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turning a good idea into a great business
the beermat entrepreneur
page three of three | previous page

 Mr. West: That's what winning is, when you get big enough to put stuff back.

Mr. Southon: Also, just to repeat something we said this afternoon, it’s being able to sleep at night. It's a myth that you have to go out and screw everybody to do well in business. The fact is, to use the technical term, that’s bull crap. The vision that you've got to get one over somebody else, that doesn't work.

          I asked Sir Campbell Fraser an honest question. “In all your years of industry, have you ever screwed anybody in business?” He thought and he said, “Do you know? I have not.” I believed him. That man sleeps at night, and I'm sure he's going to go to Heaven. I hope he puts in a good word for me when he gets there. He's a saintly guy.

          I'll give you a bit of personal experience. I was lucky enough to make money 10 years ago. We had a trade-sell. I was the right guy at the right time. Unix happened and I was with the right guys. I was really, really lucky. I had a check with seven figures. It did make my misery a bit more comfortable, of course, but it enabled me to do something that others wanted to do, which is, have you ever wanted to be a really big pop star? You know, one of these guys all the girls scream about? I do. Okay, I'm a bit strange. I do, so I worked out how to do it. I'll show you. It's really simple. Take this gentleman here. What has he got that I haven't got? A mustache. What I need is a mustache. You start off with the mastic glue here. For those of you who don't know about it, it's the glue that I've been sniffing for the last 10 years and it hasn't affected me at all. There's that. [He puts the glue above his upper lip.]

          Now I need a mustache. Here's a mustache here. These are the best mustaches you can get. They are handcrafted by Bolivian virgins. They're individually stitched. All these hairs were on somebody once. I wonder where. [He puts on the fake mustache.] Anyway, you stick it on and, oh, yeah, I'm looking rather cool. I think some of the ladies are getting a bit overexcited now. My glasses were a bit on the tentative side. These are business glasses. I mean, no offense, but I need some groovy glasses. I stole these from Graceland, from Elvis Presley's corpse. How about that? [He replaces his eyeglasses with large, glittery show glasses.]

          There you go, but there's still something wrong with this picture, isn't there? I'll show you what. What you all need is serious hair. [He puts on an enormous afro wig.] Now, this is serious hair. Let me put this on, put my glasses on, and I am now confused disco legend and '70s fashion guru Mike Fab-Gere, and I am the grooviest guy in the world.

          So what's all this about? It's very simple. We sold the company. I had some money. I thought, “I'm going to play in a band.” I used to play in a band with Chris, a swing band. I put together a pop '70s band, but, of course, I had money, so I put together the best band in the world. I just went to see my keyboard player. He's now in Deep Purple. I've lost him for about another six months because he's touring. I got my guitarist from Wishbone Ash, I got my bass player from Toya, who you've probably never heard of, but I've got all the best session players in London. I put this gear on and the flares. I've got the afro and I've got all the clothes that I've had made for me. I've got a 10-piece band. I've got a horn section, I've got girl singers. I've done just about every university in Europe by now, and I've done corporate events, bar mitzvahs, weddings, coming out parties, putting it back in parties. It's a laugh. I'm a silly man in a wig and we're doing “I Will Survive” and “Blame It on the Boogie” and “Honky Tonk Women.” I strut my funky stuff, I use it up, I wear it out, I get the funk out of my face, and I boogie on down. How much fun is this? If you saw me live with the band, you would think, he's a mad guy in a wig.

          You get the point of this. This is fun and interesting because this is my hobby. It's a rather serious hobby. I toured for about six years solid. It was when I was getting a bit tired of touring that I went back to do startups, but I still do it. I did a wedding last Saturday, and, remarkably, we ran into the bride and groom at Heathrow and they were so happy because we really helped make their wedding a great day. How much good karma is that? I get to be a pop star. The ladies can hardly restrain themselves at the front here. I've had experiences with Mike Fab-Gere that you would not believe. I hope to play over here one day, but I've done some fantastic gigs. When I'm a pop star, it's great. When I don't want to be a pop star anymore [he begins taking off the accessories], I take off the glasses, the wig, the mustache, and I'm boring Mike Southon again, the beermat entrepreneur.

          There's a serious point to this. We're going to talk now about the meaning of life. Start writing. Get your pens ready. For this I'm going to get Chris Fab-Gere to help me. Come on Chris, put your wig on. Now, the meaning of life has two parts only, rather like the elevator pitch. Part number one?

Mr. West: Have as much fun as you can.

Mr. Southon: Right. Have as much fun as you can. If you're not having fun, what on earth are you doing? What's more fun than starting up a business with cool people doing neat stuff? Hover boards, whatever. Being an entrepreneur is the best possible fun you can have. It’s hard work, but it's really, really good fun.

          So, have as much fun as you can. If you're not having fun, get a wig and have some fun.

          And part two?

Mr. West: Spread some good karma.

Mr. Southon: Spread some good karma. What is that about? It's about happy employees and happy customers. What better karma is there? Have as much fun as you can and spread some good karma.

          The final bit of advice from Sir Campbell Fraser is: “Watch the cash, laddy.”

          And that's it. That's the meaning of life, have fun, be entrepreneurial.

          We hope you've enjoyed our talk. We are the beermat entrepreneurs. I'm Mike Southon.

Mr. West: I'm Chris West.

Mr. Southon: Thank you very much.

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the audience: q&a

Ms. MacPherson: Thank you very much, guys — Don't put that wig on me!— We have time for a few questions which we can take from the microphones in the audience.

Audience Member: When you start out with the entrepreneur and the cornerstones, you say everybody is equal and they have a 20% share. Is somebody in charge?

Mr. Southon: Yes, Peter Griffiths was in charge of The Instruction Set because he was the intellectual champion. He wasn't right about everything, but he was right about most things. People are in charge in different areas. If there was a sales issue, I was in charge.

Audience Member: But is there a chief to the company?

Mr. Southon: It will happen naturally.

Mr. West: It tends to be that the entrepreneur remains the chief because he or she is the person who has the vision, who guides things.

Audience Member: How do you handle the cornerstones when I'm the chief? We're all equal partners, but what I say goes.

Mr. West: No, that's not what leadership is in small business. Once the entrepreneur starts saying, “What I say goes,” they're in trouble, because entrepreneurs aren't always right. The point about the cornerstones—finance, sales, delivery, and technical cornerstones—is that they're there to argue against that and say, “No, that's wrong.” The point about having five people is that you will reach a consensus. If people get out of line and start having odd ideas that aren't right, the others can heave them back into line. That is the point. The entrepreneur isn't always right, and the whole point about having the cornerstones there is to prevent the entrepreneur from hijacking the organization and sending it in the wrong direction, which can happen.

Audience Member: But without a company leader, you're spending a lot of time discussing and going over decisions and things like that—who's in charge, who's right and who's wrong, whatever. Without someone providing leadership for the vision, you're really kind of spinning your wheels.

Mr. Southon: Let me tell you what happened at The Instruction Set. Someone would say, “Why don't we do courses in OS2?” The technical guys would have a discussion about the merits, then they would say to me, “Mike, can we sell this?” I said, “I don't know. Let me have a look.” I sort of pulled rank on sales, somebody else pulled rank on what should the course look like, Pete had the vision, and we formed a consensus. We didn't have to discuss every decision, it had to be voted on. Most run of the mill decisions that were made were done by somebody else. I wasn't even there. I was out of the building. I would only be called up to ask what color photocopier we were going to get. If it was something like whether we should we take on some more staff, it would be a matter of, “Mike, can we sell any more? What's the revenue looking like? What are the customers saying? What sort of people? Do we know anybody?” A consensus was formed on the sensible decisions, but it will really focus your mind giving away 20% of your company to a cornerstone. That's why they're good people.

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Audience Member: You said focus on revenue and profitability from day one. If your intent is to build a product, how can you sell it if you haven't built it yet?

Mr. Southon: Yes, of course. The question we always get asked is, “The beermat is all very well, but we're about to invent a cancer drug and it's going to cost half a billion to do.” Obviously, that's a tough one, but any product, in my view, also has a service element. Let's say that you're going to make a widget and it's going to take a bit of money to make it. You're telling me, the sales cornerstone, that you're going to do a revolutionary widget. That sounds cool. Let me ask this gentleman, he's head of purchasing at Widgets Unlimited, “If we have this widget, would you be interested?” He says, “Yes, but we're very skeptical.”

          Say, “We'll do a little consultancy for you. We'll write a report about how this widget is going to be better than anything else and we'll bring you an example.” Just knock one out, a quick, easy one. If this guy will pay for the consultancy even before we have the product, it is looking good. But maybe he says, “Well, you do what you like, but we'll never buy it.” See, a lot of product companies make the mistake of building the product, putting too many features in it, then going to him and discovering at the end of the day he didn't want to buy it.

          Adopt a service element. “Why don't we train this guy in how to do better widgets?” Offer the service element, which is hard for a product company to do, to test the market first. You're forming a relationship with the customer and you're beginning to understand what his needs are, what the business is about, where widgets would fit in, and what he might pay for them as consultancy work. Try services first if you can.

Audience Member: You talked about the entrepreneur’s decision to stay on or not at the 25-person point, but mostly about their leaving. Can you offer any strategies if you want to stay with the company? How do you need to adapt? Is there any point at which you can say that you've safely gotten over the hump?

Mr. Southon: The first thing we advise for the entrepreneur is that if you still want to be involved, great, but you have to let a lot of stuff go. Let managers do stuff and do not meddle. I left the company once when the entrepreneur kept meddling in sales, retargeted all my salespeople without telling me. I said, “Why buy a dog and bark yourself?” I left.

          Anyway, the entrepreneur has to let all this stuff go. Maybe they start a Skunk Works for that fantastic new product, put it in the building next door, put a skull and cross bones on it, and keep your key team. Let's say you're the entrepreneur. Take them with you, your little tiger team who invented the Macintosh and grow it that way. Still be the charismatic founder who wanders around charming everybody: “I was there at the beginning, It's great for all you new people. I don't know your names, but I don't care, I love you anyway. I'm in the Skunk Works.” Still produce that leadership stuff but don't get meddling in things, like why are we spending this on that and why have we got this paper and not the other one. Let stuff go.

          I guess you'll get humps all the way up. People who grow companies past 50, 100, 200, there's definite stages in there.

Mr. West: One hundred and fifty.

Mr. Southon: One hundred and fifty is a bit of a magic number as well. There's a lot of organizational theory on this. We're not experts on larger companies, we're startup people. I think you'll find people who have more expertise than us in growing that, but we loved The Instruction Set at 150 people. That went really well. I wasn't head of sales anymore. I had a sales manager and he was excellent. I was head of technology development and I was the guy who went off and brought in new sales from who knows where. I was really happy. I had no responsibilities other than bringing in revenue. When I stopped bringing in revenue, if they had quietly stopped paying me and said, “Just sit in the corner and don't get in the way,” I would have been happy, probably.

          But it's a tough one for the entrepreneur, realizing from day one that one day you're going to have to move aside or maybe out. If you pull some of the tricks that Chris was saying, being difficult and calling up customers randomly, then you have to go. They have to be fired. It's a tough one.

Audience Member: Can an entrepreneur be a cornerstone functionally as well?

Mr. Southon: It's possible, yes.

Audience Member: I think they have to be.

Mr. West: Yes, I think so. Yes, I'm sure.

Mr. Southon: Entrepreneurs tend to be one of two things, technical people who have a great idea for a widget, or a salesperson who has been to yet another sales visit and says, “If only we had green widgets. We don't make green widgets.” Use their sales or technical background, and, yes, I think they can be cornerstones.

Mr. West: I think they can be, but, even if you are a sales-driven entrepreneur, it still might be a good idea to have a sales cornerstone there to do the basic work because entrepreneurs are always going all over the place. The point about cornerstones is that they stick to their job. Even if you are a salesperson who is good at sales and has the idea and is driving the company, you're not always available to do sales. You're still going to need somebody who is charismatic, who is good, who loves the company, and who's really involved to spearhead the sales on a day-to-day basis. I think it's usually better to have somebody doubling you who is doing that stuff every day, all the time.

          Initially, of course, you may well have to double up and do things because small businesses are like that. Everybody has to do a bit of everything, but it's something to aim for, having that setup where there is the entrepreneur and the cornerstones around him or her.

Audience Member: Once you've written your elevator pitch, what's more important, a business plan, a slide presentation explaining your business in more depth, or something else ?

Mr. Southon: Something else. A customer.

Mr. West: No, the answer is a person telling it to another person. The old story of sales is that people buy from people. They don't buy from slide shows or business plans; they buy from you because you're a person. That's what you need. You need somebody selling for you who says, “That is a great idea and I know who's going to buy it. I'm going and doing that.”

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Audience Member: The sales cornerstone would also be someone who, once you have them on board, would go out and find your angel funding if that's necessary?

Mr. West: Well, they would be good at that because they're good negotiators. The entrepreneur and the finance cornerstone should be doing that as well. It's a team effort, I think, finding the funding. The entrepreneur will have the overview and will be the person wheeled into the angel, but, ultimately, the debate with the angel should be with the finance cornerstone. Although we say that there is a fun aspect, there's also a financial aspect, and you need somebody with whom you can talk spreadsheets. But before you start thinking about the funding, you need to have customers expressing interest. What you need once you've got the elevator pitch is a man or a woman who goes out and tells people, “This is brilliant.” That's the next thing you need.

Mr. Southon: How many people here have an MBA? Right. We were a bit rude about MBAs as well, so hopefully we won't be torn to shreds. It's a natural thing for MBAs to write business plans. Later on, you'll need somebody to do that, write it down and make sense out of it. We advocate the beermat business plan early on, which is a simple: Does this make sense or not?

          I'll tell the story of a real entrepreneur that we're working with in the UK. This is a classic story. He's a guy that comes out of South Point University. He's an inventor, an ex-truck driver and mechanic. He's invented a mirror for trucks which removes the blind spot, thus reducing accidents at low levels. He already had a large supermarket chain interested in the product. He asked to see us and, because he had a first customer, we said, “I'm sure we can help you.” We actually met him in the pub, bizarrely, because we were busy launching the book. So, there he is buying beer and he's talking about this idea. We said, “We don't know anything about mirrors, but it sounds like a good idea to us. You're speaking to this large supermarket group. Are you speaking—and this was my stroke of genius after two pints—are you speaking to the people in insurance in this company?”

          He said, “That's brilliant!” and he bought more drinks. I thought, “Great, I'm clearly a genius.”

          He set up a meeting with the head of insurance for the supermarket group. I just asked the guy, “How much of a problem is it, these low level accidents with these truck mirrors?” He said, “We factor in about $600 per vehicle per year for this kind of accident.”

          I said to Jason, the entrepreneur, “How much to knock these up in your basement?”

          He said, “Three hundred bucks.”

          I said, “We're on.”

          That was the beermat business plan. We haven't gotten into what is the market for mirrors and how much can we manufacture them for in Korea, nothing like that, just a simple deal to be done written on a beermat.

          I said to this chief buyer at the supermarket chain, “So, do you like the mirrors? Do you want to do this deal?” There's a depot manager who said, “Yes, how much money do you want?”

          I thought of a ridiculous amount, “$300,000.”

          He said, “Are you mad?”

          I said, “Yeah, I'm Mike Fab-Gere. How much money could you spend realistically and not get fired?”

          He said, “$15,000.”

          I said, “Done. We'll have $15,000.”

          We called it 10 mirrors at so much and so much consultancy, and let's see if they work. He's testing them next week. If these 10 mirrors work, this company will buy 100, then 1,000, then who knows. Then, obviously, every other trucking company will buy them. If they don't work, it’s back to the pub, get another beermat out.

          This guy has not got premises. He's got a bit of government grant money and we're applying the beermat test, but it passed the beermat sales test. I spent an hour with this chap from the supermarket chain. It was clearly a win/win. I didn't need to write a business plan or produce any slides to get a customer.

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Audience Member: You haven't mentioned marketing at all. Has the dotcom era convinced you of anything there?

Mr. Southon: Marketing. Well, let me talk about marketing. I'm a big expert in sales. Often, when I'm working in the US, people say I work in marketing when they mean sales. I'm a salesperson so I hate people from marketing. All you do is write brochures all day; you don't go out there selling. Blah, blah, blah. Of course, there's a great place for marketing. It's a hugely important and valuable skill a little bit later. You probably don't need marketing in a startup company under 50 people, I'd say.

Mr. West: No, no. There are two basic functions of marketing, as far as I can see. One is strategic marketing. The entrepreneur should have a feel for that. If he or she hasn't got that feel, you've got a serious problem and no amount of market reports will solve that. The other function is communication with clients, and that is on a person-to-person basis. People buy from people, and coming in with a brochure is no substitute for a person coming in and saying, “I believe in this.” The ideal pitch to any company, of course, is that this is going to save you a million dollars. You've got people's attention when you say that, and you don't need a brochure to say it. So, marketing is great. I've worked in marketing, I like it and I like marketing people, but it is big companies who really need marketing. I think small companies don't need it. They need a vision of the product and its role in solving a problem for a selection of people, which is a strategic aspect. It needs people talking about the product who are enthusiastic and really know what they're doing.

Mr. Southon: Are you a marketing person?

Audience Member: No.

Mr. Southon: Oh, thank God for that. Does that answer your question, ma'am? Actually, there's a very good example of marketing, which is the Morgan Lewis brochure. Where are you, Dean or David? Have you got a Morgan Lewis brochure? Bring a brochure over. We'll show you a good brochure. It's the same color as the Beermat book.

Mr. West: Talking about marketing, the role of advisors in the company is interesting. A lot of people get consultants in too early and things like that. With a law firm—Morgan Lewis sponsored us today, so we're going to say nice things about them—there are very important things that law firms can do for small businesses. If you do have to get funding, for Heaven's sake, get a proper law firm, a big law firm on your side. They'll do deals so that you don't have to charge the same sort of money that they charge Exxon. Get a big law firm on your side if you're going to go near one of these venture capitalists. We say don't, but you may find yourself doing so. Don't go there on your own, Get a big firm behind you, somebody who can outstare the venture capitalists.

          One of the problems entrepreneurs have with VCs is that there's an imbalance in negotiating skills and needs. The entrepreneur is normally desperate for money and is not as good a negotiator as he or she thinks. The VC has got money coming out of his or her ears and is a mean bastard at negotiating. Get a lawyer, a hard-nosed lawyer in there on your side, and the deal will be very, very different. There are very nasty things VCs can put in contracts, and suddenly you've got none of your company left because you were 1% short of your sales target for October and they've taken the whole company over. A good lawyer will prevent that.

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Mr. Southon: I'll save you some money. Everybody thinks they should have a brochure. A law firm has to have one to be credible and they can afford to buy one of these things. None of you startups need anything like this now. Any salespeople who say they need a brochure before they can go out and sell, they need a smack, in my view. Maybe one page you can just do off a laser printer if you want to leave them with something. And don't spend a fortune on your website early on. Just something that explains what you do, no Flash or any of that nonsense. A simple website that explains what you do, contact numbers, details, an email address. You don't even need a brochure.

          The first document you will write will be what we call a white paper, which is a description of what happened in the first sale. It has two functions. One is to work out whether you ever want to do it again. It's the story of what happened when you did your first sale and was it profitable? Was it a good idea? Second, it's something you can leave with the customer, which is a technical description of what you did. It's paper, just a bunch of text and a couple of diagrams. You don't need to spend money unless you're a large law firm.

Audience Member: I've invented a safety product that has generated a lot of interest from many organizations. How do you approach an OEM to sell your product to them?

Mr. Southon: That's a very good point. Strategic partnerships, or an Original Equipment Manufacturer (OEM) in this case, can be a great sales channel for you early on when you've got the infrastructure. For that mirror, it could be an OEM to sell to other truck people. Go into an OEM with a great customer story. A lot of interest from potential customers is okay, I would prefer a lot of interest from a customer, singular, who coughed up some money for it and is a good reference for the OEM. The OEM is thinking, “You sold a mirror to the accountants; we can sell it to all the accountants because that's what we do.” Go in there with good customer stories.

Mr. West: Especially when that interest takes the form of a little piece of paper with a signature and some numbers written on it. That's the sort of interest you want. Then you can go to the OEM and say, “Look, we've got something you people want.” The problem with a lot of marketing and all that sort of stuff is people will always say it sounds great, but will they cough up money for it? That is the magic test.

Mr. Southon: A quick question. How many of you have actually got revenue? Hands up. Keep your hands up. How many of you framed your first check and put it on the wall?

Mr. West: Well done, sir. Very good. Somebody did. Excellent.

Mr. Southon: It's such a great day having that first check up there, whatever it was. That's celebrating success, which is something else we talk about in the book. It's like sports teams when they score a goal, they all go around kissing each other, don't they? They're celebrating. They're taught that they have to do it. Part of that is, and this is one of the tips in the book, framing your first check. Have you got photos of all your early employees with their employee numbers on them? I love doing that. In every company I've joined,  I've done that. That's been my main job apart from selling. Take a photo of everybody and put their names up. Employee number one, employee number two, employee number three. This is great team-building stuff. It's the lifeblood of an entrepreneur.

Ms. MacPherson: Let’s all thank Mike and Chris for being with us this afternoon. I think there's a lot of practical advice in what we heard, and also a lot of controversy. I might take exception to a few things, but I think we will continue that conversation. Thanks to all of you for coming.

[End]

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