Don’t delay – Start your business today
Do you dream of starting your own business but suffer from nocapitalitis? Don’t despair. We set you up with these ten steps, complete with tips, advice from the trenches, and free tools for starting your business with nothing.
What you’ll need:
- A computer
- Internet, lots of it
- Coffee, in abundance
The big idea
Here are eight ways to come up with one that sticks.
- Ask yourself, “What’s next?”. The most successful businesses are the ones ahead of the curve. Look at trends and technologies on the horizon and how you might move in those areas.
- Do something about that pet peeve . Some of the world’s most successful businesses started as a one-man operation created out of frustration. You just have to look to yourself and your life to find what frustrates you. There might just be a market in it.
- Don’t [re]invent the wheel. Sometimes there are ideas that create entirely new industries. But most of the time you don’t need to invent or reinvent one. Analyse big industry players to find their gaps then figure out if you can fill them. Sometimes the big guys create tremendous opportunity in their wake.
- Big fish, new pond. Think about your skills and whether they may be useful in a new area. Do you have technical skills or expert knowledge in one industry that can meet a need in a different one?
- Get your innovation on. When coming up with ideas, try to identify markets that haven’t had many recent innovations. Be careful though, there may be no innovation because it’s had its heyday or because it’s a non-starter.
- Be like fast food: Fast, cheap, and easy. Many companies have got their big start by offering customers an existing product at a lower price. Be smart though. Consumers are discerning and want quality.
- If in doubt, talk. You don’t have a business if you don’t have a market, and successful businesses have ideas that meet people’s needs. And the best way to find out what people’s needs are, is to hang out with them or just ask them what frustrates and interests them.
- Don’t be afraid to mix things up. If you’re the evil genius sort, take a cruise down a shopping aisle and see what happens when you combine two products across the aisle from each other. While it will probably spark a whole lot of bad ideas, you may find a brilliant gem in there.
Are you looking for some ideas? Why not have a look through 10 business ideas that are ready to launch.
With no market, there’s no business
As the saying goes, if there’s no market, there’s no business. But having a wishy-washy idea of who your market is – like a blanket description of ’women‘ – isn’t going to cut it either.
You need to know everything about your would-be customer, from where they live, the routes they drive, their income, what their interests and needs are, right down to the number of sugars they like in their coffee.
One of the best (and free) ways to get this information is through surveys. Facebook and Twitter are your friend – provided your target market actually uses these social media platforms.
If you have a database of email addresses, online surveys can be useful too, but be sure not to spam, or make them too lengthy and vague.
If social media isn’t your forté, you can try keyword searches on Google, visit competitor links to see their pricelists and offerings, read expert blogs, or go the old-fashioned route and get talking to people on the phone or face-to-face.
Get yours here:
Lets you create surveys free of charge for your own audience. For a little extra, you can also get feedback from your target audience.
- Visit: www.surveymonkey.com
- Cost: Free
Lets you create group pages that you can attract potential customers too. Take the time to generate relevant content, create polls and ask questions to spark interaction.
Penning the grand plan
Free help with business plans
To start and run a business you’re going to need a business plan. It gives a clear overview of what you’re going to do and how you’re going to make it happen.
If you’re planning on starting a business for free, it’s more important than ever to figure out where you’re going to incur costs and how long it will take you to start generating cash flow and profit. That way you can implement a cunning plan to get what you need for free.
Some work required
Google ‘free business plan template’ and in 0,18 seconds you get 37,2 million results. Some plans are better than others (and length isn’t the deciding factor either), so make sure you have the following elements thought through:
- An overview
- Executive summary
- General company description
- The opportunity
- The industry and market
- The competition
- Your strategy
- Your team and roles (even if it’s just you)
- A marketing plan
- An operational plan
- A financial plan
- And an appendix.
Get yours here:
By Entrepreneur US expert Tim Berry gets you started on your business plan.
- Visit: www.bplans.com
- Cost: Free
Download our free business plan template here to help get you going.
Free start-up capital
(Or how to get other people’s money)
Now that you’ve got your business idea, you’ve identified your market, and you’ve fleshed out a business plan that documents how much money you’re going to need, you can go about getting that money – preferably for free. Here’s how.
If you’ve had designs on running a business for some time, chances are you’ve been saving for it. While timing can be key in starting a business, keep saving until you have enough capital to keep you going for at least three months to give your business time to start generating cash-flow.
Friends, family and fools
The three f’s for funding, and two out of three love you, which means they’re willing to invest in you and less likely to scrutinise your plan or demand high returns for their investment. The bad news is that if things go pear-shaped it could make things more than a bit awkward. So when seeking money from friends and family, here are some basic rules:
- Treat them as if they were strangers. Keep business and personal separate by insisting on legal documents or promissory notes, and don’t offer less than commercial interest rates.
- Debt can be better than equity. When someone lends you money, you pay them back with interest and they can’t tell you how to run your company. But when someone buys a share, they are your legal business partner. When in doubt, rather ask for a loan.
- Tie repayments to cash flow. Try to avoid obligatory and fixed repayment schedules, instead work on a percentage of operating cash flow.
- Consider non-voting share. If family or friends insist on buying, try make it non-voting so they don’t have the right to second-guess your every decision.
Angel investors and venture capital. An angel investor is someone with loads of money and eyes for mentorship interested in helping out the next generation of entrepreneurs in return for a piece of the action (and anywhere from 10% to 50% equity in the company).
Venture capitalists are in it to make a lot of money quickly and firms have different specialties and requirements. They play hardball and want in on high growth companies, which means your idea needs to have momentum – revenue, channel partners, business development deals – and you need in place a management team, market size, and a number: How much money, and what for, right down to stationery.
Both angel investors and venture capitalists like to see an endgame that will allow them to pocket their winnings by having their shares bought out or selling off the company.
Get yours here:
Get in touch with South African angel investors through various angel investor networks.
- Angel Investor Network: www.investmentnetwork.co.za
- Angel Hub: www.angelhub.co.za
- Investors Network: www.investorsnetwork.co.za
For venture capital, check out these firms:
- South African Venture Capital Association: www.savca.co.za
- Grovest: www.grovest.co.za
- Industrial Development Corporation: www.idc.co.za
- 4Di Capital: www.4dicapital.com
Crowdfunding is a relatively new way to generate capital for launching your business idea. Instead of approaching an investor for a lump sum, crowdfunding is about persuading individuals to each give you a small donation. With enough donors, you have some serious start-up capital. Special rewards are offered in return for donations, ranging from names appearing in menu items, behind-the-scene tours, early releases, small return on investment or royalty.
The best part is that by pitching your business idea to the masses, you also create a base of customers who feel as though they have a stake in the business’s success. The downside is that without an engaging story to tell, your attempt might flop.
Get yours here:
Crowdfunding platforms have sprung up both locally and internationally, here are the most popular sites:
- Kickstarter: www.kickstarter.com
- Indiegogo: www.indiegogo.com
- Start Me: www.startme.co.za
- Start-up SA: www.start-upsa.com
- Silicon Cape Initiative: www.siliconcape.com
These are a godsend if you qualify, meaning your business needs to have a positive impact on the local economy, create jobs and meet the requirements of B-BBEEE. You also need to be prepared to jump through a lot of paperwork hoops and wait a very, very long time.
Get yours here:
The Department of Trade and Industry has dozens of grants, funding and incentive programmes available across a range of sectors.
- Visit: www.dti.gov.za
What you need to get started:
- A small network of enthusiastic believers to get the ball rolling (See family, friends and fools).
- Think up other perks in return for money (remember, donors often want bragging rights to share at the pub).
- Offer a serious business plan that explains what the money will achieve.
- Show you’ve got some of your own skin in the game.
- Include media like videos and pictures, links to active social media sites and regular updates until the project is complete.
Getting free office space
Office costs can be a major hurdle for entrepreneurs with tiny budgets, but the first question you need to ask yourself is: Do you really, really need an office, or is it for show?
There are a number of spaces that can serve as offices, and the first can be your home, lounge, bedroom, garage, local library, café, someone else’s office or even collaborative office space.
If working from personal spaces, offer to visit clients instead of them coming to you (they’ll consider it value add) or spend a little bit of money getting your working space looking professional.
If a home-based business won’t work for you, try co-working spaces by looking for solopreneurs to sub-let excess office space to. If you’re able to offer another business a barter, you could well get your office space super-cheap in exchange for services offered.
Collaborative spaces are also on the rise as more and more solopreneurs need ad hoc office space for conferences, presentations and resources. In these spaces resources and furniture are provided on a pay-per-use rental or membership basis.
Get yours here:
Is a collaborative work space in Joburg’s Maboneng Precinct that you can rent on a membership basis.
- Visit: www.theopen.co.za
- Cost: From R500 per month
Offers both virtual and literal office space on a pay-as-you-use basis.
- Visit: www.regus.co.za
- Cost: Pay-as-you-use
Is a Joburg-based shared office space for start-ups complete with desks, office resources, kitchen facilities and IT support.
- Visit: www.impacthub.net
- Cost: Monthly rental
Well, sort of
Remember, you are your best employee. To keep things small and cost-free in the beginning, see how long you can get by with just yourself.
Then it’s time to ask the same people you asked for money to get involved: Family, friends and fools. If they don’t have the specialist knowledge and skills you’re looking for, lure in talent by offering equity or profit share.
If you’re not looking for a full-time employee (expensive), consider using freelancers for ad hoc projects.
Get yours here:
Freelancers can be found all over the place. But good places to start are:
Running your office
It’s pretty much free (if you don’t count your bandwidth)
There are dozens of open source and freeware applications out there to help you run your business, some are even designed for operating from a tablet. Whether its project management, communication, creating documents, or specialist programmes, Google is your friend.
Get yours here:
Allows you to create everything you could possibly need from anywhere that has an Internet connection. From spread sheets to word documents to presentations, Google Docs has it covered for a couple of dollars a month. If you’re into completely free software, try Open Office.
Perfect for video conferencing and is free.
- Visit: See www.google.com/+/learnmore/
Can be your perfect free solution if you need to video or phone call one location at a time. If you need some extra bells and whistles though, like video conferencing, you can pick up the tab of a few dollars a month.
- Visit: www.skype.com
Here are 5 time management tools for your business.
Financial and HR
Paying people and other people stuff
Unless you have a financial or HR background this can be particularly daunting. But having a clear picture of the financial status of your business at all times is essential.
Fortunately there are various products available to help you out. Be careful though: Some can start free and then quickly become expensive.
Get yours here:
Is offered to FNB clients free of charge. It collates electronic bank statements to generate financial statements. It also allows you to prepare income statements, balance sheets, cash flow statements, and provides debtors, creditors, budgeting and Vat functionality.
- Visit: www.fnb.co.za
- Cost: Free
Online billing can be done through the likes of Snapbill that allows you to send invoices and can be set for recurring billing. It can be operated from any web-enabled device.
- Visit: www.snapbill.com
- Cost: Free (for three invoices per month)
Sage Pastel Payroll:
If you’re not able to keep things to a one-man-band, online payroll can be your answer. Sage Pastel Payroll software offers start-ups more cost-effective solutions depending on the number of employees you have on your books.
- Visit: www.pastelpayroll.co.za
- Cost: R17 per employee for My Pastel Online (aimed at start-ups)
People management for SMEs is available from PeoplePlus. It is available 24/7 and offers data back-ups, legislative updates, HR resource information, leave management, disciplinary and training management modules, a recruitment portal, a document manager and payroll module.
- Visit: www.peopleplus.co.za
- Cost: Pay-as-you-us
Build a website for free
Probably the most important thing you’ll need after a business plan
Today’s consumer is a few steps ahead of you in the sales process and it’s all thanks to the Internet. So if you don’t have a good website, you’re seriously hamstringing your business’s chance of survival.
At the end of the day, if you’re not online, you don’t exist. But here’s the great news: You don’t need to be a tech boff, spend loads of money or do anything complicated to have a hot website.
Here’s what a good website needs:
- A domain name that’s easy to spell and correlates to your business’s name.
- A host.
- A front end that’s HTML or Flash (that’s amateurish basic text or more sophisticated functionality).
- Highlight your brand. Make sure you convey what your brand stands for. Be sure to have relevant and useful content, information about the company, news, pricing, promotions, review and testimonials, everything a potential customer would want to know before they decide to purchase.
- Spell out what your product or service does and why it’s relevant to the consumer.
- Showcase your brand leaders – it helps personalise the brand.
- A space to let happy customers grow.
- Keep it clean! Go easy on flashing, spinning, garish colours, poor quality pictures, and anything that could be annoying.
- Make sure it’s easy to navigate.
- Choose smart keywords and get working on SEO so you pop up first in Google searches.
- Start a newsletter that visitors to your site can subscribe to.
- Get a blog going that’s linked to your website. People want information. Give it to them.
- Linking your site to social networks is great for Google ranking, so at the very least, get a Facebook page.
- Generate interest with news about upcoming promotions or new products and services.
- If you’re an e-tailer, streamline your payment service to be as quick and painless as possible.
- Contact information. Make it easy for potential customers to get hold of you for more information and quotes.
Get yours here:
To see if your domain name is available, spend time looking up names and variations.
To register and start building your website for free, a number of sites are at your disposal. Check the conditions though, some downsides might be paying for extra bells and whistles or subdomains.
Building a website
If you don’t have the time or skills to start your own site, spend a little cash having a professional set up and host your site for you.
- Visit: LIT Creations, www.litcreations.com
- Cost: Starter pack R2 300.
To check your website is ticking all the boxes, get it graded with a website grader.
- Visit: Free Grader, www.freegrader.com
Get the look
How to brand your business
The impression your business makes on potential customers is critical. It has to speak to your target market, convey the right kind of message and convey legitimacy and credibility. But it needn’t cost you a fortune. Here’s how to get branded:
Lets you design your logo for free with a user-friendly interface. You can choose from thousands of icons too if you don’t fancy yourself a designer.
- Visit: www.logomaker.com
Can also save you a lot of money by designing your own logo for free. It also throws in matching business cards, envelopes and flyers.
- Visit: www.logosnap.com
How to create a kick-ass logo
Since your logo is a visual representation of what your business does and stands for, don’t cut corners with this important process.
- First articulate the message you want to convey. Write a one-sentence mission statement to help you focus and stay true to while designing.
- Get inspiration by looking at logos of other businesses in your industry (including your competition).
- Focus on the message and personality you’re trying to project.
- Make it clean and functional so it works well on business cards, websites and a branded truck, for example. Remember: Scalability, ease of reproduction, memorability, and distinctiveness.
- Your business name will affect the logo design.
- Use the logo to illustrate the business’s key benefits.
- Don’t use clipart. It’s not just a matter of looking cheap, it’s too easy to copy.
- Avoid trends. Remember the dot com bubble where a random object was mixed with a colour? It dates.
- Watch your colours. Try keep to three or less, and remember colour expresses mood.
- Once you’re done, protect your logo by having it registered as a trademark.
3 Actionable Insights To Make Your Investment Pitch Perfect
The best pitches aren’t just short and to the point, they deliver on investor expectations and needs.
The best pitches aren’t just short and to the point, they deliver on investor expectations and needs.
1. Confront your product and market flaws from the start
Investors come from business and investment backgrounds. They will recognise the potential dangers in your business model. If you ignore these elements, you’re not addressing key concerns they may have, and how you will protect the business against them.
DO THIS: Look at your business from every angle. Where are your potential weaknesses, and what is your plan to overcome them?
2. Pitch to the right investors
The sectors and mandates that different investors and funds follow dictates the businesses that will interest them. Pitching your business to the wrong investors wastes their time, your time, and potentially damages your brand in the market place — waste the time of too many investors, and the word will spread.
DO THIS: Research the investors and funds you are pitching to thoroughly. This will narrow your focus, and help you develop your pitch deck. It will also help you unpack the areas of the business that you’ve discovered are important to the particular investors you’re pitching to.
3. Don’t follow fads
Investors aren’t interested in ‘flash in the pan’ business ideas. They care about products that stand a chance of long-term success. You might start off selling to a niche audience, but the goal must be to reach a wider audience as the product develops and matures.
DO THIS: Critically evaluate the staying power of your business idea. Is it a product that’s trendy but could lose traction as market fads change, or does it solve a real and enduring need?
5 Tips To Get You Ready To Launch That Business Now
Are you dreaming about becoming an entrepreneur, but not sure whether you’re ready to take the plunge? Some of the world’s top entrepreneurs weigh in on what it takes to be a success.
1. Think out the box
A general rule of thumb is that you should do what you know. Spend time in an industry before launching your business, build up a network and understand your target market and their needs. This is all sound advice, and has been the foundation of many successful start-ups.
However, there is an inherent danger that entrepreneurs should avoid at all costs: Many industries are bound by legacy ideas and systems that are the enemy of disruption and innovation. Entrepreneurs who didn’t know something couldn’t be done are often the ones who find a way to make it happen.
Approach an industry or idea with fresh eyes. Take lessons from other industries. Don’t be limited by your lack of knowledge — go out and learn, even if you’re learning on the fly.
Airbnb, Uber and Netflix are three of the most disruptive businesses in the world today, and they’ve achieved phenomenal success because they didn’t buy into the simple and engrained idea that an accommodation business should own property, a taxi service should own vehicles, or a movie rentals business needed to own DVDs.
If you really want to differentiate, you need to lead, not follow.
“Don’t be intimidated by what you don’t know. That can be your greatest strength and ensure that you do things differently from everyone else.” — Sara Blakely, Spanx founder and self-made billionaire
2. Be an open-source person
Have you been delaying launching your own business because you’re not sure if you’re ready? Some of the most successful entrepreneurs have taken the plunge and learnt along the way. Gil Oved and Ran Neu-Ner, founders of The Creative Counsel — South Africa’s biggest advertising agency with an annual turnover of R750 million — followed this simple rule in their start-up days: They always bit off more than they could chew, and then chewed like hell.
Their philosophy was that ‘no’ was never the end of a negotiation, but the beginning of one. This tenacity kept them going, even though they spent their first year barely making ends meet.
Gil and Ran are not alone in their thinking. Robin Olivier, founder of Digicape, a R240 million Apple products and services business, prepared himself for entrepreneurship by putting his hand up for anything and everything that came his way. “I’ve always been like that. I jump in with two feet and figure things out along the way.” For Robin, that’s the only way you learn.
Joshin Raghubar, founder of iKineo and the chairman of Bandwidth Barn and the Cape Innovation and Technology Initiative, began his career working for Ravi Naidoo at African Interactive. At 23, he found himself project managing the African Connection Rally, a massive partnership with the Department of Transport. Why? Because he was always ready to step in, learn something new, offer his opinion and take on any challenge.
Joshin believes that successful entrepreneurs are open-source people who are willing and able to consistently and continuously learn new things. If you’re moving forward every day, you’re already on the path to success.
3. Be significant
Start-ups are tough. They are lonely, and they take a lot from you physically, mentally and emotionally. Passion and significance are two key components that will keep you going through your darkest hours. If you can answer why you are doing something, you’ll be able to forge on, even when the challenges ahead seem almost insurmountable.
“If something is important enough, even if the odds are against you, you should still do it,” says Elon Musk, who isn’t letting go of his dream to colonise Mars during his lifetime, despite many challenging tasks ahead of him. The lesson is simple: Whatever you endeavour to accomplish, out of this world or not, do not allow yourself to be deterred by the odds. Bravely forge ahead.
Steve Jobs shared a similar outlook. Before entering into business with Steve Wozniak, he dropped out of college and took time off figuring out what he wanted to do with his life.
“Your work is going to fill a large part of your life, and the only way to be truly satisfied is to do what you believe is great work,” he said. “And the only way to do great work is to love what you do. If you haven’t found it yet, keep looking. Don’t settle. As with all matters of the heart, you’ll know when you find it.”
If you know you want to be an entrepreneur, but you aren’t sure what you should be doing or haven’t found the right business idea, think about the things that truly matter to you. What problem would you ultimately like to solve? Sometimes you need to build up to it, and start with one thing that will lead you to the next (consider how Musk built the Tesla to fund other parts of his business), but once you’re on the path to significance, nothing will hold you back.
“The key to realising a dream is to focus not on success but on significance — and then even the small steps and little victories along your path will take on greater meaning.” — Oprah Winfrey, self-made billionaire media mogul
4. Look for opportunities in every challenge
Some people see challenges, others see opportunities. The latter are known as entrepreneurs. Some of the most successful businesses have been launched in the midst of recessions. How? Because entrepreneurs aren’t daunted by a challenge. In fact, challenges are great, because they keep the competitive pool smaller.
Vinny Lingham, Shark Tank South Africa investor and serial entrepreneur, says that he would rather have been homeless than not start a company because he didn’t have any finances. He sold his house, rented back a room in his (now former) home, and launched Clicks2Customers, a business that hit the R100 million turnover mark three years later. He didn’t see the challenge; he focused on the opportunity.
You’ll have to keep a close eye on cash flow and find some really smart solutions to real-life problems, but that’s the foundation of a great start-up. It’s all about the lens you see the world through. Are you open to opportunities, or limited by challenges?
“Dear optimist, pessimist, and realist — while you guys were busy arguing about the glass of wine, I drank it! Sincerely, the opportunist!”— Lori Greiner, Shark Tank US investor
5. Failure is a critical element of success
Don’t let failure hold you back, or worse yet, keep you from trying. You already know that failure is a part of the business of entrepreneurship, but it’s easier said than done when you’re picking yourself back up after a bad break. Remember that with a shift in your perspective you can transform the stumbles and falls into opportunities to improve yourself and your business offerings. What didn’t work? What did? Keep at it — you only have to get it right once.
Oprah agrees. “At some point, you are bound to stumble, because if you’re constantly doing what we do, raising the bar; if you’re constantly pushing yourself higher, higher, the law of averages — not to mention the Myth of Icarus — predicts that you will at some point fall. And when you do I want you to know this, remember this: There is no such thing as failure. Failure is just life trying to move us in another direction.”
And what about Richard Branson? The billionaire mogul has launched more than 200 successful ventures, but he’s also had some dismal failures, including Virgin Cola and Virgin Brides. If he didn’t ‘screw it, just do it’ in the face of failure, where might he be today?
Instead, he believes in getting back up and pushing on. “The main thing is, if you have an idea for business, as I say, screw it, just do it. Give it a go. You may fall flat on your face, but you pick yourself up and keep trying until you succeed,” he says.
There’s no such thing as a successful entrepreneur who didn’t fail while they found their success. But, there are many, many entrepreneurs who haven’t found success because they’ve been too afraid to fail. Which will you be?
“Don’t worry about failure. You only have to be right once.” — Drew Houston, CEO of Dropbox
The 3 Blueprints For Starting A Business
There are three templates to starting a business. Get this first step right, and success will fall into place.
“One reason that America continues to do so well as a market,” an economist explained to the audience at a recent conference, “is that they are still leading the charge to do new things. In addition to pioneering new products, they are still pushing the boundaries of frontiers like space-travel and technology. They don’t merely copy the products made in other countries. They make and do entirely new things, and that matters.
“By contrast,” he explained, “many of the older economies, like Europe, are just ‘kicking the can down the road’. They don’t really have a vision for the future. They’re just trying to maintain what is, to survive a little longer.”
Grow or shrink
Companies, countries and entire economies are all broadly following one of these two approaches. One is the bold, growth option, while the other is only about maintaining what already exists. The trouble with maintaining, however, is that, in a dynamic system, you tend to be either growing or shrinking. A dynamic system rarely tolerates anything simply standing still. To stand still is, often, to shrink.
Once in a lifetime chance
Your company, team or organisation’s founding moment is a once-in-a-lifetime opportunity to get this one right. Are you simply going to kick the can down the road? Or do you want to build spaceships? Are you going to be a soulless ‘also played’? Or would you prefer to do something new and meaningful? Mission matters greatly.
In Exponential Organizations: Why New Organizations are Ten Times Better, Faster, and Cheaper than Yours (and what to do about it), Salim Ismail calls it a ‘Massive Transformative Purpose’. The stronger your purpose, the more you attract tribes of people, both as aspiring employees and as a supporting community of customers.
This is not to say that you are obliged to invent something brand new and original. A good deal of research is showing that pioneers in a new industry do not tend to do as well, or last as long, as the ‘settlers’ who come after them. One reason is that the pioneers have to make all the initial mistakes. The settlers get to enjoy greater leverage, by observing what has already worked or failed, then capitalising on that learning.
The idea of founding a company that thrives on meaning has more to do with how meaningful the work is, and how much of a drive to achieve goals is built into your corporation.
Elon Musk’s SpaceX is certainly not the pioneering organisation in space-travel. We have left earth’s atmosphere before, decades ago. In that sense, SpaceX is a settler, and not a pioneer. That said, it is nevertheless a strongly goal-oriented, purpose-driven organisation. You don’t have to invent something entirely new to create a mission-driven company.
The Israeli Defense Forces is highly mission-driven, because it has to be. Pixar is mission driven, because it chooses to be, and because it believes in magic.
Being mission-driven, from the top to the bottom of an organisation, changes the energy. It converts ‘mere work’ into ‘shared purpose’.
Sociologist James Baron and his group of experts led a study in the mid-90s looking at how people founded their companies, across a wide spectrum of industries, including hardware, software, medical devices, research and manufacturing.
The study asked about their original blueprints. What organisational models did they have in mind when they started?
Baron determined that there were three templates for starting a business. You might start your company based on:
- A Professional blueprint, in which you hire people with a preference for specific skills (prior to its fall from grace, Kodak hired people based on specific educational qualifications)
- A Star blueprint, in which you hire ‘superstars’ based on future potential, placing a premium on choosing or poaching the brightest hires. You look for raw potential, not current knowledge
- A Commitment blueprint, in which you believe that skills are nice, but cultural fit and buy-in to shared values is more important. You build strong bonds to the company. Employees tend to be passionate about the mission.
Baron and his experts tracked the firms through the 1990s and into the next decade. Those that used the Commitment blueprint, which prioritises a shared sense of mission and values, greatly outperformed the others. The failure rate for firms with a Commitment blueprint was zero.
Failure rates were substantial for the Star blueprint, and more than three times worse for the Professional blueprint. It seems these approaches don’t keep people going in the same way that buy-in to a mission does.
Nevertheless, the Professional blueprint, which prioritises the specific skills on people’s CVs, tended to be the most common.
There were two other rare blueprints: Autocracies and bureaucracies, focusing on detailed rules and procedures. These blueprints were the most likely to fail, and autocratic was most likely to fail out of the two. This is an important point: Rules-based organisations and dictatorships, according to this finding, are so likely to fail that investing in them is not worthwhile. But where a culture of people is part of a mission, they are most likely to succeed. Translation: Autocracy rarely ever works, and systems of intense rules and guidelines work slightly less badly.
Rules and dictatorships = likely to fail.
Mission-driven culture = 100% success rate.
Most real-world autocrats would probably agree with this finding, if they heard it. Then they would continue to run their business as autocrats, because, they’d say, “My situation is different, I happen to be right, and people should do what I say.”
When you’re an autocrat, it’s hard to know that you’re an autocrat. When you create your business to follow a mission from the word go, and you allow a degree of genuine democracy in which others can outvote you for the good of the mission, you instil the possibility of overcoming this blind spot, sometimes in spite of yourself.
Now, here’s the kicker: The Commitment culture is extremely effective in starting an organisation and ensuring its initial survival. But over time, the same study found, it is not the best performer.
The challenge is that when organisations mature, encouraging layer upon layer of like-minded people tends to discourage innovation and original thinking. Too much shared value = groupthink.
So, what’s our total moral? In a best-case scenario, we need to start with a common mission and committed people, and focus on growing. Once we’ve matured, we need to make a point of bringing in diverse thought, in order to avoid too much homogeneous thinking and yes-mannery.
In Originals: How Non-Conformists Move the World, Adam Grant shows how these findings map perfectly onto the rise and fall of Polaroid. Like-mindedness worked well to get the brand going initially, but then, ultimately, the same like-mindedness prevented them from learning, growing, changing and adapting in a volatile market.
Like the IDF, they had a strong sense of shared purpose. But unlike the IDF, they were incapable of a belief system that said ‘the only tradition is that we have no traditions’. They were not a learning and growing organisation.
The more a company develops a culture, the more it will tend to hire for that culture, and the more resistant its own people will be to new ideas or contrary views.
So what if…?
What if you decided to be an organisation on an important mission, rather than merely a group of people kicking the can down the road?
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