Calculating Risk

"Entrepreneurship is the pursuit of opportunity without regard to resources currently controlled."

--Howard Stevenson
Professor Emeritus, Harvard University

Recently someone asked the following question:

"What three things should an entrepreneur do once they decide:  Okay, I'm starting a business." 

Getting started 

The few who start businesses and succeed don't take risks. They take calculated risks. Having started two companies in 1980 (consulting and research), my first thought was to reduce financial exposure by making sure, to the extent possible, there was a reasonable chance of succeeding. 

For example, I asked for a 50% deposit in selling market research and worked off other people's money (OPM). Then required the balance upon delivery of the final report. In the digital age, those transactions could all be online. 

The deposit approach came to our attention while reading about the creation of Encyclopedia Britannica, first published in 1768 in Edinburgh, Scotland. To get working capital, founders Colin Macfarquhar, Andrew Bell, and Archibald Constable used customer deposits to provide cash flow. 

This illustration of accessing capital by sharing risk seems quaint by today's unicorn investment standards ($1 billion market value for tech start-ups). Still, it was a business model suitable for the times.

Entrepreneurship in decline

According to The Washington Post, research shows the U.S. rate of new business creation, which peaked about a decade ago, plunged more than 30% during the Great Recession and has struggled to regain its footing.

That's going in the wrong direction since the 25-55 age category, a prime demographic for starting new businesses, is rapidly expanding, according to the Kauffman Foundation.

Fewer start-ups mean fewer new jobs.

To back up these trend lines, look below at business closings:

One more chart. 

This time tracking long-established businesses, an increasing percentage of U.S. firms. For over five years, those in the industry account for just over two-thirds of companies. In addition, the Post report shows that the proportion of companies of every age from one to five years has decreased over the past 35 years.

Kauffman believes millennials can turn these numbers around but aren't starting businesses. Their demographic, 20-34, shows a sharp drop in new formations since 2010 even though they have higher levels of education than previous generations, says Kauffman.

A survey by Hewlett-Packard Enterprise of 13-17 year-olds found that the entrepreneurial drive for Generation Z sets in around 29, the average age at which 79% of teens expect to be ready to lead or found their own company.

What to do

Back to our checklist of three things someone might consider doing if they are set on moving ahead:

1. Study the definition of an entrepreneur at the top of this post. Come to terms with the reality that you're not likely to have all the resources at hand when you launch a product or service, yet you still move ahead. If you need total funding up front, you're likely a bureaucrat, not the venturesome type. 

The definition from Professor Stevenson is a reminder of how little control you'll have over the start-up process and beyond.

2. Look at yourself carefully. Who are you? Entrepreneurship is about people first and ideas second. Investors look closely at background and character, investing as much or more in individuals with promise as ideas on paper. There should be flexibility in your human wiring as the need to adjust and the transition is ever-present. 

As someone said, "If you don't bend, you'll break." 

3. Be accountable from the beginning to someone or some group. I created an advisory board and had several mentors who, over time, exhibited wisdom and good judgment. A corporate attorney and CPA were essential to starting and managing the business.     

Even though this new enterprise should be fun, entrepreneurship can take a toll physically, mentally, and financially. So take care of yourself and employees.

The power of incubation

I include in No. 3 the possibility of getting into an incubation program sponsored by a nearby university, state, or nonprofit association. 

If you can survive long enough to get out of the house or garage, having an office in an incubator, where you can mix with peers, develop a disciplined work schedule, and gain access to professional resources, is all for good.

Something to read

Finally, I would consider reading Breakthrough Entrepreneurship, by entrepreneur and teacher Jon Burgstone and writer Bill Murphy, Jr.  What you learn is how to find and fill unmet customer needs. 

As Peter Drucker once said, "The purpose of a business is to create and keep a customer."    

Strategist.com

(C) Bredholt & Co. 

Is Leadership Overrated?

Emeritus

"Knowing yourself is the beginning of all wisdom."

 —Aristotle

A question during a Dutch TV interview with management Professor Henry Mintzberg: 

"What would you recommend for leadership in the 21st century?"

Answer from Professor Mintzberg:  "Less of it." 

When you Google "leadership," and 735 million responses show up in 0.41 seconds, it's safe to say that it's a topic of great interest. Yet leadership is not just a subject to explore or a position on an organizational chart. It's an industry, and sometimes a self-serving one at that.

Consider the following

Almost $14 billion is spent annually by U.S. firms on leadership development programs. Global expenditures make that enhancement cost go much higher. (Leadership Development Factbook 2012) 

Colleges and universities offer hundreds of degree courses on leadership with customized programs from elite business schools costing as much as $150,000 per participant.

Those funds are often expended, reports the McKinsey Quarterly, without regard to context (one size fits all), understanding the root cause of behavior, or measuring results from the significant financial investment in programming. 

An inversion

As Daniel Askt wrote in the Bookshelf column of The Wall Street Journal, "There appears to be an inverse correlation between the growth of the leadership industry and the quality of the leaders we've seen in business as well as public life. Perhaps instead of reading books that purport to instruct on leadership — offering up more cliché than wisdom — would-be leaders would do better to delve into books about individuals who have grappled with the challenges and ordeals of guiding an army, a nation, or a daring enterprise."

The late historian and Pulitzer Prize-winning author James MacGregor Burns once observed:  "If we know all too much about leaders, we know far too little about leadership."

We make lists

Too often, leadership is reduced to a subjective list of traits (honest, forward-looking, competent, inspiring), none of which show up equally in any person, and seldom include anything involving wisdom or clear thinking. Along with traits come management concepts (just-in-time inventory, core competence, excellence, zero defects) and jargon to reinforce behavioral norms (buy-in, empower, move the needle, alignment). 

An example of adapting jargon from other industries comes from General Electric. An article in Businessweek draws attention to CEO Jeff Immelt's use of the word "pivot" when reorienting GE's strategy toward industrial information technology. Pivot, a term borrowed from Silicon Valley, replaces "idea jams" in the GE management team lexicon.

Speaking of which, what's the relationship between leadership and teams?

Is it a coincidence that The Five Dysfunctions of a Team, by Patrick Lencioni, has been on a variety of best-seller lists for 14 years? 

The upside of leadership

We believe that leadership, with noble character and strong moral principles, is a valued quality.

Exemplary leadership at the right time and place makes a big difference in any organization's climate, progress, health, and success. Unfortunately, however, those at the top often have a limited impact on the everyday practices of their firms. 

Perhaps the more significant impression on subordinates comes from a leader's symbolic role, such as inspiration and motivation. Indeed, studies show that middle managers who worked for a company whose CEO seemed more determined and better at communicating and articulating a sense of mission and vision were more committed to their companies. 

There's a direct correlation between a CEO with self-transcendent values and how employees respond to uplifting moments.   

When a CEO secretly harbors selfish values (i.e., hidden thoughts are revealed), managers are not as motivated or committed to the firm, whatever the CEO said or did. (Academic Journal Science Quarterly)

If leadership is overrated, what's underrated?

Where's the imbalance? Three distinct areas are underrepresented by proponents of leadership:

• Management performance (getting things done)
• Marketplace (customers have a big say in your success)
• Followership ("Whither wilt thou lead me?"--William Shakespeare's Hamlet)

Management writer Peter Drucker blamed the excesses of corporate America on the "bloated concept of leadership." He believed businesses have more than enough leaders; they really need competent managers who can do the hard work of decision-making, planning, and coaching.

Strategist.com

 © Bredholt & Co.

As You Thinketh

"Only the wise man, only he whose thoughts are controlled and purified, makes the winds and the storms of the soul obey him."

--James Allen (1864-1912)

As a Man Thinketh is one of my favorite books to pull from the shelf and read again. The author is James Allen, a British philosophical writer first published in 1903. Thinketh is an example of how a small book (52 pages) can yield great understanding. 

The essay is a reminder of how leadership development courses could improve their outcomes by focusing some time and attention on the direction of thought.  That's because most organizations come up short in teaching the importance of a sound mind when managing the complexities of corporate life.      

It's hard to draw just a few insights when Allen's writing is manifestly insightful. This means we will return to this book of renewal in future posts. For now, here is wisdom worth pondering in a hurried, distracted, and often unfulfilling world:

1. The book's premise is to stimulate men and women to discover and perceive the truth that "They are makers of themselves." 

By the thoughts they choose and encourage the mind is a master weaver, both the inner garment of character and the outer garment of circumstance. If you've been weaving in ignorance and pain, you may now weave in enlightenment and happiness.

2. A person is literally what they think--their character being the complete sum of all thoughts.

3. A noble and Godlike character is not a thing of favor or chance but is the natural result of continued effort in right thinking, the effect of long-cherished association with Godlike thoughts.

4. We make or unmake ourselves; in the armory of thought, we forge the weapons by which we destroy ourselves.

5. The soul attracts that which it secretly harbors; that which it loves, and also that which it fears.

6. Men and women do not attract what they want, but what they are.

7. Individuals are anxious to improve their circumstances but are unwilling to improve themselves; they, therefore, remain bound.

Source:  As a Man Thinketh, by James Allen.

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(C) Bredholt & Co.

Don't Forget the Why

"Why" is one of the great questions of all time. 

When we're young, it's often a response to being told to do something--it's time to brush your teeth, do your homework, or don't stay out too late.   

Asking parents for an explanation may or may not get you anywhere. That's a shame because these exchanges can potentially be teachable moments for children and adults.   

Conditioned behavior begins at an early age. For example, not getting answers to simple questions causes curiosity to go away.

That's unfortunate.  

Asking "why" inside corporate cultures can sometimes be a career decision. Employees are often hesitant to seek explanations or clarifications even though their performance depends on clear expectations of a given task. 

What has been learned through poor hiring decisions, business closures, accidents, and loss of life, such as the shuttle Challenger explosion (30th anniversary was 28 January 2016), is that failing to ask the right questions, before not after the fact, is the more significant problem.

In the book The Machine that Changed the World, we hear about Toyota's technique of asking up to "five whys" when something breaks down on the assembly line. Is that approach applicable to the executive suite?

Leaders attempting to introduce change into a business often start with "what" is supposed to happen, not "why." Unfortunately, that approach delays the ability to successfully implement the change, whatever it is. Instead, employees need to know why the latest great idea is being introduced or the corporate system, which they run day-to-day, is being restructured (many times without their input).   

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(C) Bredholt & Co.

 

Is It a Fad or a Trend?

"Trends that can't continue won't."

 —Dr. Herbert Stein, Nobel Laureate

Are you old enough to remember when the marketplace went crazy with people buying lava lamps? 

That was more than 50 years ago, in 1963, when a British accountant, Edward Craven-Walker, invented the lamp. He was watching a homemade egg-timer crafted from a cocktail shaker filled with "alien-looking liquids" bubbling on a hot stove.    

Why did so many people go out and buy the counter-cultural lava lamps? (Or CB radios, bellbottom pants?)

Today, they're selling more lamps than pants.

According to Smithsonian.com, U.S.-based Lava-Lite supplies millions of units annually to retailers such as Wal-Mart and Target.

Recent fad lists might include the Atkins low-carb diet and PDAs (personal digital assistants). 

Is the current political climate and direction of the presidential race in the Republican party a fad or a trend?  

A theory of fads

Since economists tend to view purchases through an analytical lens, it's confounding to those with more structured minds why consumers make such irrational choices.  

One theory of fads suggests that we often imitate others' actions when making choices with limited information about what's best. That type of behavior leads to chain reactions — cascades — of imitation. (Welch/Bikhchandani, UCLA, and Hirshleifer, Michigan)

Go ahead and criticize conformity, but the study concludes it's almost a law of nature.

Does that help explain fad-chasing in business (best practices—overestimated) and misinterpreting specific trends (social media—underestimated)? 

For all the attention given to innovation, top management is still a creature of habit, looking for a sure thing. Take the motion picture industry's practice of producing sequels to box office hits such as Star Wars. That's one example of looking for new profits inside old ideas.

Differences between fads and trends

How can we tell if fresh food is a fad or a trend? Is cable cord-cutting a fad or trend? Walt Disney Co. recently stated that ESPN lost 7 million households over the past 2 years, though 92 million subscribers remain tied to the highly profitable cable channel. 

Here are the results from an EPM Fad Study by Karen Raugust. The characteristic is underlined, followed by a description of a fad or trend:

The underlying reason for the rise

Fad:  None discernible

Trend:  Identifiable and explainable

Life Space

Fad:  Short; typically less than two years

Trend:  Indefinite

Period of build-up

Fad:  Fast rise; typically 6-12 months

Trend:  Slow rise; difficult to pinpoint beginning and end due to evolutionary nature

Scope

Fad:  Usually, one product, property, or theme

Trend:  Several across society

Aftermath

Fad:  Usually disappears or declines steeply, typically after two years

Trend: May fall below the peak, but remain meaningfully present.

Precursor

Fad:  Disconnected from historical precedents

Trend:  Evolves from historical precedents

Impact

Fad:  Has little impact on developments that follow

Trend:  Affects developments that follow

Lifecycles

What's on your company's shelves? Do the offerings include fads, trends, and mature or declining products?  

Whatever's available for public consumption, decision-makers can only hope for at least one lava lamp-like product. The 60s icon began as a fad and has sustained itself through irrational consumer behavior for over half a century.    

Apple reported earlier this year that it has sold 700 million iPhones since launching Steve Jobs's product in 2007. Notwithstanding that fact, what are the chances the iPhone will last as long as escalators, tea bags, and instant coffee, all of which are more than 100 years old?

Strategist.com

© Bredholt & Co.

Two Questions for Leadership

"Although our intellect longs for clarity and certainty, our nature often finds uncertainty fascinating."

--Carl von Clausewitz

With the year winding down and a new calendar waiting to take place, this might be an excellent time to consider improving your internal communication as preparation for a promising 2016.  

Leadership tends to be clearer among itself than with employees when it comes to communicating priorities and goals and how everyone can work together to achieve those ends. 

Defining purpose (why this business?) should be at the heart of what a CEO wants corporate constituencies to know. But unfortunately, strategy formulation is superficial and imitative without a more profound understanding of why the organization exists.

So what's the problem?

Most people are not mind readers, and guess what a leader or supervisor thinks is a frustrating experience. So what can be done to fill workplace vacuums? 

The power of focus

Here are two straightforward questions to consider asking when attempting to be clear in a cluttered world:

Question No. 1:  What is it you're trying to accomplish?

That may sound like a simple question, but it's difficult to answer. 

A leader knows (or should know) what's in their head but often can't get it out in a way that makes sense to those charged with implementation. It takes lots of practice to be plain-spoken, using candid feedback to improve our thoughts and close information loops.   

If communicating purpose, context, process, and results (a narrative, if you will) are that important to the future of the enterprise, then spending time honing an understandable message is worth the effort.

Without condescending, a leader must explain how the total picture comes together. What needs doing? By when? By whom? What will be the sources of funding? 

The painting of that picture is complex, so few accomplish what they set out to do through others.

Question No. 2: What are you doing to get in your own way?

Instead of rounding up the usual suspects such as attitudes, culture, systems, policies, and procedures, have you ever thought about taking, when appropriate, some responsibility for poor execution?   

All of us are susceptible to "blind spots," such as failing to show appreciation, not sharing credit, and inappropriate emotional responses. Unfortunately, these behavior patterns can get in the way and undermine trust in working relationships.  

Writing about this topic, the late David Viscott, M.D., an American psychiatrist, author, and businessman, said:  "You must sometimes endure a life of pain before you are ready to admit what everyone else can plainly see."  

Those who sign off on hiring decisions, plans, and budgets, can improve those processes by asking the right questions, at the right time, of the right people. Without being pessimistic, probing from a C-suite perspective is the first line of defense in ensuring congruency among business units toward a common goal. 

Failing to show up when it's your turn to engage in the process is one example of getting in your own way.

Are you sometimes the problem? 

It may be hard to get a straight answer to that question from those who serve at your pleasure. However, leaders and experienced leaders are most likely to give permission to subordinates to critique the boss's ideas or offer their own. 

Making candid conversations a safe habit improves everyone's performance, which positively influences outcomes.

One more thing

Too much clarity can be as big a problem as too little. Being highly prescriptive with direct reports is a way to lessen individual initiative, creativity, and responsibility. 

Someone has to pay attention to details. However, micromanaging is a prime example of how to remove initiative. Is there anything less motivating than trying to carry out someone else's plan with most of the details filled in?

How to manage the creative tension between clarity and uncertainty? Add that to your wish list for the holidays. 

Strategist.com

(C) Bredholt & Co.

   

  

   

Millennials and More

"Demography is destiny."

--Richard Scammon and Ben Wattenberg

What do we really know about millennials, the demographic label which refers to a generation of young adults between 18-34?

First, it's a heavily populated cohort. A news release posted online by the U.S. Census Bureau in June 2015 shows that a portion of the population born between 1982 and 2000 now numbers 83.1 million and represents more than one-quarter of the nation's population. Their size exceeds that of the 76 million baby boomers.

According to the release, millennials are more diverse than the generations that preceded them, with 44.2% being part of a minority race or ethnic group (that is, a group other than non-Hispanic, single-race white). In addition, the youngest Americans are even more diverse than millennials, those more youthful than five years old. In 2014, this group became majority-minority for the first time, with 50.2% being part of a minority race or ethnic group.

The myths

While millennials, the children of baby boomers, may be among the most studied demographic in the nation's history, it's important not to generalize too much and think their behaviors and lifestyles are set for good. Like previous generations, they have unique characteristics (such as taking pets with them to job interviews) but continue to evolve in their tastes and lifestyles. As their finances improve, their consumption patterns will, too.

An article in TIME Magazine observed that "each country's millennials are different, but because of globalization, social media, the exporting of Western culture and the speed of change, millennials worldwide are more similar to one another than to older generations within their nations."

Nationally, more than 53 million workers are 18-34 years of age. Millennials have passed baby boomers and Gen-Xers to comprise the most significant part of the U.S. workforce, constituting 34% of all workers. By 2025, three-quarters of adult workers will be millennials.

Media fascination with any subject can lead to misunderstandings. The facts are not as interesting as the story. For example, here are millennial myths as reported on money.com:

1. Millennials don't like fast food. Fresh food is essential to this generation. Yet surveys indicate younger consumers are far more likely to eat at McDonald's than at Chipotle, Panera Bread, and other fast-casual restaurants. The Wall Street Journal reported that 75% of millennials said they go to McDonald's at least once a month, while only 20% to 25% of millennials visit a fast-casual restaurant that frequently.

2. Millennials want to live in cities, not suburbs. This myth is part of the media attention paid to urban millennials. Riding mass transportation or Uber, bicycles, or walking, is the picture we have of young adults in city centers. They hold college degrees and have the latest tech gadgets. (You don't hear much about 20-year-old single moms in small towns or fast-food workers in the suburbs trying to get by with only a high school diploma because they don't make good copy).   

Even if young people are moving to the cities, it doesn't mean that suburbs are out of bounds. On the contrary, census data show that in 2014 people in their 20s moving out of cities and into suburbs far outnumber those in the opposite direction. 

Two-thirds of millennial homebuyers prefer suburbs for settling down, with 10% choosing the city. 

3. Millennials hate cars. Maybe car buying is slow going in the early stages of a career due primarily to college debt or vehicle cost. Or both. Yet a Deloitte study focusing on Generation Y, another way of saying millennials, shows that more than three-quarters of this age group plan to purchase or lease a car over the next five years. Moreover, nearly two-thirds of millennials are in "love" with their vehicle.

4. Millennials don't want to own homes. Renting is better than owning. Yet a closer look uncovers the fact that millennials want to own homes. Again, the burden of college loans weighs on the home-buying decision initially. Bloomberg News reported that millennials made up 32% of home buyers in 2014, up from 28% in 2012. They are now the largest demographic in the market.

5. Millennials reject careerism and are allergic to being managed. This, too, seems to be contradicted by the facts. CEB, a consulting firm, polls 90,000 American employers each quarter. From reporting in The Economist Magazine, CEB finds millennials to be among the most competitive:  59% said competition is what gets them up in the morning, compared with 50% of baby boomers. They may spend more time messaging other millennials but do not have much faith in them. For example, 37% say they don't trust their peers' input at work.  

Forty-one percent of millennials agreed with the statement: "Employees should do what their manager tells them, even when they can't see the reason for it."   

Workers across different generations have much in common. They want roughly the same things regardless of when they were born: To be given interesting work, rewarded based on their contributions, and given a chance to work hard and get ahead. Those findings come from both CEB and the Center for Creative Leadership.

6. Millennials prefer a single life. But the demographic trends suggest they will increasingly be married, college-educated, well-to-do parents. The trend among young parents, who are now primarily the millennials, will be toward a growing majority of children being born inside marriages, says Demographic Intelligence. DI predicts that ultimately around 60% of the children of millennials will be taken to married parents, up from about 45% today. 

Other habits

We've all read about millennials and their attitudes concerning "entitlements," "work/life balance," and "job-hopping" (not unusual for this age group). Here are some other characteristics and habits:

-Fifteen percent of millennials live with parents. (Census Bureau)

-Millennials watch less TV and spend more time on smartphones than their parents.  

-Older millennials (25-34) watch more TV than their younger counterparts (18-24). 

-Fourteen percent of those 18-34 are cutting the TV cord, and 12% never had a TV subscription.

-Thirty-four percent say they sleep with their smartphones in bed.

-The top mobile news source for this group is the Huffington Post, with 9.2 million unique visitors to the app and site (recorded in March 2015). 

-About 67 million millennials listen to the radio each week. The country is the top format. 

-Only 27% of millennials say they attend religious services every week, compared with 38% of baby boomers and 51% of adults in the silent generation. Nearly one-third aged 25-32 now indicate their religious preference as "none," a nine percentage point jump in this group since 2007. (Pew Study)

In the coming year, we will monitor and report on other studies for Gen-X, baby boomers, and the silent generation. 

Closing thought

Of course, there are more market opportunities than just millennials. Multi-generational consumers are plentiful. The sweet spot for household spending and giving to charitable causes overlap among the 25 million older baby boomers and younger members of the silent generation, those between 65 and 74 years of age.      

Demographic transitions are always bookends--a younger cohort on one end with an aging populous on the other. However, this time the middle is populated by 40 million individuals known as Generation X. 

These combined forces are reshaping cultural norms and, in some cases, causing long-standing businesses to adapt or run the risk of a slow death. 

It's a situation and season that's hard to ignore.

Strategist.com

(C) Bredholt & Co.