Proximity to Success Matters
Today I had an interesting conversation with a buddy. We talked about how certain environments accelerated our success. He believes that proximity to success increases one’s own likelihood of success and I agree with him.
When I started CCAW, I was working out of an apartment and had zero interaction with other entrepreneurs, which was pretty miserable. I felt isolated and had to do everything myself—after first teaching myself how to do it. Eventually, I joined EO Accelerator, headquartered the business in Atlanta Tech Village, and then joined EO’s Atlanta Chapter. Each was a stepping stone. While I was in EO Accelerator, CCAW was doing less than $1M in annual revenue, but I was mentored by EO members whose companies had crossed that threshold. The path to $1M suddenly became clearer. Before the move, we had almost zero technology. At Atlanta Tech Village, I was surrounded by tech companies, so I could bounce from floor to floor getting technical questions answered. Building tech became a lot easier and we surpassed $1M in annual revenue. Once I joined EO, I was surrounded by local peers who had built companies with annual revenue from $1M to $100M+ and who were willing to help in any way they could. The path to $10M spread out before me.
Without proximity to these groups, would we have exceeded $10M in revenue? Maybe. Did it help us get there faster? Without a doubt.
My experience tells me that being around people who are where you aim to be makes it more likely you’ll get there. Success seems more real when it has names and faces. You learn little secrets through osmosis. You can find out the details of their journeys, get game-changing intros, and ask for help strategizing. Proximity isn’t the deciding factor in your success, but it can be very influential.
How has proximity accelerated your success?
Your Strengths Can Hold You Back
There’s a project I’ve been wanting to do for a few years, but I always told myself I didn’t have the time. Then a few weeks ago, I decided that during the pandemic would be the perfect time to knock it out. It’s about a subject that I have no experience with or knowledge about, so I’ve spent most of my time doing research. After a while, with a self-imposed deadline (which I had told other people about) approaching, something occurred to me: I hadn’t made enough progress, and I was going to miss the deadline if I didn’t make a change.
A few months back, I took the StrengthsFinder assessment. I shared my top two strengths in a previous post. My number three strength was that I’m a learner. StrengthsFinder defines “learner” as follows:
You have a great desire to learn and want to continuously improve. The process of learning, rather than the outcome, excites you.
Today, I realized that this strength was hindering me from completing my project. I was stuck in my comfort zone, learning more about it than actually doing it. In truth, I was unsure about how to move forward. My lack of experience and knowledge affected my confidence and I overcompensated with my “learner” strength.
So, the change I made was to reconnect with an acquaintance who has eight years of experience in this area. In an hour on Zoom, we caught up on life and he filled my knowledge gap. He gave me a high-level overview of the topic and specific recommendations geared to what I’m aiming to accomplish. After our call, I felt encouraged and super confident about how to proceed. I put my head down for three hours and finished the first version of the project. Unbelievably, in four hours today I accomplished more on this project than I’ve been able to do in years.
I have a few important takeaways from this:
- Self-awareness – My natural strength took over without my realizing it and handicapped me. Once I was aware of it, I had to offset the handicap.
- Experience sharing – In an hour, I was able to learn exactly what I needed from someone else’s years of experience. This saved me a ton of time and gave me the confidence to move forward.
- Roadblocks – For years, I thought my roadblock was lack of time. In reality, it was lack of confidence rooted in lack of knowledge and experience. The next time I put something off, I need to ask myself what the true root cause is.
- Public accountability – Setting a deadline and sharing it with other people made me accountable. Without the looming prospect of explaining my failure to those folks, I probably would have just pushed the deadline out. I’m glad I put myself under the gun.
How have you overcome self-doubt to reach a goal?
Change Begets Opportunity
I had a recent conversation with some folks from a company that’s trying to survive the pandemic. They’ve furloughed many employees and seen revenue drop by half. They’re automotive B2B, so this isn’t surprising. (You may have noticed that cars aren’t being driven as much these days.) The company has a good reputation, quality products, and a good team. They’ve just been bludgeoned by our invisible enemy.
I asked about their plans. They intend to get business back to normal by communicating more often with current customers and convincing former customers to consider doing business with them again. This isn’t much different than what they’ve always done. The strategy isn’t bad, and I’m sure their customers appreciate the extra attention.
However, as I thought about it more, I saw neglected opportunity. Instead of strategically positioning themselves for post-pandemic success, they’re banking on the future looking like the recent past. But consumer habits have changed drastically since February. To be fair, people will revert to some of their old habits when they can, but even so, a host of new habits are being formed. Businesses like this one can choose: adapt, or risk being forced to give way to new companies created for new times.
I view today’s mass transformation of consumer and business habits as a land-grab opportunity for forward-thinking, open-minded entrepreneurs. Those who acknowledge that habits are shifting and create products and services to meet consumers’ new needs will be successful.
What new consumer habits do you predict will stay with us post-pandemic?
The Silver Lining: Opportunity
Today I spoke with an entrepreneur who asked for my perspective on a distressed asset opportunity. He’s seeking opinions on whether he should pursue the deal and on ways to maximize the value of the asset.
It occurred to me how different the conversation was from others I’ve had recently. In the midst of a pandemic, this entrepreneur is thinking of jumping on an opportunity to acquire more assets when others are minimizing costs and stockpiling cash. As I thought more about this, I realized a few things:
- Perspective – Where others see uncertainty, this entrepreneur sees opportunity. He’s your quintessential glass-half-full kind of guy.
- Positioning – He has positioned himself to be presented with and to capitalize on opportunities. Over the years, he’s developed a strong network that he reaches out to regularly. This keeps him top of mind—people think of him when opportunities arise. And his network is full of subject matter experts who can provide valuable insights when he needs them. Lastly, he isn’t leveraged, so he can pull the trigger quickly when he sees an opportunity that he wants to seize. It’s classic “quick close” positioning.
- Just the beginning – This could be the beginning of a period of exceptional opportunity for people with an appetite for risk and the vision to see post-pandemic potential.
- Relationships matter – The sellers could get more for their asset, but they’d rather deal with someone they know who has a track record of honoring his commitments.
The future is very uncertain, but some people will thrive. I see entrepreneurs turning ideas into great companies and creating value in distressed situations.
What opportunities have you taken advantage of in uncertain times?
Comparisons Steal Joy
I recently caught up with an acquaintance who happens to bean entrepreneur. We discussed what’s happened since the last time we spoke and what’s on the horizon. He mentioned that a recent change of scene allowed him to focus better and feel more at peace. He’d been feeling distracted by how well some of his peers are doing and under self-imposed pressure to reach headline-grabbing heights. I was reminded of a quote I like:
Comparison is the thief of joy.
~ President Theodore Roosevelt
This entrepreneur has a thriving company. Revenues are growing and his team is expanding. By most measures, he’s achieved a remarkable level of success. Now, is he the most successful entrepreneur of all time? No. Has he made the cover of Forbes? Nope. Has he built a great company he can be proud of with happy customers? Absolutely!
My big takeaway was that even accomplished people feel insecure. Successful people, like everyone else, have their moments—or days, weeks, or months—of self-doubt. They just may not be as open to admitting it. Fortunately for this entrepreneur, he is self-aware enough to recognize what was distracting him and make changes to mitigate the problem.
How do you avoid comparing yourself to others?
The Power of Proactive Communication
I recently spoke with an entrepreneur whose business is falling off due to the pandemic. He’s starting to see about a 25% drop in customers and revenue. We talked about rightsizing to avoid unprofitability.
We categorized each of his expenses as fixed or variable. Most of the latter should decrease effortlessly because he’ll be using products and services less. I encouraged him to try to reduce fixed expenses by proactively contacting the people he’s paying and letting them know his situation. He told me he’s begun doing this and has been able to negotiate some savings—most notably, a 40% reduction in rent for the next few months. It turned out that his landlord appreciated the proactive communication and wants to keep him as a tenant. No doubt it helped that the entrepreneur has paid on time for five years and rent payments aren’t the landlord’s primary income.
My big takeaway from this conversation is that proactive communication is powerful. He didn’t procrastinate until things became dire. He acknowledged what’s happening, came up with helpful ideas, and openly discussed the problem with other people it affects. The upshot was an amicable win–win resolution that will help his business survive the downturn and avoid disasters like bankruptcy and lawsuits.
I encourage anyone navigating rough waters to look reality in the face and communicate honestly with other stakeholders sooner rather than later. What you don’t ask for, you won’t get.
How has proactive communication kept you from running aground?
Working from Home: Week Six
Today marked the end of my sixth week of working exclusively from home. Here are my takeaways from week six:
- Focus – I wasn’t as focused this week. I think having to stay in the same environment while I did a bunch of different things caught up with me. I’m more productive when I work on different tasks in different environments (for instance, by walking to another part of my office building). Since I can’t do that, I’m planning to focus on just one or two things a day next week.
- Zoom fatigue – Last week, I wrote about how I started talking with folks on the phone so I could walk around. Since then, I’ve read an article about Zoom fatigue, which struck a chord. That’s me—a victim of Zoom fatigue. I’ll start having even more walking phone conversations.
- Time blocks – I’m now working on things requiring serious uninterrupted concentration after 3:30 p.m.
The sixth week wasn’t as tough as week five or six, but even so it was no walk in the park. My big takeaway from this week is that I should try harder to be self-aware. What’s working? What isn’t? And why? I suspect I’ll be making small adjustments every week for the foreseeable future.
I continue to learn from this unique situation, adjust as necessary, and share my experience.
Low Margins? Grow or Die
Today I was chatting with an entrepreneur whose company is in ecommerce; it sells other company’s brands to consumers. He does seven figures in revenue. He’s been affected—not too badly—by the pandemic. He’s concerned and trying to plan for different scenarios.
As I asked more questions about the business, I realized it’s a low-margin business that depends on volume. Product pricing is determined by the brand owner (i.e., it’s the MSRP or MAP), competitors offer the exact same products, there are low barriers to entry, discounting to maintain volume is common, and front-line workers are paid little.
For this kind of business, it’s grow or die. The customer wants to pay less (competitors offer the same product) while costs—shipping, wages, rent, etc.—creep up every year. So, of course, margin percentages gradually go down. Most entrepreneurs compensate by growing revenue.
Let’s look at an example.
- Year 1 – Margins are 10% and the company does $1M in revenue. That’s $100,000 in margin dollars.
- Year 2 – Margins decrease to 9.5% and the company does the same $1M in revenue. That’s only $95,000 in margin dollars.
If the owner wants $100,000 in margin dollars in year 2, he needs to grow revenue 11% to $1.11M in year 2. In other words, he essentially needs to do 11% more work to make the same margin dollars. As the years pass, it begins to get really tough. If margins drop to, say, 5% (that’s an extreme drop), he must do $2M in revenue to make the same $100,000 in gross margin dollars. He’s forced to grow the business or die a slow death because he won’t have enough margin dollars to afford the things he needs to run the company. (Of course, the example is purposely simplistic to make a point. It doesn’t differentiate between gross margin and net margin and it features a massive 50% drop in gross margin percentage.)
This kind of business is in a tough spot when the economy shifts from growth to contraction. I pointed all these things out to this entrepreneur and he agreed. We discussed ways to transition his business to healthier margins (for instance, value-added services, his own branded products) and making the best of this difficult period by renegotiating some of his fixed costs.
Are you an entrepreneur just starting out? Are you building a low-margin business? If so, do you understand the long-term implications of that decision?
Values Matter in Relationships
I’ve shared my views on the importance of bidirectional relationships and treating investor relationships as partnerships. Today, I write about another relationship truth. For most entrepreneurs—and everyone else, for that matter—there will come a time when a relationship is no longer a good fit. This has happened to me when values—mine and the other person’s—don’t align.
At CCAW, we had done business with a certain vendor since our earliest days. Eventually, we bought more from this vendor than from any other, and we’d become one of their biggest customers (for the products we purchased). As with any relationship, there were ups and downs. I was tech focused and pushed them to upgrade their technology so we could integrate our systems and grow the relationship faster. They thought the old manual way worked just fine. Despite this, we continued working with them. It got to the point that CCAW spent about $1 million with them every year.
It all seemed to work, until it didn’t. They began to gripe about their other customers to me and show attitude to our service team members. For years, I’d met annually with their executive leadership. After noticing these changes, I began inquiring about their company vision and values. Maximizing revenue and profit was their vision, and they had no clear values. It all started to make sense. As they grew, the lack of a clear vision and values caused them to stray from what made them successful.
Our internal data showed that sales of their products accounted for half our annual gross profit. I’d have to figure out how to replace it before I even thought about switching vendors. I was basically married to them. I decided to unwind and replace the relationship slowly over two or three years.
Within a few months, the working relationship between our service team and their sales team tanked, to the point that a blowup reached my desk one day. I reviewed the situation and knew I had to do something. The vendor was eroding our service team’s morale and taking up too much of our operations leader’s and my time. I decided to pull the plug on the relationship effectively immediately. Remember: half our gross profit! I was making CCAW instantly unprofitable. Needless to say, I was pretty nervous. I was under the gun. It was either replace that lost profit or go out of business.
Then a funny thing happened. Because our team didn’t have to deal with this vendor, it had so much bandwidth and time that we were able to invest in both new and existing vendor relationships. In a month or two, we had regained all the lost profit and then some. My service team was happier, our leaders’ time wasn’t being wasted, and the company was back to growing in a healthy and profitable manner.
Upon reflection, I now realize that I made rookie mistakes:
- Hire slow – I focused on growing the relationship with the vendor as quickly as possible. What I should have done is evaluate them more thoroughly before doing business with them or get to know them better before allowing the relationship to reach material scale. I should have found out what they stood for, and why.
- Fire fast – When you make a hiring mistake, it’s best to correct it quickly. Fire them right away. The longer they’re around, the more serious the damage becomes. I tried to ease the vendor out over time. Instead, I should have ripped the Band-Aid off and endured the short-term pain. I could have saved my team a lot of time, energy, and frustration.
We were lucky that things worked out well. Lesson learned: pay much closer attention to the values of people and organizations I associate with. If the values revealed by their actions don’t align with mine, I politely pass. It’s easier to avoid them than to rip and replace.
How has alignment of values affected you?
Think of Investors as Partners
I’ve shared my views on the importance of bidirectional relationships, which I believe is one of those good-life principles. But for entrepreneurs, understanding how to approach relationships with investors is imperative.
Don’t view a good investor as a cash machine, but rather as a partner in building your business. Yes, they provide capital and seek a return on it, but they can also add value in a variety of other ways. They can make warm introductions to potential customers or vendors. They can tap their networks to help recruit for key positions. They can help you navigate turbulent times by sharing their experiences and strategizing with your team. A good investor may invest a lot of time as well as money. They aren’t just making an investment in your company—they’re investing in the founder—you—too. Quite reasonably, they are likely to want to get to know you before making an investment. In fact, they like to establish the relationship long before they commit funds.
These ideas may help entrepreneurs approach investor relationships correctly:
- Pitching – Don’t expect to walk away with a check. Their feedback can be many times more valuable, especially if you’re early stage. Pay close attention to it. And ask questions. Two good ones: “Is there anyone you think I should know?” “Can I help you in any way?”
- Updates – Send them a clean, succinct monthly update. This will help keep you top of mind. Have a clear ask.
- Touch base – Periodically reach out to ask them what they’re up to and how they view certain markets. Share some of the things you’re doing that may not make the update. Ask if you can connect them with anyone or help them in any other way.
- Make connections – If you know someone who could benefit from knowing the investor, or vice versa, make the intro. Both will appreciate it.
- Share knowledge – If you learn something that you think an investor could benefit from knowing, pass it on.
Approaching relationships with investors correctly can be a game changer. Start developing them early.