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turning a good idea into a great business
the beermat entrepreneur
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Mr. West: That is the single biggest problem with all the entrepreneurs we've met in the last six months; they have no sales cornerstone in their organization. That's why they're finding it difficult to get moving.

          Where do you get a sales cornerstone? We tell people this and they say, “Well, I can't afford to pay a salesperson. These people are on $500,000 a year. I can't afford the fees of a top salesperson.”

          The good news is that you don't want that sort of salesperson anyhow. The big corporate sales type is not the right person for a small business. They are two very different sets of skills. Corporate sales is much more about activity levels, about management. The small business salesperson is much more about knocking on doors, getting people to talk to them, talking to people, listening to people. You want a person who is a good listener, who is a nice person, who is likable. Will Rogers said, “I never met a man I didn't like.” He could be a great salesperson. That's the sort of salesperson you want.

          How do you find them? When you're looking for cornerstones of all kinds—delivery, technical, finance—the best place to look is among people you know. The most important thing in a small business is trust, team spirit. You're all in this together. You don't want somebody who has just left Oracle and is kindly letting you use their services for a mere $20,000 a week. You want someone you know and like and trust and who has got the sales feel, the sales approach. So, the place you look for your sales cornerstone is among people you know; the most likable person, someone who naturally builds people around them. A natural leader. A “bringer together” of people. That's selling for you. They can learn the skills quite easily. The right person can learn sales skills very easily; the wrong person can never learn them. I'd never be a good salesman. I haven't got that sort of charisma, but other people have and they can learn to be very good salespeople.

          Don't be put off by the fact that you haven't got a sales cornerstone and that they all look incredibly expensive. Build from the people you know. Try to find somebody, and you can strike gold among your acquaintances.

Mr. Southon: It's the sort of person you knew at college who always had a posse around them, or, if you're getting a trip together, the person who can always round people up. Somebody who wakes up every morning and thinks, “Hooray, I'm going to make some new friends today.” Remember, these new friends will be your new customers. Again, being liked is the main attribute. Not perseverance or aggressiveness, or any of the other things that you read about in the books. It's being liked.

          We've passed some serious beermat tests here. We've got an elevator pitch, we've got a mentor, and we've got the first customer. Order delivered, right? What we've got to do now is to get some venture capital money. Yes? Anybody here an actual venture capitalist? Hands up. Just one. All right. Now, when we're referring to venture capitalists from now on, we're referring to other venture capitalists, not you personally. Because, well, in England, we have a thing called pantomime which we always have at Christmas. Whenever the villain comes on in pantomime, the audience should hiss. So I'd like you to do that. When I say the words "venture capitalist," hiss. Not you, sir.

          Now, I have to say that when we did the first draft of the book, we nearly called it "All Venture Capitalists Are Bastards Except for Him.” Why is that? Well, my personal experience with venture capitalists is appalling for all the reasons you've read about in the books and so on. I wrote all this down and I've got horror stories you would not believe.

          When we sent the book out to all my entrepreneur chums and Chris' entrepreneur chums, we expected some of them to say, “Oh, come on, guys, venture capitalists are not that bad. My venture capitalist is really good, helps me out all the time, gets on the phone, comes in, this, that, and the other. Never forecloses, nothing like that at all.”

          Did they say that? No.

          They said, “Nail the bastard and don't say it was us.”

          Why is there this problem between entrepreneurs and venture capitalists? Except for this gentleman here. In the UK entrepreneurs hate venture capitalists. Why? The theory of venture capital is that it's risk money, isn't it, sir? It's taking a risk on an unknown company. Maybe it's a bit odd, maybe it doesn't work, but at least you're having fun. That's the main thing. Well, there's a misplace of expectations, generally, between entrepreneurs—people like you who want to change the world—and venture capitalists who want 20 times their investment immediately. But not this gentleman.

          What's the problem here? The answer is that the entrepreneur wants to change the world and has these delusions about how to run the company. If you speak to venture capitalists, they've got lots of bad stories to tell about entrepreneurs. We are on a mission to try and fix this. We'll come on to what you should do when you do meet the venture capitalists later, but, right now, let’s say you're just about to start your business. It's a great idea. You sold one and you'll sell another thousand. It's clearly a great product or service. We say, don't even talk to the venture capitalist yet because it will all go “pear-shaped,” as we say in England. It will all go wrong.

          What you must do is grow your company organically from revenue. We're back to revenue here. We're back to selling. Grow it from revenue. The company that I co-founded, The Instruction Set, we grew from three of us to 150 people completely out of revenue, no external capital at all. Okay, it was a service business so it was a bit easier than a product company, but get it in your mind that the last place you want to go at this stage is to the venture capitalist.

          We actually listed the sources of finance in the book.

Mr. West: We did indeed, yes. The number one source, obviously, is your own money. Another thing USA Today said, I recall, is that most people start off their credit cards. One of the problems they're having now is that most people are heavily in debt and they can't do that any longer.

          We say that you ought to start with money you can afford to lose, but, if you're really well into the idea and you know it's going to work, then your own money is the best starting point. Also, there are grants. Grants in England tend to be done nationally. In America, from what we're hearing, it's much more done on a state-by-state basis. That's a slight difference, but there are bodies to appeal to for grant money.

          Then, our favorite, is revenue. This is why we recommend having the sales cornerstone in there early. Get them out selling. It's no use this old dotcom model of have an idea, throw a lot of money at it, then see if anybody wants to buy it. It's no good. Get selling first. Find what people will pay for. The model may change a little bit, the product may change a bit. We're selling these green widgets and what everybody wants is lava lamps because they're groovy and modern. You may have to change, not totally, but a little bit. You'll find the product migrating towards what people actually want, but you only do that with a salesperson and getting people to write checks. Those checks are signals in the market about what it actually wants, rather than what you think they want. They are the lifeblood of your company because they're cash. They're real money coming into your business, and that's the best way to fund the company. It's telling you that you're doing it right, and it's paying the bills. How good is that?

Mr. Southon: After that, we talk about angels. You're all familiar with angels. We divide angels up into two types. There are bad angels, which are down on the list, people who are just like many venture capitalists. They only want 20 times their money, and they're not as big as venture capitalists, so what's the point, really? All they're after is a quick buck, frankly.

          We like what we call enthusiastic angels. These are people you might want to pitch in a slightly different way than you think. You're probably thinking that angels are only interested in money. Not the good, enthusiastic angels. They are after fun. This is fun money for them. They want to do cool, neat, and interesting stuff with cool, neat, and interesting people like you. Pitch them on fun. Sure, if it all goes well we'll make lots of money and so on because it's a great idea, but the reason you, sir or madam angel, want to get involved is because you like us, you like our idea, and you want to hang out with us. Not every day, but you want to come down when you feel like it, add some good advice, open some doors, do a lot of mentoring, and have fun. Put a bit of money into this thing because we all reckon it's going to work, and, hopefully, if you read that brilliant book, The Beermat Entrepreneur, we've got a methodology to see it works. We'll all have fun. But if it all dies because of the market or because of something we couldn't work out, at least we've had fun, haven't we? The angel thinks, “Yeah, I put $100,000 into that, but I had more than $100,000 worth of fun.”

          Our advice, when you speak to angels, is pitch them on fun. I'll give you a good example of an entrepreneur we're dealing with in the UK who comes out of Southbank University, which is very strong on manufacturing. This guy, Robert "Eddie" Edwards, has invented a hover board. This is Back to the Future. It's a mini-hovercraft, this thing. It's a bit noisy, but it works.

          There is no market for this thing. I can't really do market research on how to get 6% of the hover board market in the Soviet Union. No, this is a cool thing, so we're just getting angels in who think, “That’s so cool. Where's my checkbook? I want one of these first.” We all know those people. Aren't they great?

          For good angels, $50,000 is money that they want to have fun with. They don't want to go to Las Vegas and put it on black, but they want to have fun. There's nothing more fun, as we'll say again later, than getting involved with enthusiastic, fun entrepreneurs with neat ideas doing cool stuff.

Mr. West: A friend of mine has a music publishing company. They were running short of money, and he was trying to get funding. It was an absolute nightmare until he met someone who was into jazz and had a lot of money. They're now working together and the company is flourishing because the angel just loves the company, what it does, what it stands for, and what it's trying to achieve. He also has a lot of business knowledge and a lot of contacts.

          Another source of money could be the mentor himself or herself. This is very much around the mentoring area. It's a great source of funds if it's right, if it's fun.

Mr. Southon: In the book we list various sources of revenue. The one we want you to keep in mind is revenue, revenue, revenue. Among sources of funding, revenue is the most important. Do it out of revenue if you possibly can.

          Just to do the final twist on the old venture capitalists, we put venture capital at number nine in the list. At number 10 is the Mafia, although some people argue it should be the other way around. I did read something on the BBC website about an Italian-American called Joey "Bananas" Bonano who claimed that he was not in the Mafia, it never existed, and that he was a venture capitalist, so I rest my case.

          Okay, we're going to grow from revenue. We're going to get some good sales cornerstones on board, we're going to start growing it up. What do we do next, Chris? I've got another big order. Here's another million dollars. What are we going to do?

Mr. West: Splendid. Take on people. You've got five of you, you're the team. You're the core of it, but you're going to start taking on more people and the team is going to change. Hopefully, you're going to give them some kind of very small stake in the company, but the basic point is that they're not part of the core team any longer. They're still very special people, and one of the points we make in the book over and over again is that growing a company is about picking the right people at the right time. You started off with the entrepreneur, then you got the cornerstones who are half entrepreneur and half seasoned professionals, now you're taking on people who are younger—at heart, anyway—not as experienced or knowledgeable as cornerstones. What they've got in spades is enthusiasm. They're just up for it. They'll do anything. We call these people “the dream team” because they're very like a sports team. They're enthusiastic. They come into work because they enjoy it. They still want the money and they want to learn, but the main thing is that this is an exciting experience for them. It's a buzz. It's a great place to work.

          That's the sort of person you need to be taking on once you've got the five of you, the core team. You're beginning to take on people to start delivering the orders, perhaps take on another salesperson. The company is beginning to grow and you're filling it with these great people. Maybe later on they'll be cornerstones, or maybe they'll be entrepreneurs. They're cutting their teeth to become entrepreneurs. They're great people and we love them. They're essential to your company. Cherish them when you get them, because they're pure gold.

Mr. Southon: Remember that the main attribute of the dream team person is that they get stuff done. They don't know the best possible way because they're a little bit inexperienced, but they get stuff done. They're not the breed of people you find in large organizations who have 57 reasons why they can't do something—“that's not the way we do it, that's not my job, this, that, and the other.” You can't have anybody like that in a growing organization, in a beermat group. They have to be dream team people who get stuff done. You've all seen them, people who get stuff done, and you’ve seen people who find excuses not to. I think you know where we're coming from.

          As Chris says, people issues are paramount. We had a long discussion earlier this afternoon about using your intuition. Your cornerstones are probably your friends or one degree separated from your friends. When people come in and you really like them, you feel like they can get stuff done, potentially you can hire them. Sure, they may screw up; they're inexperienced, they're young, but at least they had a try. The one thing you must not do is start giving them a hard time because they made a mistake. If they do it two or three times, maybe so, but the first time, at least you had a go at fixing it. Don't worry, get it better next time. 

          The sort of dream team people I used to like were the ones who, when I would go out of the office then come back, would say, “Oh, Mike, while you were away there was a leak, the photocopier caught fire, and a customer called up asking for some stuff from a technical person. I've dealt with it all. Not brilliantly, maybe, but I've put the fire out, I've fixed the leak, and the customer, well, I didn't know what I was talking about, but I think he's happy.” Great. The customer didn’t get somebody who said, “I'm not in sales, I can't speak to you. Goodbye.” You ask, “Did you get the phone number?” And they say, “No, that's not my job. I'm in charge of the radiators.”

          The analogy of the sports team we go into quite a bit in the book. I had the experience of working in England for a gentleman called Will Carling. He was England's most successful rugby captain. Rugby is a sport. It's a bit like American football except without the padding, so it rather hurts. I used to play it years ago. Will is a sports person who will talk to business people about the analogies between business and sport. We like these analogies. We think they're better than the sort of warfare ones like Sun Tzu and Clauswitz. War is battle and death and misery and pain and whatever. We prefer “business is like sport.”

          You motivate dream team people just like a top sports team. Will was very, very interesting about this because he says a very, very simple thing about motivation. I'm sure that all of us, when we worked for large companies, came to work one morning not motivated. Had a bit to drink the night before, bit fed up, had an argument, whatever. You get to work and you think, “I'm really not here today, I'm just going to coast. Do a couple of emails, send a couple of letters, but I'll be better tomorrow.” We've all done it, haven't we? At least I have. So there's an issue with motivation.

          But think about sports teams. Think about somebody putting on an England shirt or playing for the US Olympic team. Are they going to coast that day? Oh, no. They are desperate to succeed because there's no better motivation than having all your family and another 50 million people watching you on TV. They are desperate to succeed.

          But sometimes sports teams fail. Usually English teams, I have to say. The World Cup and whatever. Why do they fail? The reasons are complex. There's tactics, there's physiology, there's psychology, there are a million reasons and they're all very complex. All Will used to say about motivating a dream team like a sports team was that the best you can do as an entrepreneur or leader or manager is to create the best environment for them to succeed—the best coaches, the best equipment; and, in this case, the best fun. If your people are having the best fun, then they'll be the best motivated. If you're having trouble in your seedling businesses or sapling businesses—that’s what we call businesses in these stages—then it will be people issues that are the problem. Sales issues are one thing, but, if your people issues aren't happening, then your organization is beginning to crumble, so get your people issues right.

          Chris gives a very good hierarchy of needs about how to motivate a dream team. Things like security, quality of the environment, and office space are way down. Number one is peer respect. They're working for the best company in the world in their eyes. They're surrounded by the people they like the most. That's the number one thing. Salary is down there. Peer respect is the key thing. That's dream team people. Go out and find them.

          You'll grow your dream team to 5, 10, 15, 25 people. In the book we say that when you get to about 20 people there’s a warning, the red light is flashing. There's something I've noticed with raw startup companies. Up to about 20 people we were all friends. Everybody read everybody else's emails, it was cool. We went down the pub on a Friday because we're good at that. Everybody knew what everybody else was doing. Communication was great.

          Suddenly, over about 25, almost overnight, it turns into a big company. Not a big company like Freddie Mac, but suddenly the communication begins to break down and it becomes too unwieldy. You complain about getting too many emails and people begin to get upset because you've started to hire the fourth category of person. Category one is the entrepreneur. Category two are the cornerstones. Category three is the dream team. Category four is employees. These are people who come to work at 9:00 in the morning and go home at 5:00. They're doing a job. They don't care that much about it. They want to do well, but, if the company goes down, they'll find something else. These people are despised by people who join companies early on because they're not as motivated. Why should they be? They probably don't have as big a stake. It's an interesting job, but not that interesting, and tensions arise.

          Here's a top tip for you as you grow your company: When you get to 25 it's time for a big, big decision. Are you going to stay around this number of people, be what's called a boutique; a small business where your customers know you and love you? You don't really do much marketing. You know who your customers are. If one drops off, you get another one. You're happy. You're profitable. There's a good thing about the business: it's profitable every month. You're making money and everything is cool. Let's stay at 25 and not get into all that big, heavy, horrible stuff.

          Or you may say, “Wait a minute. We're getting demand from outside.” Chris lists the factors in the book, such as you're getting demands from abroad and all sorts of weird stuff. You could potentially ramp up sales like crazy. Okay, what are we 20 going to do, people? Are we going to go for it, because that's really exciting, or not? If we go for it, remember, it will never be like this again, the 20 of us in a basement, all fun down the pub on a Friday or the pizza place or diner, whatever your preference is. It's going to be a big company. Is this what we really want? We're now going to start hiring employees. You know, marketing, human resources, professional managers, ex-AT&T people with Teflon hair who just do things in a boring, repetitive way. Managers. All those dull people that we entrepreneurs despise. We're going to have to hire them because we're a serious company now. We may not like them, but we're doing it because we all want to. It's a big decision point.

          We call that big decision growing from sapling to mighty oak, becoming a big company. I know a lot of you people have worked in large companies who say, “Thirty people, 35 people, big company? That's ridiculous.”

          It isn't. I've seen companies begin to go really, really badly wrong about 30, 35, 40 when they stumbled across that magic invisible wall and didn't realize they were turning into a big company overnight. They had to put in this process that big companies have, reviews and all that kind of stuff. It’s a very important decision point.

Mr. West: When you've made that decision, if you're a boutique, that's great. We know a lot of good companies that are still doing really well, great lifestyles for people, doing tremendous work with their customers. Things roll. But maybe you decide to grow. That's great. A great big company, hundreds of employees. What about the entrepreneur and the cornerstones? Cornerstones have been doing this probably for several years now. Five years, seven years, working very hard. Startups, as you know, are not easy. They're going to burn out. That happened to Michael. Perhaps you’d better tell the story.

Mr. Southon: Yeah. I reckon I'm a really good salesperson in a company up to about 80 people. I start taking on salespeople, I make it to about 80. A really good guy called Matt Munafo who used to work for me saw this firsthand. When it gets to about six or eight people that I'm looking after, I’m not doing selling but sales management, which I can do if I have to, but it's a different job. It's not knocking down doors and getting revenue, which is what I love to do, it's looking at spreadsheets all day long to predict what everybody's selling. It's a miserable job. I hate doing it. I'll do it if I have to for a bit, but I'd rather not.

          That happened. I was worn out. I'd been working for several years doing the same thing. The company was getting too big for me. I was getting fed up with some of the things that were happening. I was beginning to burn out. Cornerstone burnout is something to watch out for almost from day one because you work these people hard and people who are great in a small company may not be so great in a large company. Things will really begin to bug them. In that particular case, fortunately, I went to Sir Campbell Fraser and he mentored me out of the company. We all ended as friends and it was great. I was lucky. A lot of cornerstones just burn out and they're just tossed aside by this large organization. Maybe the Teflon-headed men from AT&T fire them because they're not performing without understanding the history and the heritage. These people were there on day one. They deserve better treatment than that. The number one thing to watch out for is cornerstone burnout, because it may happen to some of you here. But more important than that . . .

Mr. West: The entrepreneurs. What's happened to them in this company? You know what we said about entrepreneurs—the crazy people, great, fun people, a little bit of a problem in the focus department sometimes, maybe arrogant, difficult. In a small company, that's fine. In a big company, they become a nightmare. They clash the whole time with these new business managers who are being brought in. They probably left a big company to start the enterprise, and they're starting all over again with all of these bloody managers. The entrepreneur is totally out of place and is getting in the way, actually damaging the company they created. The truth is, they're going to have to leave.

          All of you entrepreneurs, I beg of you to consider this: When you're starting your businesses and going really well, bear in mind that at some point—it's a bit like parenting—at some point you've just got to move aside. You've got to let the company grow into a big company.

          How do you do that in a way that is a win/win for everybody? It's very difficult. We know entrepreneurs who failed to do it and there were terrible boardroom battles. Of course, the company has gone public, the share price collapses because of this. Even if it's a private company, customers get to hear of it. It's bad news. This transition has to be managed. If you're wise and you're building up your businesses, be prepared for the moment when you have to step aside. It doesn't mean you have to sell your shares, it doesn't mean that you have to never be associated with the company again. You can be “Life President in Charge of Strategy” or something like that, but you have to be away from running things. If the entrepreneur won't go, this is the job for the cornerstones and for the mentor, who is still around, still helping. He or she has to take the entrepreneur to one side and tactfully say, “It's time to move on. You've done a brilliant job, but you're now getting in the way.” This is not very easy, but it's something you'll have to do. It's very important.

Mr. Southon: One time when we all probably need to get rid of the entrepreneur is when it is time to talk to the venture capitalists. The last thing that this gentleman here wants to meet is the original founder of the company who is bitter, fed up, hates everybody, hates all the new employees, and just wants their money. This is a bad message to give to a venture capitalist, believe it or not.

          Actually, I'll be nice about venture capitalists now. Maybe this is actually the time that you will go and talk to the venture capitalists because, if you follow the beermat model and it's worked out for you, you've been profitable maybe for five years, you've got a great team, you have an original CFO who begins to burn out, so you put them out to stud or whatever. You've got a great CFO, you've got a fantastic team walking into the VC, you've got a track record, and, if you're sensible, you've got a large law firm like Morgan Lewis on your side as well so they can argue with the bastards on their own terms. A VC will probably be happier to see a good company with a good team and a top quality law firm who speaks in the right sort of sense. At least then the bastards will only get 20% of your company when you do actually raise your money.

          But the VC will be looking for some sort of exit route, an IPO, a trade sale, a public offering, selling your company, or something. This may be the worst possible news for the entrepreneur. I hated selling my company at the time. Obviously, I enjoyed the money. It made my misery a bit more comfortable, but we copped out.

          I'm just reading a book called Dot Bomb, which is about all the British dotcom disasters. There are some good stories in it of entrepreneurs whose worst day was when they went public and realized there were a bunch of advisers and merchant bankers and banks and all these people making a fortune out of the IPO long before they did. I know one entrepreneur in England who ended up in a public company with 7% for himself and his wife, miserable because all everybody cared about was their stock price. Stock goes up, things are good; stock goes down, things are bad. It's institutions buying shares, nothing to do with the value of the company. It's the winds of the market. Then the share price collapsed, of course, with the dotcom collapse, so his shares were really worth nothing. Like many entrepreneurs, he thinks back fondly to the days when it was 10 people in a basement and it was all fun. That's the sort of fun that you guys are having.

          Our argument about this whole thing is: What is the point of all this? How do we know when we've won? What is the meaning of life?

          Would you like to know the meaning of life? Come on, you must want to know the meaning of life. Chris has a degree in philosophy, so we're going to work this out for you.

          How do you know when you've won? What is winning all about? We've got nothing against capitalism. We wouldn't sit in Washington and deride capitalism, of course. The way you can tell a beermat business is doing well is that it is profitable every quarter. Every month, ideally. That's the way of keeping score. If you're profitable long enough, the entrepreneur suddenly looks up and says, “Oh, my gosh, we've got a million in the bank. I can afford a car. Isn't that great news?”

          If you're just doing it to pump your business up, make a fortune, and sell out as quickly as possible, I would argue that you may be morally bankrupt because you're just doing it for the money. If you're doing it for the money, you'll never be happy because either you're not making the money—you'll fail because you were just motivated by money, which makes you really miserable—or you'll make money, but you'll never have enough money. There's always more money to earn, isn't there?

          Who is the most miserable man in the world, do you think? People say Bill Gates. He's happy, I think. He's just had another baby. He's changed the way computing is done. Let's not argue whether Windows is a good product or not; that's a different discussion. When he started, he wanted a PC on everybody's desk and he's achieved that. He's got loads of money, he's trying to cure malaria. Good for him. In fact, the one time I saw him close up was about 1989 at a Boston Computer Society affair and he was doing the old Microsoft pitch from the stage. He hadn't shaved and he hadn't washed and he smelled a bit and he was unhappy doing it. He hadn't been trained like he is now. I thought, poor guy. I felt a bit sorry for him, which may be a bit condescending of me. Then I saw him about an hour later in a room like this one surrounded by technical people firing questions at him to try and catch him up. He was answering this question and that question and another question, and he was catching them out, happy as a pig in stuff. He was really, really happy. I think he's a happy guy.

          No, there is one person really, really miserable, I think. That's Larry Ellison, the founder of Oracle. Worth billions, richer than you and I will ever be in our wildest dreams. He's got everything he wants except being richer than Bill Gates.

          So, now what is the meaning of life? How do you know when you've won in all of this, Chris?

Mr. West: You've built a great company. That's a great thing. That's a fantastic achievement. You've got a lot of money in the bank, you've got happy customers, you've got happy people around you in the company. You're putting something back as well. It's not just for you, you're putting something back into the rest of the world. I think that's very important, which is why we do this work with The Prince's Trust and that sort of thing.

Mr. Southon: The Morino Institute, we don't know Mario Morino because we've never met him, but, as we understand it he's putting a heck of a lot back. He's made a lot of money, good for him, but he's in inner cities, entrepreneurs, whatever. It's really, really good stuff.

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