Starting 2112

We started 2112 coming up on about eight years ago. I spent most of my career as a journalist, and I just got tired of sitting on the sidelines seeing people make bad decisions and not getting involved to help them. So we started 2112 as a research, strategy consulting, and advisory company. We work with technology companies ranging from Fortune 10 to startups. It’s somewhat hard to conceive that a Fortune 10 company will have some of the same issues as a startup or vice versa, but they really do come around. There are some blocking and tackling issues that often go unaddressed. And there’s a few reasons for it and that’s what 2112 is for.

Never Make a Decision Based on Your Paycheck

When I started 2112, I reached out to people I knew and told them what I was thinking about and a gentleman who is still an advisor to me and somewhat of a mentor, gave me a great piece of advice. He built a $7 million business off of a $25,000 investment, and he said, “Never make a decision based on your paycheck.” And if you look at a startup—and I’ve talked with literally thousands of small businesses that are either very old but never achieving more than small business startups to startups—a lot of the owner-operators will talk about how much money they need to make. They need to cover their mortgage, their car payment, they have to save for retirement, their kids’ education—all the wrong factors to be looking at.

And if you go to a Fortune 500, you hear some of the same reasoning, but it’s in a different context: I need to ship so many units; I need to retire this quarter’s number; I need to grow the business X. What we find is businesses that have a focus on what they are trying to accomplish—and not necessarily in the vein of sales as much as what mission they are trying to succeed at—typically do better than those that are solely focused on product sales. Now that’s not to say that product sales aren’t important, but as Peter Bartlett famously said, “acquisitions” are the creation and retention of a customer. That is truly the goal, and you’re never going to do that if you’re always sitting there worrying about how much money is going in your pocket.

Accept Risks

If you don’t have the stomach for risk, then you’re probably not going to be successful. And if you don’t have the stomach for failure, then you’re not going to be successful. The person doing the startup or the owner-operator really has to be comfortable that this could fail. But the fact that it could fail should not preclude you from trying. And how do you do that? There is no bulletproof formula for success. None of this is easy. It takes work. And so part of it is just being comfortable with that risk.

Now the real question is not how you get over that; it’s how do you mitigate that. How do you decrease the chances of failure? You’re never going to eliminate it. There are a lot of things within our control, but there are a lot of things outside of our control. We have to get comfortable with it and we have to mitigate it. And you do that through planning. And if you can create a clear direction on how you’re going to execute, what you’re going to do, who you’re going to target, and how you make this as frictionless as possible—not just externally to the customer but internally as well—then you have a greater probability of success than you do of failure.

Learn from Failure

Even in failure you have lessons that can help drive you forward. Think about it like this—and as I said I deal mostly with tech companies—if you want to have fun at a cocktail party, because who doesn’t—ask the question to a bunch of geeks, “What was Bill Gates’s first company?” They are going to say Microsoft. No. He and Paul Allen had a company in Albuquerque, New Mexico, that failed miserably, but they learned form it. Henry Ford had something like a dozen or so companies that failed before Ford Motors took off. So failure is actually a badge of honor.

It’s about learning from those failures and how you adjust. What I can tell you personally, being an entrepreneur myself, is that we have failure. We have multiple failures a year. Just last summer, we had a big project with a big company that people would easily recognize, and it was a spectacular failure. And we celebrated it. And it’s because we learned a lot. We were able to make investments and make adjustments and apply those lessons forward. And that’s the thing that I think startups have to recognize.

The other thing startups have to recognize is this: I’m sure you have a really good idea. I’m sure that the idea you started with was great and it was on target from what you thought about. But trust me: in five years you will not be doing that anymore. The nature of startups is that you have an idea, you apply it to the market, and the market will then react to you. Your customers will tell you where to go. Now they’re not going to say, “Hey, turn the dials up to eleven.” What they’re going to say is, “Well it would be nice if . . .” And you collect that information. Another thing that startups often fail to recognize is that customers are an asset as much as they are a revenue source.

Have a Vision

The first question every time, and you know it’s a big, scary question, is: “How are you going to change the world?” And if you cannot answer that question, then you really have to rethink what you’re doing. There are some instances where that doesn’t work; if you’re opening a gas station, then it’s not really relevant. You’re changing the world by refueling people’s cars, but you can define the world in any way you want to. The world can be your neighborhood, your city, your state, your county, but the point is that you have to have a vision for what you’re trying to accomplish. What is it that you’re solving for, and how is it going to have an impact on the world that you’re addressing? If you can’t do that, then I can’t plan anything for you.

We have got to start recognizing that the customer doesn’t want to buy a product; the customer wants to buy an experience, something that gives them a better outcome. Something interesting I cite often is that for years, NASCAR was the hottest sport in the United States. It had the fastest growing audience, great draw, rapid expansion, and then it stopped. So NASCAR went off, and they did a study, and what they found was that for younger people, it wasn’t that they didn’t like the sport—they didn’t even get that far. Younger people didn’t like cars. They wanted the entertainment. They want the Bluetooth connections. They want to have the controls in certain places. They wanted the experience that came with the car. They just didn’t want the car. And so we have to put it into perspective. It’s not the machines that we are connecting to; we’re connecting to what the machines give back to us. And if we can solve for that, then we’ll have really successful businesses.

Market Yourself

It seems somewhat counterintuitive, but you have to market yourself. This is the thing that a lot of technology companies fail at, particularly engineering-focused companies. We deal mostly with the vendor side; we help them understand what the channel opportunities are and how to maximize the channel returns. Things that we see classically is that the supplier side of the equation that is engineering focused tends not to be as successful as it could be. And it’s because they overlook the value of the market.

Now if you delve into this in the context of a small business, they don’t have a whole lot of resources. They typically have one or no salespeople. They don’t typically have a marketing person or marketing department. They typically don’t budget for marketing, but they have to market. What they end up doing is looking at their vendor partners and saying, “Well you have marketing, so why don’t you market for us?” They may give you marketing kits and sales resources in a box to give your customers. That doesn’t help you; it helps them, because it gets their brand out. But the mistake that most companies make is that they don’t market up to their suppliers. Everyone needs to cultivate those relationships. If the source of all this—if the source of sales and the source of funding and the source of marketing—is coming from the supplier, then you need to make sure that they understand what makes you different and that you are doing something special that they should be paying attention to. If you are able to do that, then they’re going to flow more resources in your direction.
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Seven Touches

So you’ve got to get up in front of them and let them know what you can do. There’s not one task you have to do, but whatever you do, it has to be persistent and consistent. There has to be a systemic program of repeated contacts, repeated communications. Don’t fall under the impression that they absorbed something that you only told them once. I have former writers and editors who work for me and will be producing content for our clients and they’ll say, “Oh, we already wrote about that six months ago.” I tell them to write it again because they didn’t get it and nor did the people you were writing it for get it

In politics they call it the seven touches; you have to hit a person seven times with a message before they absorb it. It’s the same thing in marketing; you have to hit people with your message over and over. Why do they keep playing the same commercials over and over again? Because they’re trying to make sure that we get it. When I only see a commercial once, so I kind of get it, a second time I hear music, and a third time I’m now humming it on my way to work.

For a case study, look at the one of the most successful marketing programs ever: GEICO. The agency they use down in Richmond, Virginia, comes up with all these crazy things—the Caveman Guide and other little offbeat things that come out like the raccoons going through the trash. That sticks with you, and you have to do the same thing. There are times when I want to strangle people who name their companies after themselves, you know like Mitch Smith Computers. Mitch, I’m sure you’re a hell of a guy, but how about applying something that is going to survive Mitch, because Mitch isn’t going be there all the time and, again, people don’t always get to speak to Mitch. Even, if they do get to speak to Mitch all the time, that means that there’s probably a problem.

It’s Okay to Make Mistakes

I’m a huge proponent of making mistakes and not beating yourself up over it. You’re going to make mistakes. There’s no avoiding it, so don’t lose sleep over it. Mistakes will happen. You pay a price and you move on. The mistakes that you don’t learn from are the ones that are the worst. Not planning is one mistake. Too many companies out there don’t plan. And planning is organizational, so they don’t engage in assigning roles and responsibilities. There’s a general lack of accountability. For example, we may say Bob got this job, but we don’t actually measure Bob’s performance or actually hold Bob accountable to get things done. People have this notion that goals are these things that we etch in stone.

Goals Change

Goals are flexible; you can change goals. I remember there was a company down in Georgia, Choice Point. They did a lot of credit servicing and I was interviewing them and they had just cracked a billion dollars in sales. I told them, “Wow, this must have been great. Was it your goal, did you guys celebrate?”

And, surprise, they said, “Yeah, well, it was just sort of like any other day when we realized it had happened and it wasn’t really our goal as much as that was the direction we were going in. And the important part was which direction we were going in more so than the goal.”

Goals are there to measure progress. In fact, maybe we should even stop calling them “goals” and start calling them “way points along the way.”

Businesses Must Adapt

Other things that we notice all the time is a failure to adjust or a failure to adapt. Massachusetts implemented a tax on Uber and Lyft to subsidize legacy taxi companies. It’s a government initiative to quell one of their lobbies. But the reality is, it’s indicative of an industry that failed to adapt and is being rapidly disrupted and doesn’t know how to adjust. Anybody in business, whether you have a large company or a small startup, you’re going from the moment you wake up until the sun goes down and then a little bit more, and you don’t have time to have that situational awareness, to look forward. So understand that you’re going to be changing over time; it’s another thing you have to adapt to.

Scaling Up

The first question is, do you have something that can be done by others? Can you can you delegate or can you relegate a process that can be replicated somewhere else? Is there enough margin in the product that you can then surrender some in favor of volume? So the economics have to be there. The skill sets have to be there. And your ambition has to be there. Say you make widgets and sell them directly, and now you want to start a channel to increase your coverage. What is your adjustable market? Can you go direct or do you need partners? Is there an add-on value that comes with it that will make it more palatable to the customer? And can you do that, or do you want channel partners to do things that you don’t want to do, like service, support, or implementation solutions?

So there’s an entire thing you can do that can help you to scale. The point of the channel is always going to be to extend your reach, uncover new revenue, and contain costs, because if you want to grow and you want to expand your adjustable market, then you have two choices: you either start hiring or you start partnering. You know, failure is a huge part of it, particularly when you’re dealing with an intangible product. I don’t make anything; I don’t have a box I can give you. I don’t even have software I can give you. All I can give you is my words and my information.

Have a Plan B

That is a scary part, to go up and sell, because there is typically a shelf life that comes along with that. And if I fail, where would I go? So that was a huge hump to get over and the truth was that in the beginning there were a couple of plan Bs. And one of them was, let’s build up a body of work and go work inside a firm or we’ll go work inside a vendor; perhaps I will parlay this into something else, and if it fails fast I can always still get a job somewhere.

The longer time goes on, the less I worry about that. And I think that that’s one of the biggest hurdles that you have to get over. I forget to pay myself sometimes. Now I don’t worry about it, because money comes, money goes. It’s about the job; it’s about what we do. Until somebody comes along and offers me something comparable to that, then this isn’t going your way. You have to just sometimes take the chance.