Managing Risk and Managing Decisions

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Early in my career I worked in investment banking and international banking. So, later on when I taught finance I reflected on the issue of risk, and the basic elements of financial risk that all business ventures should consider:

  • Understanding the types of risk;
  • The fundamentals of risk; and
  • Managing the risk.

The fundamentals of risk management involve:

  1. Identifying the risks
  2. Measuring the potential impact
  3. Deciding how each risk should be handled.

In a recent Harvard Business Review article on business model innovation, I noticed a commentary on marketing. This particular article contained a major section about when to make key decisions and identifying who should make those decisions. It occurred to me that the elements of risk are almost identical to the innovation model. Both focus on reducing risk in a venture.

In a past blog I discussed the garbage can model of decision-making, and focused on being novel in decisions. Today, I am looking at reducing the risk and uncertainty inherent in any startup.

Risk identification is a process that systematically and continuously identifies current and potential risks that might have an adverse affect on a startup. The impact of the risk is affected by both frequency (lots of events) and severity (potential big losses). Most companies don’t worry much about frequent small losses. Office supplies disappearing or the local candy store missing a few small low cost items are two examples of a small loss. However, with severe losses, many organizations take precautions to protect events from occurring. Examples here might include large ticket items missing in the isles of retailers or a few items being chained down so that only department managers can help you try on the expensive goods.

In decision-making, the risk inherent about when key decisions should be made is often due to the lack of sufficient information to reduce the uncertainty. Strategies to deal with this issue may include:

  1. Postponing the decision. Sometimes decisions appear urgent but are not.
  2. Splitting up the decision into a series of real options. Break the decision into small bite size pieces this reducing any significant investment.
  3. Changing the order of decisions. Sometimes a client may ask for customization that may not benefit the strategic direction or value of the organization. In response, the startup can change the sequence to only payment upfront or with proof of performance before investing in the customization.

The CEO may not always initiate all important decision-making. Empowering employees is a very effective way to deal with every day minor decisions. If the decision is too important to delegate, then another way to manage the risk is to consult with a board member or trusted advisor. Even then, always try to find the HIPPO (the industry’s Highest Paid Person’s Opinion). Delegating up or outsourcing may be the best option when dealing with risk issues.

Managing risk and decisions can also be accomplished through insurance, or outsourcing. Startups often hire distributors and/or transportation companies to take on the logistics of moving product not only because it is less expensive but also because these outsource companies have the know-how to manage these specific operational risk.

In startups there are other types of identifiable risk that may include market risk, supplier risk, default risk by clients and others that are usually addressed in the planning process. Managing risk and managing decisions travel in lock step with similar processes. However you manage risk, make sure the process is around a strategic framework and one that allows for continuous monitoring.

Monetize and Create an Annuity

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Our clients at the OSU Advantage Accelerator are product oriented. In addition to products created on the internet, some of our clients work in the physical and life sciences. Among other things, they create spectrometers, legged moving robotics, and advanced arc detection systems. Some of our startups include econometrics companies, agricultural companies and software organizations as well. As far as innovation is concerned, we are technology without borders.

The question for all these companies is not just to make a simple sale from the products they create, but to develop annuity streams of future payments arising from these sales. How do we define annuity revenue? It is a predictable stream of income and profits derived from a wide variety of sources.

For example, one of my former clients sold a sophisticated piece of equipment used in forensics labs. While you might think forensics is a limited market, remember that not only local police departments have labs, so do the sheriffs and regional police, State police, Federal labs like the CIA, FBI, Homeland Security and many other law enforcement agencies in the United States, as well as within the international community.

Here is how they created annuity from the sales:

  1. Warranty of the product after an initial period, and then renewed annually;
  2. Providing training to staff using the product. The warranty is only effective if staff using the equipment receive proper training.
  3. The training occurs once every three years, as the product is updated, and needs to be renewed.
  4. Updates require an annual purchase.
  5. The equipment needs to be certified and recalibrated every three years.
  6. New versions and updates to the equipment are available at discounts to existing owners.
  7. Updates on the software running the product must be updated.
  8. Other annuity streams include remote monitoring, consulting and customization fees, forums and user groups, enhanced support, a collective knowledge base access, as well as maintenance.

To customers, these were all value-added services. How these reoccurring annuity revenue streams are managed is up to the company and the customer and should be validated and employed based on the customer’s ability and willingness to pay.

Revenue streams create another benefit. They offer an opportunity for more customer contact and product loyalty. Creating a high contact product strengthens the client-customer relationship and leads to a larger referral stream and enhanced sales. What are you doing to add value to product sales and increase customer loyalty?

Lessons Learned

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I recently returned from a three day educators workshop on the Business Model Canvas (BMC) and Lean entrepreneurial process. There were a number of important points from the workshop that served as reminders for me, and I thought this should pass them on.

People, money and knowledge are the three ingredients that bridge opportunity and value. I think of these as the triangle of success. Miss one of these items and your startup is destined for failure. A caveat about money: In this success triangle, consider your customers. Customers lead to money, not the other way around.

Story telling is one way entrepreneurs can convey their value proposition. All entrepreneurs should become good storytellers. Everyone remembers a good story, but when was the last time you remembered a great statistic? Entrepreneurs need to understand the nature of a good story arc and bring that arc into all their pitches and conversations. People remember stories – make yours a good one.

Business Model Canvas (BMC) is founded upon evidence-based entrepreneurship. The Business Model Canvas is uses the scientific method to reduce the uncertainty in a startup. Get out of the building and get the facts. Facts are the evidence that will lead to better results.

It is okay to receive affirmation for being wrong. Stay true to the lean process. Fail fast and reduce uncertainty. Either the hypothesis is valid or not. An entrepreneur will do an injustice if they try to justify their results to meet expectations.

In an educational setting or classroom, the focus of BMC tends to be on the product market fit because many individuals going through the program are not ready for the strategic partners, activities and resources sections. This may be true in the classroom, but in our accelerator companies must be ready to launch. All nine components of BMC are important. There two basic section of BMC: The front end deals with product market fit and the back end deals with startup operations and activities. The product market fit must be established and validated before contemplating the operations and activities of BMC. Based on my participation in this workshop, I can see how a two section approach to teaching the BMC could be valuable.

There were other lessons learned as well and will be incorporated into our next cohort. A few improvements will be adding videos for client portfolios, an increased focus on understanding customer archetypes and graduating our clients with an eleven item portfolio.

Altruisms

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Words for thought. I’m taking a brief respite from serious writing to offer you some of my favorite lines about entrepreneurial thinking.

The true economic stimulus exists in the entrepreneurial spirit.

Customers buy success, entrepreneurs sell benefits.

There is a fine line between perseverance and obstinance. Entrepreneurs need to know when to adapt and change direction.

Tom Hanks once said there is no crying in baseball. Entrepreneurs know that there is no sleeping in startups.

The faster you drive a car that you don’t know how to drive, the more likely you are to crash.

Killing time murders opportunity.

Spreadsheet: a matrix showing how many days of the month you have to eat PB&J sandwiches

Spreadsheet (2) – what startups do before they bed down in their office

Messaround Round: Venture capital obtained by a company that really doesn’t need the money but wants it just to “make sure” of things (& then they promptly spend it on ill-advised items).

Dude Diligence: Investigating the one-owner, one-person business (or dudette diligence, in the feminine).

Small Business Disvelopment Corporation = a very poorly managed SBDC.

Non-intellectual Property (NP) = an invention that’s, let’s face it, not very good.

Entremanure: A client whose business plan stinks

Benchmarks: Sweat left at the gym while avoiding facing issues in your business.

Innervation: Tremors and sweating associated with starting a new company

Fornivator: Someone who screws up your program, as in, “The county commissioners really fornivated us in the new budget.”

An entrepreneur is one that leaves a 9-to-5 job with a steady paycheck, vacation and sick time with limited responsibilities in order to become an owner of a business, working 24 hours a day 7 days a week with uncertain income, no vacation and placing their life savings and family time at risk, all in the name of personal freedom.

A mentor is a person whose hindsight becomes your foresight.

Entrepreneurship is rarely a do it yourself sport.

There is no finish line in entrepreneurship.

Remember that you are unique, just like everyone else.

Learning happens when you have the courage to invalidate your hypothesis.

If you have the data then let’s look at the data. If all we have is opinions, then let’s go with mine.

Instincts are experiments. Data is proof.

Markets that don’t exist don’t care how smart you are.

Finally, wrapping up with a quote from Theodor Geisel,  AKA Dr. Seuss:

“Congratulations!
Today is your day.
You’re off to Great Places!
You’re off and away!

You have brains in your head.
You have feet in your shoes
You can steer yourself
any direction you choose.
You’re on your own. And you know what you know.
And YOU are the guy who’ll decide where to go.”

Hypothesis Testing For Entrepreneurs

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Hypothesis testing appears to be a simple task. Just write down a question, devise a methodology to test it, elicit a response and analyze the results. Some entrepreneurial experts suggest that these tests must be pass or fail. In other words, either the hypothesis is true or it is not. In my experience pass/fail questions created without consideration of other factors is not effective.

For example, Team A reports: “Well, we thought we would get a 50% hit rate, but only got as high as 38%. That is good enough. We pass the test.” Did Team A pass the test?

The first two rules of entrepreneurship are (1) to be honest with yourself and (2) learn from your mistakes. Team A just violated both rules. First, they justified their projected hit rate and were not honest with themselves about what that really meant to their company. Secondly, they didn’t learn from the exercise. They never found out WHY they only had a 38% hit rate, rather than their predicted 50%. This is a terrible, missed opportunity. Why did they originally believe that they could get 50%, and why didn’t that occur? What needs to be changed? Can it be changed? Is it the test or the product? There are too many important questions in this scenario that will never be answered.

One interesting model for creating a more quantifiable hypothesis testing is the HOPE model. This model looks at four factors:

Hypothesis: What is your theory? Is it both “falsifiable” and quantifiable?

Objective: Are your tests objective rather than subjective?

Prediction: What do you think you will find?

Execution: How are you going to test?

The most important element of creating a hypothesis is that it must be “falsifiable.” That means your guess can be rejected after an initial experiment of the hypothesis. If your plan is to see what happens, then your hypothesis will always be true.

Second, all hypotheses should be quantifiable. In other words, you must be able to predict, account, and analyze your results. A good hypothesis includes both a question and good methodology to uncover the results. After determining the question and developing your methodology, you should then run a test to analyze the information obtained.

Additionally, your tests must have a good source of data, as well as represent your demographic population as accurately as possible. Your results should be objective rather than subjective.

Conducting good tests is a subject unto itself, and requires a more lengthy discussion than this blog entry addresses. I will save that for another day.

In my work with both scientists and entrepreneurs, the predictive element is often missing in hypothesis testing. This is even true of scientists and economists who use hypothesis testing on a regular basis. Included within a good hypothesis test must be a predictive indicator of the results. A predictive indicator might include how fast an event might occur and whether there are any stress points in the experiment and where the stress might be located. I believe that failure to quantify your results may mean that the hypothesis is not completely tested, and the result is incomplete. However, if you place a value or a number in the hypothesis, you can learn more about how close you came to hitting the mark.

Without quantifying hypotheses there is a tendency to justify the data to fit the results. In analyzing the results, teams need to be careful to differentiate between causation and correlation. For example, more ice cream is sold in the summer. More people drown in the summer. Therefore, they must be related. Of course, they are not.

Scientists and statisticians also discuss null hypothesis—a hypothesis that is assumed to be true, (e.g. in a courtroom, the defendant is presumed innocent until proved guilty) as opposed to alternative hypothesis—a statement that contradicts the null hypothesis (e.g., the courts would rather the guilty go free than send innocents to jail). What I am advocating in statistical terms is a criterion of judgment based on probability in quantifiable statements. For example, in the courtroom jurors would be asked to determine “beyond a reasonable doubt” whether the defendant is guilty.

So, in your hypothesis testing, will your test confirm beyond a reasonable doubt that your hypothesis is true? If you tested correctly, then you know the honest answer and just reduced the uncertainty of moving forward with your enterprise.

Garbage In, Garbage Out: The Garbage Can Solutions Model

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The children’s story “Alice in Wonderland clearly identifies the paradigm of the Garbage Can Solution model. When Alice meets the ever-elusive Cheshire Cat they have this conversation:

‘Would you tell me, please, which way I ought to go from here?’

`That depends a good deal on where you want to get to,’ said the Cat.

`I don’t much care where–‘ said Alice.

`Then it doesn’t matter which way you go,’ said the Cat.

`–so long as I get SOMEWHERE,’ Alice added as an explanation.

`Oh, you’re sure to do that,’ said the Cat, `if you only walk long enough.’

The question is if SOMEWHERE is the right place.

“Entrepreneurship is […]a way of thinking that emphasizes opportunities over threats,” according to strategic thinkers such as Krueger, Reilly and Carsrud. The “somewhere” alluded to by Alice can be either threatening or opportunistic for an entrepreneur. It can also be both. The trick is to know the difference.

The “Garbage Can Model” is one tool that is often used by entrepreneurs. The garbage can model is one where all of the entrepreneur’s historical decisions and solutions are thrown into a metaphorical can. When a problem arises, the entrepreneur is able to reach into the can to find a solution to their current problem. We see this often with serial entrepreneurs who look to their past success to solve a different set of problems. This has also been referred to as the sophomore jinx.

Traditionally, the Garbage Can Solution model describes the accidental or random confluence of four streams. A number of academics believe that decision making occurs in a random meeting of: choices looking for problems, problems looking for choices, solutions looking for problems to answer and decision makers looking for something to decide.”

In fact, one well known academic questions the validity of this particular model when she asks, “Does the garbage can model describe actual decision making or is it simply a labeling of the unexplained variance of other, more powerful, descriptions of strategic decision making?”

Additionally, does the garbage can take into account our existing bias based decisions? If we fall back on choices that worked for us in the past, does that mean they will work for us today? Do we need to solely rely on what is currently in our leaders’ bag of tricks to creatively develop new ideas, solutions, or products?

In more establish organizations, famous social scientists Cyert & March tell us that “Exogenous, time dependent arrivals of choice opportunities, problems, solutions and decision makers” are thrown together so that any solution can be associated with any choice. Never a good way to approach decision-making. What they are alluding to is that solutions, problems are often thrown together from previous experience with the hope that the right problem hooks up with the right solution. With unlimited resources and time, this may result in relevant information.

However, is the time-constrained, resource scarce environment of the entrepreneur an appropriate place to utilize this model? This is exactly where entrepreneurs slip. In seeking repeatable processes, creativity is lost. All start-ups should look to the creative solution making process as much as possible.

The answer, as usual, is it depends. Although The Garbage Can Model is not a rational method of strategic thinking, there is significant research backing up this school of thought on decision-making. On first look, this is not a particularly creative approach, nor is it direct and focused on finding specific problems and solutions. By definition the Garbage Can model of decision-making assumes that nothing new is added. The only items in the can are what has already been done or considered. It is history rather than innovation that drives this approach.

However, the creative entrepreneur is not focused on what’s already in the garbage can, but rather what the entrepreneur could be doing to add to the can in order to make rational, novel, and strategic decisions. Unfortunately, for many entrepreneurs, the right solution never gets added to the mix of ideas, problems and solutions.

The best response for entrepreneurs is to find creative answers for their start-ups that are removed as much as possible from prior bias. In order to accomplish this, entrepreneurs must be exploratory and experiential, note boundary limits and consciously develop an environment where all parties involved in the project have a strong, relevant voice. This assures more team buy in to the project. Eliminate power plays and look for the important breaks in typical industry patterns.

So get out of the building, find customer data (however imperfect it may be) and go somewhere. Whether your team decides to dumpster dive or not, I will leave that up to you. However, you should be aware of the upside and limitations for utilizing this business model in your start-up.

A Meditation on Entrepreneurial Strategy

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Most of contemporary strategy literature is based on big company strategy. Larger companies focus their strategies on a cost based model because costs are within their realm of control. They almost never think about the revenue side of the equation. After all, one can control costs, but the customer controls your revenue. This is where entrepreneurial training differs, and provides a winning strategy.

If you think of strategy in terms of costs you can win only half the battle. A recent Harvard Business Review Article by Roger Martin, calls this The Big Lie of Strategic Planning. Martin clearly sees the entrepreneurial view, to focus on the sources of revenue, i.e., customers as the key element of strategy.

Henry Mintzberg called this differential—intended strategies versus emergent strategies. Entrepreneurs work in the emergent section, because they are very opportunistic about revenues. Good entrepreneurs learn quickly that you cannot control the future, but you can try to reduce the uncertainty in getting there. Strategists would call this the resource-based view of strategy.

Resource based strategy states that an organization should use the strongest competencies of a firm to determine a strategy. Entrepreneurs think about what they could be doing with the resources in hand in order to find the opportunities. The planning school holds the thought about what the organization “should be doing” corner of the spectrum rather than the “could be doing” corner. Other strategists might view this as the Blue Ocean strategy. Swim to where no one else is playing; find a niche where there is no competition. Entrepreneurial strategy might also fall into the Michael Porter School of Positioning strategy, which is very analytical.

For information of the various schools of strategy read Henry Mintzberg’s book Strategy Safari. Unfortunately, the entrepreneurial school has changed dramatically since the book was published and it shows less relevance for entrepreneurs. However, this book is recommended as a great summary on the various strategic schools of thought and it is still relevant today as a great primer on the major thought patterns in the strategy discipline.

A good strategy (or whatever term is used – mission statement, mantra, culture) communicates behavior to employees. This strategy communicates what decisions should be made and the boundary limits for what should be the focus of the organization.

Another way to determine and validate a strategy, entrepreneurs may prefer the VRIO framework as popularized by Jay Barney. Are you building something Valuable? Is it Rare? Can it be easily Imitated? And can your Organization implement on the concept?

Possibly, the most important considerations for a startup concern (1) whether a strategy is necessary, and (2) at what point does a strategy become necessary for an organization. Should every company act like entrepreneurs and be opportunistic? Early stage startups do not necessarily engage in long-term strategies. For them, it comes down to tactics and execution. Execution trumps all organizational strengths every time.

The bottom line is that entrepreneurs should talk to their customers. Entrepreneurs have a venture. A business is created when the product or service of the venture can reach at least twenty customers who will make a purchase at a price that provides sufficient margins. If the entrepreneur doesn’t have a product and a price then they don’t have a business…yet.

Convertible Notes or Price Valuation: A Question of Risk and Alignment of Interests

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I am not a fan of convertible notes for entrepreneurs for a number of strategic issues. I also understand the reasons why convertible notes have become so popular with entrepreneurs and investors because of the simplicity of the closing. I believe series seed equity can close just as quickly and inexpensively as convertible notes.

For the uninitiated, convertible notes are debt instruments with an implied interest rate, maturity date and a convertible option to shares usually offered with a discount offered to the next pricing round. The intended purpose for investors is to avoid negotiating a valuation with the entrepreneur that might affect the follow- on round negotiated with the next group of investors. For entrepreneurs, convertible debt offers a faster option to close, and ergo cash in hand.

On the other hand, priced rounds offer each investor a price per share. Because of negotiation over valuation they can take longer to develop.

One of my favorite posts on why convertible notes are unfavorable to startups comes from Mark Suster. He offers significant details on the terms of the note and why they are not a good idea for entrepreneurs.

In addition to what Mark has written in detail, my take on this is much more strategic and focused on the alignment of interests between investors and entrepreneurs. First, by placing a maturity date on the convertible note, the entrepreneurs must strategically change their focus from company building to fundraising. Often the maturity date for the convertible note is set for approximately 18 months away. A better date for the entrepreneur would be 24 months, although sometimes they are set as low as 12 months, which is disastrous for the entrepreneur. Given the hunt for funds from new investors, due diligence and the negotiation of valuation—all of this activity can take time away from building and running a company.

The pro convertible funds side of the equation believes that that the time involved on a convertible round is much faster and settles quicker, ergo the whole purpose of a convertible note. My belief is that the function of the convertible note should not be necessary if the interests of the investor and the entrepreneur are strategically aligned.

In early stage companies, the best way to build a startup is through customer development and acquisition. What would an early stage investor prefer? Using their money toward the next fundraising round or focus on customer building? This leads to be an inherent conflict in strategy between the entrepreneur and investor on a convertible round. There is a specific imbedded date to obtain new funds. If that funding is not achieved by that date, the funds become a debt—and entrepreneurs sometimes need a longer runway to launch their companies.

The second issue regarding convertible notes revolves around the purpose of Angel investing. First or second sources of funding after the first formal funding round means to accept the significant risk involved with early stage technology financing. Angels understand that investing at this stage is inherently risky, and the reward is a significant uptick in pricing on subsequent rounds. Convertible notes are an attempt to hedge the risk by not pricing the financing round. Are the protections from down rounds or failures truly built into a note? Yes, a note may be higher in the pecking order of a fire sale in case of a failure. However, if a startup fails, what are the assets truly worth? If the round is not priced, the value cannot be determined easily.

What happens if the entrepreneur does not achieve the steps needed to get the next round of funding? The original Angel has a choice, put in a second round or let the company go broke. However, if the entrepreneur has been able to find another investor, the golden rule applies: “He who has the gold, rules.” The investor leading the next round may decide to offer to fund with the original note holders waiving a number of their protective rights.

Pricing a round allows the Angel to see the negotiating techniques of a founder and the founder to see how helpful an Angel is to the startup. They can begin to see whether their interests are truly aligned. Are both negotiating with the same sense of fairness and aligned interests? Why not have that difficult conversation about pricing, now? It shows the mettle of your CEO. It determines Angel alignment with company goals. If a valuation can’t be agreed upon fairly quickly then perhaps the deal should not have been done at all. Fred Wilson of Union Square Ventures said it well, “Equity is simple and you own what you own.”

As an investor, I attempt to understand the upside risk and prefer a clear valuation. After all, this is my risk capital portfolio. I want my entrepreneur to focus on building the company by creating a sound customer base, so that the next round is a growth round, not another marketing round.

Time Tips

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Time Killers

Time killers are things, processes, people or anything that diverts our attention to activities that are unnecessary and without benefit. Time Killers harm our effectiveness as entrepreneurs. I believe these tips may be credited to Stewart Levine and his book Cut to the Chase, but I was unable to verify the references. Nevertheless, they are excellent tips and worthy of repetition.

Tip 1 – I GOT IT

As soon as you understand exactly what someone is explaining, indicate in one way or another, “I got it.” Doing so frees them to move on and cover more ground. Similarly, if someone else says “I got it” to you when you’re explaining a point, stop.

If you’re not sure if someone got your point, listen carefully to the person’s responses. If it’s clear there’s still a misunderstanding, say “I’m not sure we’re on the same page. Let’s make sure we understand each other.”

Tip 2

YOU”RE KILLING ME

What happens if you have said, “I got it” to the person and they keep right on talking? You feel trapped. You know the clock is ticking. This is the third time you have heard the story. Everyone in the room is already in violent agreement. Instead of getting angry or giving up, look at the other person, laugh, and say, “You’re killing me. I’ve got the point. Let’s move on.”

By being both direct and funny about it, you do two things: (1) you break the tension that everyone probably feels; and (2) by keeping things light, you move the conversation forward without offending. Odds are that the speaker is so wrapped up in the point being made that he or she has stopped observing what was going on around them. You’re offering him or her, a graceful way out and helping to keep things moving.

If you’re not comfortable saying, “You’re killing me,” try “Time out.”

Tip 3

CLOSE THE LOOP

Have you ever had a test at your physician’s office, and the nurse said, “We’ll call you if there’s a problem”? Two weeks later—and still no call. You begin to wonder, “What if they lost the test? How can I be sure everything’s okay?”

When people don’t close the loop, they leave the other person hanging. Not only is it distracting, it can subtly erode the relationship.

Anyone can follow up. It’s a simple matter of being conscientious and disciplined.

When a colleague introduces you to a new contact, tell your colleague when you’ve reached out to the new person. After you’ve connected, tell your colleague how it went.

Respond to invitations and meeting requests promptly. It’s a lot easier for others to plan an event when they know who’s coming.

When you receive details or specifics, acknowledge them. When you receive a question by phone or e-mail, answer it or forward it to the person who can.

Acknowledge your action with the person who raised the question. A simple e-mail reply saying, “Got your message, see you there” will eliminate any confusion or uncertainty over whether you received the e-mail and were able to attend the event.

Never let yourself be known as someone who leaves other people hanging. Once that label gets applied, it’s hard to shake. On the other hand, when you consistently close the loop, you build a reputation as a dependable professional.

Tip 3

Never let your iPhone become iCrack

We’ve become obsessed with staying connected at all times. If not used wisely, these tools, instead of helping us cut to the chase, can usher in a relentless stream of interruptions in our professional and personal lives.

Do you ever find yourself irritated at a fellow commuter who talks nonstop on his cell phone, sharing private and privileged information, while you are attempting to catch up on industry reading? Have you ever been tempted to strangle someone at a meeting who checks his email while others are speaking or presenting?

These productivity tools should serve us, not the other way around. Turn them off when you’re in meetings or working on something that involves others or requires concentration.

You can check in and respond to e-mails when the meeting or work session is over.

Set an after-hours limit as well—one that works for you, your family, and friends.

Tip 4

Tell them the Baby is Ugly

When I asked a colleague to review my initial outline for an article, he agreed under one condition: “I need to know that I can tell you if the baby is ugly.” I told him that not only did I agree, I was counting on him to constructively challenge my thinking.

When someone has a new idea, he or she often loses objectivity. After all, the idea reflects on his or her creativity and quality of thinking. It’s hard to tell someone that you don’t like an idea. But it’s a lot easier to have that discussion before you launch a new product or service than after your company spends countless hours and dollars to develop it. In fact, the sooner you point out that the baby is ugly, the less time everyone wastes developing a flawed idea. A smart innovator counts on your honest feedback. That’s why he or she is asking for it.

An easy way to provide constructive feedback is to give or ask for: three things you like about the idea, three ways to improve the concept and if you dare three things not liked about the idea. This last question is difficult as many humans are programed to be polite and the politeness barrier is a difficult one to crack.

Tip 5

Know your weaknesses, but play to your strengths.

Most people focus on their weaknesses and try to improve them. But the most successful executives realize that this is a waste of time. Everyone has strengths and weaknesses, whether they are a CEO or a management trainee. While it’s important to be aware of your weaknesses, devoting time and energy to strengthening them will give you only limited gains.

You’ll become much more effective by building on the things you already do well.

Tip 6

Life is a negotiation

If you’re breathing, you’re negotiating. Every day you’re trading “this for that”—whether requesting a better compensation package from your employer, negotiating a deal with a client or vendor, or deciding where to dine that evening with your spouse. Make every negotiation a little easier by limiting your wish list to the two or three things that matter most.

Unless you’re negotiating a multiyear contract or a peace treaty, don’t bring a long laundry list to the table. You’re bound to lose something important if you do. Negotiation takes time. Invest it wisely in the important work—knowing exactly what you want, listening to what the other party needs

Tip 7

On it. Pending. Done

Develop a shorthand with your close colleagues. You’re all busy, so give each other permission to dispense with the niceties. On it, pending and done is one I like to use. Another CEO, when he wants someone to move on, e-mails or says “PAC.” It stands for “Point accepted. Continue.” His team knows it’s nothing personal.

Tip 8

Good Enough is the Enemy of Perfect

There’s nothing wrong with wanting to do your best. But striving for perfection when “good enough is good enough” is a waste of time. Don’t let unhealthy perfectionism keep you from cutting to the chase. Know when to let things go.

Tip 9

Take back the Weekend

It’s 4:30 on Friday afternoon. You’re ready to go home. After putting out fires all week, you’re the one who’s burned out. But you’ve got a pocketful of business cards, a pile of receipts to sort through, and at least three people waiting to hear back on something. You decide to go home anyway and “catch up” over the weekend.

Stop!

Unlike on weeknights—when your goal is to clean up quickly and respond to anything time sensitive— Friday afternoons are the time to close every open loop and catch up on those easy-to-put-off tasks that clutter your desk and mind.

Before you leave the office, make sure you’ve delivered on promises, reviewed everything that needs your input, and returned all calls and e-mails. Stay late if you need to. Better yet, set aside time earlier in the day so you don’t have to.

Tip 10

Know when to put the book down

If you’ve grown irritable or are snapping at people, if you’re exhausted or can’t focus, if you can’t fall asleep or are waking up in the middle of the night, take a step back. It’s time to do more than “turn the page” on a workday. You need to put the book down. Whether it’s a long weekend or a true vacation, you need a break. Things aren’t going to improve until you take some extended time off to reenergize.

Every one has effectiveness tips. Feel free to add yours.

Decision Making with Data and Measurement

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As many of you know, the mantra for the Business Model Canvas is to get out of the office and interview customers, partners, channels and others. In fact, talking to experts and potential customers is the only true way to reduce uncertainty and to study the value of a product or service. In fact, I believe that it is the basis for all relevant qualitative research in entrepreneurship. As I work actively with the Business Model Canvas, I am convinced that getting out of the office and into the world is only the first small step in the entrepreneurial journey.

Real world data collection and analysis is a key component to reduce the uncertainty of a startup. The starting point is to understand how much is currently known about the problem and what is it worth. What decision will this measurement help us make? Is this an important enough decision to collect more data? Otherwise, what is the value in measuring? Will sufficient additional information be gained from the measurement exercise? If not, why then why bother to measure? What additional value will the measurement add to help with the decision? All of these are crucial considerations. The starting point should not be an identifying what is to be measured, but a reflection of why the measurement is necessary.

The next issue in data collection is to decide what creates a good metric to measure. First, a good metric must be (1) understandable and comparative (shown as a rate or ratio), (2) important to collect and (3) lead to an action directly related to the original required decision. Thus, the results of the data collection should relatively easy to collect, consistent, usable, and can capture information that is relevant to the company.

There are a few simple rules to help an entrepreneur get stated with data. The first set of data is usually exploratory for a startup. Exploratory research means it is okay to through darts. Use the shotgun, throw spaghetti against the wall, see what sticks. At this stage, exploratory data may not have specific decisions for collecting data other than the process of elimination.

The next rule regards checking the data collected and making sure that the right questions were asked. Was the variance of the sample population diffuse enough to provide a good sampling? Did outliers have any effect on the results? Were any assumptions made or any context involved that might invalidate the test?

Another question to ask about collected data is whether it constitutes a leading or lagging indicator? Leading indicators are indicative of future events; lagging indicators follow the event and advise what happened. Also, consider whether the data represents a correlation or causal relationship? A correlation does not mean that one variable or change in variable causes the other. A correlation only indicates that a relationship may exist or not. There just may be some type of association. On the other hand a causal relationship or  “cause and effect” means that is, a relationship between two things or events exists if one occurs because of the other.

Measurement tools and data analytics will not bring perfect decisions, but good and appropriate measurement may reduce uncertainty with significant decisions. While hypothesis testing is important in building an effective canvas, it is also important to use suitable and valid measurement tools ( the specifics of these tools will be another blog post).

Here are a few good resources to assist in the development of data skills:

How to Measure Anything Douglas Hubbard focuses on measuring intangibles—the value of patents, copyrights and trademarks; management effectiveness, quality, and public image.

Lean Analytics Alistair Croll and Benjamin Yoskovitz takes a good look into the quantitative side of measurement specifically directed to entrepreneurs.

How to Start Think Like a Data Scientist Thomas Redmond writes a brief NBR article on getting started.

An Introduction to Data-Driven Decisions for Managers Who Don’t Like Math Walter Frick on why data matters.