3. Small – lean – entrepreneurial
businesses are the best model
in today’s economy….not small
versions of big business…not
“mom & pop on Main St.” – but
smart, complex, lean,
entrepreneurial models are the
survivors in today’s economy….
4. Entrepreneurship vs. Business
“Bootstrapping focuses on shorter cycles of iteration that enables
business models to emerge from the process itself. It’s a slower,
more organic approach that fully embraces
experimentation…….the core of the entrepreneur experience”
5. As a methodology, it reframes failure as
an essential and productive activity.
6. “…[think of] entrepreneurship as a vital life
skill that extends far beyond the ability to
launch a venture, a life skill that prepares
individuals to deal with an ambiguous and
uncertain future….methods of thinking,
acting….and approaching problems that
enables people to manage change…creative
thinking …to be empowered to create
opportunities for oneself”
8. We train 100% of our financial professionals
to run the big business model
• “….The importance of informal learning is
due in part to the messy and complex
nature of entrepreneurship…..formalized
knowledge feels overly generalized….due to
the fact that much entrepreneurial
knowledge is tacit and experiential in
nature….it’s learning that’s inseparable
from doing.”
25. If the differentiator is superior talent and
innovation:
….using the “just in time resources” model
26. If the differentiator is unique hardware that
utilizes innovations …..
….using the “just in
time resources”
model
27. Each Biz Model has its own growth strategy and
its own funding challenges ………..
Business models for
financially sustainable
growth must have:
•less overhead
•less “idle” payroll
•less investment in
under utilized resources
•no non-operating assets
Means “just in time
resources”
28. Small – lean – entrepreneurial
businesses are the best model
in today’s economy…. smart,
complex, lean,
entrepreneurial models are the
survivors in today’s economy….
How to Gain Stature without Gaining Weight….What is the best business model for growth
We’re going to talk about growing your business at the Tampa conference
In particular how to grow past the plateau….ceiling….you’ve never been able to grow above before
We’ll talk about specific roadblocks to the next level – in particular financial roadblocks
But I wanted to use this advance opportunity to talk about “the best” business model for growth
30 years as a commercial lender where I saw hundreds….thousands of businesses
16 years as a CFO where I’ve seen hundreds more….from the inside
I’ve testified before congress six times on access to capital….I’ve first hand witnessed the success…and failure of business models
I believe – and increasingly data experts ranging from Babson University to the economists I heard speak in DC this week….
The growing consensus agrees with me!
READ SLIDE
CARTOON – this is the small business world…..look familiar
It’s a caldron of challenges…..READ SLIDE
Source: BABSON ENTREPRENEUR EXPERIENCE LAB “ELEMENTS OF THE
ENTREPRENEUR EXPERIENCE”
in partnership with the Business Innovation Factory
CHRISTINE COSTELLO • HEIDI NECK • ROBERT WILLIAMS
Entrepreneurship as a methodology reframes failure as an essential and productive activity
READ CARTOON
“Entrepreneurship” vs. “ Small Business”….policy makers and economists are making this distinction…..heard it everywhere this week in DC
So….is there a difference?……There is a difference and two examples of emerging companies explains it best:
Ex. –
Entrepreneurial - Extreme Endeavors….conceived idea for cave/bats/impact of adjacent coal mine….commercialization of product through real use iterations….from bat cave to coal mine to boiler rooms….will be a stand alone company with its own platform for future products…experiment until right ….then start on the next one
VS
“small business”- Cohera….concept for internal body glue…investor money to duplicate large company laboratory…test/commercialize…ultimately sell to someone like Johnson and Johnson who will scale it up with the corporate structure already in place….risk stays outside the corporate world until “safe enough to take in”…future iterations will likely be less experimental due to corporate structure.
READ SLIDE
We have to be entrepreneurs first to start the business……
But SMALL BUSINESS to grow it!
What causes us to not grow…..complex change
How do we manage complex change?
First we have to identify the missing component
READ THROUGH SLIDE
If small business is the best model for the future and growth…..why don’t we know that?
Because we train 100% of our MBA’s to run BIG business!
….Robert Slee – author of Private Capital said “the further I advanced in finance education, the less what I learn looks like the business my parents run in the Midwest”
So – if small business IS the best model for growth– and our process is messy and complex - let’s talk about what the best business model is for small business to grow in this economy
First…..Small businesses are like bicycles….large companies are like trains
The Big businesses model is like a train
If stalled has resources in all the railcars
Takes miles to stop a train and change direction
When stuck – they need subsidized – i.e. outside help!
The small business model is like a bicycle
If stalled – can only hold so much in the saddle bags
But – can stop on a dime and change direction in a snap
When stuck – the rider climbs off and walks the bike!
Big biz models often rely on mathematical models to approximate reality [READ SLIDE ….you son will retire in….] –
the entrepreneur experiences reality up close
We know this boy won’t retire in 8 years!
We don’t live in silos!
We experience life up close….real economic reality!
READ SLIDE
Small biz is small – not because they are too stupid to be big….WE ACTUALLY HAVE A BETTER MODEL
Big business model can scale – but the small business model is the innovator…..more nimble….more flexible
Example - Small Biz has 13 times more patents per employee than big business
****Bikes can take the trails trains can’t
The old business model said “we have to own the real estate…..we have to own the people….”…..Rockefeller…..Carnegie!
The new business model?…..”there has to be a better way!”
READ SLIDE
Let’s talk about the difference between the nimble and the immovable– which business models are financially the most viable in this new economy and which ones aren’t
Characteristics of the nimble
Smarter
Leaner
Make changes quickly,
Characteristics of the immovable
Many are stuck on being a small version of a big company
No changes
Own non-operating assets….underutilized talent that cost big dollars!.....real estate that is for show only!
The new economy requires that small biz be nimble and globally competitive
What conventional wisdom makes companies less nimble? The still think they need to “own everything” the company needs
If your immovable it’s hard to grow!
READ SLIDE
Historic examples of the immovable
A biz model/idea use to provide for at least three generations of the founder…..today things change quickly!
Hairpin manufacturer missed hairspray as it’s biggest competitor
Man who wanted to buy a pager business the day WSJ said cell phones were making pagers obsolete
Office Furniture with built in sound baffles made Sextant’s sound engineering unnecessary
Off shore suppliers make transportation costs key.. changing the rationale for location
Example - In today’s economy – companies with big hunks of real estate are the least nimble:
Why?????
Can’t move closer to their suppliers – off shore sources
Can’t move closer to their customers – internet access now more important than sidewalks
Can’t downsize – cost to change configuration – call center employees now work from home
Traditional accumulation of cost READ SLIDE
Example of higher fixed cost lower flexibility on price ….more overhead
[John’s stair step to planes…]
The traditional progression…the old model
New model – can’t have cash draining non-operating assets…toys…edifices…planes
In today’s economy – companies with the highest head count per dollar of sales are the least globally competitive
Economic development agencies like lots of jobs – this economy needs jobs – but…..
Smart small businesses know they don’t need the cost
First – Adapting to this new economy requires changes…..Because it is the new reality! Technology is making it possible….let’s talk about some specifics
What holds us back?
Two factors – expertise and multi-tasking!!!
Large corporation – starting a new office
HR for staff – Finance for funds – IT for network – Facilities for space
Entrepreneur – looks around – no one but themselves – but they still need the expertise
Cant’ afford a full time HR professional…..current staff doesn’t have the time/talent to go back to school
Without expertise….
Mistakes are costly - not enough knowledge in each area – therefore risk adverse or missed opportunity
Solution – just in time resources – outsourcing:
Outsource the CFO, CIO, HR, CRE
Expertise on demand
Work force on demand – sub-contractors, temp agencies
So what have others done? ----- Here are some real world examples:
Virtual Companies – examples:
TI – contract manufacturer for pulverize throat that is closest manufacturer to the installation
SG – no inventory for the centerless grinding
Carol Express – control of the formula but use contract manufacturer who has the latest equipment – therefore the most cost effective to produce
HCS West Virginia…brain box….energy trailer– assembly only – stock component parts assembled per his patented technology…no inventory cost until built
Let’s conclude with some Specific Potential Business Models using “just in time resources” – assume all non-core functions are already out-sourced (A/R, HR, etc.):
If the differentiator is price:
The business model should be patterned as a sales organization –
the efficiency here is procuring the product/service at the lowest production cost – outsource to contract manufacturer who invests in the latest technology
and distributing selling costs across the greatest sales volume achievable – outsource to others who have established sales and distribution networks
3rd party who’s core IS manufacturing
3rd party who’s care IS distribution
This model is all about getting the lowest price
If the differentiator is superior talent and innovation: - core model
The business model should be patterned after a business with emphasis on highly trained professionals who are paid only when they work- whenever possible – incented to bring their innovative products to you where they can be sufficiently funded for future financial gain
This business model would suggest that the accompanying hardware needed for a system be produced with hardware already in the market – produced by others and either purchased under open contracts or proprietary agreements
Workers on demand – sub-contractors, part-time
3rd parties for the hardware
This model is all about the idea!
If the differentiator is unique hardware that utilizes innovations not already in the market
Then the business model should look like a manufacturing operation – either with the new, innovative product assembled in-house or outsourced to a secure supplier who can produce it more cost effectively.
Price pressure is less if the innovative product is not available elsewhere – this model should, therefore, provide sufficient profit margin to provide not only target profit but funding for continued R&D to assure the next generation of innovative product.
All non-core manufacturing functions should be outsourced
This model is about the hardware!
In summary….READ SLIDE
Keep these factors in mind when we meet in Tampa to talk about taking your company to a level never before reached
You may have to consider the new small business model…..out sourcing for the expertise you need
Do you know what your core competencies are?