Ready, Fire, Aim is an excellent book that describes the lifecycle of a company from startup to mature company and the management decisions and styles that are appropriate for each stage along the way.
READY, FIRE, AIM: Zero to $100 million in No Time Flat, by Michael Masterson
The Four Stages of Entrepreneurship
There are four stages of entrepreneurial growth. It is important to understand which stage your company is in, and to focus on the Main Challenge of each stage. The two key ideas are:
In Stage One, the most important thing is selling;
In Stage Two, the most important thing is creating new products.
In Stage Three, you need to turn your chaotic growth into order
In Stage Four, you need to become entrepreneurial again
The Supremacy of Selling
The author states that Rule Number One of Entrepreneurship is the Supremacy of Selling. Put differently: Without sales, it is very hard to sustain an ongoing business. A CEO should spend 80% of his time, attention, and energy in the selling process.
The Big Mistake that most "wannabe entrepreneurs" make is to do the opposite: they spend 80% of their time on ancillary activities such as setting up an office, designing logos, printing business cards, filing forms, refining the product, etc.
Rule Number Two of Entrepreneurship is that there is a direct relationship between the success of a business and the percentage of its capital, temporal, and intellectual resources that are devoted to selling.
The title of the book, "Ready, Fire, Aim", describes what the priorities and sequence of activities of a CEO should be:
Get the product ready enough to sell it, but don't worry about perfecting it.
Then, if it sells, make it better.
The Optimum Selling Strategy ("OSS")
For every business at any given time there is one best way to acquire new customers. To discover your OSS, answer the following four questions:
Where are you going to find your customers?
What product will you sell them first?
How much will you charge for it?
How will you convince them to buy it?
Creating great copy
Creating advertising copy is an essential part of the job of a CEO. Don't delegate this out; do it yourself; as founder and CEO you know your product best.
The four marketing concepts you need to know to create great copy are:
The difference between wants and needs (you are in the want business, not the needs business).
The difference between features and benefits (your copy should focus on the benefits).
How to establish a unique selling proposition (USP) for your product (highlight a single benefit above all the rest). There are three aspects of a solid USP:
The appearance of uniqueness
How to sell the USP. All effective sales efforts have four components:
The Big Idea
The Big Promise
Proof of those claims
From Stage One to Stage Two
By the end of Stage One, you should have successfully:
Located your core market (where your best customers are).
Figured out the best media to reach them.
Determined the best price for your lead product.
Identified a USP for your product.
Tied that USP into a Big Idea.
Used that Big Idea to create compelling marketing copy.
Tested all of the above - media, offer, and copy - repeatedly.
In short, you will have figured out the OSS for the lead product of your business. By the end of Stage One, you have become a successful one-product-company. The primary factor to enable you to grow 10-fold (Stage Two) will now be the development and marketing of new products that you can sell to your existing clients.
Understand the difference between front-end and back-end marketing. Front-end sales are those that come from new prospects (people who have never bought anything from you before). Back-end sales are those that come from your existing customers. The purpose of the front-end sale is to acquire a new customer. When you start a business, your top priority is to collect as many qualified customers as you can as quickly as possible. You do that by discovering the OSS for your lead product. Then, to generate profits, you sell back-end products to those customers.
The key to Stage Two growth is product innovation. Malcolm Gladwell in his book The Tipping Point shows that product innovation should be evolutionary, not revolutionary. Your job is to be sensitive to industry trends and to develop new and better versions of products that are already trending upward. For example, the iPod and the iPhone are not revolutionary products; they are just better versions of an MP3 player and a mobile phone.
Now back to the discussion about front-end and back-end marketing. You cannot bring in new customers in a competitive market with an ordinary product. Therefore, for successful front-end marketing you need an innovative tipping-point product. The good news, however, is that back-end products can be very ordinary, because you already have a relationship with the clients and they are much more likely to buy from you.
The secret to breaking into new markets or reviving a sluggish business is to create tipping-point products.
The secret to creating tipping-point products is to find hot products in rising markets and come up with a way to make them better.
You need tipping-point products for your front-end marketing, but you can profit from selling ordinary products on the back-end (as long as you make an effort to sell them to your existing customers).
Note: Being first to market is not a good idea. First versions of a product are often not very good. It's smarter to aim to catch trends when they are already rising and to be second or third to market, but with a superior product.
But how do you go about creating a tipping point product? Work as a member of a creative team; don't fly solo. Encourage creative brainstorming within your team. Engage at least three persons (and a maximum of eight) in the brainstorming (two doesn't work: one person says something, the other says another, and the conversation gets into a rut with entrenched positions. Three persons ensures that the conversation never gets stuck). Set a time limit and establish goals.
You can come up with new product ideas by using the Magic Product Cube. The cube has three dimensions:
Price (inexpensive, moderate, expensive)
Product type (e.g. golf clubs / golf paraphernalia / golf balls)
USP (e.g. you have three golf pros that can endorse your product: Tiger Woods, Bubba Watson, Joe Bailey)
Hence you have 3 x 3 x 3 = 27 possible products.
When a brainstorming session comes up with a good new idea, immediately write down a short advertising piece that encapsulates the idea. Immediately articulating the idea will ensure that it doesn't get forgotten or watered down.
You Stage Two growth will depend not only on innovation but also your velocity: your ability to generate and test new product ideas quickly.
The best way to test new products is on your existing customers.
Most of your new product tests will fail. Adopt the principle of Accelerated Failure. By accelerating your failures you also accelerate your successes. Establish a company culture where it's okay to fail.
The first step of the Ready, Fire, Aim concept is to get ready. The first step of getting ready is to have an idea for a good product. A good product is a product that provides a big benefit to the customer.
Next steps are to ask yourself if your sales targets are realistic, whether you can test the idea, whether you know the basic tasks that need to be done, whether you have the right people who can do them, and do you have a Plan B (an exit plan if your good idea turns out not to have been so good).
To create a Plan B, ask yourself questions such as the following ones and come up with a survival plan in each case. What would you do if:
Your cost of goods suddenly increased by 15-percent?
Your main customer dropped you?
Your most important employee suddenly quit?
Your building burnt down?
Set up a Ready, Fire, Aim business proposal. It should:
Be more than one page, but no longer than four.
Include ballpark financial projections (including costs).
Identify critical tasks.
Identify a project champion and key support people.
Include a timeline for major tasks to be completed.
Describe a plan B.
The Ready, Fire, Aim formula has three simple rules:
Begin when you are ready (Ready, Fire, Aim is not Fire at Will!)
Don't waste time perfecting your product (you can't know what will work until your idea is in action)
Only after the idea has proven itself in some way should you start improving it.
In brief, the core idea is that getting things going quickly is more important than planning them perfectly.
Ready, Fire, Aim acknowledges that it is impossible to get a product right before the customer has had a chance to use it.
[Of course, Ready, Fire, Aim doesn't work for all products. e.g. elevators, suspension bridges and space shuttles require lots and lots of planning and can't be developed with Ready, Fire, Aim].
There are broadly two types of business people: Hoarders and Sharers. Hoarders believe that, "The less I give to customers, the more I will have left for myself." Sharers believe "Treat your customers as you like to be treated when you are a customer."
You should be a sharer. In order to do that, spend a good deal of time asking "How can we make this better?" This is the principle of Incremental Improvement.
Your approach to product quality should be: If it ain't broke...fix it!
"Broke" means not selling well. The principle is hence: If the product fails to sell well, trash it. If it does sell, improve it.
A crash course in marketing
The Golden Rule of Marketing Genius is: Treat your customers the way you want to be treated. And how do you want to be treated?
You want to be able to buy what you want to buy.
You want the product to perform as advertised.
You want to feel like you are paying a good-to-fair price for it.
You want the product delivered quickly and in perfect condition.
You want to be treated like a valued customer.
You want to be able to get a prompt, courteous refund if you are unhappy with the purchase for whatever reason.
There are only three ways to increase the revenues of a business:
Sell your product to more people. (To do this, innovate and develop more lead products).
Get your customers to buy more products from you. (Back-end sales)
Charge more for the products you sell. (Do this only on back-end sales).
To increase back-end sales, work on your customer service.
Good customer service involves only three things:
Knowing what your customers really want (e.g. children clothes shop - what clients really want is not clothes, but to do everything possible to give their children the best of everything).
Finding out how you can do that for them.
Talking to them about what you are happy to do (e.g. send them a monthly newsletter).
Twenty lessons in sales and marketing:
Lesson 1: Your customers don't care about you or your business. They care about themselves. So don't talk about your company and your products. Talk instead about your customers, their problems, and desires.
Lesson 2: A small portion of your customer base is giving you the lion's share of your corporate profits. You need to identify them, communicate with them, thank them, upgrade them to VIP status. Your marketing needs to target these big spenders.
Lesson 3: Understand why your customers buy from you. Two possible reasons: to feel good (about themselves), and/or to solve a problem. Make sure your advertising reflects the reasons.
Lesson 4: Almost every sales transaction begins with the process of generating leads. The best way to generate leads is direct marketing.
Lesson 5: Learn multi-channel marketing. Most of all direct mail and direct email.
Lesson 6: Follow the Golden Rule of Marketing Genius: Treat your customers the way you want to be treated. Don't treat them like the enemy.
Lesson 7: The Secret of the Four-Legged-Stool. Every marketing campaign has four elements: (1) The Big Idea, (2) the Big Benefit, (3) the Big Promise (a succinct and compelling projection of the Big Idea and the Big Benefit), (4) the Proof (promise and benefit create the emotional decision to buy. Claims and proof rationalise that decision).
Lesson 8: Customer complaints are the key to better selling. They are the building blocks of better products and stronger sales pitches.
Lesson 9: Maintain a "no dead end" policy regarding selling your products. Each sale should lead to another sale.
Lesson 10: Take advantage of customer inertia. Establish a "bill till forbid" policy (i.e. make additional purchases automatic).
Lesson 11: Understand the 80/20 Rule. 20% of your customers bring 80% of the profits, so treat them like VIPs.
Lesson 12: Understand the USP of every product. Ask yourself how this product will be different and better than the other products out there. Different is not enough; make sure the USP is desirable.
Lesson 13: Every product line needs its own branding. Translate the USP into a benefit and market that benefit as a brand.
Lesson 14: Never lose your marketing edge. Beware of marketing campaigns that have been going on for years that are not being properly monitored for profitability any more.
Lesson 15: Understand the Secret of the Core Complex. You need to be in touch with your customers' core worries and desires. Peel your customer's personality like an onion.
Lesson 16: Practice reciprocity with your customers. Give something valuable for free; it teaches customers that they are safe doing business with you. Then, ask for something in return. That's reciprocity.
Lesson 17: Intimacy is the key to a customer's lifetime value. Familiarity is the soil in which sales grow. Know your customers, talk to them, make your company and products transparent to them and be honest in your communications.
Lesson 18: Be confident and enthusiastic when you sell. Never be afraid to make a sales pitch.
Lesson 19: Don't push or bribe your customers. Cold-calling and other hard-core selling create long-term troubles. Develop a benefit-oriented marketing strategy that pre-qualifies customers before you sell to them.
Lesson 20: Develop a marketing culture that emphasises that: (1) providing benefits to customers is at the heart of product development, (2) providing value is at the heart of all your sales transactions, and (3) sincerity is at the heart of all your communications with customers.
Understanding the buying frenzy
Here is the law: The likelihood of a customer buying a particular product is inversely related to his need for it.
And its corollary: The less a customer needs a product, the more likely he is to buy it.
This law isn't true for all commercial transactions, but they are true for most of them, and by applying them to your business you will increase the long-term value of your average customer.
Think about women buying shoes: typically, do they really need another pair of shoes? They buy the shoes not because they need them, but because it gives them pleasure.
Impulse buying/binge buying/buying frenzy/incessant consumerism can be stimulated by three factors:
Having the feeling that I have more money than I need.
Being exposed to psychologically effective selling signals.
The good feeling I get from buying.
If you study the 20% of your customers that give you most of your profits, you will discover that their buying is consistent with binge-buying. Hence you need to:
Identify the potential big spenders among your customers.
Market to them aggressively as soon as they make their first purchase.
Ensure your marketing stimulates their psychological desires (not their physical wants).
Keep selling to them until they spend themselves out of their frenzy.
Design your marketing campaigns to stimulate long-held and deeply held desires (such as the desire for acceptance, recognition, admiration, and even love). Understand the psychological trigger points that drive the purchase.
To turn your ordinary business into a cash machine, redesign your sales and marketing strategies to focus on stimulating buying frenzies among the top 20% of your customer base.
In making psychological promises in your advertising, it is best to make them subtly rather than overtly. If you come right out and say that your product makes the client smarter or sexier, he will see your ad as pandering and derogatory.
Stage Three: Adolescence -From $10M to $50M in revenue
Main Problem: Your systems are strained and customers are noticing.
Main Challenge: Turning the chaos into order.
Additional Skill Needed: Running your business with just three or four management reports.
During Stage One, your business had one primary product and one primary function: selling that product. As founder and CEO, you drove those sales.
During Stage Two, your company became a production machine. Lots of new employees were added to the payroll. Communication gaps and chaos has set in.
Your business needs to become more corporate. You need to bring in professional managers - corporate types. You need to establish a traditional corporate structure with you as CEO talking to six corporate managers - Director of Marketing, CFO, Operations Manager, Sales Manager, Product Development Manager, and Customer Service Manager.
You should meet with each manager once a week, for at most 30 minutes each. Except for the Marketing Manager, which you should meet more often.
The Rule of Three: Each manager should be required to give you just three numbers every month. For example, the Customer Service Manager gives you the number of problems addressed, the percentage that were solved, and the amount of time it took to solve them.
Six managers submitting three numbers each gives you 18 numbers. It is not feasible to pay attention to more than 18 numbers each month, so why try?
Make sure you pay proper attention to your managers' monthly reports. It shows them that you care.
Changing into a corporate leader
Your business won't grow from Stage Two into Stage Three unless you make the personal changes needed to accommodate the next level of growth.
Running a growing Stage Three company takes at least five skills that are not needed to start and grow a modest-sized entrepreneurial business:
Managing your managers
Communicating your vision
Networking for joint ventures and negotiating deals
Being good at hiring
The secret to controlling operations as your business continues to grow is to:
Structure it for growth, and
Hire professional managers.
The recommended structure is to break your business into two parts:
An operations core that is controlled by a COO
A group of profit centres run by salaried "intrapreneurs" who report to you.
What is an intrapreneur? First, understand that entrepreneurs don't make good employees. Entrepreneurs don't like following directions and are always unhappy with their compensation. If you manage to hire an entrepreneur (which will only happen if he's down on his luck), he will eventually leave you. Usually it will be when the profit centre he's in charge of is doing very well (and if he can get away with it he will take that business with him).
Intrapreneurs are a different kind of person. Like entrepreneurs, they like being in charge. But, unlike entrepreneurs, they don't mind taking direction (as long as it is suggested and not dictated). They are reluctant to go off on their own so long as they feel that they are being reasonably compensated.
You need two types of persons to bring your business from $10M to $50M and beyond: professional managers to run your operations, and intrapreneurs to run your profit centres.
- Managing your managers
For a COO, you need a very competent, very professional person who will be both flexible enough to embrace your vision for growth and also strict enough to institute and manage the systems needed to run all your operations. The best personality is someone flexible enough to say yes on the big issues and no on the small ones.
This brings up the subject of your own flexibility. You have to be willing to let your managers make the management decisions. You tell them what ultimately you want done, but let them figure out how to do it. If you limit your meetings with each manager to once a month and get from them only three monthly metrics, it will be difficult for you to micromanage.
It is also important to curb your instinct to correct mistakes. And never correct your managers in front of their people.
Phrase your criticism as questions. i.e. don't say "I think it was wrong to spend $16 on that cog", but instead say "Why did you think it was necessary to spend $16 on that cog?" The question is the same, and occasionally you will avoid embarrassing yourself because occasionally you will get a good answer.
- Communicating your vision
Don't walk around your offices talking to people - having conversations with your subordinates' subordinates undermines your managers' authority and causes confusion.
Instead, use a more formal approach: send out a monthly memo (that is 80% upbeat information and 20% core corporate beliefs).
Never use interoffice email to criticize or condemn or complain. Those difficult conversations must be had in person. Email is however an excellent vehicle for good news.
- Networking for joint ventures and negotiating deals
Don't over-negotiate. Take a long-term view - establish a good long-term relationship with your joint-venture partner, rather than trying to extract short-term profits.
If your negotiating partner suggests a deal that falls somewhere within your acceptable range, accept it - don't haggle. This will bring you a reputation for being so easy to deal with, and people will come to you more frequently with deals. And your partners will feel confident that they haven't been fleeced.
However this technique only works if you prepare beforehand by figuring out a range of what would be acceptable to you.
- Being good at hiring
You must devote serious time and effort to hiring great people. Recruiting great people is like running a successful direct-response advertising campaign: identify your target audience, figure out what benefits you can provide them, and express those benefits to them in a convincing way.
So, write longer ad copy. Don't talk about what the business is looking for but about what the job offers the candidate. Don't list experience requirements - character is more important. Don't ask for a resume - ask for a letter instead. A letter will give you a sense of the candidate's personality.
Other employers are scanning resumes for experience and qualifications. You are reading letters for signs of an applicant's character, ability to communicate, vision, ambition, and intelligence.
During interviews, encourage candidates to talk about themselves. But look for those who keep turning the conversation back to you and how he can help you. Great employees understand that their main concern should be how much they can do for the business, not how the business can take care of them.
Seven myths about employees
Myth #1: Employees need job descriptions in order to know the scope of their responsibilities.
Reality: Job descriptions are not necessary. They are limiting. Saying "that's not my job" is equivalent to saying "I don't want to work here."
Myth #2: Employees are always motivated by money.
Reality: Good employees thrive on being recognised as good and appreciated. Countless studies have shown that money is never among the top three factors. That doesn't mean money doesn't count - you can't expect to underpay good people and get away with it. Pay them just a bit more than the going rate.
Myth #3: To win loyalty from your employee, make them all owners.
Reality: Most employees don't want to be business owners. That's why they are employees. Don't bother with stock option plans - the good employees work no harder, and the bad employees just grouse more about not having enough options. The only difference the plan makes is that the people at the top owned only a small percentage of the business, leading them to lack the motivation needed to grow it.
Myth #4: Flat organisations create happier and more efficient employees.
Reality: Employees like hierarchy.
Myth #5: The way to make work fun is to fill the workplace with amusements.
Reality: Turning your office into an amusement park is foolish and counterproductive. Your star employees will not bother with the toys; only the goofballs will use the games.
Myth #6: A good boss is a sensitive boss, who is willing to respond to employees' personal problems.
Reality: Mixing business and friendship is always a bad idea. It sends the wrong message that in a business environment, an employee's personal life comes first.
Myth #7: A good boss listens to employee complaints and responds to them.
Reality: Some complaints are better off ignored. If the complaint is related to a problem getting a job done, then by all means listen to it and solve it. But when it has to do with personal feelings ("Sally doesn't like me") it is usually best to listen briefly and then redirect the conversation to the work at hand.
Elliott Jaques' theory
Elliott Jaques's theory is that in every sizable business there are five strata of work:
- Stratum 1 | Rank-and-file work (routine physical/mental work)
- Stratum 2 | First level managers (making sure the Stratum 1 work gets done)
- Stratum 3 | Middle managers: create the work that Stratum 1 do, and Stratum 2 manage.
- Stratum 4 | Higher level supervisory jobs.
- Stratum 5 | CEOs
Jaques observed that these time-span mental frameworks are not the result of the work, but a result of the inborn nature of the individual employees. i.e. people are hardwired to think in different time spans. Most feel comfortable looking forward only a day or two. Some can look months ahead. Few look years ahead.
You can't change people's hardwiring. The secret to putting the right people in the right jobs is to identify potential employees' time-span wiring at the hiring stage, and then to place them in jobs that match their natural inclinations.
Bottlenecks, bureaucracy, and politics
These are the primary viruses that affect Stage Three businesses:
Bottlenecks are people or procedures that slow things down.
Bureaucracy is any system or protocol that exists independent of the core purpose of the business.
Politics is the destructive dynamic that results when people pay more attention to power than profit.
Examples of bottlenecks:
Legal compliance. Solve it by trying to figure out a clever way to follow regulations without diminishing your production and sales capacity.
The invisible bottleneck: You. To find out if you are a bottleneck, take a look at how you spend your time. Call a meeting of your top people and ask "What can I delegate or stop doing entirely that would make your lives easier or our business run faster?"
Bottlenecks are pretty easy to spot (they frustrate your people). Bureaucracy is not (it is often invisible). Bottlenecks are blood clots; bureaucracy is hardening of the arteries - it creeps in gradually. To prevent bureaucracy, establish a business fitness programme and promote a culture of efficiency. Be alert to bureaucracy buffs - managers with an unhealthy attraction to formalities.
If bottlenecks are blood clots, bureaucracy is hardening of the arteries, then politics is cancer. To prevent political employees from damaging your business, you should recognise who they are and reform them or get rid of them. Here are signs of a political personality:
They come to you to complain about people rather than discuss problems.
They jealously guard their titles, prestige, and products they are in charge of.
They play favourites.
They punish perceived acts of disloyalty.
They get into frequent territorial disputes with their colleagues.
They tend to hire employees who are good at following orders.
They almost never hire people who are better than they are.
Stage Four: Adulthood
Three things to think about as you transition into Stage Four:
Selling your business privately.
Bringing it public.
Stepping back and becoming chairman of the board.
There are four basic roles that entrepreneurs must play:
Role 1: the Employee - this is exclusively a Stage One role, when you have to do anything yourself. It is a mistake to continue this role beyond Stage One.
Role 2: the Manager - creating the structure to get work done and developing efficient systems - this is a Stage One and Two role, which disappears at Stage Three if you have successfully restructured your business as a corporation.
Role 3: the Business Builder - articulating the company's core values, business philosophy, and vision for the future. Mainly a Stage Three role.
Role 4: the Wealth Builder - this is mainly a Stage Four role. You look at your company the way an outside investor would: what is the company worth, what return are you getting as shareholder, what is the greatest danger in its continued growth.
The most important change you can make when your business gets to Stage Four is to gradually remove yourself from the CEO role and spend your time acting as both an advisor to your company and as its primary wealth builder. The key decisions you make are only:
Profit distributions (dividend payments to shareholders).
Leadership: hiring and firing of top management.
Senior compensation and profit shares.
Approval of major new product launches.
Divestitures (where the rights to a particular product will go).
Acquisitions: business worth buying are few and far between. However a good practice is to tell every business owner you admire that you would like to buy his company. Don't name a price (because he is unlikely to take you up on the offer). It will endear you to him, and also plant a seed that may flower years in the future. If you do buy a business, here are three thoughts:
Buy what you know. If you don't know its OSS, stay away from it.
Don't chase profits. Never buy a business because you see that its profits are growing and you'd like to own them. Buy businesses that you can add something to.
Have a Plan B.