to differentiate himself he spent 3 months creating a Hollywood-style movie that (of course) starred him. Not only did he not win, but it cost him his biggest customer (who got tired of waiting for service) and he came close to losing his company altogether – true story!

So …the way I see it, it’s a great deal for the awarding (read: controlling) entity, and oftentimes a bad deal for the contestant.

Finally, I guess that I must also tell you that I’ve never really been convinced that the selection of the winners of these events is much more than an exercise in politics. I say this because I’ve seen too many very qualified companies get passed by in favor of an organization that might, for some political reason, win instead. I wish I could be more specific here, but that would reveal way too much inside information.

This is not to say that these evenings aren’t great fun --- they are! The food is generally terrific and the wine just flows and flows. And, events like these give CEO’s and their employees many opportunities to slap each other on the back and reflect upon just about what a great year it was. (Ooops! Did I just say CEO’s and employees? There’s another problem … again, in my opinion, the wrong people get these awards. Great CEO’s will deflect the credit to their people, but before I stopped going to these kinds of events, I don’t think I even once saw a lower- or middle-level worker come up to collect the trophy. It just seemed like the goods were always being picked up by only the top guy.)

But putting all of this aside, my gripe is with time and focus. Few companies can afford to invest the amount of time necessary to participate in and even win one of these trophies. In fact, it’s actually gotten to the point where companies should probably have a separate department --- the Trophy-Chasing Department would be an apt name, methinks --- just for the purpose of participating in award ceremonies.

Now, I know I’m going to get a lot of angry responses to this column. People are going to say that I’m throwing a wet blanket on something that is great fun and recognizes the efforts of hard-working people.

I’ll agree with these people. These events are fun and they do, generally, recognize the hard work.

But at the same time, how did we get through the first two and half centuries of American commerce without them? And, just how much of an impact do they have on a start-up that is truly trying to achieve escape velocity? This is my true worry --- the company that’s just about ready to “bust out,” but then loses part of its momentum because of some silly contest.

I know that no one is putting a gun to the CEO’s head to participate. And I also know one hell of a lot of CEO’s who have decided not to “play.” But there is an incredible amount of pressure, especially on first-timers. They have no idea as to what they’re getting into, and they have no idea as to what the true cost of participating might be.

So, to all start-ups everywhere, I say, “Be very wary of what and where your CEO is doing and going. Talk to him/her. Make him/her realize that the real reason we’re all here is to build something of substance and something that will make a great contribution to society. If everyone still believes that more money is needed, and thus must be chased and/or that a Beauty Contest must be entered, then so be it. But at least you had the upfront discussion. At least everyone had their say.