Video of the Week

What do you know that no one else understands? – Peter Thiel

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“Try your hardest to combat atrophy and routine. To question the obvious and the given is an essential element of the maxim ‘de omnius dubitandum’ [All is to be doubted].”
~ Christopher Hitchens, Letters to a Young Contrarian

Contrarian Agriculture

Contrary
adjective
          Opposite in nature, direction, or meaning.

The entrepreneurial paths with the most upside potential are those that are new and untried.  Identifying those paths comes, at least in part, from the way the entrepreneur looks at and interacts with the world around him or her.  While pleasing other people is not a bad habit, agreeing too quickly with others on the way the world works today dampens one’s ability to identify interesting opportunities.

In addition, being willing to try new things that may invite questions or even ridicule.  It is difficult if professional acquaintances  have doubts about something you’re working on, but how much harder is it if the doubts come from family and friends?  Courage is a great word for behavior in extreme circumstances, but what about behavior in more day-to-day circumstances?

My contention is that entrepreneurs find ways to be contrarian.  In doing so they uncover ideas, pathways, and ultimately businesses that are trail-blazing.  Peter Thiel gets at this in interviews and his book Zero to One by asking ‘what truth do few people agree with you on?’

One method I suggest to students for putting your inner contrarian to work is to capture it in a persona.  In my case, I envision a neighbor of my grandfather named Vladi.  Vlcdi was dead before I was even born, but I still recall Grandpa’s tales about the sheer orneriness of Vladi, and some of the funny reactions to his behaviors.  So my inner contrarian takes the form in my mind of a German-accented farmer in 1930s bib overalls growling disagreement at those people and situations he encounters, just for the amusement of it really.

Another means of honing your contrarian skills is to examine bits of conventional wisdom and where you may differ from it.  Conventional wisdom is the body of ideas or explanations generally accepted as true by the public or by experts in a field.

Conventional wisdom, to be fair, is conventional because it has some element of truth.  Thinking in a contrarian way about it, therefore, is more an exercise in critical thinking and reasoning than in mere disagreement.

Five examples of what may be taken as conventional wisdom about entrepreneurship includes the following.

  1. Successful entrepreneurs love big risks.
  2. A well-written business plan is the first outcome of the entrepreneur who is starting a new business.
  3. Marketing of a new product trumps the actual functionality of the product itself.
  4. The past experience of an entrepreneur is the best predictor of whether his or her startup will succeed.
  5. Breakthrough, disruptive, innovative new products and services are usually completely new to the world and can be patented.

What does your inner (or outer!) contrarian tell you about any one of these five examples of conventional wisdom about entrepreneurship?  Reply to this post.  In addition, reply not only to this post but to those of other respondents.  Do you disagree with any of these examples of conventional wisdom?

Unleash your inner contrarian!

Article of the Day

In divisive election year, voters agree: Infrastructure needs fixing – Agri-Pulse

“Economic development provided the basis; Lincoln said much later, that would allow every American ‘an unfettered start, and a fair chance, in the race of life.” – From Team of Rivals, Deloris Kearns Goodwin’s book on President Abraham Lincoln and his cabinet.

Key Infrastructure for Disruptive Agricultural Technologies

Sara Wyant from Agri-Pulse asked me to participate in a forum this week on rural infrastructure.  Roads, railroads, locks, roads are each examples of infrastructure important to agriculture and rural economies.

The middle part of the U.S. produces a high proportion of U.S. ag output, much of it big and bulky, but efficiently ships those products to customers on the coasts and around the world.  In many ways it was the transportation ability of the Mississippi and associated rivers that enabled the economic development of the U.S. beyond the east coast. and the ability to ship products efficiently has remained part of the competitive advantage of the U.S. even as other modes of transport have developed.

As part of a panel asked to address disruptive innovation and agricultural infrastructure, I identified four key inputs for disruptive agricultural technologies.

  1. Electricity – Electricity is a key input to agricultural technologies involving microchips, controller, sensors, and a range of technologies that will form the basis of robotics and artificial intelligence taking root in agriculture.  Hydroponic and aquaponic technologies are now being used to grow vegetables and deliver them locally twelve months per year.   Use of software and drones is playing an increasing role in crop scouting.  Microchips are being placed in many traditional pieces of agricultural machinery, enabling them to connect to other devices and enabling better decision making based on new streams of data.  In Iowa and most of the Midwest, electricity infrastructure and cost levels are quite good.  Iowa, for example, has a strong group of rural electric cooperatives that are poised to play a key role in emergence of agricultural technologies.  Grade: A.
  2. Water – The FAO estimates that only 0.003% of earth’s water is available for human use.  Yet it takes a lot of water to produce agricultural products.  Water use and water quality are huge issues for agriculture and certainly a key input for disruptive agricultural technologies.  Indoor aquaculture systems are  a key emerging example of technologies that involve water.  Can we produce fish in a sustainable way and relieve pressure on wild catch and environmental issues related to sea and pond-based aquaculture production systems?  Can we use technology to improve water quality in agricultural production systems?  Water in the rural Midwest is largely available, but water quality in streams related to agricultural production is a challenge.  In addition, the water treatment infrastructure of many rural communities could be challenged by both emerging regulatory and consumer issues. Grade: B.
  3. Bandwidth – The Internet of Things has many possibilities for agricultural technologies, with devices, machines, and even crops and livestock connected to the cloud for sensing, monitoring, analysis and intervention.  The possibilities, however, are limited in broad swaths of rural America for lack of bandwidth/cell phone signal.  Given a geographic footprint that’s big and population that’s small, there are inherent constraints to investment in significant infrastructure for rural areas, but clearly there needs to be some sort of breakthrough in wireless technology for agricultural technologies that find value through connecting to the cloud in rural areas.  Grade: C.
  4. Human Talent – The core input for disruptive technologies in agriculture is people.  Whether entrepreneurs who invent and commercialize technologies, or the people that work with them, human talent is key.  The potential for technology is unlimited because it is linked to human imagination, which has no boundaries.  The Agricultural Entrepreneurship Initiative and Iowa State Univeristy has impact in this through the work our graduates do in rural communities, as well as other higher education institutions.  But that’s only part of the population.  I fear our public schools, especially at the high school level, are not preparing rural young men and women as well as they could for careers of impact in their communities.  Grade: ?.

What do you think are the key pieces of infrastructure for agriculture’s future?  Which parts of that infrastructure do you anticipate will be important for your career and entrepreneurial aspirations?

Article of the Day

The 10 Rules For Successful Entrepreneurs – Forbes

Economics aside, this is what underpins entrepreneurship for me: freedom, independence and the ability to choose.

~ Luke Johnson at the UK launch of Global Entrepreneurship Week, 2013

Entrepreneurship. So What?

Does entrepreneurship matter?  I ask this question of students the first day of class each semester.

The first answers to this questions are usually about the big picture.

Entrepreneurship matters because it creates jobs.  Quite true.  Kauffman Foundation research shows that if startups were removed from the U.S. since the 1970s, there would have been non net job growth since then, even as the workforce has grown substantially.  Small businesses employ 80 percent of workers in the U.S., so take them out of the equation and there are serious problems.  Large businesses are important and garner the bulk of publicity, but the real horsepower and dynamic for change in the economy comes from entrepreneurs and small businesses.

Startups-Kauffman-Foundation

Entrepreneurship matters because it drives innovation. The innovations that define the modern world came from entrepreneurs and entrepreneurial organizations.  I type this post on a Macbook Air (Apple founded by Steve Jobs, Steve Wozniak, and Ronald Wayne, 1976), using a WordPress application (WordPress founded by Matt Mullenweg and Mike Little, 2004), seated at HON desk and chair (HON founded by C. Maxwell Stanley in 1944), in my home that is heated and cooled by Lennox equipment (Lennox founded by David Lennox, 1895).

Entrepreneurship matters because it creates wealth. Entrepreneurs create the machines, methods, and systems that make us more productive, thus more wealthy.  New businesses exhibit a ‘churn’ dynamic where  innovative and successful firms grow rapidly and become a wellspring of jobs and economic growth, or quickly fail and exit the market, allowing capital to be put to more productive uses.  Those with a mis-informed view of failure view the churn of startup firms as negative, but in fact this is the dynamic that represents progress in wealth creations.

Leaving the big picture behind, I ask students if entrepreneurship is important to them.  Why might a university student care?

Typical answers from students include the attractiveness of being their own boss, the ability to earn more money if successful, the ability to design a lifestyle of their choosing, and the freedom to make an impact in markets they care about.

These answers are all good, but it draws them toward the idea that entrepreneurship may matter to them as young professionals because they should strive to live a professional life of impact and meaning.

Depending upon the source, more than one-half of Americans respond to surveys that they are not satisfied with their job.  How bad is it that more than one-half of people report that they are unsatisfied with something that occupies the majority of their waking hours?  At some point a person needs to take command of their professional life and make a change that positively impacts their satisfaction.  Anything else is just excuse making.

Being an entrepreneur, starting a business, is indeed a powerful professional choice.  Deciding to be entrepreneurial, however, is even a bigger one.  It implies dedicating yourself to making an impact whether at your own business, someone else’s business, or even in a non-business setting.

Being entrepreneurial implies development of life skills.

  • Critical thinking – The ability to ask the right questions.  Knowledge and experience is valuable, but even more important is the ability to ask the right questions at the right time.
  • Creative problem solving – A natural instinct is to avoid problems.  An entrepreneurial instinct is to seek deeper understanding of problems and then search for solutions.
  • Communication – The ability to persuade is the ability to lead.  The two most powerful words in English: “Follow me.”
  • Teamwork and networking – A fundamental part of the entrepreneurship process is organization building.  If a business is to achieve any scale and long-lasting sustainability, it needs to build a winning culture, team, and network of supporters, customers, and stakeholders.
  • Persistance – The value of an enterprise is related to its knowledge, and that knowledge builds through overcoming mistakes, learning from them, and doing things better as time goes on.  It’s a process that never stops, so persistence through the inevitable ups and downs involved in anything of consequence is key.

Why does entrepreneurship matter to you?  What is your vision for building your skills to be entrepreneurial?

Article of the Day

In Defense of the Deck – Bill Gurley, Above the Crowd

Video of the Day

The Benefits of Mapping Plan A – Randy Komisar, Kleiner Perkins

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Investors are not solely evaluating your company’s story. They are also evaluating your ability to convey that story.
~ Bill Gurley, Benchmark Capital

Designing a Killer Business Plan Presentation

Elevator pitch competitions are a great means for an entrepreneur to polish their skills in communicating a business idea as well as their ability to persuade.  There is a distinct difference between an elevator pitch and a business plan presentation, however, and I fear that many entrepreneurs fail to recognize it.  Instead they turn an ninety second pitch into twenty minute pitch and fail to connect with prospective investors, partners, and supporters.

A killer business plan presentation is not just a pitch.  It’s not just a slide deck.  It’s not just a recitation of projected financials.  Rather, it’s an experience that will energize an audience about a business and the team that’s a part of it.

A killer business plan presentation is designed, not prepared.  It’s a dialogue where a problem is resolved using a creative solution and the improved future result is described in glorious detail.

Here are some tips for designing that killer business plan presentation.

Tell your audience stories – People learn and remember in story form.  You want the audience to be curious to turn the page.  They wan to know what comes next.  To Bill Gurley’s point above, you also need to sell yourself as part of the stories, but the form is the narrative around the problem your business solves, how it solves it, and how your business will carve out a place in a market are key.  In one of our early, early presentations on E-Markets, I recall a listener remarking that we had our ‘story down.’  I didn’t really get what he meant a the time, but he was a more experienced entrepreneur and he appreciated the narrative we’d created on why the business was needed.

Create a dialogue with your audience – Your aim with a business plan presentation to engage the audience by creating a real back-and-forth dialogue.  As you structure your presentation, deliberately leave out important bits of information that will elicit questions from your audience.  Ask your audience questions and ask for feedback.  In our investor presentations at E-Markets, myself and the two members of the team that were always with me had a certainly rhythm for the presentations.  I was the front guy.  We knew (after many presentations) the questions that would come up and at what point they would come up.  My teammates would take turns answering those questions.  In effect what we were able to do was to create a dynamic conversation on the business and demonstrate that each of the three of us on the management team brought strengths to the business.

Understand the financials and the economics of the business – A discussion of the financial performance and projections of the business is certainly expected in a business plan presentation.  A common mistake is that the entrepreneurs fail to understand the financial economics of the business.  I was at a business plan presentation where an entrepreneur pitched their business and had a fairly good grasp of the financials on top of a really well prepared financial plan.  A question from a potential investor that completely tripped up the entrepreneur, however, was about the unit economics of the business.  “What are the projected costs per pound?”  The investor later told me that he wouldn’t invest in any business where the entrepreneur didn’t have a firm grasp of his or her unit economics.

Tie the audience into the plan – If there isn’t some way for you to tie your audience into your plan, then perhaps you shouldn’t be presenting to them.  Can you energize them to be an investor or customer of the business?  Is there a means of making their personal involvement seem like an exciting and interesting prospect?   You will know you’ve done well in this respect after the presentation is done if a member of the audience approaches you for a more private conversation.

What are the stories about your business that will engage audiences?  How do you create not just a presentation, but a dialogue with audiences?

 

Article of the Day

How to Avoid the 6 Biggest Financial Mistakes Young Entrepreneurs Make – Inc.

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Money is like gasoline during a road trip. You don’t want to run out of gas on your trip, but you’re not doing a tour of gas stations.
~ Tim O’Reilly, founder and CEO O’Reilly Media

The Financial Role of the Entrepreneur

What is the core role of the entrepreneur?  To invent?  To innovate?  To take risks?  To change markets, industries, the world?

The role of the entrepreneur can be explained in part by any of these descriptions, but it still misses the core.  Why?  Because there is a financial role and responsibility of the entrepreneur that wraps around the products, services, and innovations they bring to the world.

The first financial role of the entrepreneur is to define and forge a pathway to cash flow positive for a new business.  If an organization can’t find its way to positive cash flow then it’s not sustainable and not a business.  Every year there are thousands of good ideas and inventions that never find their way to market because they aren’t part of a business that finds its way to a sustainable financial model.

Startup Financial Pathway

Startup Financial Pathway

Most, if not all, startups will have a period where expenses outweigh revenues.  It may be part of product development, product launch, market penetration, organization building, capital expenditure, or be a combination of each.  The burden of the entrepreneur is to find a means of getting through that startup phase to where the business is cash flow neutral.  The means could be bootstrapping, debt capital,  or equity capital or a combination of the three.

The second financial, and core, role of the entrepreneur is to build enterprise value.  The entrepreneur needs to focus on how to make the business worth more at the end of the year than it was at the beginning.

And from where does enterprise value arise? In the startup phase of a business, enterprise value (a financial measure) can come from non-financial sources.  For example:

  • A strong team devoted to starting the business
  • A successful prototype
  • A key partnership
  • Progress in research and development
  • Success in product trials
  • Execution of project
  • Overcoming regulatory hurdles

Long-term, enterprise value arises from the business’ ability to produce cash above and beyond operating expenses.  In agriculture we often think of the value of a business in terms of its asset value.  The value of a farm business is often thought of as the sum of its equipment and land.

Not all assets are created equal, however.  Those assets that have the ability or promise to produce more cash income per dollar of asset are the most valuable.

Why do financial analysts value businesses based on free cash flow?  Why do business valuation discussion drop acronyms such as EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization)?  Because a business’ capacity to produce cash excesses represents its enterprise value over the long term.

A simple case in enterprise value is to compare two auto companies, GM and Tesla.

.                                             General Motors           Tesla Motors
Revenue                               $152.4 billion               $4.1 billion
EBITDA                                 $13.7 billion              -$294 million
Market Cap                            $48.1 billion               $33.6 billion

GM has almost 40 times more revenue than Tesla and makes billions in profits, yet the market values it only 40 percent higher than Tesla, a business yet to make a profit.  Why?  Because the market/investors think that Tesla’s long term ability to produce cash above expenses is very good.  The company only makes a fraction of the cars that GM does, but investors’ money is bet on a much bigger, financially successful future.  In a nutshell, investors have a strong faith in CEO Elon Musk‘s ability to continue to build enterprise value.

How do you describe the pathway of your business to cash flow positive?  How do you build enterprise value in your business over the long-term?

Article of the Day

Questions to help entrepreneurs analyze a potential market opportunity – Duke Entrepreneurship Manual

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The last 10% it takes to launch something takes as much energy as the first 90%.

~ Rob Kalin, Etsy founder

Secret Sauce of Effective Marketing at Startups

At most startup businesses the budget for marketing in the early stages of the business is a very round number, zero.  Especially for those entrepreneurs whose professional experiences may include working at large companies with large market budgets, this can be a significant struggle.  How do I launch a product or service with no financial capacity for marketing?

The core of effective startup marketing is gathering credibility and exposing it to the right audience at the right time.  Garnering credibility in the early life of a business evolves and changes quickly, but can be accomplished without a marketing budget.

The first thing to understand about marketing for an early stage business is what needs to be accomplished.  It’s not about reaching a wide audience, because the early business wouldn’t be able to meet the needs of a big audience in its early stages anyway.  Rather, early stage business marketing is about overcoming the lack of a proven track record.  No one knows who you are.  You are still honing in on understanding customer needs.  You are still working on the solution.  You still don’t know what you don’t know.

What does marketing look like for a startup?  What are some practical means of gathering credibility for startups? Consider these six recommendations.

  1. Know your market – Do your market research.  If you can’t offer up numbers on market size and potential off the top of your head, you haven’t done enough market research.
  2. Create partnerships – The term ‘partnership’ in the startup world does not frequently involve formal agreements.  For startups, partners are usually businesses and individuals who are collaborators on a relatively short-term objective.  When I started Decision Commodities in 2002, The Iowa Farm Bureau was not only an investor, but also a stamp of credibility in offering a new type of grain marketing service to their farmer members.
  3. Third party analysis – Find ways to enter third party expert analysis projects or papers.  Colin Hurd paid researchers at Iowa State University a relatively small amount in 2013 to conduct field trials on Track Till.  That research is still a valuable marketing tool.  The University of Illinois highlighted Decision Commodities contracts alongside those of Cargill and Consolidated Grain and Barge in a 2003 study.  I remember at the time getting a kick out of my little business being highlighted alongside such large, established agribusinesses.
  4. Projects – When Dave Krog and I were starting E-Markets in 1996, we conducted a phone survey of dozens of professionals in the grain industry.  We worked with Context Network, an established agribusiness consulting business, to write up the results in a report we entitled Grain Industry 2000.   We put out a press release announcing its publication and sold it as a multi-client study.  It accomplished several things for us.  First, we made some money.  Second, it was the first public exposure of E-Markets.  Third, it defined us in looking forward with insight to issues facing the markets we were most interested in.  Fourth, we learned a lot and made new, valuable contacts.
  5. Social media – Social media is the marketing lifeline of many startup and small businesses.  Tres Mentes has done a masterful job building a food brand using social media. So has Simple Life Farms.  I heard a podcast some months ago where the guest argued that any business can be viable if it can gain 1,000 fans.  Certainly social media is one way of building your fan base.
  6. Earned media – Do you have expertise that may be valuable to a journalist?  If you do, spend time getting to know journalists and writers in your market space.  Comments from you in trade or high profile publications, even if not related to your startup business, can bring tremendous credibility to you as you work to establish your business.  The most valuable contact for a journalist working on a deadline is often one that will answer phone calls or emails in a timely manner.

What are some ways your startup can gain credibility in its earliest times?  What are specific zero-budget initiatives/projects that can get your business knows to the right audience at the right time?

Article of the Day

Coffee with Startups – Steve Blank

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In an existing market directly compare your product against the incumbent and specifically describe the problems you solve and why Company x’s products do not.

~ Steve Blank

Tips for Customer Discovery

Getting customers involved in product development and innovation is at the core of customer discovery for startups.  We found the power in this model more through accident than insight at my first startup, E-Markets, back in the 1990s.  We had concepts for Internet-based electronic applications, even prototypes, but the actual products we launched were developed in concert with prospective customers.

The customer discovery process is simple, but hard work.

  • Form assertions or hypotheses around the problem that your product solves, the product, and various components of your anticipated business model
  • Test these assertions or hypotheses with prospective customers
  • Verify where you’re right, learn where you’re wrong, and adjust your assertions and hypotheses

The customer discovery process may or may not involve a prototype or minimum viable product, but the overall idea is to work to increase the richness of conversations and dialogue with prospective customers as you proceed.  If all goes well you not only refine your ideas about your startup business, you even build your early customer base.

Some tips for the customer discovery process include the following.

Don’t provide leading information – You are trying to learn from prospective customers in these early conversations, not necessarily sell them something (yet).  Therefore, you don’t need to start out pitching them as if they are investors or as if you have your product or service completed and ready for sale.  Reveal your story and that of your startup business in small bits and let the prospective customer lead the conversation in directions you may not have anticipated.

Start with the problem, not the solution – If you are at the stage of having developed a startup business concept, you no doubt have identified a solution to a problem.  You are also probably excited and energized with your solution.  Resist leading conversations with prospective customers about the solution, however, and work to lead conversations with the problem.  Your task is to understand the problem at a depth and detail beyond what anyone else does.  This understanding will help shape a successful solution more effectively than any technical expert.

Don’t stop with verifying what you know – You not only need to learn where  your wrong about some part of your idea, you also need to learn what you don’t know – you don’t know what you don’t know.  So use open-ended questions.  If answers to many of your questions are simply ‘yes’ or ‘no,’ you’re not asking questions the right way. You’re looking for information, feedback, and ideas that may surprise you in some way, the gold nuggets of insight that will help your form up a more solid startup business.

Ask for references – Don’t end any conversations with a new contact without asking for references.  Even if an interview of a potential customer doesn’t yield new insights, it can at least yield new contacts and an expansion of your network.  How do you make contact with 25 prospective customers and/or industry experts?  Start with four people you know.  If each of them gives you four additional contacts you’re up to twenty four after you contact them.  Only one more to go!

Customer discovery will be different for each business. The process of testing assertions and hypotheses and modifying detailed ideas about the business is a continuous process that takes a lot of hands-on/in-front-of-people work.  For many startup businesses it is the most critical step in discovering a sustainable business model.

What types of contacts will help you with your startup business?  How do you find them?  What are the most important issues for you to explore?  Do you have contacts that could help someone else?