The Rich Niche Group blog interviews and enables you to hear directly from successful entrepreneurs and product managers about the steps they took to grow their businesses/products and how they were able to create, penetrate, and/or dominate their niche.  This week we interview Dale Coyner, the founder of Communicast (which was sold to PrecisionIR Group), Open Road Outfitters and a noted author of several motorcycle touring books and a motorcycle touring blog

Interviewee:  Dale Coyner, serial entrepreneur. 

Why Selected:  Dale is a two-time entrepreneur and one of the pioneers in the use of interactivity and streaming technologies within the web conferencing and webcasting industries.  Dale is also a motorcycle touring enthusiast and author of several books and a blog on the topic. Dale is also a member of the Virginia Governor’s Motorcycle Advisory Council.

I had the pleasure of first consulting to and then partnering with Dale (and David Paul, co-founder of Communicast) as we grew the company and eventually sold it to PrecisionIR Group and their Vcall division.  Under Dale’s guidance, Communicast became known as the leading interactive webinar platform and was one of if not the first to integrate streaming audio and video.  Dale’s foresight and unique ability to understand problems and break them down to their smallest and easiest to solve position enabled Communicast to continue growing while delivering its famed “white glove” service.  Dale also understands himself, his strengths, and the strengths of those around him and he has the ability to bring those strengths together to make the team more productive. 

In the following interview, Dales takes us through how he was able to keep Communicast growing without ever taking any venture capital and how the start-up of Open Road Outfitters differed from Communicast.  During the interview, Dales makes several points about what it takes to grow a company, the key points you’ll take away include:

1.  Know your buyers.  Possessing a solid understanding of your buyers will enable to you understand their problems and build products they understand.

2.  Take advantage of the numerous open source and low-cost solutions are now available to help small businesses. 

3.  “It’s the rare opportunity that can stand up to the scrutiny you’ll put it through if you write even a simple business plan.”

4.  The biggest threat to losing your position as a market leader is to become complacent to the changes in your niche/industry.

You are now on your 2nd start-up, how has the start-up Open Road Outfitters differed from starting Communicast?

In some respects launching Open Road was no different than Communicast.  When I launched Communicast, I knew the market well because I was actively evangelizing webconferencing technology inside the company I was with at the time.  I already knew who the likely buyers were, their concerns, and how to approach them.  The same was true of Open Road Outfitters, targeting people who travel by motorcycle.  Since I am a long distance motorcycle rider, I already knew the customer in this segment because I was one of them. So, knowing the market well was the key similarity.

 On the other hand, building the business, operationalizing—whatever you want to call it—that was completely different.  Communicast was a web-based service bureau, Open Road is a retailer.  At Communicast, we built all our products in-house and hosted our own servers.  At Open Road, we do none of that.  Our e-commerce platform was open source and hosting duties are handled by someone else.

 Very generally speaking, one thing that is vastly different, and continues to amaze me, is how many awesome open source and low-cost solutions are now available to help small business owners do business more effectively and for less cost.  I regularly use WordPress, an open source content management system, to create informational sites.  I have a credit card processing app for my iPod instead of a terminal.  Phone calls are managed through a free Google Voice account.  My hosting service is so inexpensive it barely registers on the P&L.  The all-powerful analytics product I use to examine our website traffic patterns, also free.

What drove you to start Communicast and what opportunity did you see that was not being served at that time? Same question for ORO.

 It was pretty simple.  When I first saw webconferencing technology in the mid-90’s, I felt the hair raise on the back of my neck.  It was immediately apparent to me that this was a technology that would have a widespread effect on business.  The advantages were just so immediately obvious; I knew it would be adopted rapidly. I was at Ernst & Young when I first saw the technology and within six months from the time I demonstrated the technology in house, we had a dedicated webconferencing service bureau with 2 or 3 people producing multiple events per week.  I knew that not every company would have the resources or desire to staff an internal bureau, so that led me to start the business plan for Communicast.

 With Open Road, I first identified the opportunity when doing some book research.  I found there was an underserved part of the powersports market that I felt could be addressed with a web store.  That was part of my motivation, but I was looking for the right business opportunity to gain more experience with e-commerce tools and this was the perfect outlet.  Open Road is my living laboratory, allowing me to experiment with different online marketing campaigns, site copy, web analytics, videos, etc.

You launched Communicast right after the internet start-up bubble burst in 2000, how did this affect your plans and what adjustments did you make?

 Good question.  It made us work a lot harder at focusing the business and the message than if the money was still flowing freely.  We originally had visions of building a little bit of a client base, selling to AOL, and retiring in the Caribbean. Well, we were a little late for that, so we had to opt for Plan B which was to buckle down and build the business.  We decided to forego seeking venture capital. Every time we started chasing VC money, our sales dipped because we were spending too much time and energy polishing our business plan, doing pitches, and not selling.  When it was apparent the VC path was not for us, that decision really freed us because we could go back to focusing on sales and building the product.

What were the biggest obstacles you ran into at the different stages of Communicast’s growth and how did you overcome them? Have you seen the same obstacles at Open Road Outfitters?

Initially our biggest obstacle was the fact that we didn’t own the technology we were using to serve our customers.  We had done some creative cross-licensing with another conferencing company to build our service on.  We built a complimentary enhancement to their main product and exchanged that for rights to use their technology.  That saved us a lot of money, but strategically we were completely tied to their fortunes and their decisions about where the product would go.

We finally faced up to the fact that we needed to build our own product in order to really create a difference we could use to sell against our competitors.  Our biggest challenge was that, because we were self-funding through sales, we had to build most of it in-house and outsource only the things where we didn’t have the expertise. So, I spent a lot of late, late nights building the interface for both participants and the presenter, along with all the back-end reporting, registration, and other features the product had to have.

David Paul, the guy who handled our sales, and who I really consider to be a co-founder, had a unique way of getting clients to help us pay to build the product and it’s a strategy I’d recommend to anyone similarly situated.  If our product lacked a key feature needed to close a sale, Dave would offer to build that feature to the client’s specifications for a certain price.  The client would get that amount of money credited to them in webconferencing services, so from their perspective, they were getting a custom-built product and paying nothing extra for it.

We would only make this offer if the client was asking for something that fit our product development plan; we didn’t do it for just anything. But the bottom line was, we got a lot of our product built that way and picked up a number of clients who were impressed with our willingness to “customize” the product to suit them.

Communicast was one of the first web conferencing companies to integrate streaming audio and video back when neither of these were popular, my question for you is what did Communicast do to evangelize why streaming audio and/or video made sense and how did you overcome some of the initial hesitancy by clients. 

We did a lot of talking and a lot of demos, but it came down to the fact that clients were never sold on it until they had their first success with it.  So, we would ease them into it. We always offered alternative solutions.  For example, in addition to streaming audio, it was common to offer a teleconference for audio in a web conference for participants who couldn’t receive the streaming feed.  Over time, as clients saw the number of stream users rising, they saw their bills go down as a result.  And this encouraged them to push the streaming option harder or offer it exclusively altogether.

Communicast became known as one of the innovators in the web events market. Once in that position, what did you set-up so that Communicast stayed in that leadership position? What were you doing different than others in the niche?

From the beginning, our difference was interactivity.  We offered so much more than just slide-after-slide-after-slide in our events.  We built interactive tools that allowed presenters to really involve the audience.  We had not just one type of live polling, but several different forms.  We offered a “Pro/Con” exercise that allowed audience members to respond to a scenario with plusses and minuses. The instructor then had the power to select individual responses from the list.  We offered a brainstorming tool.  Our niche was interactivity and we continued to expand on that with new tools and templates to collect data, followed by richer reporting features to gain more intelligence out of that collected information.

How did we set that up to maintain that edge? Well, I believe it’s because this view of making web conferences interactive was the most important element of our vision. We were clear on who we were. I made most of the product feature decisions, based on wide input of course, but the conversation in my head usually went like this: “We offer the most interactive webconferencing system on the market.  Does this feature we’re proposing enhance that?  What other features can we add that reinforce that vision?” 

In general, what piece of advice would you give to someone who is either starting a new company or getting ready to launch a new product which they are hoping to either create and/or penetrate a niche?

 I’d heard these two points a thousand times before but didn’t really understand them until I lived them. 

Know your customer.  Develop a profile or a picture in your mind of your perfect customer.  What’s their position in a company? What are their responsibilities? What are their biggest problems and how does your product or service solve their problem?

With Communicast, we found our perfect customer was at the director level in either marketing, corporate communication, or training inside the company.  They were constantly being asked to find ways to train more people with less money and disruption (time out of office, away from clients, etc.).  When we found this person with this issue, the sale was easy.

Know yourself.  In our early days, we fought hard to stay focused on our primary business, but sometimes we strayed.  As you are out there pitching yourself, other opportunities present themselves, but not are all well-suited to you.  For example, we got involved in a discussion with a radio personality about providing our service to them, but eventually the conversion twisted into us providing a website and e-mail service. We were neither an e-mail or website host and even though we entertained the idea, we ultimately turned down that business. 

Now for an example that exactly contradicts what I just said. At one point, we were approached by a webcast technology company about doing some competitive analysis and writing a report for them on a competing company.  Even though this was hardly our core business, it was income, it was a one-time thing, it wouldn’t take much time, and did I say it was income?  The point was, we knew going into it that this wasn’t something we wanted to do more of, we knew ourselves better, but it was a quick paycheck, so we took it.

What are the key characteristics of companies that have been able to penetrate a niche, even niches dominated by another company?

 I think clarity of vision and a single-mindedness of purpose are two really important characteristics and they go hand-in-hand. Having hit on a thousand business ideas, I know that when you think of something, and you think it’s good, it hits you it’s like an adrenaline rush. The business is almost a vision before you. But as you start to think it through, it’s the rare opportunity that can stand up to the scrutiny you’ll put it through if you write even a simple business plan. 

If you get through that and you still have a very clear idea of the business, the model, the market, and you pursue it relentlessly, I don’t think it matters how many competitors are in that market.  That clarity of vision is reflected in every aspect of your business from the marketing messages you send to the way the receptionist answers the phone and it will be a palpable difference that prospective clients can sense.

When you think of companies that dominate a niche, who do you think of and what do you see them doing to keep that dominating spot?

 Harley Davidson is a great example of a company that figured out who it was and who its customers are.  They continue to dominate motorcycle cruiser sales because they have moved from being a motorcycle maker to a lifestyle manufacturer. Want to throw away your business suit, hit the open road, and ride to the horizon? Want to live dangerously (and be home for dinner)? Harley Davidson is the official sponsor of the Wild Side of Life (Harley, feel free to drop me a line if you want to use that.) A few other manufacturers have chipped away at their niche, but I don’t see anyone kicking them off the top of the hill any time soon.

What are the biggest threats to losing that dominating position?

Well that’s a really good question.  In Harley’s case it’s the risk of becoming complacent and potential changes in motorcycling attitudes.  Since a group of far-sighted executives revived the company in the late 80’s and early 90’s they’ve been on a roll, so to speak, for the past twenty years.  It will be interesting to see how Harley continues to promote and evolve their “Harley Lifestyle” which I think is the essence of the revival.  Will people continue to seek that lifestyle or will it eventually go out of fashion?  Will tightening regulations on motorcycle emissions and sound levels force them to change the nature of their product in a way that reduces its appeal?

Broadly speaking, they face some significant challenges as well. Harley’s average customer age is creeping up, they’ve reached market saturation in the U.S. for cruisers and they’ve been hit hard by the economic downturn. However, if there’s good news in that, it’s that their competitors have been affected nearly as much.

Finally, which companies come to mind who once held a niche dominating position and then lost them and why do you think they lost that position?

Most frequently I think of companies who thought they were in one business, but were really in another.  A commonly cited example from an earlier time is the guy who delivered ice to customers for their ice boxes.  As ice boxes were replaced by refrigerators, the ice man who stuck to the ice business eventually watched his business melt away.  On the other hand, ice providers who thought of themselves as being in the “food preservation” business, adapted to the new reality and became appliance salesmen.

A few decades ago, I think IBM clearly saw itself in the “computer business.” Even though they eventually abandoned some of their positions in hardware, they were capable enough to reinvent themselves to take a leading position in information services.  Companies like WANG, on the other hand, built dominating positions, but as technology evolved, they couldn’t evolve quickly enough to respond to changing market conditions.

I also think of Microsoft.  They haven’t lost their dominating position in operating systems, but as the power of the web browser has increased, and the sophistication of applications delivered via the browser has grown, they are certainly less able to wield the same influence they once held.

Good luck and as always we welcome and value your feedback, please post comments and invite your colleagues and friends to our blog.  Thanks!

We’ll be taking the next few weeks off and want to wish you and your families a Happy Holiday season and a safe and prosperous New Year.  We look forward to seeing you in 2010.

The Rich Niche Group blog interviews and enables you to hear directly from successful entrepreneurs and product managers about the steps they took to grow their businesses/products and how they were able to create, penetrate, and/or dominate their niche.  This week we interview Barry James Folsom and we’ll come to understand how he has “focused” his companies in order to grow more quickly:

Interviewee:  Barry James Folsom, serial entrepreneur. 

Why Selected:  Barry James has over 37 years of executive management and strategic marketing experience with a successful track record of growing divisions and companies rapidly into category leaders. He has played pivotal roles in the creation of 4 major market categories: PCs, Workstations, Internet Data Centers and Web Conferencing.

As a respected company leader, Barry James was Frost & Sullivan’s 2002 CEO of the Year.  He is also a frequent speaker, e.g. Ad:Tech, Media Summit, Digital Hollywood, & Digital Connections.

Barry James is CEO of Twirl TV. Twirl TV is a Social TV gateway experience to online TV for the 30M 16-to-24 year old YouTube on-demand Generation whose PC is their TV.  Twirl TV viewers have choice – from over 400 shows/6000 episodes –  as well as camaraderie with their Twirl TV friends, including chatting and watching together on their respective PCs.

I had the pleasure of partnering and working with Barry James when he was the CEO of PlaceWare (now known as Microsoft Live Meeting) which he sold to Microsoft for $200M. 

In the following interview, Barry James provides you with some insights on how he was able to come into PlaceWare and implement some changes and processes that enabled them to grow faster.  In addition, he gives us a look inside his new company, Twirl TV, and how it is changing the way young adults access, watch and interact with their favorite TV shows.  During the interview, Barry James brought up several points and ideas about what it takes to solidly grow your company.  The key points you’ll take away include:

1.  Look for the pain points of your target market and how your solution can solve them.

2.  If your target market is already in the customer base of an established business, leverage that business to reach and gain customer acceptance.

3.  Know what your adoption cycle is and look for ways to decrease the time it takes to get a “sold” client using your service/product.  This will have an impact on everything from customer satisfaction to cash flow!

4.  Focus, focus, focus…by being narrowly focused you can get to know your prospect’s and client’s needs better and deliver a product/service they highly value.

You are now on your 2^nd start-up, how has the start-up Twirl TV differed from when took over at Placeware?

Twirl TV and PlaceWare are different in three ways. Twirl TV is 1) a raw startup focused on consumers, specifically 16-to-24 year old viewers; 2) leverages Facebook to gain viewers; and 3) Social TV collaboration aka chatting about the latest TV episode. Whereas PlaceWare was 1) had 30+ employees and revenues as a B2B business, 2) had a direct sales force and 3) business collaboration aka how are we going to close the sale. 

What drove you to start Twirl TV and what made you believe you could evangelize the concept to end users, investors and partners? 

We saw two major trends to jump in front of and we saw major pain points for our initial target segment (16-to-24 year olds).  The two major trends are 1) episodic primetime TV is readily available online/on-demand and the content library is growing daily; and 2) advertisers need smarter ways to gain access to, and engage with, the highly coveted 16-to-24 year old demo.

For our initial target viewers of 16-to-24 year olds, they have major pain points we at our age (older adults) don’t relate to, nor grasp.  And those pain points are that their PC is their only TV screen and they have a hard time discovering relevant entertaining content to chill out to with their TV friends.

Internet/Mobile TV (ITV) is a new concept for much of mainstream America and thus getting consumers to notice Twirl TV vs. the competition has to be difficult, what is Twirl TV doing to set itself apart from the competition?

As you indicate, first there are several ‘spaces’ and thus it’s all very confusing.  There is trying to get online video content to the TV (Internet TV), there are those trying to get video to the mobile phone, and finally there are a few of us working on delivering the TV experience, and in our case a new Social TV experience, to the PC/MAC.

So how do we set ourselves apart from the competition?  First, by being very focused on our initial target market of 16-to-24 year olds, we can leverage Facebook in many ways to deliver a Social TV experience with the few friends that are into TV with them.  So out of say 500 Facebook friends, we only expect our viewer to have 3 to 7 Twirl TV friends that they share their passion for say ‘Family Guy’ with.

Of course we will be compared to Hulu as our competitor, yet we actually focus on who are meta-competitor is and that is user generated content.  Why?   Because that’s where our target spends most of their video viewing time!  At a higher level, the entire TV industry has to come together collectively to help deliver compelling entertainment to this demo so they start watching more TV, not less, than the prior generation did.

In the end what really sets up apart is that Twirl TV has nailed what this demographic loves to do – socialize around their favorite TV episodes with their Twirl TV friends and that we are the only ones ‘who get them’.

When evangelizing the business, I have found many entrepreneurs have the same pitch for each audience.  Can you share your experience and the need to different pitches for each target audience (investors, partners, end-users)?

At the end of the day, the pitch has to answer for each audience “what’s in it for me”????  For business end-users, does it improve productivity, increase revenues or decrease costs?  For partners, does working with you gain us any competitive edge, increase our servable markets or open up a new market we can’t reach? For investors, if the opportunity really exists, can this team execute on winning major market share both effectively and efficiently so I get a 10X return on my money?  (And it’s worth noting today, many financial investors see today’s stock market having the potential to deliver a 5X return at much less risk than venture investing).

What were the biggest obstacles you ran into at the different stages of Placeware’s growth and how did you overcome them?  Are you seeing any of these same issues at Twirl TV?

There were three stepping stones (or obstacles we climbed) to get to success.  First was converting the emphasis from technology and features to nailing the experience and having a rock solid service.  That was a major change in values! Second was really understanding our sales cycle AND our adoption cycle (two vastly different loops).  Make sure a senior person is assigned full time to owning the adoption cycle of your users/consumers. Our analytics on our adoption cycle lead to major process/structural changes that improved adoption immensely as well as increased our sales!  Third, as you grow, the sales team collectively will ‘justify’ going off in several different directions.  It’s important to remember your size – we were $35M on the way to $50M in revenues, and we kept our focus and did not start a second product line.

At one point Placeware became known as a leader in the web conferencing/webinar niche. Once in that position, what did you set-up so that you stayed in that leadership position?  What were you doing different than others?

PlaceWare definitely owned the large scale webinar segment of the market.  Our competitor WebEx did a great job in the Small/Medium Enterprise market around small meeting collaboration.  We extended our lead in the F1000 niche with a strong secure service that the financial services industry came to deeply trust in time.

 Ken:  Having worked with PlaceWare from almost its inception, I want to add a little to what Barry James has pointed out:  When PlaceWare first came out of Xerox’s Parc Research Lab, it was an extremely feature rich web conferencing application, over time PlaceWare narrowed the features to the most widely used and earned their customer loyalty and new customers by providing a great experience coupled with exceptional new customer training and support.  This last part was a key factor during this time as web conferencing and webinars were still a new concept for most companies and individuals and the training was a key to getting client/partner buy in.

In general, what piece of advice would you give to someone who is either starting a new company or getting ready to launch a new product which they are hoping to either create and/or penetrate a niche?

Simple to say, very hard to do in practice:  The more narrow you focus your initial market, really really narrow, the larger your market actually is!! Yep, re-read that.  Counter-intuitive you bet.  Because when you are narrowly focused, you drill down 3 to 5 layers of detail in knowing your customer to really deliver specific value to that target vs. being generic (and feature rich) but not delivering the core – if you take this away, I will do you bodily harm – VALUE to that target.

Thanks for the insights Barry James!

This week we are taking a break from the normal interview of an entrepreneur to answer a question we frequently get at The Rich Niche Group.  While there are several ways to answer this question, we have boiled it down to 5 skills which we have seen lead to a more effective leader and company.  The 5 skills are:

1. A passion for providing an extraordinary customer experience and an understanding of your client’s and prospect’s problems.
2. An unwavering focus on your core strengths and using those to solve your client’s and prospect’s problems.
3. Being a source of innovation for your clients and partners and a leading innovator in your market.
4. An understanding of finance and financial statements. 
5. Company culture plays a very important role in the success of your business.

Let’s examine each of these and look at some examples how possessing these skills have aided in a company’s growth.

Passion for Extraordinary Customer Service

We all have personal examples of working with and buying from companies that treat us well even if they are higher priced than their competitors.  Smart leaders not only know this, they make it a central part of their company’s philosophy.  Simple things such as calling each new client and listening to their feedback or sending each new client a “welcome to the family” gift, as well as, setting up customer service so that the company can get quick and needed feedback on what it needs to improve and move customer service from just being a “complaint department” to being a strategic part of the organization.  John Goodman, Vice Chairman and co-founder of TARP World­wide, in his new book Strategic Customer Service: Managing the Customer Experience to Increase Positive Word of Mouth, Build Loyalty and Maximize Profits, shows how successful companies use customer service as a “catalyst,…making the organization more proactive, accelerating responsiveness, and boosting its effectiveness.”  John also points out the financial impact good and/or bad/no customer service can have on an organization.  In the coming weeks, we will have John as one of our interviewees.  

Here’s an example of an executive providing great customer service: Recently my wife and I stayed in a hotel and during our stay we had a small problem with our room.  Since we were there just one night, we did not report it but I did complete the comment card to make them aware of the issue.  A few days later, I received a call from the hotel’s General Manager asking for more details and comments on our entire stay.  Next time we’re Ft. Lauderdale, his customer service will earn his hotel a return visit.  As John Goodman points out, strategic customer service is applicable in every market and impacts every department within an organization.  Successful business leaders understand this and ensure customer service plays a central role in every decision made.

Unwavering Focus on Your Core Strengths

David Packard, co-founder of Hewlett-Packard, once said “A great company is more likely to die of indigestion from too much opportunity than starvation from too little.”  Companies of all sizes tend to lose focus at different points of their evolution (Successful companies regain it quickly).  Some will say they are “re-inventing” themselves or “innovating” but if they are doing these things without regard to the company’s core strengths, they will most likely fail.

Many start-ups and small businesses continually chase “one-offs” and justify them by saying they provide revenue and while this may be true, it takes away precious resources that are needed to move the company forward and normally is not a service that can be easily duplicated for other clients or prospects.  As your company grows, the need to focus becomes more challenging as current clients ask you and/or your sales reps to do a “little more” or “can you provide us…”  It is hard to say no when clients are willing to pay you to do something, but in most instances that is exactly what you must do.  How do you know when to say no?  Ask yourself these questions:

1. Is the service/product being requested an enhancement to our core service/product or something totally new?
2. If it is an enhancement, will other clients be able to understand the enhancement, are they interested in it and willing to buy from you?
3. If others clients are interested in it, can we add the enhancement to our service/product with our current resources or do we need to bring in additional resources?
4. Will the enhancement add value to our current offering and/or enable us to differentiate our product from that of our competitors?
5. Can I support the enhancement?
6. Will our ROI (return on investment) meet our margin requirements?

Recently I asked Peter Wakeham, the founder and former CEO of World Investor Link (WIL) which he sold in 2006 and is now known as PrecisionIR Group, his thoughts on how a company can be successful and penetrate and dominate its niche.  Peter said, “I do not think one can describe “Niche” better than “differentiation through focus” but the basics of strategy continue to apply regardless. WIL achieved differentiation through focus on i.) retail investor segment and ii.) annual reports.”  Peter also talked about focusing on the company’s core strengths by developing mutually beneficial partnerships with leading financial service organizations which “provided significant competitive advantages and blocked other entrants into the market”, as well as, “operational efficiencies…which no other competitor could match without significantly reducing service standards.”  Not just a focus on the company’s core strengths but also a passion for extraordinary customer service, no wonder Peter and his team were successful.

Source of Innovation

Being a source of innovation for your clients and partners and a leading innovator in your market is a key trait of companies that have penetrated and/or dominate their niche.  Back in 1986 while in college at The Ohio State University (Go Bucks!), I had an international business professor who had us use a draft of his upcoming book as our text book and on the opening page he wrote “Companies that fail to innovate and adapt to changing markets will be out of business by the year 2000!”  In today’s global market, innovation is a key to survival!  But innovation has to be tied to the company’s strengths and to either the company’s short or long term goals.  Innovation for innovation sake is nice but frankly of no value to your clients, partners, employees or investors and the current CEO of HP, Mark Hurd, has mandated that all projects coming out of HP’s research labs must provide economic value to the company.  In 2008 he reorganized HP Labs to “…ensure that HP is focused on groundbreaking research that addresses customer needs and creates new growth opportunities for the company.”  An example of this on the small business side comes from our first blog, where we interviewed Bob Cowan and talked about his former company American Teleconferencing Services, Ltd. (ATS) and how ATS was known for “not stealing market share but for creating new markets.”  As the head of Business Development at ATS, I can tell you this was not easy.  Every partnership, alliance and/or new product we wanted to offer HAD to be part of one of the company’s annual goals and fit within our service delivery capabilities or we had to justify the exception to the executive staff and the board of directors and get their approval before moving forward.  This made us focus on innovation initiatives that would positively impact ATS. 

Do you have an innovative new product or service being developed?  Does it tie to your company’s goals and strengths and is it something clients and prospects have given you feedback on?  If not, take a hard look at it and get moving to answer why.

Understanding of Finance and Financial Statements

In all businesses “cash flow is king” but in a start-up and/or small business it means life or death.  Every decision you and your management team makes will have a financial impact on the organization and you need to be able to see that in your reports.  Understanding the basics of finance and financial statements will enable you to quickly recognize problems, negligence, maintain the confidence of your employees, bankers, investors and board, and better enable you to evaluate the use of your limited resources.

When discussing this topic with Jerry Clarke, Chairman of the Board and retired CEO of Energy Services Group, International (ESG) – a Specialized Staffing and Business Solutions company he co-founded 26 years ago, here is what he had to say:

“The Chief Executive should be his/her company’s number one salesperson.  The CEO must not only be able to sell the company’s product or service to the customer at the Executive level, they must sell the company’s integrity, ability to succeed, including profitability and financial accountability to the financial institutions that provide banking relationships, insurance, accounting and auditing.  Additionally, the CEO must sell the company and particularly the executive element to the employees. It is improbable if not impossible at this level to be a convincing salesperson without an in-depth knowledge of finance and accounting principles.

One does not truly learn finance and accounting from a classroom or a book.  Books give you the basics and can teach the language but to understand financial statements the executive must live with the numbers.  You need to know how and where they are generated and what they mean.  Most accountants only collect data and put the numbers in the accounts that apply without any understanding of the big picture.  They press a key and a financial statement comes out, usually without any idea if the results are reasonable for that business.  The executive must have the accounting and business knowledge to examine a level one statement for reasonable results and if they see anything that is unreasonable, they must be able to examine sections of level five statements for application accuracy.

In the lifespan of every business there will arise a need for funding from external sources.  Lenders do not like uncertainty and particularly want assurance that loans or investments can be repaid.  Even though a company has a chief financial officer or controller that are CPA licensed, lenders usually require assurance directly from the CEO.  The financial world communicates with a language all their own that is typically foreign to many executives.  The CEO that does not understand and communicate in this language may as well have a sign across their forward that reads ‘I am uninformed and do not have a clue how I am going to account for your money.’  Of course this impression is not accurate but it is perceived.  This perception raises doubt and uncertainty in financiers and greatly reduces the probability of obtaining funding.  Most lenders require audited financial statements prepared by a mutually acceptable accounting firm.  Lenders used to require a “big eight” but since the consolidation of the big eight most any reputable firm is acceptable.  Accounting firms are accounting firms and not traditional businesses.  They do not understand what generates revenue or the expenses necessary to generate that revenue.  They do however know how to account for these items and the rules by which the accounting world is governed.  It is incumbent for a CEO to challenge any statement items that adversely affect the reported company’s performance.  The governing standards for accounting are “General Accepted Practices” (GAP) and “Federal Accounting Standards Board” (FASB).  The CEO does not have to quote the standards but should be aware of the existence. Let me talk about a few examples in ESGI’s life when this was very important:

In the early years of ESG, our bank required an audited financial statement from a “big eight” accounting firm.  Our in house income statement indicated a profit of approximately $300,000 but the audited statement indicated a loss of $100,000.  The difference was an investment of $400,000 that in house amortized over five years and the big eight firm expensed.  The difference between profit and loss could adversely affect the company’s ability borrow.  In the exit meeting with the big eight partner I requested, to no avail, that the investment be amortized.  When I ask if they were citing GAP or FASB as the governing body the whole situation changed.  Instantly their perception of our management changed and they saw us as equals who clearly understood the world of accounting.  The audited statement was changed to match the in house statement, we were happy, our lender was happy and our line of credit was renewed.

In another situation when ESG was in the $25 – $30 million range, we were funding operations with $500,000 of paid in capital and retained earnings with a $3 million line of credit and an additional $2 million guidance line.  (Guidance lines are not automatic funding but require bank loan committee approval.) We were awarded a $6 million short execution time (10 weeks) contract in Fl. And in all likelihood we would spend $4.5 million before any of the receivables from this contract were collected which would push us beyond the funding availability of both lines.  We prepared three flow of cash (not cash flow) scenarios which depicted best case, worst case and most probable case.  I met with our loan officer and explained the scenarios who presented them to the loan committee who in turn not only granted the guidance line but extended the upper limit to $4 million.  After the contract was completed and all receivables collected our loan officer complemented us on the presentation especially the 3 different scenarios.  He said the presentation was evidence that we completely understood the financial aspects of the business relationships.  By securing the funding for this contract we were able to grow our revenue for the year by $6 million.”

Company Culture

The knowledge that company culture plays a very important role in the success of your business is one that successful business leaders have known and have gone to great lengths to ensure the culture remains intact as the company grows.  Every company has a culture and that culture is shown in everything the company does from how it designs and implements new products and services, to how it sells, supports and bills for those products and services.  A good company culture is empowering to its employees.  They feel as if they can and do positively impact the company on a daily basis and that their personal reputation is manifested within the company’s culture.  Employees within an organization with a good culture guard that culture tightly by hiring only those that fit the culture and can make a positive impact on the entire team.   Conversely, working at a company with a poor culture is draining to the employees and they feel as if their opinions and expertise are either taken for granted and/or not valued at all.  Typically these are companies where decisions are made by one person or a small select group of people (silo decision making) with little or no input from employees, clients, partners and prospects.

A positive corporate culture starts at the top with the CEO and every executive within the organization.  New hires are not only trained to do their job they get trained about the company history and its culture.  Dharmesh Shah, Chief Technology Officer & Founder of HubSpot, as well as, co-Author of Inbound Marketing: Get Found Using Google, Social Media, and Blogs recently spoke with me about the importance of company culture within HubSpot and the specific steps they took to make sure it did not get lost as the company grew.  Dharmesh said, “First, we make ‘cultural fit’ one of the key hiring criteria.  You’d be surprised at how many companies don’t have this in their list of priorities when recruiting.  We try to maintain an environment of ‘passionate and fun’ in the office.  It’s a good work environment and it’s not possible to spend 15 minutes in the office without hearing someone laughing.  We have regular work-but-not-work activities that help people come together.  This includes a live weekly web TV show on Friday afternoons where we invite anyone from the outside to be part of the studio audience.  The idea is not to be overly serious, but not be frivolous either.  It’s not just about free beer on Fridays.  It’s about recognizing that HubSpot occupies a large part of our people’s lives and we’d be silly not to recognize that and make the environment as pleasant as possible so great people can work with other great people and do spectacular things.”  You’ll hear more from Dharmesh about being a successful two-time entrepreneur and his book, Inbound Marketing, in an upcoming interview.

Do you know what the culture of your company is?  If not, blind survey your employees and ask them what they think it is and where improvements might need to be made.

We hope you found this information helpful and if you have other traits you think a successful business leader needs to have, let us know and we’ll assemble them and add to the list.  If you like our blog, please be sure to pass it on to others.  Thanks & Make it a Great Day!

The Rich Niche Group blog interviews and enables you to hear directly from successful entrepreneurs and product managers about the steps they took to grow their businesses/products and how they were able to create, penetrate, and/or dominate their niche.  In addition, we also interview those that provide services entrepreneurs and small businesses need in order to help them build their companies.  This week we interview Roy Cammarano:

Interviewee:  Roy Cammarano, former President of three INC. 500 companies, business consultant, public speaker and author of Creating Do-It-Yourself Customers and the award-winning book, Entrepreneurial Transitions.

Why Selected:  Having had the pleasure of working with Roy at two different companies, I can attest to the fact that Roy’s perspectives and insights into helping entrepreneurs, entrepreneurial organizations and businesses of all sizes grow themselves and their companies is invaluable.  I would encourage every entrepreneur to read Entrepreneurial Transitions, it is one of the very few books that can help you move from being an entrepreneur to a leader.

In the following interview, Roy discusses how starting and running a business is analogous to starting a family, helping it grow and some of the mistakes to avoid along the way.  As you read the full interview, here are some points that stood out to me:

1.  As a company grows, the founder and/or leader of the company must transition from being the “entrepreneurial genius” to visionary leader.  One key to this relies on the leader of the company building a strong executive team and then enabling them to run their departments.

2.  Entrepreneurs need to realize that at some point in order for their company to reach its full potential, they may need to bring in someone to run the business.

3.  When times get tough, focus everyone on a common goal and use that to rally the troops by celebrating small wins and build positive momentum. 

4.  When hiring outside consultants, only hire those that provides the skills the company needs and does not already possess.

5.  Companies that continually dominate their niche are always asking themselves, “how would I compete with me” and then building the barriers to keep them competition at bay.

In your book Entrepreneurial Transitions you compare the life of a company with that of a human (Birth, infancy, toddler, adolescent, etc.) can you elaborate on that and why it is important for a business leader/entrepreneur to the stages?

I think it is important to create an analogy that most people are familiar with and this one allows significant latitude to address the “growing pains” than an organization goes through. For instance at some point a discussion will take place as to whether the founder has the necessary skills to grow the company: The skills of impregnating are different than the skills of parenting and those skills are different than teaching skills.  A child needs all and so does a company.

Additionally, as a company grows new skills and processes become necessary and often perfection is expected at these new skills and process and little tolerance exists for on the job learning. I liken this to a crawling baby learning to walk. The parents and virtually anyone seeing this struggling acquisition of new skills and process offers encouragement and by providing a helping hand they create a safe environment whereby they can pick the child up and provide comfort when the inevitable fall happens.  Rarely do companies provide this type of learning to take place, so I like to ask them what would have happened to the baby had they been treated to a negative, critical impatient process?

There are very few founders who have made that transition to lead and grow the company as it gets larger, how do you suggest other executives & board members start this conversation with the founder and many times the majority share holder?

In my book “Entrepreneurial Transitions” I describe 4 phases that an entrepreneur goes through, Entrepreneurial Genius, Benevolent Dictator, Disassociated Director and Visionary leader. Unfortunately very few ever become Visionary Leaders.  Most actually vacillate between Benevolent Dictator and Disassociated Director and this is very frustrating and painful for the entrepreneur and the organization.  The ability to acquire the skills to be an effective CEO is as difficult as an average singer becoming a great recording artist.  Some of it is God given talent and much of it is hard work and dedication at “constant improvement” and growth. Unfortunately many entrepreneurs as their companies become more and more successful fail to acquire the next level of skill sets to continue to lead the organization instead they rely on the skills that got them to where they are. Professional athletes still practice and get coaching in order to improve. Often entrepreneurs do not. If you have the opportunity to influence an entrepreneur make sure you: 1) respect what they have accomplished; 2) provide them with an illustration so they can see what has worked for others; 3) ask them to play to their strength; and 4) provide a safe environment to help them acquire the skills they need.

You’ve worked with and run several small businesses and some large ones, what key traits have you seen in some that make them more successful than others? 

Like watching small children play soccer as they grow and mature they learn to transition from “bunch ball” (everyone around the ball or in the corporate world – decisions) to positions and then ultimately strategy. When the positions are understood and the strategy in place, tactical skills (specific to positions) can improve. Going to a Saturday morning soccer field can teach you about the proper growth and maturity of the organization as it transitions through the age groups to eventually look like the pros.  Often entrepreneurs think they are David Beckham and can always carry the day.

When evangelizing the business, I have found many entrepreneurs have the same pitch for each audience.  Can you share your experience and the need to different pitches for each target audience (investors, partners, end-users)?

Often listening to entrepreneurs is like listening to a tape recorder repeating what they say and know regardless of the audience.  Be careful of the single pitch as it means that they may have only one way to get what they want.  I believe that you can always have your way provided you have more than one way.  Unfortunately entrepreneurs often have a story pitch because it worked at one time and people reacted favorably so they continue to do what had worked before. Have them read “Who Moved My Cheese.”  It is especially important to understand that people listening to what you are saying can only understand what you are saying if they can relate to what you are saying.  Audiences are made up of many different types of people having only one way to tell your story ensures that only a limited number of people will understand and relate.

What were the biggest obstacles you’ve faced at the different stages of the companies you’ve run and how did you overcome them? 

Working with an entrepreneur who has gone from hero to villain within their organization is always tough.  The parenting skills they had do not transition to the educator and then coach roll they need to play so they are angry.  Often the organization has rebelled and battle lines are drawn.   The employees suffer, the entrepreneur suffers and the customers get frustrated.  I again use analogies to help everyone understand that this is normal (like adolescence) and we begin to look for common ground we can work towards as opposed to focusing on what we disagree on. Take on small problems solve them celebrate and continue to gain positive momentum.  Never take on the big problem that no one thinks can be fixed and never allow people to criticize an individual’s focus on the necessary results.

If you avoid ever taking on the big problems that will likely haunt the company, are you suggesting they break the big problems into smaller components and tackle each component one at a time, or something else?

I think I was specific about the BIG problem that no one thinks can be fixed. Take on the big problems that you think you can fix after you have success with the problems that are easy to fix.  Problems in organizations will always come up and having a team of people that can work together is critical to solving them.  In many instances entrepreneurs believe that they are the only ones that can solve the problems and they have done it so many times that they have trained their employees to not even try to fix something because they know that the entrepreneur will only want it solved their way.  Big problems often happen because people do not handle the little ones.

What do you see as the most common mistake leaders of start-ups and small businesses are making?

They think they have to be in control of every detail and that the only way to solve a problem is their way. It destroys people’s willingness to contribute and the entrepreneur never teaches anyone they just tell them what to do.

Describe how you suggest leaders of start-ups and small businesses interact and utilize outside consultants? 

Carefully! Only hire for specific skills that the company needs and does not possess. Never take operating advice from a lawyer and realize that most accountants are historians and risk averse. Check the references and be careful if you meet them on a plane. It seems most entrepreneurs (most people) seem to open up to strangers on airplanes, I think it is breathing the pressurized air that makes everyone susceptible to listening to a complete stranger and take their advise while ignoring what your top employees are telling you. Also never attend a one day seminar and think you have the necessary perspective and skill to implement what you learned.

In general, what piece of advice would you give to someone who is either starting a new company or getting ready to launch a new product which they are hoping to either create and/or penetrate a niche?

Two very different questions and each depend on the maturity and previous experience of person and the complexity of the offering.  Know it is going to cost you way more than you think it is and take more time.  A rule of thumb is two time the money and three times as long or three times the money and twice as long.

What are the key characteristics of companies that have been able to penetrate a niche, even niches dominated by another company?

Niche penetration means that the other company did not protect itself by asking the key question how they would compete with themselves.  And then doing it or creating barriers for others. Often we like to glamorize the one company or product that makes it.  We ignore the ones that failed miserably and cost people their life savings. Learn before you take action but when you take action go for the gold.

When you think of companies that dominate a niche, who do you think of and what do you see them doing to keep that dominating spot?

Most often we think of big companies that are dominant and we loose sight of the growing pains and the mistakes that were made as they grew.  Jim Collins in his book “From Good to Great” did a good job of sharing the learning’s that these companies went through.  I think what they do is adhere to a core set of beliefs and create a culture of always getting better.  I like asking Peter Drucker’s questions; “What business are we in? What business will we be in? What business should we be in?”  Intel is the most notable example of asking and answering these questions.

What are the biggest threats to losing that dominating position?

Fail to ask Drucker’s questions and think that the market will never change.

Finally, which companies come to mind who once held a niche dominating position and then lost them and why do you think they lost that position?

SONY (the walkman vs. the IPod)

SONY created the take your personal music where ever you want to go.  IPod now dominates that market. SONY had too many battles on too many fronts (beta max vs. VHS) etc. but the market was made by SONY and they did not stay on the edge and adapt to the new technologies till it was too late.