Tag Archives: brent sapp

Not Enough Sandboxes to Scale the Kopi Luwak Value Proposition

My son sent this picture from his iPhone last year while visiting a coffee plantation in Indonesia:

When I saw this image, two things came to mind.   The first was this clip from one of my favorite movies, The Bucket List:

My second thought centered on another reality that many Entrepreneurs experience in No Man’s Land.  A friend responded after seeing my son’s picture with, “Did he find the sandbox yet?”  How can you scale production that requires hands-on accumulation of beans that successfully passed through the intestines of a mountain cat?  Answer- can’t happen.  Even though “The World’s Most Expensive Coffee” is one of the better Value Propositions I’ve heard in the past decade, you can’t build a scalable model to support it.  Bottom line – you can’t make more money with increased volumes – there just aren’t that many hungry exotic mountain felines to make it work.

Kopi Luwak provides a whimsical example of what many growing companies experience with their economic model, or lack thereof.  Many CEOs don’t ask the question, “Is our value proposition scalable, and can we make money at higher volumes”, until they’re mid-stream in No Man’s Land, and then it’s too late.  At that point, they stop drinking Kopi Luwak and start their mornings at 7 Eleven.

 

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When CEOs Become Blind and Bored

Psychologists refer to this as the paradox of power. The very traits that helped leaders accumulate control in the first place all but disappear once they rise to power. Instead of being polite, honest and outgoing, they become impulsive, reckless and rude. In some cases, these new habits can help a leader be more decisive and single-minded, or more likely to make choices that will be profitable regardless of their popularity. One recent study found that overconfident CEOs were more likely to pursue innovation and take their companies in new technological directions. Unchecked, however, these instincts can lead to a big fall.

The Power Trip, Wall Street Journal – August 14, 2010

And that’s the problem.  “New technological directions” are often a landmine waiting for the CEO’s foot.  Here’s the crazy part –  CEOs get crazy in No Man’s Land.  It’s a time of confusion and distraction, when the company is too big to be small and too small to be big.  After months, perhaps years of solid growth the company realizes they’re not quite sure why they’re in business.  The value proposition becomes ambiguous at best and the economic model, or lack there-of, does not enable the company to make money at higher volumes.  So what does the CEO do?  He or she gets bored with the details and starts innovating in a different direction.

When you, the CEO, feel like you’re losing control from Brent Sapp on Vimeo.

This is red line danger zone for corporate direction and strategy.  The idea that launched the business, that “thing” that the company did best to this point, starts to lose it’s appeal to the CEO.  In typical ADD (or ADHD) fashion the boss believes the best course of action is to get creative and do something different.  Landmine, three o’clock!  If you don’t believe me, listen to my friend Bill Wydra, CEO of Ash-Tec Technologies.

One of the reasons No Man’s Land claims so many ventures is the loss of the CEO’s tenacious focus.  Instead of a new idea, the leadership team should re-align on the value proposition and then refresh the economic model to scale the value proposition. This “re-focus” increases the probability that the company will survive No Man’s Land and thrive in more profitable revenue zones.

If you are a CEO and you’re becoming bored with your company’s direction, step back and re-focus.  Don’t let the illusion of past or present growth blind you to the reality of No Man’s Land.  Align the team on your value proposition and make the appropriate investments to maintain momentum and survive your growing pains.

Calvin CEO Bored

If you need a hobby, try P90X – you’ll be too tired to be bored.

Economy Heroes 60 Day Strategy Sprint

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This is what Happens to a CEO When…

I’m sure you’ve heard, or stated, the following anecdote:  This is what happens when cousins marry…

Let me rephrase that statement in several different contexts with similar, but no less severe, outcomes.

This is what happens when an inebriated college student beta tests his idea for a new sport which requires the nuanced skills of a figure skater, a rancher, and a matador:

This is what happens when a cool family has far too much money to spend at Walt Disney World:

And this is what happens when the leadership team of a regional insurance company is out of Sync (alignment) on allocating resources to develop a new product:

The CEO and Inner Circle disagreed on investing in a new product.   Often when a company enters the fringes of No Man’s Land the team is confused and the CEO becomes bored; he/she “escapes” to a new idea that siphons energy and resources from the company’s core value proposition.   At this point the company can become distracted enough to fail in it’s inability to fund future growth.

… when alignment is lacking, new programs run a high risk of external failure and typically fall into disuse overtime.  Also, without management’s support and consistency, employees’ commitment to quality will usually deteriorate, their individual objectives will take precedence, and their morale and productivity will diminish overtime.

Bob Frost, Director of Measurement International

Misalignment is a superb example of the age-old physics rule: error increases with distance.  I will miss the target completely if I’m shooting at 100 yards and my site is off less than a millimeter.   CEOs and inner circles can easily migrate out of sync on critical issues, imperceptibly at first – ultimately off the “same page” altogether.   Companies fail when leadership is out of sync and lack a trusted decision making process.

This (failure) is what happens when companies are misaligned; but it’s not difficult, or time consuming, for a CEO and Inner Circle to get on the same page when they decide to do so.  Sync’Em – it’s the most important action to align and execute on the right priorities.

Just think what might have happened if the “Skater-ranch-ador” in the picture above would have Synched with his inner circle and stayed focused on his successful iPhone app?

Economy Heroes ebook CTA

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The Adrenalin Grass of Company Growth

Author and physician Donald H. Hilton described an interesting observation he experienced with his family on a safari in Africa:

While on a game drive along the Zambezi River, our ranger commented on the adrenaline grass growing along the banks. I asked him why he used the word “adrenaline,” and he began to drive slowly through the grass. Abruptly, he stopped the vehicle and said, “There! Do you see it?”

“See what?” I asked. He drove closer, and this also changed the angle of the light.

Then I understood. A lion was hiding in the grass watching the river, just waiting for some “fast food” to come and get a drink.  We were sitting in an open-air Land Rover with no doors and no windows. I then understood why it was called adrenaline grass, as I felt my heart pound.

For the moment, let’s change the angle of light slightly on your business.  Have you considered the possibility of danger lurking in your company’s growth enough to make you heart pound?

I consulted with the CEO of a fast-growing product company in the online gaming industry.  His business had developed a cool wireless device for the World of Warcraft addicts.  We revealed an all too common revelation concerning the future growth of his company.  Here are the benchmark results of his business compared to 400 competitors nationwide in our database:

Although my client currently experienced excellent growth, he immediately recognized that his EBITDA would drop dramatically in next three stages of revenue.

My client was neck deep in the adolescent stage of business.  No Man’s Land is a stage that requires increased capital to fund growth – both physical capital, and human capital (new management) in order to access the higher profitability of subsequent revenue zones.  He knew he had an immediate decision to make: pull back on the reins and wait out the recession, or seek private equity to fortify his growth through the next three stages.  He chose, as Economy Heroes often do, to throttle up!

This financial “ravine ramification” occurs with almost all companies, industry neutral.  My client was fortunate enough to see through the adrenaline grass before he walked into it.

How’s the angle of light on your company’s growth?  I know, you don’t scare, but don’t wait too long.  Once you hear the growl, it’s too late.

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Forget the tax HIKE, Take the Bridge

White House Front
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I want to repeat that you, Ms. and Mr. Entrepreneur, are our nation’s competitive advantage; you are our Economy Heroes (@EconomyHeroes).  The idea of forcing a tax hike on entrepreneurs in this downturn is the most whacked disincentive one could possible envision:

Tax Hikes for the “Rich” – Can We Afford Them?

Why create a tax hike, when what Economy Heroes really need is a tax “deferral” that costs the tax payers nothing but gives the business owner a bridge to traverse the capital gap of second stage growth.  My partner, Doug Tatum, constructed a bill that is sitting on our presidents desk which, according to a study done by the Kaufman Foundation, could generate over 600,000 jobs.  It’s called The Bridge Act:

The Bridge Act

There are several “overlooked” legislative opportunities to help move the needle on entrepreneur success.  The Bridge Act, a tax deferral proposal for entrepreneur business that, according to the Kaufman Foundation, could generate at least 600,000 jobs.  Here is some interesting FAQs about this little bill that carries a huge punch.

Q:   When is a rapidly growing business in “No Man’s Land” for capital funding purposes?

A:    First, when the firm’s financing needs are within the “capital funding gap” of $250,000 to $1,000,000, it is very difficult and costly for growing, small businesses to obtain external funding. Second, when the return on assets is less than the rate of revenue growth, the business cash flow becomes negative under accrual accounting even though the business may be profitable and owe income taxes.

Q:   What happens if a business fails after deferring income tax?

A:    A bankrupt business generally does not have net income tax liability because of accumulated losses, but if so, it would be collectible (as under current law) against business assets or personal assets (in the case of a proprietorship, partnership, or S corporation). C corporations (and proprietorships with Schedule C business income) currently have a 5-year net operating loss carryback that may be used against outstanding tax deferrals. For S corporations and partnerships, any outstanding tax deferral when the business entity dissolves would be collectible against the shareholders or partners for their pro rata share of the net tax liability (as under current law).

Q:   What tests must be met to qualify for the tax deferral?

A:    The business must have a growth of 10% or more above the average annual gross receipts for the prior 2 years. A business meeting the growth test and using accrual accounting for tax purposes with $10 million or less in annual gross receipts would be eligible for the tax deferral.

Q:   Would it be possible, using gross receipts data, to manipulate the growth figures to qualify?

A:    Not likely, since the current year’s gross receipts must be 10% or more above the average gross receipts for the prior 2-year period.

Q:   How much Federal income tax deferral is authorized under the proposal?

A:    The aggregate tax deferral is limited to $250,000 for each business entity, or a lesser amount should the business exceed $10 million in gross receipts in the meantime. Partners of a partnership or shareholders of an S corporation would be limited to a combined total of $250,000 of tax deferral for each entity.

Q:   When is the tax deferral amount paid?

A:    Each year’s tax deferral amount may be deferred for 2 years; payment of deferred tax may be made over the following 4-year period. Interest (Federal underpayment rate) is payable during the entire deferral period. Upon the sale or merger or cessation of a business, any remaining tax deferral would be payable at that time. Being “acquired” would include the sale of 80% or more of the firm’s assets.

Q:   How does the IRS ruling on cash accounting affect businesses eligible for the tax deferral?

A:    The Bridge Act only applies to growing businesses on accrual accounting. Growth businesses need to be on accrual accounting to obtain outside financing and to have outside audited financial statements. The IRS ruling increasing the cash accounting gross receipts limit to $10 million generally applies only to service businesses; it does not apply to C corporations with average annual gross receipts of more than $5 million.

Q:   Is the tax deferral a loan guarantee by the U. S. Government?

A:    No, it is not a “loan guarantee,” as the Federal Government would not be guaranteeing any loans made by a financial institution to the business. The Federal Government has established a number of loan guarantee programs, e.g., by the Small Business Administration, Federal Housing Administration, Veterans Administration, and others.

Q:   Is the tax deferral a loan by the U. S. Government?

A:   A “loan” means that additional capital is contributed into the business from an outside source, with required payback regardless of whether the firm is profitable or unprofitable. The Bridge Act, however, simply adjusts the timing of an obligation to the Government created when the firm is profitable–it does not provide added funds from the Government. The tax deferral can be offset by business loss carrybacks or carryforwards.

Q:   Are other sources of capital readily available to small, emerging growth businesses?

A:    Very few, and generally only to the most promising and well-connected businesses. The lack of capital funding is most urgent for growing, small businesses with funding needs between $250,000 to $1,000,000. Funding needs below $250,000 generally are available from family, friends, credit cards, home equity credit, and banks (personal credit basis). Funding needs between $250,000 and $1,000,000 may be available from so-called “angel” financiers, “factors,” and in limited cases from SBA loan guarantees and SBICs that have met certain capital requirements. When a business reaches a $1,000,000 funding level, it generally has a much better opportunity to attract capital funds from traditional sources. A profitable $10,000,000 or more gross receipts level is more likely to support an asset-based loan from banks and other financing sources.

Q:   Are there venture capital or private equity sources of funds for small, emerging growth businesses?

A:    Usually not. As the venture capital and private equity industries have grown, their investments generally are well above the $1,000,000 funding level.

Q:   What is the revenue cost of the tax deferral proposal?

A:    The introduced bills (H.R. 3062/S. 1903) would sunset the tax deferral after 4 years. The Joint Tax Committee estimates that this proposal would result in revenue “losses” for the first 4 years, which would be more than offset in the next 6 years–for a net gain of $1.1 billion over the 10-year budget period.

Q:   Why should Congress enact this tax deferral proposal?

A:    Macro-economic research by Cognetics, Inc. and the Kauffman Center for Entrepreneurial Leadership along with other economists have documented that the major force behind the net job expansion in the U. S. over the last decade has been from smaller and mid-sized growing companies (principally, those with fewer than 100 employees). These growing, entrepreneurial companies are fragile as they try to obtain sufficient capital and other resources to survive the “No Man’s Land,” bridge the “capital funding gap,” and become big enough to attract adequate outside financing at a reasonable cost to keep growing and providing expanding job opportunities.

Q:   What are the benefits of the tax deferral proposal for emerging growth businesses?

A:    First, the proposal will benefit thousands of emerging growth businesses with $10,000,000 or less in gross receipts, which will help the U. S. economy to grow and expand job opportunities, with the potential of creating up to 641,000 new jobs in the first 3 years. Second, the proposal is neutral as to the types of businesses that will benefit (businesses are eligible, whether capital-intensive or services, if they meet the growth and sales tests). Third, the proposal is a tax deferral, payable with interest, thus minimizing the long-term revenue cost. Fourth, the proposal will provide emerging growth businesses a source of needed capital financing when few outside sources are readily available at an affordable cost.

Q:  What is the effective date of the proposal?

A:    [NOTE: The BRIDGE Act was originally introduced in the 102nd Congress.  The effective dates of the proposal would need to be updated so that the tax deferral would be effective for a new 4-year period – for taxable years 2009 – 2012.]

 

Tax hikes might not be scary, but capital gaps ARE frightening for companies about to enter No Man’s Land.

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The Necessity of Company Nimbleness: Decide • Align • Track

Washington, D.C. (Aug. 30, 2002) -- Admiral Ve...
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Commit to making decisions.  Decide and move forward!  Jason Fried, Founder of 37 Signals, from his book Rework

I had the privilege to hear Admiral Vern Clark, former Chief of Naval Operations, talk to a group of over 100 local business people.  Admiral Clark is a fascinating individual, a humble hero driven by character and vision.  He had me at “a-ten-hut” with his stories such as the night, as captain of a destroyer he led his crew to prevent crashing on a reef in the midst of a Class 5 hurricane.

Admiral Clark also talked of leadership.   His insights flowed like chords from a master violinist; music to the ears of those who crave authenticity, from a warrior who’s felt the hammer of tsunami size swells on his broad side.

He described his passion for ship design, especially when it came to increasing his vessel’s maneuverability.   He groaned as he described the traditional destroyer, a ship with almost 300 crew members and a top speed of 30 knots.

His eyes brightened and his voice elevated, however, when he described a ship partially of his own design called the LCS-2, the first of a new breed of a Cirque de Soleil re-imagined (as one author described)  combat ships.

People make business plans for all sorts of reasons — to attract funding, evaluate future growth, build partnerships, or guide development. Unfortunately, the vast majority of these plans are usually out of date by the time the printer ink dries. Business moves fast: the product’s features morph, new competitors emerge, or the economic climate shifts. When these changes occur, many people just throw their business plans out the window. For a plan to be truly valuable it needs to evolve with your company and stay relevant in the face of uncertainty.    Amy Gallow, Keeping Your Business Plan Flexible, Harvard Business Review

Companies must stay nimble in order to survive and thrive in this economy.  Long term plans are like leprechauns, mythical characters that promise a pot of gold that no one ever finds.  Let’s face it, most CEOs of emerging companies don’t have a plan!  They resemble the guy on stage who spins multiple plates on thin poles – running from pole to pole in a desperate attempt to keep the plates from slowing down and toppling.

As my partner, Doug Tatum, brilliantly states, “Culture, at it’s core, is a trusted decision process.”   CEOs and their teams can make decisions and move forward if they have a simple process to sync on the right priorities in a “circular” pattern:

The difference between this type of decision process and traditional “business plan strategy” is the difference between the traditional destroyer and the LCS-2.  It’s about making decisions quickly using updated information.  It’s about remaining NIMBLE!

If you would like to take a sniff of what it feels like when your company is nimble, check out the complimentary report on this site.  You’ll like what you feel:

INC. NAVIGATOR COMPASS 

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The CEO and Speed Chess

There’s a New Normal breaking through the ice concerning how a CEO makes decisions.  The traditional linear method of forecast and response has been replaced by a new process that resembles both Special Forces field tactics and…. speed chess:

Here’s how the Wall Street Journal describes it:

Now, even though the economy is slowly picking up, those fresh habits aren’t fading. “This downturn has changed the way we will think about our business for many years to come,” says Steve Odland, Office Depot’s chairman and chief executive.

Walt Shill, head of the North American management consulting practice for Accenture Ltd., is even more blunt: “Strategy, as we knew it, is dead,” he contends. “Corporate clients decided that increased flexibility and accelerated decision making are much more important than simply predicting the future.”

Strategic Plans Lose Favor, Wall Street Journal 1.25.10

Over 90% of emerging businesses fail, but those that prevail produce over 85% of the jobs in our country.  Many experts believe entrepreneurs need trusted process, as Special Forces and military aviators experience with the OODA loop, to make decisions quickly and remain maneuverable.

It’s the “Speed Chess”  of decision making and it could make the difference of CEO survival in 2013; that, and recognizing the blind spots that plague most CEOs of fast-growth companies before you get stuck No Man’s Land.

Click on the picture below to see the top 3 CEO blind spots we’ve tracked while working with over 600 companies in the past four years.

Screen Shot 2013-04-10 at 8.16.20 AM

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An Entrepreneur Must Protect Her Fastball

Nolan Ryan
Image by cliff1066™ via Flickr

Delegating authority is a notoriously difficult undertaking for many business owners to accept, especially when it comes time to bringing in an outside CEO. In a Q & A in The New York Times, Lisa Price, founder of the beauty products company Carol’s Daughter, explains how she learned to calmly accept that an outside CEO might not be such a bad thing. Price explains that while juggling a lot of issues, it helps to put an actual dollar amount to the value of your time and then determine whether or not it is cost-effective for one person to handle every single task. “I did something as long as it made sense to me to do it,” she said. “And then, once it made sense to turn it over to someone else–either because it could get done better, or because I could spend my time making more money elsewhere–I did it.”

Inc. Magazine, A Model for Smarter Growth, August 23, 2010, Jason Del Ray

We all know that companies under 250 employees depend heavily on the Founder to wear more hats than Lady Gaga and spin more plates than a short order cook.  But as their companies build momentum, Entrepreneurs often find themselves buried in the fray of operational details and strategic delegation becomes a necessity.


Delegation is essential to growth, no question.  But when does an Entrepreneur refrain from delegating?   The founder must not release the company’s most valuable asset in order to maintain momentum and growth – he or she must protect the “Fastball”.

What do I mean by “Fastball”?  Consider my favorite baseball ever – Nolan Ryan.  Ryan is considered by many to be the greatest pitcher of all time.  Batters braced themselves for almost twenty years when Ryan took the mound because they had no question what was coming – a blazing, 100 mph fastball right down the center of the strike zone.  Hall of Famer, Reggie Jackson, said of Ryan’s heater – “It disappeared half way to the plate.”

Nolan Ryan built an incredible career around one thing – something he was passionate about; something he did better than anything else.   All Entrepreneurs have their “fastballs” and although the company at some point must get good at what the founder does best in order to scale, it makes little sense in the first few stages of corporate growth for her to give up trips to the mound to throw her heater.  It’s what she, and the company does best.

I spoke recently with the CEO of one of the fastest growing middle market software companies in the country.  When I asked him to identify his fastball, he pondered then responded, “I raise capital.”  Indeed he does; last week he secured an additional $35 million to fund the warp 10 growth of his baby.  What would happen if he was not free to pound the Private Equity flesh?  His company would exceed their speed limit and grow themselves out of existence.

Bottom line, stay on the mound.  You wouldn’t want to be anywhere else.

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Hail Our Inc. 5000 Economy Heroes

I started twenty-two years ago out of the trunk of my car.   Dave Dreiling, CEO/Founder GTM Sportswear

Last month I attended the Inc. 5000 national event at the Marriott Resort in Phoenix.   For three days I swam in the ocean of adrenalin, creativity and chutzpa created by leaders of the fastest growing companies in America.  I personally interacted with over 100 of these Economy Heroes and marveled at their ability to persevere and succeed in the worst economic downturn of this generation.

I listened to stories from heroes like Dave Dreiling, founder and visionary of a $65 million sporting goods company that he started out of the trunk of his car twenty-two years ago; he now employs over 800 people.  Or Joanne Cobb-Rossi who successfully straddles the fine line of career and family while leading her thriving company, Zooom Printing.

The enthusiasm were palpable; a pleasant contrast to the 2009 conference that fell in the center of the stock crash.   It was like finding an oasis in the endless parched commentary of doom and gloom we’ve trudged through over the past three years.

Dave Dreiling provides an excellent example of the impact entrepreneurs have on our economy and job market.  Although less than 10% of new ventures survive, those that make it generate over 80% of the jobs in this country.

As I mingled amongst these innovative elite, those who love capitalism and embrace the risk  it requires I was reminded that we must do what we must do to clear the regulatory and taxation path so that they, like Dave and the 1200 members of his family, can do what they do best – create jobs!

Bo Burlingham, best selling author and editor at large with Inc. Magazine offers fascinating data as to the essential role that entrepreneurs play in our economy, specifically when it comes to job creation.

“The problem is, this conventional wisdom is wrong. Or rather it’s only half-right: Small businesses may create the majority of jobs, but they also lose most of the jobs. What counts is not job creation, but net job generation.”

Check out the entire article here:

Who Really Creates the Jobs

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The Corporate Totem – An Elegant Benchmark for Strategic Reality

Please pardon if I indulge myself in an of elucidation on one of my new favorite movies, Inception.  One trip through Christopher Nolan‘s dream epic is not enough to start connecting the dots on its symbolism.  I was just trying to keep up my first time around; Nolan is writing and directing ninja.   The second time, however, I felt the freedom to participate in Nolan’s multiple metaphors, starting with reality and ending in the “Basement” of the hero’s prison of memories.

My favorite imagery ties into the Totem, a personal item that each dream warrior identified in the real world in order to ground themselves to reality in the dream world.  In Cobb’s (Leonardo DiCaprio) case, it was a spinning top.  If ever he became confused as to whether he was in reality or fantasy, he would spin the top and wait for it to stop spinning.  If it didn’t stop, he knew he was in a dream.

Each warrior’s Totem was personal and confidential.  As stated by several characters:

Arthur: So, a totem. It’s a small object, potentially heavy, something you can have on you all the time…
Ariadne: What, like a coin?
Arthur: No, it has to be more unique than that, like – this is a loaded die.
[Ariadne reaches out to take the die]
Arthur: . Nah, I can’t let you touch it, that would defeat the purpose. See only I know the balance and weight of this particular loaded die. That way when you look at your totem, you know beyond a doubt you’re not in someone else’s dream.

Ariadne state’s later, after she’s created her item that the Totem is an elegant means to ground oneself in reality.

I remember hearing a story about famed basketball coach John Wooden concerning his religious beliefs.  When asked why he didn’t discuss the topic more in public he responded that he wanted to live it more than speak it – which he did.  Then he added that he carried an item in his pocket to remind him at all times of the example he wanted to provide others regarding his faith.  The item was a small metal cross with sharp edges.  When, as coach, he was tempted to erupt in response to a bad call in a game he would reach into his pocket and grasp the cross as hard as possible.  As the sharp edges of his “Totem” pressed against his fingers the great coach would remember the example he wanted to display on the court; then he would take a deep breath.  He rarely if ever lost his temper on or off the court.

Companies today need their own personalized Totems.  I’ve described the insidious nature of No Man’s Land in previous posts; the inevitable transition companies experience during the second stage of corporate growth.  It’s a time of confusion and critical decisions.  Even after a company is successful in accessing the right information, both from a corporate alignment perspective as well as competitive benchmarking; and even after they identify the 3-5 must do key performance indicators, it’s easy to slip into the dream world of “delusional growth” and forget that the No Man’s Land chasm is either coming fast or upon them.

That’s why I recommend that my clients review a one-page company snapshot either monthly or quarterly that benchmarks key metric and KPI performance.  Something like this:


With a “Totem” like this, CEOs can control company delusion and embrace the facts of their performance.  I’d show you my company’s totem, but then I don’t want to lose my sense of reality in my own dream 🙂

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