1. Diluted Entrepreneurship

    Steve Preda

    04/29/2016

    Most entrepreneurial companies hit a road-bump at some point when their growth slows and they can’t seem to brake through to the next level...

    They may have $5-$20 million in sales, 20-100 employees, depending on the industry and the team of the founders. Single-entrepreneur companies will hit the wall earlier, partnerships and family businesses may grow bigger before reaching that “no-man’s land” as described by Doug Tatum in his identically titled book.

    Strategies to get unstuck at that point include: hiring “professional” managers, bringing on “partners” or selling the business to someone that can develop management, markets or processes. Consultants that introduce strategies to organize and manage better may also be of help for a while, but eventually these improvements start to fizzle out.

    What exactly is going on here?

    Most founders face the growth-challenge when they can no longer maintain personal control, i.e. get the job down through order-takers. There are so many hours in the day and at some point they will need to entrust underlings to make their own decisions … and allow them to make some mistakes.

    This works in-principle, until the founder wakes up to find that the person he hired in not an entrepreneur. When he realizes that his staffer had focused on his personal agenda, furthering his career, building his power, taking credit for success and protecting himself from criticism.

    In fortunate cases, most of his agenda will overlap with that of the business, but full alignment is rarely possible.

    In the rare cases when there is a high alignment between the founder’s and his protégé’s agenda, the latter is likely to be a lot less driven and possibly a lot less skilled than his entrepreneur boss. If he was as good, he would probably be running his own business or selling his services to a Fortune-sized company.

    Most founders are aware that they cannot clone themselves, but they get blind to what “cloning” means. For example when the founder is getting burnt out (i.e. haven’t figured out how to do the job himself) managing under-performing salespeople, they hire a sales manager to fix the problem.

    Or the entrepreneur will be looking for a sales manager with experience in managing salespeople and will likely end up hiring someone who had been “made available to industry” for under-performing elsewhere.

    His mistake was trying to bring in a high performer from the outside, instead of building a superior process for the task (an entrepreneur’s job) and find people capable of executing that process under his supervision. It is like appointing a mercenary as general to run your army.

    The force that builds companies is entrepreneurship.   The challenge to the entrepreneur is to avoid the dilution of his craft as the company grows.

    To expand his business the leader must be able to attract entrepreneurs and empower them or to invent and develop processes that can be taught to his employees. In most cases it will be a mix of both.

    At one end of the spectrum are high-growth venture-backed companies that can raise capital to pay for attracting entrepreneurial staff, who then can tied to the business with bonuses and stock-options. At the other end are franchised businesses that rely on a small number of entrepreneurs or quasi-entrepreneurs, (franchise-owners), assisted by scripted processes in building and running a formulaic business.

    ******

    If you liked this post watch out for the Succession Secrets podcast coming VERY soon....
  2. What I Learnt from Running out of Gas

    Steve Preda

    05/02/2016

    I was driving down highway 64 on a sunny spring morning towards an appointment in downtown Richmond. Cruising at 70 miles per hour, the engine of the GMC dropped dead on me.  Pumping the gas pedal was no use and I realized I had to get out of the inner lane quickly before I would screech to a halt.  Dodged a couple of speedy SUVs, rolled beyond an overpass and pulled to the side just as the steering wheel locked… My remaining momentum allowed the car to reach the service lane. Phew….  
     
    Texted my wife, who was about to walk into her annual appraisal. I could not count on her now... Gee, I had not done that for 20 years. “How am out going to get out of this?” – I lamented.
     
    Luckily my client gracefully rescheduled, so I had a couple of hours until the next appointment, which turned out to be the richest sensory, emotional and learning experience of the week. Actually, I am really glad to have ran out of gas. Here are the first 8 things I learned from the experience.
     
    1. Making a blunder doesn’t have to be a catastrophe​​

    ​The rescheduling helped me to not be late or miss the appointment.  All I was about to lose were the next hour or so, but instead I made it work better than any other hours that week.  I just had to figure out what could be gained from that experience.  Read on to find out.
    2. Don’t judge yourself

    The worst thing that happens with blunders like this is that we start judging ourselves and erode our self-esteem.  I was in no mind to do that and decided instead to pull out my “coaching curiosity” to investigate.
    What happened?  I realized that I had been so immersed in thought the last couple of days writing my newsletter that I was on autopilot about the mundane mechanics of life. How fortunate I had been to be able to carve out 2 days that week to immerse myself in thought and learning. That I thought was a good thing that made me feel blessed.

    3. Discover the beauty around you 

    I switched on the red blinker, got out of the car and climbed up to the overpass by the side of the road.  Crossing over the motorway was a quiet country road that led to a gas station 10 minutes walk away.  The sun started warming my over-air conditioned body. The birds where singing around me, and a gentle breeze tingled my face.  It was nice walking in this fine spring morning.  I run outside quite a bit, but this was a different feeling. I was in no rush and on an adventure in an unknown part of town.

    4. Increase your social awareness

    I walked past small but neatly kept, one-story houses that I thought must belong to working class families.  There was not much lawn around them, but there were grilles and benches behind the houses, indicating a socially active neighborhood.  I was surprised to see Mercedes and Lexus SUVs and a BMW convertible in driveways that are not typical in middle class suburbs.  The poorer you are the more status matters - I thought.

    5. Wake up to the kindness of strangers

    The closest station was a Mobil, ran by a junkie looking "tattoo-canvass" of a dude who had no interest in helping me.  However, I got picked up by Juan, a Mexican mechanic, who gave me a lift to a Valero station.
    It turned out to be of no use, as “canister” was not in the owner’s dictionary and when I tried “container”, he tried to sell me a giant rubbish bin placed outside...
    Luckily, a 7/11 convenience store came to my rescue and as I was walking back gallon of gas in hand, a 90-ish gentleman stopped me to offer a lift, as I seemed to be in “desperate straights”.  I was amazed how folks came to my rescue when I genuinely needed help.

    6. Despair not, if you don’t succeed at first

    With no canisters at the first filling station, I pumped some petrol into a water bottle, but it was too small or I spilled too much, and the GMC wouldn’t budge. I had to try again…
    It took me 3 more pumps to find a canister and could do a proper job.  "Keep working the process" I calmed myself, like when losing a computer file, or visit a government office.  Failures are part of the life, not to be taken personally.  It is normal for things to not work immediately. Patience and persistence always wins the day...or the week… or the month - I encouraged myself.

    7. No matter how good you are if you stop refueling

    I drive a nice car, but it was useless without gas. It reminded me of the importance of regular reading and learning to keep up momentum. I must stay fueled up at all times to be able to help myself and my clients keep moving forward.
    8. ​​Come up with a great idea that you would not have otherwise
    Thinking how to make it up to her, I hit upon a joint business development idea that I shared with my client the next morning, which she ended up embracing. We would have both missed out had I not found a golden hour to think it up.

    ********

    For the rest of this month's articles, download the May issue of  Your Terms .
     
  3. 9 Things Coaching can do for Your Business

    Steve Preda

    04/18/2016

    IIn recent months we explored the history of coaching, its main characters and major schools of thought.  You may have found these articles intriguing, but wondered at the same time what coaching, with its colorful characters and social research, will do for YOUR business?  This essay attempts to answer this question. Here is the nine most important I handpicked for you.

    Raise expectations

    "The key to performance is high expectations" - quipped Sam Walton, the founder of Wal-Mart.  High expectations can be supplied by self or spouse, but you can never get enough of it to compensate for the innumerable challenges and failures of entrepreneurial life.  Being expected much of, inspires us to deliver, as we loath to disappoint those that believe in us, be they family, friend or coach.  
    I have found high expectations to be empowering by dispelling self-doubt and amplifying self-belief. Most of us have experienced how raising the bar can create excitement and up the energy of talented employees.  There are few people in the life of an entrepreneur that can credibly set high expectations.  The coach is one of them.

    Visualize success

    The fulfillment of high expectations requires the articulation of a desirable end-state, a vision.  A coach can challenge his player to come up with a more powerful and exciting vision than they would formulate on his own. A bold vision is critical, as the magnitude of the gap between the desired future and the present reality must be sizable to emotionally mobilize the client. There is no pulling power in a "modest vision".  

    The coach is well positioned to help with the vision, if he or she is curious and has experience and/or genuine interest in his client's business.  A good vision is driven by values that resonate with the leader and sometimes with the organization, although that can be shaped going forward by targeted hiring and replacements.  The vision has to be mobilizing, practical and flexible enough to endure at least in the medium term, as frequently revisions will confuse the organization.  A great coach can help "pull out" the vision.
    Uncover and leverage hidden assets.

    Jay Abraham came up with this concept, which is about making the most of what we already have, before stretching the business out into new dimensions.

    This means identifying, documenting and cross fertilizing best practice processes inside the organization.  One area may be sales, where the processes of the best salespeople can be captured and taught to the rest of the sales team, increasing performance across the board. Such best practices are hidden assets in the business waiting to be leveraged.

    Another example is internal services in which the company shows superior skill so that they could be marketed to third parties. One of my former clients has developed a superior call center handling its direct mail driven sales activities, which it then spun off into a subsidiary. This new call center company then attracted outside clients, deepened its expertise and reduced the cost of the core business by spreading overhead over a bigger revenue base.

    Improve financial planning and management

    Working inside a single business can create tunnel vision. A coach that has experience with a number of different industries and situations can bring a broader prospective. This comes handy for planning new or dramatically growing activities for the future, that cannot be achieved with linear changes and require a redesign of existing processes. The coach can help identify underlying drivers of performance and the actions that will create the required results.  This is called reverse engineering results. For the leader stuck in the "way things are done in our industry" this approach can be daunting, while done easily with a coach who knows how to ask the right questions to figure them out.

    Managing financial performance is also an area of low-hanging fruits.  By designing easily producible leading indicators the leader can manage financial performance without having to rely on accountant-generated information. Such data is often too late or too “rear-view-mirror-oriented” to be of use for managing performance in real time.

    Attract customers and partners

    Growing the top line is a pre-requisite for a healthy A-player-driven culture, as it allows talent to find opportunities for in-house advancement and financial rewards.  Revenue growth makes growing profits "easy" and allows the business to improve market share and tweak margins.

    A good coach can help draw out strategies and tactics that fuel growth and will hold the leader accountable to delivering on them consistently.  Growth pressures the company to upgrade processes from time to time, which a skilled coach will help time and engineer.

    Teach you how to coach others

    Few businesses can be grown without elevating the performance of its people. One solution is to empower employees and suppliers and develop their skills so that they can work autonomously without supervision.  The best tool to achieve that is coaching, as it facilitates players to find their own solutions.

    Having a coach model the behavior is the easiest way to pick up on coaching yourself and start getting sharper at this job.  Coaching is a great skill to acquire for home use too, to help your kids develop, but tread carefully with trying to coach your souse.

    Make your company work without you

    The ultimate objective of most business leaders is to eventually replace themselves and graduate to a more fulfilling activity or lifestyle.  For entrepreneurs, this could be launching another business or moving into philanthropic activities that feed their soul more than their wallet.  For hired hand leaders, it could be a bigger, better paying job, or to deal at the strategic level or perhaps focus on acquisitions.  The owners of family businesses will be grooming the next generation or promote associates to step up to the plate running the business.  The exceptions are deliberately lifestyle-oriented businesses that do not want (or believe they can) grow.

    Whatever is the motivation, it is always good to have people around that can do the founder's or CEO's job. This can rarely be achieved without coaching people up to carry the job of the leader.  Coaches are especially useful for newly minted leaders who are under pressure to perform at a high level from day one, or who are expected to carry out a 100-day plan and get it right, such as private equity-owned companies.

    Create a winning environment

    Since Darwin, we know that we are all creatures of our environment.  If the space around is high performing, it will pull us along and make it easy for us to perform at a high level, at least compared to the outside world.  (From the inside, the high performance environment will likely be very challenging.)

    Olympic athletes will rub shoulders with other Olympians to get the best out of themselves.  Business leaders often join CEO peer-groups, such as Vistage to be held to a higher standard by successful peers.  After all, if you keep training with Barcelona, it is hard not to become a decent soccer player.

    The role of the entrepreneur coach is to design an environment for his client that will make achievement of his business objectives effortless, or a much easier exercise than it would otherwise be. Environment may not just be people, it can be infrastructure, work tools, processes and plans.  Even a vision and values are environments and will go a long way in shaping performance.

    Keep you and your business moving forward

    Momentum is essential in business and losing it can be disruptive and dangerous, sometimes even lethal to an organization. It’s much harder to keep momentum than to restart it as momentum attracts while the lack of it repels people, opportunities and energy. Therefore keeping and even enhancing momentum is critical for any business.  

    A coach can focus on maintaining and enhancing momentum, by helping formulate, monitor and track leading indicators for his client's business.  A good coach will listen and hear between the lines for signs and areas of intervention. These can be dissected by the coach and explored through Socratic questioning to remove obstacles and excite energy to increase performance.

    In you enjoyed this article, I invite you to download the April issue of Your Terms .
     
  4. Why I Came to America?

    Steve Preda

    04/21/2016

    It is four years today that I arrived in Richmond, Virginia from Hungary and I want to share with you the story of how I ended up uprooting my family and move here for good.

    It wasn't an accident. In fact, looking back, it seems like my whole life has been a preparation to make that move, since I was 9 years old. It was then that my aunt, Agnes, invited me to visit her family in Los Angeles, for the summer. Agnes left Hungary after the 1956 uprising, and by the mid 1970's had a prospering life with a nice house and pool in the suburbs, and a portfolio of investments including a really cool skateboard park.
    My parents initially resisted the idea, since I appeared too young to make the trip on my own and the whole family could never have received an exit visa. My parents with fledgling physician careers did not have time to travel, anyway. I recall walking around my grandparents' summer house a warm summer night singing “We shall overcome”, punching the air and visualizing making the trip to America. My “prayers” were answered next year and I was blessed with the opportunity to spend the summer in California and receive the first inoculation of the unbridled freedom and opportunities of the land.


    In my teen years, I spent much time with my paternal grandfather, “Gyuszi” (pronounced: Djusie) who told me tales of the family's entrepreneurial history. I listened with awe about the quality of the confectionery that the Preda Bakery had been churning out and the family fortune it had built. Apart from several downtown high rise buildings, my great grandparents had purchased prime real estate in an 'elite cemetery' in Budapest, which apparently rivaled the price of a Rolls Royce – a source of much pride in my family...


    IMMIGRATION ATTEMPT #1


    Gyuszi's dad, Sebo (pronounced: “Shaboe”) was an orphan who arrived at age 14 to Budapest in the 1910's, with papers ready to leave by rail and ship to America. To his great misfortune, he got lost roaming the city and ended up missing the boat and starting life as an apprentice baker in the Hungarian capital. A few years later, he got certified as a master using a faked ID, that showed him several years older than his age. After WW1 he founded his own chain of bakeries and by the 1930's was a top 30 tax payer in the city of Budapest, supplying all the major hotels of the city daily with fresh bakery produce and running several shops. Sebo had made his own America, without having to sail the seas.


    IMMIGRATION ATTEMPT #2


    After the war, Sebo dug up his gold bars and gave them to Gyuszi and his brother Joseph, to rebuild the shelled-down bakery business… only for it to be nationalized in 1948. My grandmother, Nusi (pronounced: “Nushy”) was a superb tailor and wanted to emigrate and make a career in the West, but Gyuszi could not leave his parents behind, to whom he owed everything, even if most of the family fortune had been confiscated by then. They stayed, and survived twenty years of repressive communism and another twenty of the softer variety. Thankfully, my grandparents had enough stacked away, to ensure a relatively comfortable retirement.


    IMMIGRATION ATTEMPT #3


    Next in line was my dad, Istvan, who as a young internist and national athlete jumped on a Hamburg bound train with his friend Pal (40 years later the president of Hungary). Istvan and Pal took a French leave after an international fencing tournament near Munich to start a new life in West Germany. After downing a bottle of rum, the pair got emotional and decided to abort their emigration and catch up with their team in Vienna where they had stopped for the customary “import business” the Hungarian customs authorities turned a blind eye on for national athletes. (Think nothing more sinister than nylon shirts, jeans and cosmetics, here.)


    My “immigrant father” paid the price for his “disloyalty” by being left out of the national team for months to come, until he was pardoned by strong man Janos Kadar during a hunting trip.


    My grandparents were disappointed that my dad did not make it out from behind the iron curtain. Gyuszi hated the regime and told political jokes to everyone he met, unnerving the family. I believe he harbored hopes that I was going to make good with transitioning the Predas to greener pastures when I came of age. Later, when Hungary started to allow small scale private enterprise in the early 1980's, I recall urging granddad that we restart the Preda Bakery, but he said he was “20 years too old, to do that” – 64 at the time…


    Growing up with these stories and my visit to America at age 10, I pretty much decided that I would follow in Sebo's footsteps as an entrepreneur and be the generation that finally left Hungary. I was not an exceptional student, but I felt special, after my 1977 California trip, for owning what was probably the first skateboard in Hungary and having seen the original Star Wars movie three years before its premier in Budapest. I also spoke some English with an American accent, which was cool, and gained more momentum when my parents sent me to England a couple of summers in high school. During and after college, I spent a year each in Greece and the Netherlands on scholarships and later 3 more in London as a trainee accountant, all virtually self-financed, which added to my confidence.


    I was pretty much not going to return to Hungary from London, if it wasn't for the fall of the Berlin Wall and the ensuing expectation of sweeping reforms. I got a high paying banking job with a multilateral bank and moved back to Budapest, as Hungary looked destined to end its 1000-year isolation from Western Europe.


    Free enterprise was taking off, companies were being privatized, my college friends were shaking money trees and the looming EU accession heralded the arrival of a land of opportunity in Hungary. Foreigners, including many Americans, flocked to Budapest to pluck the low hanging fruits the changing economic and political landscape offered. These were heady times.


    In 2002, I was pushed and jumped from a banking career to finally start my own business. It wasn't easy, but we grew rapidly and by 2007 led the market in lower middle market investment banking. 2008 started well too and we were looking to double our revenues again so I decided to pull out all the stops... We went on a hiring and spending spree not anticipating the Lehman crisis that dried up liquidity and sank most of our projects. We narrowly survived the next 18 months through painful downsizing and month-to-month sales and cash management.


    2010 was a year of recovery and just as we were starting to make real money again in 2011, the Eurozone crisis erupted, once again drying up liquidity and killing all deals. These scary events followed the ascension of a new government that started reversing Hungary's post Berlin Wall political and economic gains. Privatization was replaced by nationalization, foreign investor tax-brakes were swapped for punitive taxes on foreign investors. The constitution was rewritten and Hungary dropped "Republic" from its name. The country began closing down to the West and opening towards the East. The writing was on the wall.


    It was time to make attempt #4 for the Preda family and start afresh in the New World. I was 44 years old, the age when granddad Gyuszi 'would have made' the Big Move himself. – “Hey, I'm not going to look back 'when I'm 64', at not having tried.”
    Sure it looked intimidating to start a new life, with no local reputation or network to speak of and with a family of six to support. It was a “worthy challenge” to be sure… One of my hired hand CEO friends and a top ten Hungarian rich, emailed me: “You are doing it for the kids, right?” – “Yes, and to take another shot for myself” – I replied.


    – Has it been easy? – Heck, no! – Has it been fun? – Absolutely!


    We have met dozens of fabulous people here, many of whom became friends, clients, peers or a combination thereof. The family has adjusted well too. The challenges of the move crowded out any midlife crises and the kids all switched into higher gear and have done well at school and on the sporting fields. My wife Dora has shown fantastic courage and provided support allowing our adventure to succeed. Our family is blessed to have been welcomed by a great country, and a gorgeous city, both of which turned out to offer much more than we ever dared imagine.

    This article was excerpted from Your Terms.  You can download it 
    here .

  5. Coached Out of a Job

    Steve Preda

    04/24/2016

    Before coming to America, I rarely came across this phenomenon, but here it seems ubiquitous. I am talking about the trend of would-be entrepreneurs starting a business on the side, and moving it into center over time. I call this process: “Working on the Present and the Future”, and it is the essence of an entrepreneur.

    So how does it work?

    A common way to entrepreneurship is to turn a job into a business. You start off by doing the work, growing yourself over time into competence, mastery, and eventually teaching others to do the same.

    When you have attracted a handful of people who can execute, you follow the identical process of “doing-growing-mastering” in the area of sales. Then you teach that too.

    The third level skill, after doing and selling, is coaching. Again, the same steps apply, and your goal is to coach your associates into autonomous players, who can build the business themselves, and eventually coach each other.

    Level four is finding and attracting the best people who can grow the company without you. This is the plateau where Google plays. They receive 2800 unsolicited resumes a day and Larry Page has been known to personally approve each of its 800 or more hires a year.

    So back to starting a business.

    The biggest challenge here is overhead. Unless you worked through college, or your parents paid your way, you will be starting your working life with student debt to service. Add to this the costs of rent or a mortgage, a car, food and a good time on the town every now-and-then. If you already have a family, your overhead budget may be double, or more.

    Unless you are a hermit, and even if you scale back on the middle class lifestyle you were brought up with, you will have a huge overhead. It will make it tough to quit your job and pursue your entrepreneurial dream.

    This should not stop you, however, if you have what it takes to be an entrepreneur. Starting a company requires an all out effort... essentially working in your every waking moment. Many young business people put in 16-hour days when they are starting out. If you are willing to do that, it will give you a full shift a day to build your own business outside of a full time job, that covers your overhead.  This is a risk-free way of starting in business.  I have several clients who had been running a business on the side for years to pacify risk-averse spouses, before they made the jump to full-time entrepreneurship.

    True, these guys and gals are good, in the top 1–5% of the workforce and won't get fired even when sailing at “half mast”. Many of them get away with sneaking out for the odd meeting during the day, or making a few phone calls. This strategy works exceptionally well in sales, where staffers enjoy a level of autonomy and freedom of movement.

    With a decent job, you can feed your family and build some capital before a full launch.  Your ultimate objective should be to build up your business to where it will carry your salary, allowing you to quit and become a full-time entrepreneur.

    Working double-time and conquering the challenges of entrepreneurship will also turn you into a more valuable employee, if you decide to stay. This burst of over-performance will even equip you to scale back your hours and still get paid well, even promoted.

    A 2014 Fortune article stated that Google values a GREAT employee 300-times higher than an AVERAGE staffer, suggesting that good workers should easily be able to pursue an entrepreneurial job on the side without getting fired. Jack Dorsey ran Twitter for many months while IPO-ing Square, and he still had time to innovate and have a personal life. Last year, Twitter's board spent 7 months to find a worthy successor for its part-time CEO.

    Notwithstanding the opportunity, it can be daunting to build the momentum for launching a business on the side. The right coach or mentor can help you get into the right mindset and organize your life to create the routine and structure that will put you on the path to greatness.

    ********************************

    Stay tuned for a "little black book" written about my insights running an investment bank in Central Europe -- a gift for my blog readers.
  6. Brainstorming for Results

    Steve Preda

    06/02/2016

    The technique of "brainstorming" was invented by Alex Faickney Osborn, the founder of the BBDO Advertising Agency, published in his book: "How to Think Up", in 1942. Brainstorming means using the brain to storm a problem and to do so "in commando fashion, with each stormer audaciously attacking the same objective".  

    Brainstorming is a method for identifying as many unusual solutions to a problem as possible. Pushing the ideas as far as possible. The technique involves defining the problem or idea and coming up with anything related to the topic, no matter how remote the suggestion.

    The essence of Osborne's technique is deferred judgement. It boosts the individual's capability to synthesize, by releasing it from the analysis mode of thinking. Osborne's held that "It is easier to tone down a wild idea than to think up a new one".   Since thinking up the perfect solution right off the bat is unlikely, Osborne recommended getting every idea out of our head and return to examine each of them afterwards. An idea that may have initially sounded irrelevant may turn out to be plausible with some modifications.

    Check out the  newsletter !

    Steve
  7. No Room to Tweak it Further

    Steve Preda

    04/27/2016

    Most of us know or have heard about how entrepreneurs operate. The “trial and error game”.  Here is how it works.

    The entrepreneur gets excited about an idea, e.g. the “Better Mousetrap”. He visualizes how that mousetrap is going to fill a gap in the rodent-elimination market. How it is going to make mouse-prevention more effective, efficient or cheaper. The entrep becomes super-excited about his discovery.

    His next step is to figure out what alternatives exist to the Better Mousetrap (BM) in the market.  How much money people would be willing to pay to get rid of mice?  What it would cost to produce the BM profitably?  How can the BM be produced cheaper, if there is not enough profit margin in it?  How to distribute the BM? What would be the logistics? How to manufacture it? What investment is required? How long to break-even?  How to fund the BM production? How to market the BM profitably? Etc.

    If the answer to any of the above questions is negative, the entrepreneur has to tweak the product, the process, the positioning or the marketing… until he maneuvered it to the “zone of feasibility”.  This is where the product can be manufactured, distributed and marketed profitably and in a sustainable and scalable fashion. (At least, for now.)

    If BM ticks all the boxes, than the entrepreneur can shift his thinking from creating a profitable product to growing his business. He can focus on increasing profits by spreading the overhead over a larger production volume.  This thinking will allow him to make the proactive tweaks to improve market share and margins. These are the expansionist tweaks.

    If the profitability is high, competitors will soon catch on, eroding it. Sometimes it’s not the competitors but the environment that changes.  A substitute product appears (remember what cell phones did to phone booths?), a disruptor emerges (think Uber vs. Yellow Cab) or market demand dries up (e.g. mutual funds pulling out of emerging markets).  The entrepreneur will keep tweaking the product, the process, the marketing, to try and maintain his position. These are the defensive tweaks.

    When the magnitude of changes in the environment reaches an inflection point, the entrepreneur will eventually run out of feasible tweaks. Tweaks will become too expensive or ineffective and the business owner may have to pull out of the market altogether.  He must know when to quit, and it is hard... very hard. — More about this at another time.

    If no more tweaks are possible, than the business has failed.  This happened with my investment banking business in 2013.  The environment has changed, investors were pulling out and I got sick of tweaking by shrinking, or maintaining the business by taking on more personal risk.  It made no sense anymore.  I saw no realistic scenario to get to my vision with the business. Ever.  It was time to cash my chips. Fortunately, someone came along who had a vision and a plan to tweak the business further. The business failed as I knew it, but it could evolve under the wings of another entrepreneur.

    So what if the business fails.  Is this a problem?

    Not if the entrepreneur quits in time.  If he preserves his capital, he can give himself another chance.  He stops tweaking an unviable business and shifts to tweaking his career instead. Or he nurtures a new idea, develops a new vision and starts a new venture from the ground up.  Starting small allows him to manage his risk until he has tweaked his new idea into a viable product or service. Then he is back in business.

    So when does the entrepreneur fail?

    Only when he runs out of money and/or loses the desire to get back in the game.

    If it is just the desire, he retires to managing properties.  If it is just the money, he makes a slow comeback.  If it is both, he ends up tapping beer or sweeping streets.

    ********

    If you like this blog, stay tuned for the first episode of the "Succession Secrets" podcast, coming very soon...
  8. How getting fired launched my career?

    Steve Preda

    06/12/2016

    Since my early teens, I had dreamed about becoming an entrepreneur. When I was twelve, I spotted an arbitrage opportunity and bought generic PEZ candy at a kiosk near my school at bulk, and sold it at a 200% mark-up to fellow pupils during recess.

    At thirteen, I bought a bunch of Yugoslav-made vinyl LPs during an Adriatic holiday and resold it to friends making a killing. In my late teens, I was planning to open a hamburger stand or a fried bread booth. At nineteen, my friends and I bought toothbrushes and toothpaste from Poland to re-sell them to Budapest drugstores and then reinvested our earnings into a small-time computer parts “importation” operation between Vienna and Budapest.

    There were failed ventures too, including being stopped at customs trying to check in a suitcase-full of roll-on deodorants en route to Vietnam… to the horror of my unsuspecting dad, then a top heart specialists in Hungary, looking on.

    On another occasion, boxes of Cuban cigars smuggled in from a vacation in Havana found no buyers in West Berlin… but it provided fodder for a great story and dry Cohiba-puffs with friends for the next quarter century.

    In 1989, when the Berlin Wall crumbled, I designed a modified version of the board game Monopoly, named “Communopoly”, where players were exposed to the confiscation of their property and made losses at every turn of the dice. The last player staying afloat won. I was going to make a killing selling it in underpasses before the Christmas holidays…  But a scholarship from the Dutch government frustrated my nascent entrepreneurial plans.

    The scholarship lead to a job in London and another two in Budapest. For the next thirteen years, I went into the wilderness of working 9 to 5, but more often 5 to 9 jobs.

    My restlessness didn't help my career much, as I kept moving from one department to the next, looking for the right opportunity for my talents. I had no patience, and soon as I learned the job (or even earlier) I moved on, failing to capitalize on my opportunities.
    Nevertheless, working in accounting gave me solid grounding in finance, and banking taught me to turn my attention from the numbers of the past to the numbers of the future. At my next stint, I learned to build financial models and draft information memoranda and financial contracts.
    When my bid to move back to London to work for the booming Russia Team of the European Bank for Reconstruction and Development fell through, I was hired by another international bank to put together project loans.

    I started to understand how to serve clients while turning a profit. ABN AMRO Bank was strong in Export Finance and I cobbled a deal together with the Hungarian Eximbank to sell city buses to the Moldova. I had other Eastern European export deals in the works, but the Russian financial crisis of 1998 intervened, closing that market.

    I moved on to an unattended niche in the bank where I could stake out my own “intrapreneurial” turf: corporate bond issues. I hassled a couple of deals together with supranational borrowers who were looking to tap the “Paprika bond” market, issuing their paper in Hungarian currency.
    The following year, our bank ran into trouble and a French turnaround specialist, Bernard Yoncourt was brought in to salvage the situation. I was already getting antsy in my position and was intrigued when he picked me to run his secretariat and the PR department. By that time I developed a theory that specialist banking jobs were doomed in peripheral countries, like Hungary, and the way to make a career was to move into general management. This seemed like the right type of move.

    The next 12 months was a full immersion course in high-level office politics, as the old guard of the bank tried to marginalize the turnaround team and prevent the painful but necessary restructuring of the bank. McKinsey and two future Ministers of Finance (Tibor Draskovics and Csaba Laszlo) were hired to help sort out the financial mess our bank got itself into.

    My first job was to befriend, wine and dine the cream of the crop of the financial journalist community before releasing news that the bank had lost over $100 million in 1999. We did an ok job and the run on the bank was averted.

    A year later, I was on a week-long paternity leave with our first daughter, when the CEO summoned me to the bank for an emergency meeting. We were going to be taken over by a local competitor, ran by strong man Tibor Rejto. Our Dutch bank, in contrast, had a relatively flat and informal culture. The announced “merger” felt like the Russian occupation, for the staff of ABN AMRO Bank.

    Mr. Yoncourt's days were numbered, but he managed to get me appointed as secretary of the mergers committee where I wrote all the minutes. I did my best to influence the process in favor of preserving the ABN AMRO culture, which did not endear me to Mr. Rejto. When one Friday he summoned me to his office and found me wearing chinos, he promptly ordered the decadent custom of “dress-down Fridays” abolished.

    Soon after, Mr. Draskovics succeeded Mr. Yoncourt as acting CEO until the merger and rescued me from the “firing squad” and allowed me to parachute to head the bank's M&A department. It was one of the last bastions of ABN AMRO culture as the unit was operationally ran by a managing director sitting in London. I soon discovered, however, that London's business model would not survive the “new broom” and started repositioning the department to focus on local management buyouts instead of high profile cross border deals that were few and far between. We had a substantial monthly payroll to support and needed a more predictable source of cash flow.

    Our team soon landed a few clients, including a mandate to mastermind the hostile takeover of a publically listed plastics manufacturer, Pannonplast, by an upstart entrepreneur, who had fancied becoming the Hungarian “King of Plastics”.

    The deal was high-profile and Mr. Rejto took a personal interest in it. When it fell through, however, he promptly fired me together with my similarly “overpaid” deputy.

    I was 35 years old and ran out of excuses for not starting my own business. The plush salary I had enjoyed was gone and my opportunity cost disappeared overnight. After a few phone calls, I realized that landing a similarly paid job was going to be a challenge which helped me handle my wife's objections to going solo.

    I finally managed to “work” myself out of a job, or at least, to get fired.

    Fortunately, I had three prospects in the pipeline and each of them agreed to hire me instead of the bank. I was in business within ten days. Rented an empty apartment from a friend for $100 a month, overlooking the Danube River in Budapest. A former colleague helped with setting me up with a desktop computer.

    I was off to the races!!!

    EPILOGUE

    45 days after my departure, the greatest ever financial scandal in Hungary broke out at the bank. A rogue stockbroker, Attila Kulcsar had built a Madoff-style pyramid scheme, under the personal protection of Mr. Rejto, who was soon forced out.

    Worse, Mr. Kulcsar allegedly breached the “Chinese wall” separating the M&A department and was illegally profiting from the impending takeover of Pannonplast.

    In the meantime, I was on my way to closing my first M&A deal and within six months had made good on my pledge to have each former client move over to my fledgling boutique firm, including the King of Plastics.

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