You Do Not Engineer A Company. You Grow It.

This is a response to an article posted on An Entrepreneurial Mind. In that post the author, Dr Cornwall recommneds writeing a business plan. And the steps for doing so. And I’m of the opinion that that’s just silly. A plan is a tool for managing weak leaders. A plan is what oyu write when you have given control to investors. A plan is what you write so that a leader who lacks knowelgde, understanding and vision can give his consent. A plan is the myth that teachers instill in students as a substitute for the act of critical analysis. I write a plan every six months. It’s detailed deep and critical. From it I extract goals, an ignore the plan. Goals are just longer term opportunities that we work to exploit. They are rarely and end unto themselves. There is no end of history. And there is no end of business.

You can’t engineer your company any longer. The reasons are complex, but they have a lot to do with the availability of capital. There is more of it. Raising money today, even in this environment, is very different from the 1980’s.

Because of this, no one writes a business plan any longer. At least, It’s a sign of naivety in the business community. They are an artifact of the era of post war engineering. A myth held by the young and inexperienced. A device used to provide false confidence to failing management.

A plan is what you write when you think you know something but don’t, and often cant. The truth is, that the reason young people don’t like to write business plans is because they don’t have the knowledge to.

A business plan is a contract among participants, and it is the wrong type of contract for the wrong type of processes and goals. And entrepreneur who authors a contract does so in order to hand over his sovereignty to someone else. Or he uses it because he lacks the sovereignty to act as an entrepreneur. As such, a business plan is a sign of weakness. Of immaturity. Of lack of sovereignty. It is a contract for a false good. When instead, he should have a list of MBO’s, and a financial model – a set of tools that maintain his sovereignty – his ability to adapt to circumstances.

The problem isn’t a plan it’s the research. It’s the knowledge. The problem with planning is that it does not reflect business, and hasn’t in half a century.

Napoleon didn’t plan. Napoleon mastered his environment. He read everything he could. He hired spies. Read shipping records. Red mail. Read ship manifests. Read intercepted letters. He collected just about all the information that he could. Then he mobilized his forces to take advantage of opportunities that presented themselves. This is a very different way of looking at business strategy. (See Duggan and Keegan)

Collect the information that you need to run your business. all of it. Take advantage of every opportunity. Build an INTELLIGENCE NETWORK first. Intelligence networks allow you to identify and exploit opportunities. How do you build your intelligence network? How will information get to you? What kind of non-quantitative intelligence can you and your people gather. The best sales teams meet weekly and review what they have LEARNED about their target accounts. THis process teaches everyone. The CEO should collect that information. But this is also true of marketing, of vendors, of distributors of partners, of the government. It is a vast information problem.

I tend to ignore what competitors are doing except when directly competing with them. It is far easier for your staff to pay attention to competitors than it is for them to pay attention to consumers. But systematically collecting customer and consumer information is priceless.

The best opportunities are those where someone larger than you are needs something that they cannot achieve for bureaucratic reasons. In those cases you build a company to sell to someone larger. I always start a company with a list of companies I would like to sell it to.

The next best opportunities are those where the existing people in an industry are enamored of their value chain, and you can innovate and take their business because of it.

THe next best opportunities are those where you can collect either better talent, or better capital than competitors. In most cases, it is easier to steal talent from a bigger and stronger competitor if you have ‘seats at the table’ in your company available.

The next best opportunities are those where you have a technological innovation that you can put to practice and patent. This is far harder than it would seem.

The next best is where you arbitrage rather than create value: where you have lower costs. This is almost always a bridge strategy. Lower costs are not a sustainable market position. They simply assist in some other market position. Many people are trapped in being small because their only advantage is low cost. Low cost usually means low talent, and talent is what makes your business competitive. It is better to look for increased value and higher cost that people are willing to pay for.

Write short definition of a one-year success criteria. If you made these things happen your first year, then would you be successful? Do this every year. I do mine every six months. I hang them on the wall behind my office door. Plans that are longer than that are questionable. Goals may be valuable. Plans are not. Largely, size, number of employees, number of customers, amount of revenue is all good. The rest is just self aggrandizement.

Write a one page description of your product, products, or services. If you cannot sell it in one page, then you cannot sell it.

Get market research on every competitor, large and small. Take greater interest in why people failed than in why people succeeded in your industry. Most of the time it’s simply tactical.

Make a list of all your customers that you can think of. try to understand why they make a purchasing decision. It is very often not intuitive. It is often counter to the reasons you think your product or service has value. One man tried to sell a software system to a bank. But it would have eliminated the department. The VP would ave no one to manage. He poisoned the sale. People in bureaucracies are not entrepreneurs. You have to create a value proposition that appeals to them.

Map our your supply chain. Who will you need things from? Why will they give you attention? What will it cost to maintain them?

Map out your distribution chain. Who will you distribute your goods and services through? will you rely on yourself alone? a large sales org? channel partners? Alliances are almost universally meaningless. they are a waste of time.

Create a very complex, detailed operational spreadsheet. It should be as close to an accurate version of your chart of accounts, balance sheet, income statement, and all costs and cash flows as is possible. Be paranoid and conservative. Mine are usually good enough to run the business on, and I mandate that accounting systems and management reports mimic them. Usually 10-15 pages of spreadsheets.

Create a list of the people you know of or think that you can recruit into your organization who will put extraordinary effort into the business. I have started eight companies and I care more about my people than I do about any other factor. good people make a business. Start recruiting them. If you cannot interest them, then you are not going to interest a customer, banker or investor.

It takes nine months to do anything. Make a baby. Forget a bad memory. Lose confidence in a market. Develop new relationships where trust is involved. Work for 9 months testing your theory and trying to prove out your ideas. To do that you need nine months of money. During this time take advantage of every opportunity that you can as long as it either gives you cash to fund your business, or it advances your relationships, customers and employees.

Write a ‘Book’, for investors on how you expect to use your business to make them money. They do not care about your idea. They care wether you sound like you know what you’re talking about, whether you and your team have experience, and whether you have any ‘advantages’ that they can understand. WHile investors claim knowledge, most of them are in their jobs not because of business experience but because of relationships and luck. Your job is to make them feel comfortable that you are going to make them money.

Emphasize that you have an ‘in’, like a major customer, a larger company that you provide a service for or an off-book-r&D effort you’re going to speculate on.

And be willing to fail. It is far harder to be an entrepreneur than to work for someone else. You work far harder for less money but more joy and more control over your life. Entrepreneurship is a lottery. You can win. But you have to understand that luck is a very important factor in your success, because you cannot know enough going in to be sure you will succeed.

In general, plans are silly. Goals and models are not. Make a model. Revise it constantly based on new knowledge. Stick to nothing. The purpose of goals is simply to provide yourself with decision making criteria when there are many decisions to be made and most of them seem ambiguous.

A plan commits you to something and forces you to organize your business rigidly. A business does not execute a plan. It is a large number of people who identify create and exploit opportunities. Your job is to fund an intelligence network that will give you the largest number of opportunities that you can continuously reorganize your company to exploit. And continuous reorganization is far harder than most people think. but it is far more durable.

GIve your people six month MBO’s. Even quarterly. Yearly for very top people.

Realize that you must learn and that the only way to know anything is by experience. Entrepreneurship cannot be taught. It can only be learned. Because you must learn to run a business in real time. Education can simply give you the tools. But you can sit and ponder things during your education that must be made at risk and peril in real life.

If you are craftsman, you ply your trade. You seek opportunities. You learn your skill well enough to compete.

If you get to be an entrepreneur, you will have sacrificed all your time, all your thoughts, and devoted more of your life than common people to your job and will become effectively a machine that takes in information compares it against a model and decides if it can be used to achieve goals. The more information you have, the earlier, the more opportunity you can wring for your business.

If successful, at some point you will hand over this duty to someone else, who will, not as well as you, do the same opportunity sifting. You will instead, move to longer term opportunities, like relationship and capital management. This is when you get to take your rewards.

Whether you get there or not depends on whether you are enough of a mentor and teacher so that your job can be done well enough by others while still paying you well enough that you can afford to compensate someone talented enough.

There are a lot of hard working ceo’s that can’t grow their companies. The reason is that they are not paternal enough. They are working a job rather than raising a family. They try to add value by doing something themselves – which is a convenient distraction from building your business. Execution is a staff function, not an entrepreneurial one. Instead, if you’re doing hard work, you should only do it long enough to understand it well enough so that you can intelligently hire someone to do that job, so that you can move onto the next opportunity that needs creating or exploiting.

Working hard is good as long as you’re working on the right things.

People need different kinds of fitness. Physical fitness is obvious. Scientific fitness is something else. Oratory fitness something else again. An entrepreneur’s fitness is his ability to create an organization that identifies and exploits opportunities. It’s a knowledge problem. FItness is your ability to process information. To judge people. To make decisions in real time. To make them faster and better than your competitors.

Evolve your company. Don’t plan it. Parent and Grow it. Don’t engineer it. If what you mean by planning is modeling then that’s a useful tool that gives you understanding. But if planning is the act of mandating self ignorance so that you do not invest in the act of building an intelligence network that you can exploit for opportunities, then planning is just an excuse to bury your head in the sand, or an admission that you lack the intellect to process the information needed to act as an entrepreneur.

Very little than men produce today other than biological research is complex. Almost all business problems are not those of production, but those of opportunity identification and exploitation given the fact that resources and production, like technology itself, a temporary and limited advantage.

An entrepreneur is a maker, identifier, calculator and exploiter of opportunities. Everyone else is just a clerk.


2 responses to “You Do Not Engineer A Company. You Grow It.”

  1. Great article Curt. I’m a fan of emergent design (and I suppose inherently evolution) rather than the miscast “intelligent design”, whether it be for a company, software or civilization. The challenge in software of course comes in that leveraging the pyramid profit model is much more difficult as you need a good collection of bright people rather than a few bright ones who direct everyone else. It seems as though there are inherent scaling issues (communication) if you want to cover larger scale problems. I could continue to ramble but wont.

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