Monday, April 12, 2010

What’s the Secret Sauce in an Out Sourced World?

Are you a linchpin or a munchkin? We have an answer…..and its management.

David Rose’s keynote at NY Entrepreneur's Week put the question of what is valuable in a "virtual business world?" Once upon a time, Ford Motor was a vertically integrated company with 100,000 employees in the Rouge River plant making everything it needed down to the actual paper in their car manuals. Same with Fleischmann’s yeast in Peekskill, NY. Nowadays, only a fool would operate that way when you can outsource everything, minimize your overhead and start a business on a dime.

Great, but then who holds value here? The Entrepreneur, of course – you can’t outsource Entrepreneurs, said Rose. You could feel the room swelling at the thought of being the economy’s new linchpin (as defined say, by guru Seth Godin). But then they heard that only about 1% of start-ups ever get funded and, in the virtual, cloud-y, outsourced age, they don’t get that much by way of valuations, thereby making them feel more like economic munchkins. 

Despite that, the investors all say the bet is not on the idea, it is really on you, the entrepreneur and your ability to execute. You are the real talent.

Its been my experience that anytime someone calls you a genius - or linchpin, for that matter - they are definitely not paying you, or they are paying you more compliments than cash. You may be a genius Mr. or Ms. Entrepreneur but not a rich one and not with a lot of equity to hold on to.

Still, the entrepreneurs hang on to every word hoping to hear where that check is coming from. And for how much! That is obviously the purpose of Entrepreneurs Week. But should it be, when in age of 8.4 million unemployed where the cheapest resource may be talent and not Angel VC dollars?

In the outsourced world, why do you even need all this investor money when you can get most of the development on your own dime with a credit card or two and some friends and family money? One answer is that many Start-Ups think of Investors as a kind of jackpot winning. The other is that they think investment translates into sales.

It does neither.

Even Rose complains that only 1 in 10 of his investments pan out.

The thing that matters, the secret behind the sauce and the thing no-one was talking about is the management. The entrepreneur may be like Dave Brubeck, but Dave (and I have seen him play) needs at least 3 really professional musicians to make his sound come alive. That’s management. He may be CEO of his jazz band but those players are not lackeys, they are key ingredients to his extraordinary success.

Yet management, better management never came up in the conversation. It was missed in a few other panels except fleetingly in the bootstrapping one which Scott Shuster managed so well…….

This may not be oversight so much as a belief that real start-ups can’t afford good management. How wrong are they! The country is full of great executive talent thrown out of the marketplace at the peak of their experience. They are available and yet no one even hinted at the possibility! Fortunately, as savvy souls in our own right, we at the iBreakfast can help!

So here’s a modest proposal, check out Job Generation, our new program that lets Entrepreneurs interview really savvy execs to find out how they would run their company for them. Get free advice and a wealth of powerful contacts. You may hire them, a VC might pay you to hire them or they may come on board with their own money. One of these execs we know raised $900,000 for a Social Media start-up by going to his former Wall Street colleagues. Try doing that at an Angel group!

Most importantly, it is management – a superior team of high-functioning execs that sell things which, in the old days, is how people used to make money. They can also raise your valuation dramatically, not just in dollar figures but in the termsheets themselves. Inexperienced start-ups get one kind of termsheet (lousy) savvy execs get the better one.

The real opportunity is like no other – thousands of savvy execs are waiting around to meet you. For now, and for now only. When the economy picks up you can pretty much forget about them, they won’t be taking your call. If they do, you won’t be able to afford them. Today they are like your server, a part of the cloud…..

So do yourself a favor, get those savvy execs on your side and then talk to the VCs. Not the other way around. The execs can make you the genius you really are because they benefit by increasing your value, the investors only care about improving their odds and downplaying your value. Sorry, but it's true.

So while everyone was hyping the cloud and open source and the low cost wisdom of the crowd, they forgot to tell you about the real talent that's available: the once-in-a-lifetime firesale of Harvard, Wharton, Columbia, Fordham, Kellog and you-name-it, MBA’s who like to share with you, a minute or two of their time. 

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Additional notes:  One audience member actually complained, in a long-winded way, that investors never give him enough time to hear his story.........
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