The Green Business Summit... next week!

I would like to recommend The Green Business Summit next week on June 5th in Falls Church, VA. This event is hosted by the Wharton Club of DC, and I will be speaking on a panel entitled "Investments in Green Businesses." The summit will examine business opportunities; finance and investment strategies; legal, tax and regulatory implications; clean tech; implementation factors and business sustainability issues; key international issues; oceans, climate and coasts; and the greening of government and procurement. For more information and to register, please go to: http://www.whartondc.com/article.html?aid=1064

Find Your Dutch Uncle

If you are considering a new venture, first find yourself a Dutch Uncle. If you want to run an existing business effectively, find yourself a Dutch Uncle. If you are considering whether or not to jump off a cliff, definitely find yourself a Dutch Uncle. So what is a Dutch Uncle?

There is an old English expression that refers to a Dutch Uncle, which is a person willing to give you frank and uncensored feedback. The dilemma of leadership is that it is lonely at the top. The dilemma of entrepreneurship is that your friends do not want to tell you that your baby is ugly. Good leaders cherish the subordinate with the courage to tell them when he is being either an ass or a fool. A wise entrepreneur will listen to her employees and customers.

Put simply, you cannot plot an accurate course without feedback. Without a Dutch Uncle, you may get lulled into believing sycophants, which typically come in the form of friends, relatives, and employees. This is not to say that your Dutch Uncle is always right. At the end of the day, you must place you bets and take your chances like in Las Vegas.

By revering leaders and entrepreneurs who ignored naysayers and the conventional wisdom to find great success, we can too easily draw the conclusion that every Dutch Uncle is a road block, which we should drive blindly around. You ultimately must decide what is right and live with the consequences of your decisions. There is no doubt in my mind, however, that more honest feedback and expression of opinion will lead you to make better decisions.

As a final note, your Dutch Uncle does not have to be from the Netherlands or even your uncle; that is just a bonus if you find it.

Assume at Your Peril!!!

If I were only allowed to give you one piece of advice as a budding entrepreneur, it would be: avoid assumptions. Obviously assumptions are part of everyday life and becoming an entrepreneur requires comfort with uncertainty. However, most failures can be traced back to one or more bad assumptions.

Believing in the marketability of a product or service that cannot find its market is the most fatal assumption. I call this the Contemplate Your Navel Test, where instead of asking potential customers their wants and needs, you simply keep your eyes down and fixed on your belly button while assuming that your buying behavior will mirror the market.

Assumptions regarding money are often fatal as well. Do you know how much money it will take to develop a product and file, prosecute, maintain and defend your patents? Do you know how quickly your customers will pay you versus the credit terms suppliers will offer you? Do you know what inventory levels you will have to maintain? What gross margin you can your market support, and for how long? What marketing budget will be necessary to drive your sales projections? Of course, you cannot answer all of these questions today with perfect accuracy, so you must do the best you can with limited resources and imperfect information.

Assumptions linked to timing are also of critical importance. How many businesses have you heard failed because they were ahead of their time or too late in a crowded market? How many more have you seen grow during an economic boom, only to crash during a recession. Making incorrect assumptions regarding how your company will fare in a dynamic and competitive marketplace or a recessionary environment is common. We all want to believe that we are simply better than our competition and that the good times will roll on and on. But we usually are not, and they do not. It is wrong to believe that successful entrepreneurs always view their glass as half full. If you want ensure that you have water to drink, then do not assume that a drought will never occur.

Bad assumptions also come up in the more mundane, day-to-day management of your business. For example, say your supplier has promised delivery of raw materials by next Tuesday. Do you assume that this will happen and, thus, schedule a production run for Wednesday? What assumptions are you making about this supplier’s past performance or their control over shipping and delivery? Similarly, if your customer has asked when you can deliver a finished product, do you assume that you will be able to assemble, pack and ship by the end of that week, or should you give yourself a little leeway for Murphy’s Law. While you may want to please your customer by promising delivery by the following Monday afternoon, if you fail to meet this promise, you may damage your reputation.

So how can you manage for uncertainty and avoid assumptions? The answer is that you minimize assumptions when possible, identify your unavoidable assumptions, and then expect the unexpected. This may seem like too easy a solution, but in practice it is very challenging. Most of us like to be optimistic and prefer action over analysis; however, a ready-fire-aim approach is no way to conduct an offensive in battle or business. Instead, here is a typical thought process I try to employ before making a decision:

1. What assumptions underlie my decision?
2. Can I test or prove the validity of these assumptions prior to acting upon my decision?
3. Looking at the remaining unavoidable assumptions, how would my decision change if these assumptions are wrong?
4. Can I modify my course midstream or should I alter my path now based on considering the probabilities that my remaining assumptions are wrong?
5. What key observations and measurable parameters pertaining to my assumptions should I track going forward to determine whether my decision is still sound?

This thought process may seem too clinical at first, but I think you will find that after reducing it to practice a few times, it will become second nature. When successful and experienced entrepreneurs speak of “instinct” and “common sense,” a lot of this boils down to a practiced thought process to identify an opportunity or threat, assess feasible solutions, avoid unnecessary assumptions, and manage for unavoidable uncertainty.

Low Tech is Bringing Sexy Back

At some point we must drop this distinction between high tech and low tech businesses. Frankly the terms have become outmoded, like the terms “space age” and “modernism,” which describe decades-old design styles. With computers and other digital technology pervading every research center, business, and household and with scientific advances accelerating in areas such as material science, medicine, and mechanical engineering, how can anyone draw the distinction between what is high tech versus low tech?

Many would still use the label of low tech to describe fields of research and business outside of the traditional investment scope of the venture capital industry. By this definition low tech is everything not directly related to innovation in information technology hardware and software, biotechnology, medical devices, or the Internet. Now nano technology and cleantech have snuck into the VC lexicon, and these fields typically involve innovation in the analog world of the physical sciences. So does this mean that low tech is now sexy to venture capitalists?

The answer is unequivocally “yes!” Digital technology is merely a tool towards an end; however, for the past 30 years we have focused on tool building. Now that high technology pervades everything, we are witnessing the commoditization of these tools (i.e., lower margins) as well as increased specialization (i.e., less market potential). Nevertheless, these tools now promote efficiency and accelerate the rate of innovation in other fields of science and business. Low tech innovation, therefore, has begun to accelerate, and the timing is perfect.

Global climate change, insatiable energy demand, food shortages, the struggle for potable water, global health epidemics, resource conservation, species preservation, aging population demands, and nuclear proliferation are challenges we must now face in order to maintain the quality of life, and even the survival of future generations. The focus of innovation has begun to shift to loftier goals than HDTV, an eCRM system, and the ability to purchase books, cars, or real estate online. To be perfectly clear, I am not denigrating these innovations. My life is better with college football in high definition, customer service reps that already know about my previous service calls, and the ability to buy almost anything online and avoid the real world shopping experience (e.g., parking, crowds and long lines). Nevertheless, high tech has now empowered us to innovate low tech, where the real action will be in this century.

We have shifted from Andrew Carnegie, Henry Ford, Thomas Edison, and Alexander Graham Bell to Robert Noyce/Gordon Moore, Bill Gates/Paul Allen, Steve Jobs/Steve Wozniak, and Sergey Brin/Larry Page as our archetypal entrepreneurs, coinciding with the shift from an analog to a digital economy. However, as digitalization and information technology empower innovation in previously low tech fields of science, both entrepreneurs and researchers should be emboldened to solve the challenges of our brave new world, whether man-made or not, and make a handsome profit in the process.