Growing Great Customer-Funded Companies

Hi, I’m Bill Flagg, I’m passionate about building great, organically grown, built-for-life companies.  The kind that employees love, customers shout from rooftops about, and owners want to grow old with.

I am currently a partner in four really cool Colorado-based internet companies. All were bootstrapped and organically grown with no outside capital . I spend half my week working directly with my partners and the other half helping entrepreneurs and encouraging them to go the customer-funded route.

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To Take Investment or Not?

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show me ROII’ve been asked a handful of times in the past couple weeks about whether to take on investment. I think it’s a little funny that folks ask me this knowing that I believe in customer-funded businesses instead of raising money. I suppose they are really asking to hear the argument for not taking on investment. None the less, my answer has been:

The real question is do you have a clear way to return that investment?

Meaning for every dollar you spend on hiring a new person, advertising, product development, etc… do you KNOW you can return $2 back through more revenue?

Or are you just throwing things at the wall to see what sticks?

If you KNOW you have a clear ROI for investing/re-investing any capital, then do it! That’s how people get rich.

If you don’t know, then put a 10% probability* of the investment sticking/producing a return on the investment dollars and ask yourself if the extra debt or less equity is really worth it? *10% is the approximate percent of time that new ideas produce a return for me. Which is why I try to minimize spend while testing new ideas.

I’ve seen too many people throw away too much equity and other people’s money by not first vetting the potential ROI of what that money is being used for first.

Nail it, THEN scale it with capital.

Creating a Customer-Funded Business

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TALKI get asked all the time by startup entrepreneurs how to create a customer-funded business. The dirty little secret is that I haven’t actually STARTED a business on my own since college.  I’ve watched and helped many others do it. And more specifically, my expertise is helping companies grow organically from early 7-figures into GREAT 8-figure companies. But I still get asked a lot, and I still can’t resist answering and sharing the startup stories of my partners/founders.

Here’s an hour audio interview that Michael Williams, a super-cool fellow Boulderite entrepreneur, did with me on Creating a Customer-Funded Business .  If you want to skip the small talk, and spare yourself from my singing, fast forward to about 5 minutes in.

Click to hear the interview

Thank you Michael for the fun interview and creating a great resource to help entrepreneurs (www.strategicentrepreneur.com)!

 

Business Architects

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proud_business_architectI’ve had several conversations in the past couple weeks with entrepreneurs of established and growing companies about their role as a business architect. It went something like this:

Entrepreneur: “I’m frustrated that I’m the one who always needs to solve the bigger challenges or come up with the ideas for innovating for the customer. Why can’t my employees step up?”

Me: “Isn’t that YOUR job? Aren’t YOU the architect of your business?

Entrepreneur: “I guess so, but why do I feel so stressed at times?”

Me: “Because your business needs more architecting. And rather than embracing that challenge everyday, you’re hoping your employees will do it for you.”

Most entrepreneurs are first and foremost business architects, but they don’t know it or fully embrace it. At their best, they architect systems that make their products, services, pricing, and cultures better and better. I believe the role gets confused a lot of times with leading people. And there may be a sense of not being a good leader without  giving themselves enough credit for being an architect.

I chuckle when I hear people criticize successful entrepreneurs for not being good leaders. I’ve gotten that criticism too… and felt bad about it. Until I realized that I like, and am good at, being a business architect…  the kind that creates structures that enhance peoples lives so that I can be the introverted un-leader that I am, and read quietly in a corner by myself.

So my advice to entrepreneurs is to OWN it. Be the architect for your business. Be proud of it. Embrace it everyday. And love your employees for empowering you to do it. And nurture business architect thinking for others in your organization by trying open book management.

Unconventional Freedom

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Freedom-SkydiveIf I had to pick two of my favorite words they’d be Unconventional & Freedom. I’ve been told my whole life that I see things differently than what’s conventionally done. At times it’s gotten me into trouble because I tend to question everything. But, overall I’m really happy with the results. I feel like I’ve been able to live a life I dreamed. A life with great freedom.

The key for me is that it has nothing to do with what others around me have dreamed. I’m not happy because I have money, live in a cool place or because I own fancy things. I’m happy because I’ve gotten to live my life on MY own unique terms. I became an entrepreneur not to get rich but to feel the freedom of creating things that could be of real value to my customers. To feel the freedom of creating an organization in my own unique way. To have the flexibility to vacation when I wanted (or not in the early days).

Growing up, the conventional wisdom was to follow the rules in school, go to a good college, and get a job/profession that could pay the most. Then it was get married, buy a house, start a family, and work to retire one day. It all seemed rather boring and pressure filled with expectations that didn’t seem to inspire me. Each time I tried to follow the conventional path, I lost energy and felt more lost than before. On the flip side, each time I did what felt uniquely right for me, I gained energy and felt inspired. I call that unconventional freedom.

I also found that in business when I did the things no one else was doing, I had more success (and it was a lot more fun for me). And when I did things because I thought I should, they didn’t turn out as well.

An example of this was when we were deciding on what to do for holiday cards for our clients. In the past we sent out thousands of relatively generic “Happy Holidays” cards “from all of us to you.” When my marketing manager, Cindy, came to talk details about that season’s cards, I said “I want to puke, these cards are so predictable and boring. What can we do different?” She came back with an amazing idea to do a company cookbook, with each co-worker who wanted to could cook their favorite dish that we’d photograph at a potluck lunch and then share those pictures and the recipes in a pamphlet-like holiday cookbook. We said, why not, wouldn’t cost us that much more, and we’ll have fun with it. Well, it was a BIG hit with our customers AND we all had a lot of fun doing it. I’m still reminded of it as a half a dozen or more companies I know are doing their own unique versions of company cookbook holiday cards!

cookbook cover Click to see 2006 RegOnline Cookbook PDF

Visions that Work

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chickensoupI recently saw Jack Canfield (co-author of Chicken Soup for the Soul) speak at a conference here in Boulder. People have bought half a BILLION of his books around the world over the past 20 years.  This is a book that got rejected by 180 publishers while Jack and his co-author almost went broke.  He hit on a nerve that people went nuts over.

At this conference Jack did a demonstration that I’ll never forget. He asked someone from the audience to come on stage. A woman volunteered. He asked her to hold out her arm and push as hard she could against the force of his hand pushing down. Which she did with some great strength.

He then asked her to think of a goal she had, and how SHE would benefit from that goal being achieved. He pushed down on her arm again and it got weaker.

He then asked her to think about her goal in terms of how it would benefit OTHERS in the World. He pushed down and her arm got significantly stronger.

It’s called muscle testing, where your body derives strength or weakness when focusing on certain ideas (or foods).

Whether you believe in muscle testing doesn’t really matter, the point of the exercise was to show how our goals or visions can be or feel stronger when viewed from a standpoint of benefiting others.

I was reminded of the power of this in my own life today when I was talking with one of my former co-workers from RegOnline (now at SurveyGizmo). I was replaying how our vision at RegOnline was simply to make people’s lives easier. Not only easier for customers to manage their events with our software. But also easier for them to find us, try us, start using us, and do business with us. We also looked internally and kept asking what would make it easier for people to work there. The vision was absolutely focused first on what we could do to help others by making it easier for them. We had forecasts of what we thought would happen with our revenues and profits, but they weren’t the top priority. And interestingly enough we usually ended up exceeding them anyway mainly through consistently figuring out how to better serve our prospects, customers, and co-workers.

I’ve also noticed that some of the best and most successful entrepreneurs are constantly talking about how to better serve others. Richard Branson, Steve Jobs, Tony Hsieh, etc.

Back to Jack.  After his talk, I thought to myself,  what an interesting demonstration for a guy who is known for feel-good story books. Then it hit me, maybe that’s EXACTLY why his books were so unbelievably successful. All the stories were about people HELPING/SERVING other people. AND he had written the books not because he thought he’d get rich on them, but because he truly thought it would inspire OTHER people.

Now I’ve had many goals/visions in my life. Most were pretty self-serving. But when I look back at the ones that weren’t, I have to say they felt a lot better AND succeeded more often. I’m personally starting to look at all my visions and decisions through a new lens of “how can this serve others?” Give it a try with your goals/visions and see how it feels.

I sincerely hope this post helps to create a positive impact for you in some way.

Opportunity-Cost Selling

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opportunity-cost1

I’ve had a couple conversations in the past weeks about how to sell to key potential customers. What came to mind for me in these conversations was how poorly I was sold-to by SalesForce when I was looking to buy 50 licenses from them. The salesperson was smart on the first call by asking “why are you looking to switch from your in-house system?” My response was because our in-house CRM was losing notes my salespeople were entering and it was driving them crazy. From there it went downhill with the salesperson when he would follow up every couple weeks with better end-of-month, end-of-quarter, and end-of-year deals. I think we got 40% off by just delaying our decision.

What the salesperson never asked was, what’s the opportunity cost of your faulty CRM system on a $10 million/year business?  If he forced me to do the math it would have looked like this: $1 million sales team payroll being frustrated or wasting their time on our CRM 10% of the time = $100k/year. Lost opportunities with prospective customers on a business growing $2 million/year x 5% = $100k/year. $100k + 100K = $200k opportunity cost. SalesForce: 50 licenses x $60/license = $36k/year. $200k lost vs $36k spent. That’s a net of $14k lost for every month I waited to switch to SalesForce! How dumb of me to wait.

So applying that to conversations I had this week:
For a SaaS tool that helps development teams get better customer feedback on dev priorities: What is the opportunity cost of your development team developing functionality that your customers DON’T end up using? 25% of dev projects not getting used on a $1 million dev team = $250k. Missing the customers real needs may also slow sales growth or increase attrition on a $10 million in revenue business means for every 1% of revenue affected = $100k. So would someone be willing to pay $20k a year to minimize or eliminate $100’s of thousands of waste?

For live chat software. What’s the opportunity cost of NOT having a higher conversion rate on your website by NOT adding live chat to your sales website? What’s the cost of NOT lowering attrition by NOT giving your existing customers a quicker and easier way to  get answers to their questions (and forcing them to call or wait for an email reply).

What’s the back-of-the envelope opportunity cost for your prospective customers to NOT be using your service?

Investment Requests

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At our last bi-weekly partner meeting, Jerome, co-founder/CEO of SnapEngage, mentioned that several investors had emailed him to see if he’d be interested in talking. When I asked how he responded, his reply was beautiful…

“Thanks you for your message. SnapEngage is completely customer funded and we are not looking for additional investment. In order to focus on our main investors (our customers), I’ve decided to not take calls from investment companies.”
I’ve watched myself and too many entrepreneurs waste a lot of time and energy talking to potential investors and/or acquirers. It’s usually curiosity and ego driven to be able to put a price on what we own. It also tends to be a huge distraction to serving our most important investors – our customers. I wish I had this good of a response (and realization) twenty years ago! Thanks Jerome.

Brain Trusts

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Every other Thursday my operating partners/founders and I meet to share challenges and best practices across our different businesses.  It’s a cool little peer brain trust that helps us over businesses’ little challenges. We celebrate and remind ourselves we’ve accomplished good things. We offload emotional burdens and remind each other we are human. We help each other with best practices. We share experiences of how we overcame similar challenges. It’s a pressure release valve, gas tank filler, and route map all-in-one many weeks. 

I’ve been involved with a handful of different brain trusts throughout my life with business peers, mens groups, and leadership teams within my businesses. The format is simple, give updates of the good and the bad, be candid with each other, and then share experiences that may be of help to each other (vs. giving advice). Then let the magic happen.
I first read about the idea in Think & Grow Rich by Napoleon Hill which I read just out of college. As a result I assembled an advisory team of folks much more experienced/successful than me. It was great, but missing the peer component. I then found YEO (now EO) and got my peer group of other young entrepreneurs who were running their heads through walls just like me.  
I’ve recently joined a peer group of entrepreneurial parents raising young kids. We meet by phone at 5am MT once a month to share our updates and best practices. Inspiration for raising great kids pops out of this meeting like popcorn.  
I’m in the middle of reading the founder/leader of Pixar, Ed Catmull’s book Creativity Inc. Which prompted this post. He says their internal peer brain trust has helped them turn crap movies into great movies. A small group of their movie directors and creative talent meet every couple months to preview films in progress. They provide candid feedback to each other as peers that help the director see blind spots in their plots, and scenes. They don’t prescribe how to fix anything. They just share their observations so the director can find their own way to improve the films. 
I remember creating my first braintrust seemed like a hard task. But it was actually easy once I identified the folks I would want around a table with me. Inviting them seemed awkward. But with how quickly they said yes, it was easy. Creating a format seemed hard, but the conversation and wisdom flowed really easily with basic conversation starters. If we share a similar vision, the rest tends to flow.   
In the case of my current business partners meeting, we all share a passion for building great long-lasting organizations. We also share a philosophy of being customer-funded, and as a result, organically grown.  With the intent to help other like-minded entrepreneurs, we’ve decided to share some of the topics that come up at our meetings. Which I will blog about next. 
So, want more brain, more heart, more soul to help you prosper? Start or join a brain trust. 

Free Your Teams from Bureaucracy

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I describe “bureaucracy” as any system that doesn’t add value and as a result wastes and sometimes enslaves people’s time. The word itself is overly complicated to spell and therefore use. It’s actually a perfect name for itself. Unfortunately there’s a lot of it in the World. One of my personal missions in life is to help eliminate as much of it as possible. Why? Because we are here for a short time, and who wants to waste it on stuff that doesn’t make a difference?

In business, here’s what it looks like. Two of my companies’ support teams were documenting every customer support request. Sometimes in several systems. Using up 70% of their time. Leaving only 30% of their time to actually help customers. As we weren’t able to respond to customers fast enough, we kept hiring more people, which required even more systems to keep track of everything and all the people we were hiring. We lost track of the end goal… happy well-served customers.

At RegOnline, we discovered we could eliminate the need for support if we just simplified the systems our customers interacted with… clearer wording, hide advanced options, better self-service online help. We then simplified the tracking systems our support team dealt with to free up their time. The result… less confusion, less busy work, more free time and value for everyone. The best part was how much easier we made it for customers.

This month at SurveyGizmo, SnapEngage, and PosterBrain we added something new to discuss at our weekly all-company meetings… “What are the most common questions our prospects and customers have asked us in the past week?” We started doing this because we realized that our weekly meetings were focusing on US (revenue, customer count, expenses, profit) and not enough on our CUSTOMERS.

At PosterBrain today, the most common questions customers asked in the past week were…. How will my picture look?, Where are you located/shipping from?, Do you dry mount?, etc.. I suggested rather than making people contact us to get those answers, how about we put a FAQ on our homepage? Our customer service superstar laughed and said “Then what will I do with all my time?!” :-) I said how about those outreach emails you’ve been wanting to make for weeks to attract new customers!

Let Your Customers Fund Your Software Startup

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“Anything that won’t sell, I don’t want to invent.
Its sale is proof of utility, and utility is success.”

– Thomas Edison

I’ve seen hundreds of entrepreneurs spend more of their valuable time raising money than they do focusing on the true reality of what customers REALLY want to pay for. No matter how much funding goes into an organization, it’s not a truly sustainable business until the revenues from it’s customers cover all the expenses of the business. The only way I know of generating sustainable revenue FROM customers is to generate real value FOR them. Customer proof is the ultimate product proof.

Which is why I decided to get behind a new crowd-funding/pre-tailing site for software startups called Ramen. Where the “crowd” FUNDING the software are the potential users OF the software… they help fund (no equity involved) the software they would want and use. I love the idea of getting real customers to fund our businesses.

Thank you Niel & Ryan for making Ramen an option for startups! Which by the way, they are crowd-funding their own startup with their own potential customers (it’s kind of like Being John Malkovich). I’m doing a matching sponsorship, so if you have a software idea that you’d like to test your CUSTOMER traction on as you build/design it and would like their help, well then help back Ramen too!… ANNOUNCING PROJECT MATCHING SPONSORS IN RAMEN TO THE TUNE OF $5000

1/22/14 PS – In full disclosure, Niel and Ryan choose to do an angel round prior to launching. Stay tuned for their follow-on “customer-funding” round.