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It is better
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not know why

John Sumser

is more
it seems.
John Gall


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More Job Creation

(March 17, 2004) - We have an on again off again customer who has asked for our help developing additional revenue streams from existing clients. It's the kind of work we love, second only to the development of marketing programs. She agreed that we could use our conversations with her as the basis of the next set of articles (as long as we kept her identity veiled).

As a bootstrap survivor of the dot com bust, she is understandably cocky, making a profit in a world where profit seems scant. Like most of the entrepreneurs in our universe, she runs a technical shop that has become powerfully focused over the years. There is no marketing, to speak of. Sales is limited to word of mouth development. But, she knows that her future holds life as a commodity provider if she doesn't expand her portfolio of offerings. The choice appears to be growth now or a future of declining prices.

Actually, that's just how it is in our economy. Forward motion is more than price maintenance. Forward motion requires a stream of innovations. She knows how to do the technical component of this. The rest of it feels soft, mushy, risky and expensive. Expanding a business takes the same planning and discipline required to start it. Often, luck and timing played a part of the initial success. Successful growth requires enough preparation to be ready for luck.

We're focusing on the growth component of the problem for a number of reasons:

  1. All technical products want to become commodities. Growth is the only way to keep from descending into the hell of ever tightening margins and robust competition in commodity markets.
  2. More importantly, growth is what generates new jobs. We've been thinking hard about the subject.
  3. In our industry, job growth is the cause of success around the business. We'd like to see more of it, and soon.

There are only a few choices available for growth. In order of increasing risk and cost, they are

  • new products for existing customers,
  • new customers from existing markets,
  • new products or
  • new products in new markets.

In growth, the basic laws of business formation apply. 95 of 100 new ventures fail in the first year. Of the remaining four, only one will survive for five years. Since growth involves confronting these odds, knowing where the risk lies is half of the battle. Growth is an "uptown" problem for successful players. That makes it no less treacherous. In fact, tackling significant growth takes more than a small amount of chutzpa.

Growth, particularly in the information and services industries, is rarely financed by experienced investors. Banks may give loans but are understandably nervous. Public companies with the right reputations can go to the markets for financing. But the seasoned and shrewd Venture Players just can't make their equations work in an environment built on an existing profitable enterprise.

For small, privately held bootstrap startups, the question of financing growth is a complex issue. Experience tells the bootstrapper that it's possible to make a bundle with a tiny investment. Hoping to repeat the past success (lightning striking the same spot twice), the entrepreneur has a difficult mindset. She knows that the groundwork is laid for success. She knows her particular experience. So she assumes that similar investments will produce similar results.

It's rare to meet a successful entrepreneur who can see the extent to which timing (luck) shaped their success. At five years old, the business is the last survivor of the group of 100 that started at the same time. It is far more likely that growth will fail than succeed. The good news, for the economy, is that the successful entrepreneur will never clearly see that this is the risk scenario. The bad news is that it is impossible for them to believe the costs associated with building a successful growth plan and implementing it.

Underfunded projects produce failure just as undercapitalized firms are far more likely to fail.

Tomorrow: Steps to Growth (Job Creation)

John Sumser

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Materials written by John Sumser © TwoColorHat. All Rights Reserved.
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