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The 3 Biggest Start-up Killers, Part Two: Bad Organization

In all our start-up travels — on the consulting side (me) or the entrepreneur side (Steve) — we’ve had front row seats to a million start-up crack-ups. And what we’ve learned from history is that nobody learns from history, to paraphrase a philosopher who year in and year out wins the “Best Moustache on a Philosopher Award.” As many ways as there are for people to screw up a business, so many ways have people screwed up their business (Thomas Aquinas: Quot screwupibus, tot screwupibus). Since we, like the majority of humankind, can’t wrap our minds around a million hazards to avoid, it helps that they can be broadly categorized into three areas:

  • Bad planning
  • Bad organization
  • Bad controls

    We have dealt with planning in a previous post. So, since this is a relatively disorganized disccussion, let’s get organized.

    Bad Organization
    When I talk about bad organization, I am not talking about “disorganization,” though, I grant you, it’s hard to be “well-organized” and “disorganized” at the same time (hard, but not impossible).

    No, instead, “organization” is properly understood in terms of the “functions” of a business, the things you do to run the business and make money. Some of these functions are critical functions, such as bookkeeping and paying taxes. Some are semi-critical — they are important but not completely necessary to perform them at a high level. Some are important. Some are trivial. Some are counter-productive.

    Few “functions” are critical across all businesses. A large part of our business model is running this blog, so responding to commenters we classify as a critical function. But this is not true, say, of a consulting firm that also runs a blog in order to drive trafiic to their Web site, help in search engine rankings, or provide just one more cog in the marketing collateral wheel. Building a blog audience is not important to their business, so responding to commenters is only an important — or even a trivial — business function.

    At the same time, the consulting firm MUST generate leads. So the business function category, “lead generation,” is critical to the consulting firm’s success. As such, specific business functions, such as search engine optimization or cold calling could easily be classified as critical jobs that MUST BE DONE to achieve the business’ goals. For us, however, publishing books, making videos, and building an online resource for entrepreneurs and small businesses, lead generation is a completely unimportant function, as is cold calling. So no-one here at Shoestring Publishing makes any cold calls to prospective customers.

    “Organization” essentially means performing the functions and jobs necessary for your business at a performance level necessary for success.

    I grant you, this is not how an business school textbook would define “organization,” but this, I believe, is the core of business organization. When you understand the “core” of something, rather than just its surface, you’re 99% of the way to achievement. Although organization can be a time-consuming chore with a thousand unrelated moving parts, if you truly understand organization in the sense above and continually return to this core understanding, you’ll never fail at organization a business.*

    Businesses that are badly organized (not necessarily “disorganized”) fail to do necessary functions at the performance level necessary for success. They

  • neglect to do critical or semi-critical functions;
  • allocate time and resources to unnecessary or business-harming functions;
  • do these functions without performance targets (or inadequate performance targets).

    It’s vitally important to understand that organizing business is just as much about the second part of the definition (performing jobs and functions at a level necessary for success) as the first part of the definition (doing functions and jobs necessary to the business). The key understanding is that when organizing a business, you’re talking about performing, not just doing, business functions and jobs. I cannot begin to tell you how many people stop at the first part (we need to do x) and never get around to the second.

    Let me give you a (true) example. An entrepreneur sets up a service organization that has high lead generation demands. So he quite correctly identifies cold calling as a necessary job and brings someone in to do it part time. The job requirement? Make 20 cold calls a day in x number of hours. “20 cold calls a day” is many things, but it is decidedly not, though it may appear to be, a performance objective. It’s a number that is no more conducive to success than “work 2 hours a day.” A performance objective looks like, “Close a minimum of three people each week.” This man’s business will not succeed because someone is cold calling 20 hapless people each day. The business will only succeed if the caller is closing three clients each week.

    The classic example of performance-free business thinking are Web sites. Someone says, “I need a Web site.” “Okay, for what?” “Well, everyone has one.” “Sure. But what should your Web site do? Generate leads? Provide tech help? What?” “Well, I need my marketing materials, maybe a contact form . . .” “Wait, WHAT is your Web site supposed to achieve?” And the beat goes on. It’s like saying, “I need to hire someone.” “Who?” “Well, someone that other people in my business hire.” “Okay, let’s back up. What do you want this new hire to do?” “Well, to do what someone does whenever they’re hired to do it in my industry. You know, best practices.”

    Successfully organizing the functions of a business is like determining how to kick a field goal. You have to have both a “what” and a “how high” for every job or function your business does. If you’re ignoring one of those questions, you’re not going to score.

    Remember those two words: “what?” and “how high?” If I had only three words to define a good business organization, those would be the three.

    Or, to put it another way, every job function has a goal and a bar.

    You can see why “bad organization” is not the same as disorganization. Think of a business organization as having two scales. One scale ranges from “highly organized” to “not organized” and the other ranges from “well organized” to “badly organized.” It’s entirely possible for a business to be “highly organized” and “badly organized” at the same time (GM GM GM GM GM). It’s possible, but extremely rare, to be “not organized” and “well organized,” in the sense that all the necessary functions of the business are being performed at a level that ensures success (but you only encounter this in businesses with very little staff and very simple requirements).

    Unless you’re a genius, you will need a tool to organize your business. Thankfully, you have one. It’s called an organization chart and it has three parts:

  • An organization chart
  • A list of job descriptions (as if you’re slotting people into that organization chart)
  • A list of performance objectives for each job.

    “Wait! Stop! Enough! My startup consists of me, my shadow, and I, so what use do I have of an organization chart? I have no bleeding organization!!!”

    It doesn’t matter if it’s just you, your shadow, and, well, you. In a worst case scenario, you have to hire you to do all the jobs. In a smarter, better planned scenario, you will hire you for all the jobs that you do better than anyone else and you will outsource the rest.

    An organization chart always starts by identifying all the functions your business needs to do in order to survive (critical) and succeed (semi-critical). For instance, if you’re building a heavy content Web site and depend for your revenues on advertising, then selling your site to advertisers is a necessary function of your business. That involves subsidiary functions such as cold-calling, attending advertiser conventions, networking, email blasting, possibly doing a media kit — all the stuff and noise that goes into selling advertisers. You MUST DO THOSE THINGS or you will have no revenue. (Only in the movies and Forbes fantasy business magazine does “You build it and they will come” seem to work.)

    You must also build a Web site audience, which means search engine optimization is a necessary function with a host of necessary jobs that support SEO/SEM, including Web analytics, link building, SEO-centered Web advertising, and so on. Building a Web site audience may also mean Web advertising, email blasting, social media marketing — all critical, semi-critical, or optional business functions that have their own critical, semi-critical, or optional jobs to make it happen.

    An organization chart, then, helps you organize what you need to do, even if the “you” is just you. Neglecting critical business functions — or ignoring them altogether — has killed more startups than I can count. Adding to the problem is that the executives or founders of start-ups more often than not prefer to manage their business in their areas of greatest comfort, like sales or programming. So they haphazardly organize or ignore altogether critical business functions outside their areas of expertise. Then they wonder why, even though they did a slam-bang job of programming, their business failed. They forgot the cold-calling part. Or the technical help call service. Or the tax planning part. And so on.

    And if you’re serious about business, outsourcing will be a major component of your success. And just like you never drink and drive, you never outsource without an organization chart that includes performance standards.

    Once your business is organized, it’s critical to allocate your resources to where they are most effective. And here’s the second hazard most entrepreneurs don’t clear. Instead of focusing on those jobs and functions that they do best and can contribute the most value to their business, entrepreneurs and small business owners find themselves doing jobs that either they are not cut out for or take their time away from doing things that could really help the business. We discuss this best in the introduction to our book, Shoestring Venture: The Startup Bible:

    In the MBA world, they call “what you do best,” core competencies.

    Corporations understand that they succeed by doing what they do best and letting other folks, like suppliers or vendors, do the other stuff.

    For instance, most hotel chains do not actually own their hotels. Why? Any moron can own a hotel. The owning part is easy; it doesn’t take tons of talent or business acumen. In fact, it doesn’t even take ounces of talent or business acumen. In the hotel business, the hard part is a.) figuring out the best places to locate hotels; b.) cutting favorable real estate deals; c.) managing the construction of the hotel; and d.) administering and marketing the hotel. Being able to do these things better than everyone else is what makes one hotel chain more successful than others. But owning the hotels . . . no hotel chain is “better” at owning hotels than any other hotel chain. So they often don’t waste their time on the owning part of the hotel business. This frees them up for the business activities that make the big bucks.

    The same applies to building the hotel’s Web site. Hotel chains do not build Web sites better than other hotel chains, so they pay someone else to build their Web sites. What hotel chains do well is use their Web sites to find and build a loyal customer base. So they spend their valuable time and money trying to do that better than any other hotel chain. The better a hotel chain is at filling hotels through their Web sites, the more they “beat” their competition. But actually designing, coding, and programming the site? No hotel can “beat” other hotels by designing, coding, or programming their Web site.

    When doing what you do best allows you to beat your competition, MBAs like to call that a competitive advantage.

    Just because you’re a small business venture on a shoestring budget doesn’t mean that you, too, shouldn’t focus exclusively on your core competencies in order to gain a competitive advantage. In fact, because you’re a small business venture on a shoestring budget you must focus exclusively on your core competencies to gain a competitive advantage! And you must outsource the rest! You have neither the time nor money to waste performing activities that others can do just as well as you can at a fraction of the cost.

    If you don’t want to join the Start-Up Failure Club—and nine out of ten start-ups join this club in relatively short order—you need to focus on the things that you do better than anyone else. These core competencies, if you do them well, will give you a competitive advantage over all other businesses . . . including the big guns that don’t even know, or care, that you exist. To stay focused, you, more than any other kind of business, need to find vendors and suppliers to do all the other stuff.

    You may be an off-the-charts salesperson or networker. You may be a megawatt idea generator. Or you’re the best engineer this side of the Mississippi. Or an inspiring leader. Or someone loaded with consumer insight.

    The reality is this: the more time you spend doing tasks related to what you do best, the more competitive your business will be and the more likely your venture will succeed. The more time you spend doing tasks that you’re not good at, like bookkeeping, HTML, or word processing, the less competitive your business will be and the less likely your venture will take off. It’s a simple principle that doesn’t take a $60,000 MBA degree to figure out.

    In the book, we make it determining what to outsource much simpler (and much more simplistic, granted) with the “hire yourself” question. Look at your organization chart packed to the gills with critical jobs and functions you must do. Like bookkeeping. Inventory management. Purchasing. Tax planning (well, semi-critical, at least). Web analytics. And so on, depending on your business.

    Look at the job (say, bookkeeping). Would you hire yourself? If you needed someone to do your books and you walked in for an interview, is that the candidate you’re looking for?

    “Do you have any experience with bookkeeping?” “No.”

    “Do you have any education? Say, an associates degree in bookkeeping?” “No.”

    “Do you even like bookkeeping?” “I’d rather have my head set on fire and have it put out with a brick.”

    Would you hire yourself if that’s how you interviewed?

    Remember always that you are not “free.” Every job you hire yourself for takes time and effort, energy, spirit, and longevity away from the jobs that you do really well, better than anyone else. Businesses never succeed because the bookkeeping is done well (but they do fail when it’s not); they succeed when they beat out the competition in the marketplace.

    *(Back in the 90′s, I wrote a definition of architecture and over the years have found it repeated in dozens of books, articles, and Web sites as the “best” definition of architecture out there (I humbly submit that it is not the best anything out there). I am genuinely pleased with my definition of architecture, but I believe this article’s definition of “business organization” is infinitely better. The best definitions give you an invaluable core understanding. The best definitions are the ones you keep coming back to in order to make sure you’re on the right track. They arm you against the details that will defeat you.)

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