Startup-CEO.com (Eli Portnoy)

A plethora of trends have come together to create the perfect competitive storm. It is just too damn easy and cheap to copy existing business models. No technology company is safe from competitors cloning their business and undercutting on price. Worse, big pocketed competitors can play the waiting game and see what works and what doesn’t, then throw together the technology and add layers of service, cut the price, and wait until you die. Scary? You bet it is…

As an entrepreneur this has kept me up at night. Entrepreneurs take all the risk, build a business that works and then wake up to 15 copycats. 

In the past a company could rely on the cost of technology as a barrier to entry. It took so much money to create a business that a huge percentage of potential copycats where weeded out to begin with.

The second barrier a company could count on was the technology itself. If the technology was good, one could feel safe knowing that it would take someone months if not years to clone it. That is no longer the case as the tools to build technology are so good that most websites can be redone in a matter of months, if not less. 

Branding used to be another great competitive advantage. People would use your business, love it, and never even think of switching. Those glorious days are gone as well. Today we consumers have become a fickle kind. There is so much access to information, that we are always hearing about the new and the better, and we have no problem switching.

Finally, companies used to be able to lock users in with a high cost of switching, extensions, compatibility, and closed standards (think Microsoft Office). The problem is consumers won’t even hear of it today. We live in a world of open standards and people don’t even try closed systems anymore (with the exception of ITunes and the Ipod). 

The good news is that all of these reduced barriers also mean the risk of starting a business has diminished substantially, and if you can figure out a way to fight off competitors, then the potential is huge.

Tomorrow I will post my thoughts on how to build a sustainable competitive advantage.

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As a CEO one of your primary job functions is to look into the unknown and predict the future. That is obviously an impossible task, but with some careful analysis and thought you can attempt to set a direction for your company that will benefit from emerging trends.

These are some interesting trends I see developing that will affect business in the coming few years.

Positive Trends:

1. Cost of starting a business plummet

The drastic fall in communication costs allows even one person start-ups to have access to a worldwide talent pool at rock bottom prices. In addition, technological advancements are driving down the cost of establishing web or technology based companies. Finally, technology is driving all sorts of efficiencies and allowing for greater productivity across the board, allowing smaller companies to accomplish more.

This is both good and bad, on the one hand it means that fast thinking companies can continue to expand, add features, even entire business lines in the blink of an eye, and try for homeruns without being killed if they fail one or two times.

Alternatively, it means you can never stop watching your back because anyone out there can start a business and put pricing pressure on you.

2. International Consumption Soars

The international middle class is soaring and there is unprecedented global wealth.

Regardless of the US economies, the international economy will continue to soar. It will only get better as the international wage equilibrium begins to balance and international wages rise to meet US payment scales somewhere in the middle.

This provides fantastic opportunities for global minded entrepreneurs who are able to tap into this new golden age of consumer spending.

3. The emergence of the Hispanic demographic

This is clearly an undisputed trend. Look at your neighborhood magazine rack, and if you live in one of the largest 50 cities in the US, you will see a plethora of Spanish based media. Still don’t believe me? Turn on the TV. Still not 100% sure you agree, then look at the facts, because the Hispanic demographic is growing at four times the national average. It is estimated that within 34 years Hispanics will constitute 25% of the entire US population. They will account for 700 billion dollars in spending power as little as four years.

Hispanics will form a very important part of the US economy and understanding this early on is critical.

Negative Trends:

1. The housing slowdown will halt consumer spending to a crawl and drive the economy into a recession.

This is incredibly worrisome, because a bad economy is bad for all business – plain and simple.

2. Iran and N. Korea build a nuclear arsenal

I don’t see how we stop this. The US is spread too think to deter anyone, and any offensive campaign against either of these two countries will result in a world war.

From a business perspective, this means continued international political instability, and probably allows for oil prices to stay at a high level for a long time to come.

3. Poor get poorer

This is a two prong problem. The first issue is that as communication costs collapse the wage discrepancy across countries is becoming less justifiable. The reasons for paying four or five times more money to employees simply because they live in the US are becoming less and less compelling. The next few years will see a resetting to equilibrium of global wages. US wages will fall, international wages will rise.

This leads to the second issue, which is that we absolutely need undocumented workers in the US. We can not compete against China, India, Mexico, Brazil and just about every other country if we pay dishwasher wages of $14 an hour when a PHD programmer in India makes $8 an hour

At the same time, a guest workers program is too controversial and far reaching to actually go through. What this means is that nothing will change and the government turns a blind eye towards the undocumented worker.

The problem here is that there already are too many low-wage employees for the jobs we have available. This is a very recent phenomenon, but in the past 3 years we have inverted the ratio from one where work was plentiful, but workers were hard to find, to one where there are just too many people fighting for the same jobs. If people continue to come into this country illegally and we don’t close our borders to illegal immigration, we will have seriously suppressed wages at the lower end of the spectrum, which will trickle all the way through to the middle class.

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Sometimes the most difficult decisions are really quiet simple when analyzed from the right perspective. It is in that regard that I think stories and examples are useful, as they can frame a situation in a comical, but revealing manner.

At one point during a pre-negotiation process for the sale of a company that one of my mentors was involved in (lets call him SK), the acquiring company was pushing hard for an all access pass to the financials of the company. As it was very early in the game and this company was a potential competitor if the deal did not go through, it was clearly a problematic situation for SK.

SK thought hard and long about the dilemma before him. On the one hand he was certain that the acquirer was a perfect match and he knew that if they saw his financials the deal would fall into place, in addition, he did not want to do anything or deny them anything that would upset them and perhaps derail the entire deal. On the other hand, he knew that allowing anyone to see your financials that early in the game is a suicide play, and he was in no mood to give the upper hand to the other side of the table.

At the next meeting between the two sides he used a story to illustrate and make clear that he could not show his financials this early on.

The story he told went as follows: A few decades ago when arranged marriages where more common a young woman was of age to get married. Her father looked high and wide for the perfect match until he found what seemed like the fantastic boy. He was smart, kind, eloquent, good looking, and wealthy. At once the father was convinced that this was the boy for his daughter. The father of the girl approached the young man and offered his daughters hand in marriage. The boy was delighted and agreed pending one condition; he wanted to see the girl naked first to make sure he knew exactly what he was getting, and to make sure there were no surprises later. The father was shocked and certainly disagreed. However the boy insisted and to reassure the father of his good intentions offered that the father be in the room and even promised to keep a distance of 20 feet from his potential future wife.

The father consented, but only because he was sure that this boy was sincere and was the perfect match for the daughter. The day came and the father and daughter met in a room with the young man. The potential groom stood 20 feet away from the girl and her father. The girl undressed and the boy, always a gentleman, took a quick look and turned away.

The father came over to the boy and asked him if now that he had seen his daughter fully he was satisfied with the girl and was willing to marry her, to which the boy replied “Thank you, but I will have to pass, as I do not really like her nose.”

The company understood that SK could not put himself in a position of such weakness. They saw where he was coming from and realized it was an unfair demand. They continued the negotiations and things worked out very nicely.

Next time you find yourself in a tough bind, try to simplify the problem to its root and usually it will be clear what you can and should do.

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I have recently been hearing a lot of the 80 / 20 rule; especially the variation of it that suggests that 20% of your time is spent adding 80% of the value. This has always troubled me because of the waste that the rule implies regarding the 80% of time that is only adding 20% value.

In the context of entrepreneurialism it makes no sense. I would like to coin the 100 / 100 rule (or the entrepreneurial rule of time management), which states that when starting a new business 100% of your time must always be adding at least 100% value. There is so much to do when setting up a new venture, and resources are so tight, that the luxury of dedicating 80% of time for only 20% added value is ridiculous.

I would like to take this idea further and propose that achieving value with each and every second of the day is the essence of “entrepreneurialism”, which is what so many companies and individuals aspire to reach. When companies talk about going back to start-up stage, or when they talk about harnessing the “entrepreneurial spirit”, all they are really saying is that they are too bogged down with nonsense work to get anything done.

I think the 100 / 100 rule is what separates a successful start-up and one that is not. A good C.E.O. must ensure that everyone working on a project dedicates every second that is spent in the office geared towards adding the absolute most value. There is no other way around this. Two companies might be working on the same idea, but one always ends up blowing the other one out of the water. Why? Because one of the C.E.O.s was able to instill in his company the virtue that in order to attain success they must be productive all the time.

There is absolutely no place in a start-up for bureaucracy or any other type of time wasting.

Having worked at a top global consulting firm I was able to see a clear contrast in the working style of a behemoth company and an emerging start-up. The biggest difference wasn’t the drive, as people can be ambitious in all walks of life, rather it was the way people spent their time, and the different things that took up the majority of the day. In the consulting firm, 25% of time was spent filling in time-sheets, evaluations, and expense reports, while another 25% was spent answering unrelated company emails, organizing events, and kissing ass, yet another 30% of the time was spent going over documents and incorporating changes from 20 different sources. Only 10% was spent thinking, acting and doing. This is a stark contrast from the entrepreneurial setting, where the priority is putting together a fantastic product, and everything else takes a backseat.

When you start your next venture, or you can apply this to whatever you are doing now, remember that the special start-up juice that allows understaffed and under resourced companies to upstage their much bigger rivals comes down to allocation of time and the 100 / 100 rule. Make every minute count.

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During the past few weeks I found myself thinking about the first few months running a startup. I keep contemplating what could have been done differently. Based on those thoughts I thought I would put together a list of some ideas that you might find helpful when starting a new business.

1. Every dollar spent is another dollar you have to earn to turn profitable.

There is only one reason for a business and that is to make money. Sure there are other reasons to start a business, or to be a part of a business, but the primary reason for ever business has to be making money. You need to understand this rule from the very day you even think about a business, because every decision, step, thought has to be geared towards making money. Profitability is goal number one, two and three.

That being said, every dollar you spend is another dollar you will need to earn to reach profitability. It doesn’t matter what you are spending it on, marketing, infrastructure, furniture, telephone systems, every dollar will be a dollar lost unless you can earn a dollar to compensate. So before you spend a dollar, make sure that it will help you earn at least a dollar. This rule will make the thought process of spending money a little bit more structured.

1. Long term strategies are great, but only after you have a short term strategy.

Every business has a long term strategy. It can be anything from dominating the online retail business to supporting the basic economic needs of a family. The detail of long term strategies can also vary from basic (see the two outlined above) to detailed and complex.

What some businesses don’t think about, especially when starting up, is the need for a super detailed short term strategy. You need to be very careful in planning out exactly how you to execute on your long term vision.

When we first started we knew we wanted to be the one stop source for non-professional workers to find employment, but we also knew that we wanted to focus on the Hispanic demographic first, and we also knew we would reach them through a newspaper we would set up, and we also considered how we would print the newspaper, and we also knew how we would design the newspaper, and we also knew how we would support the newspaper, and we even knew the font size we wanted to use…(maybe not the font size, but we did know just about everything else).

1. Never let pride get in the way of change.

Our short term plan didn’t make any sense and we realized it about 8 weeks into the business. At that point we already had invested a lot of money, time and effort and my ego was telling me that my “customers” didn’t understand, and that we needed more time, and that we needed to market with a bit more bang. What a dangerous path it is to follow the ego.

Instead we thought deep and hard about what the next steps should be. We wanted to reach our long term strategy, but we realized our short term thinking had to change. We didn’t hold on to our initial idea, and instead we went full force ahead taking everything we had learned and developing a new strategy that proved to be exceptional.

1. Always consider and internalize advice, but follow only your own path.

As you start a business, you will have many people offering advice. A word of experience, 60% will be obvious to you (but is still worth listening because it could give you a different perspective), 35% will be good and worth considering, and 5% will be fantastic advice that you will clearly see needs to be implemented.

The rule focuses on the 35% that is worth considering. The problem is that people believe very strongly in their own advice and so you might get pressure to follow it. Never follow advice because of pressure. Definitely consider it and think about it long and hard, but if you do follow anyone’s advice, make sure it is because you 100% believe it is the way to go.

1. Never stop thinking, but not at the cost of doing (and never do without thinking).

This rule is my favorite because it doesn’t say much, but it says everything. The concept is that you should always be working because an idea alone is nothing. Put your ideas into motion. Make some noise. Build a business. Have a blast. But always continue to think about every move you make and also about the strategy and direction of your company.

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I am in Alaska for my first few days of vacation in the past 12 months. I don’t know if I can afford to take the time off, but my wife didn’t really give me a choice. I have my cell phone, EVDO wireless connection, and Dell laptop, so I should probably manage okay.

That being said, Alaska is incredibly beautiful. It is a cross between Switzerland and New Zealand. Truly amazing. I don’t know how much blogging time I will get over the next three days, so I apologize for my absence.

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A general rule of thumb when starting a business is that whatever budget you come up with, you need to multiply that number by three to come up with the actual amount of money you will need to move forward.

Three times sounds like a lot, and the actual number will probably only be twice as high, but the most dangerous situation is a start-up with no money. Three times gives you the flexibility to absorb unforeseen costs and still get you to the next milestone.

During our first few months of operation we were able to keep costs way down. Not only did we have enough to cover expenses, but we had a substantial cushion to fall back on. We couldn’t believe it, and we began to think that maybe we would be able to get to profitability on seed money alone. HOW NAIVE WE WERE.

A series of blowing events happened just a few weeks later, our cushion disappeared, revenues that were just inches from our hands slipped through, and before you know it, we were stuck without money.

First of all, let me emphasize that these were the hardest days of my life as a C.E.O. It is also important for me to acknowledge that this situation was 100% my fault. I should have secured more financing to begin with. I should not have lost our revenue stream. Most importantly, I should have anticipated the possibility of loosing our revenue, and I should have begun raising money the second our cushion began to dry up.

I was faced with a few very difficult choices. Should I look to raise additional funds? Yes, but it takes time and I didn’t think I would be able to in time to save us.

Do I cut our costs? Of course, but it wouldn’t be enough.

Do I take a pay cut? Yes, absolutely.

Those were the easy questions; the hard part was quickly coming up with at least a temporary revenue stream to get us through these hard months. I am a huge proponent of focus and I hate when businesses shift their focus or take on consulting projects, but we were talking survival here, so I leveraged our expertise on the Hispanic community and decided that we would take on a consulting project. We did. We made some money. We paid rent. It was enough to get us through the day, we then raised the money we needed, and off we went back to our initial goal of building a tech company for the Hispanic community.

The big lesson I learned here is that 3 times sounds like a lot, but trust me, asking for two little is way more dangerous.

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Writing a business plan is difficult, time consuming, tedious, but completely necessary.

I often get asked why I felt the need to write a business plan if I already had funding. The answer is that the process itself is such a helpful exercise in channeling your thought process. You might have a fantastic idea, the market might be clearly huge, and the margins might be intuitively enormous, but if you don’t put it all into paper you can easily miss potential pitfalls, roadblocks or other such things. Most of the times, the obstacles can easily be prevented if you are aware of them.

Secondly, by writing a business plan you assure yourself that you will think of everything and not miss opportunities.

Thirdly, a business plan gives you an easy to distribute platform for feedback. As soon as I had written ours I sent it off to our board of advisors. I was fortunate enough to have some incredible people, with much more experience than I have, who gave me incredible ideas.

Finally, and most importantly, a business plan lets you define a strategy. You might think you have one, but until you test it from the vantage point of marketing, financing, business development, and the competition, it really is not a strategy, but a hopeful path to your goal.

One final piece of advice: If you are planning to write a business plan, make sure to co-author it, because having someone to challenge every idea and word will lead to some great conversations and a much more solid strategy.

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After powering up the “corporate” computer, I had a strategic decision to make - what to name the new company.

The initial thought was to name the business something simple and web 2.0ish. As much as I like the name google or zazzle, the hope was to start a business 2 business enterprise and our name had to sound somewhat corporate. I settled on the name Emerging Demographics, because I believed that our core mission (which would end up shifting a few times over the next few months) was to deliver value to a very fast growing and maturing demographic (Hispanics).

I then immediately incorporated. I considered using an actual lawyer for this process, but after investigating the subject I came to realize that the process was fairly simple and I could save significant money by utilizing an online service, such as Legalzoom.com

It was then that I registered the domain, set-up my email and sent out an email to my wife from my new account. I was officially a C.E.O. (or at least my email said so).

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The day I sat down at my desk, turned on my computer, and realized that from that moment forward I was in charge of my own destiny was the most exciting day of my working life…and it lasted all of about two seconds. Next came the tingling sensation that maybe a steady paycheck wasn’t so bad.  What a telling moment.

Ask any Startup founder, and I can guarantee that 90% will talk about the ups and downs of the first few years. There is no way to avoid them. Some days moments feel like the business will be the next Google, while the very next day could bring a feeling of complete failure. I say only 90% of founders because a good 10% of all businesses will do so poorly from day one, that there will never be the feeling of up, other than maybe when they close the business down.

So, back to my first day, I turned on my computer, checked my bank account and waved goodbye to a whole bunch of hard earned money…and BAM - http://www.HireWorkers.com was born.

Actually, that’s not really true. Emerging Demographics Inc. was born (HireWorkers.com was not born for a few more months), but read on over the next few weeks to hear the whole story of the day to day running’s of starting our company.  

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