Startups, Turnarounds and Things...
Old Dogs and New Tricks – Thinking like a Startup
You could say I’m an old dog in terms of technology. I started my first business in 1986, back when a Hayes 2400 baud modem was the hot ticket. Fast forward 25 years later, president of two public companies (Mustang and Starbase), a couple corporate turnarounds (Web Associates, Starbase and Alchemy) and two startups (Mustang and EventMingle), you could say I’ve earned my battle scars.
For those of you who have been following my blog know, I have recently been working with 7 startups though our VentureBox business accelerator here in Bend, Oregon. Startups live in the constant state of thinking of ways to disrupt competitors and pivot business plans to grow rapidly in order to increase cash or traction. This week, I had a lot of time to think a lot about the differences between startups and well established businesses. One of the questions that came to mind was: “When is it ok for an older company to stop focusing on cash and traction?" I tried to pick my words carefully. Note, I didn’t say stop altogether, I said stop focusing.
Businesses, as they mature, develop large customer bases they have to support. They have infrastructure in place. They have made decisions about their back office systems such as accounting, CRM, work flow, servers, operating systems, technology partners, etc. Next thing you know, years have gone by, you have tens of thousands of customers and 1,000 employees. Cash and traction may no longer be a focus. Every decision needs to take into account, how will it affect my customers? How does the change impact my back office? Next thing you know, your company is not as agile as before and you ask yourself, "How did we get here?"
Each of the turnarounds I led had major back-office issues. Web Associates built web content for HP, Apple and other companies, yet didn’t build the internal controls to track the cost of producing those pages. They assumed we made money because it was a six-figure sale. You can't improve margins if you don't know - to the dollar - what the margin is. Just like in a startup, find metrics you can easily track in a graph.
Starbase’s accounting system didn’t talk with the customer support ticket system, which resulted in customers getting support even if they never actually paid for the software, which resulted in longer DSOs then we had to have. We couldn't easily inform customers when the defect was fixed by engineering because the CRM app didn't talk to the defect tracking system and version control. These disconnects cost us margin and didn't help us build raving fan customers.
As your business grows, your IT strategy and vision MUST keep up. If it doesn't, your IT costs will erode into your margins resulting in making you less competitive. This can have disastrous effects when you’re challenged by a low cost competitor. Let me put it this way, if a competitor has established a price ceiling and your product or service is similar, then the main weapon you have against that competitor is better customer service and a lower cost basis – through technology innovation. This will allow you to maintain margins if prices move lower. Each time a customer calls or emails support, your profit margin is hit with a cost. Look for ways to eliminate the call or email all together.
When I arrived at Alchemy we were using two different CRM packages because one system couldn't do everything. This resulted in placing orders and registration keys in multiple systems, with a lot of cut and paste. It was awful. It would take 20-30 minutes to enter an order and errors would occur if during the order entry process the rep got a phone call and disrupted them. The previous leadership thought this was acceptable. No one tracked the total average cost per order. No one tracked how many orders went in the system wrong, resulting in unhappy customers and terrible first impressions. These are all costs that need to be faced. If we had a system to enter an order in say 10 minutes, without cutting and pasting, we could process more orders per day, with fewer errors and have more profit per order. Also, consider the cost of training. The more duplicate entry you perform the harder it is to train people to do it, which leads to higher costs and, you guessed it, lower profits.
Which brings me back to the main topic. When you’re in startup mode you’re focused on efficiency. You have to be, you don’t have a large staff. So you look at every single touch point to make sure your UX and work flow is nice and tidy. You look for cloud solutions versus on-premise servers you need to constantly maintain. You look at package software solutions for accounting, CRM and work flow instead of spending time to code it yourself. As your business grows, I urge you to think like an entrepreneur when it comes to your Information Technology and Back-Office needs. Each time a customer calls or emails, ask, “How could this have been avoided?” Conduct annual IT audits and track things like order entry to see how many they enter per day, per person. This is similar to knowing revenue and or cost per employee and tracking it over time, but you're doing it by department or task.
Look at your customer's experience across all functions and see how you stack up with your competitor. For example, if your competitor allows their customers to go online, change their profile, order products or contact support, and you don't, then they're likely doing a better job managing the overall customer experience and business efficiency.
In my experience, you’re usually competing on more than just price alone. When you’re a startup you spend a great deal of time ripping apart the competition. If it’s been awhile since you’ve done a deep dive, put on your startup hat and give it a go.