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The Participation Age and the Importance of the Fourth S

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 Day 21 of 21 days with Chuck’s new book, Why Employees Are ALWAYS a Bad Idea

I sat with the African egg vendor and twenty or so others in a mud brick building with no doors or windows, just openings. The average person in the room made between $30 and $60 a month in U.S. dollars, which was more than a lot of other people there made.

We were discussing business-building principles. I had come from America with notes and handouts, but on the first day, I realized they were worthless and gave them to a small school who were thrilled because they were blank on one side.

I had rarely felt this helpless. Usually, you can just give me a business topic, wind me up, and I’ll interact with a group for as long as the beer or snacks last. Here were a couple dozen business owners waiting to hang on every word and I had nothing.

I turned to the egg vendor, explained “net profit”, and asked her how much she makes each month. We figured out it was about $2.00. I asked her what she did with it, and she said, “I take my children to get a special meal.” She was a single mom with three kids.

We then talked about freedom—that wealth is the freedom to choose what to do with your time and money. Net profit represented freedom, the ability to choose. That made her very proud to know she had $2.00 worth of freedom each month, and the other business owners started to get a little excited about the prospect that they, too, might figure out how to get some net profit. We decided right there to call net profit, “Freedom Money,” because it’s the only money in business with which you actually get to make a fully free choice. The rest of it is spoken for in one way or the other.

Then I challenged her and the rest of them to stop eating their Freedom Money and reinvest it in their business instead, so they would have even more freedom later. I drew blank stares, so everyone huddled around my laptop with a dying battery, and I built a quick spreadsheet to show what might happen if, for eighteen months, the egg vendor reinvested her $2.00 of Freedom Money into buying more eggs every month. The next month she would have $2.50 in Freedom Money. Reinvested in more eggs, the end of the third month she would have $3.50 in Freedom Money, and so on. By the end of eighteen months, she could stop reinvesting and would have $60 every month in Freedom Money after that.

I asked her if that would change some things, and she thought it might change her life. I then told her it won’t happen that way. She’ll break eggs, won’t find buyers, will have to hire someone to help, etc. Life is messy and so is business, and her Freedom Money might be $15 a month, not $60. But it would no longer be $2.00. It was a tough thing to challenge a woman not to take her kids for a special meal, but she got on board immediately.

I never saw her again, but I always assume the best, that she built up enough monthly Freedom Money to build a better life for herself and her children. The most powerful thing she got out of the time was that being an owner allowed her to make decisions. She was in charge of her future, not the world around her. I left her with a thought that has been valuable to me over the years, “Circumstances don’t make me who I am. How I respond to them, does.” She left as a proud business owner, looking forward to creating more Freedom Money with her business. Ownership is a very powerful thing.

The Three S’s of the Industrial Age
My mother was born in 1921. She grew up in the Great Depression and entered the workforce in 1943 after nurse’s training and taught me to pursue three things in life, the three Ss of the Industrial Age:

1. Safety—live in the suburbs, don’t live downtown with the icky people.

2. Security—have a big wad of cash in the bank.

3. Stability—every day should look the same, no surprises.

Her strongest encouragement—get a job with a giant corporation; they are the best prepared to give you a life of safety, security and stability with no surprises.

Just about every mother of that generation was teaching their kids the same things. So, it’s no surprise that at the height of the Industrial Age after World War II, the suburbs exploded with cookie-cutter Cap Cods, white picket fences, men working for Giant Corporation, Inc., who all left for work in unison with their white shirts, ties, suits, and briefcases at 7:30 a.m. and got home at 6 p.m., and who lived as predictable a life as possible.

They came home to a manicured wife and 3.6 freshly scrubbed children. Ozzie and Harriet reigned. That may sound great to some, but as we revealed in the introduction to this book, those people were called The Silent Generation and made very little meaning in the world around them with their balanced lives.

Their manic pursuit of safety, security, and stability made them the best extensions of machines in the history of the Industrial Age. It also dehumanized them to the point of silencing their voices, their creativity, and their legacy. (Remember, no presidents and no Supreme Court justices; the only generation without a number of them.)

Where are these three S’s on Maslow’s hierarchy of needs? They are at or nearer the bottom. So, why did my mother teach me to chase these things that were at or near the bottom of what we as humans need to make life meaningful? Because having gone through the Great Depression and World War II, she was looking up at the bottom. She didn’t have any of the three, and a life with all three would have seemed like Nirvana to her.

Today’s Millennials Are Searching for the Fourth S—Significance
But Millennials who only grew up in the shadow of the Industrial Age do not understand the language of Safety, Security, and Stability. They are one of the first generations in history, at least in the West, to be born with at a modicum of all three of those things provided for them at birth. They aren’t looking up at the bottom, and are instead reaching for the fourth S of the Participation Age—Significance. Making money is no longer enough. Being an extension of a machine to do so is not attractive, and the idea that everyday should look the same and that life should be predictable and without surprises is not challenging to them. They want more. They want to Make Meaning.

As the cultural influence of the Industrial Age and the Factory System fades behind us, we are all waking up to the need to rehumanize the workplace, reintegrate it back into our lives, and build lives that Make Meaning, not just money. To do so, we must eliminate the arcane business practices that we dragged out of the Industrial Age into the Participation Age—those business practices that turned men and women into machines, and silenced our drive for Significance.

You Have a Choice
Addressing the business diseases of the Industrial Age is not complex, it’s simple. But for those who have built businesses and lives around the inherited constructs of a bygone era, it will be both simple and hard.

We should be grateful that the Industrial Age provided us with the first three S’s— Safety, Security, and Stability—on which to build the fourth S—Significance. But we must also recognize that the practices that brought us those three will not bring us the fourth.

We have a choice to make. Stay with what we know and slowly atrophy as the world moves on without us, or join the Participation Age and start sharing together in building companies that Make Meaning, not just money.

Which do you choose?

This is a summary of a chapter from Chuck’s new book, “Why Employees Are ALWAYS a Bad Idea (And Other Business Diseases of the Industrial Age)”. Click here to pre-order this new ground breaking book at a discount on IndieGoGo.com until July 28.

What to Obsess About as You Grow

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(not profit)

Startup is all about proving you will make a profit someday soon. Once you prove it, you need to forget profit and focus on other things. If you don’t, you may stagnate or go out of business, ironically by focusing on profit.

Too often I see business owners who have worked hard to build a profitable business who never get off the treadmill. The problem is that when the business finally makes money, the founder too often hunkers down and protects their profit, when what they really need to do is move to a new stage – forget profit for a time and focus on growth.

At startup, if you don’t focus on proving your product or service can be profitable, you’re employing the Random Hope strategy of business. But once you’re there, if you want to grow, profit will shrink. It almost always does. Growth usually erodes profit significantly. If you’re focusing on profit, you’ll never want to grow, and you’ll never build a sustainable business.

When growing, here’s some things you should focus on instead of profit.

1) Product development – make it better!! Don’t settle for what worked to get you into business. Be relentless in developing an even better product or service. This could cost you some profit. It’s worth it.
2) Great people – great people are not an expense, they are an investment. Forget your profit, take a lower salary yourself, and get a couple great people. They will help you build a sustainable business, and you will grow much faster with a few key people doing things you’re not good at doing anyway. This will sacrifice short-term profits.
3) Logos, website, marketing materials. Too many businesses make the mistake of focusing on these things when they start (see last week’s post on why that’s a bad idea). But once you know you’ve got something, build a consistent face for your business.
4) Infrastructure (software, leased space, conveyor belts, computers, a bigger truck, etc.). When we cripple along and “make due” because we don’t want to hurt our profits, we are not thinking straight.

Focusing on profit, instead of growth, simply mortgages our future for short-term profit. We sacrifice much higher profits in the future because we’re not willing to take a break from profits to build the business.

The profits you were making early on need to be re-invested in the business in the form of a continually improved product, great people to build around, good messaging and marketing to expand the reach of your business, and infrastructure to support the growth.

Principle #1
Ask yourself this question: “Are you making decisions based on where you are, or where you want to be?” If you are making decisions based on where you are, where do you expect to be next year, or five years from now?

Principle #2
Don’t “go” into business, but “grow” into business.

Don’t spend money on the above things until you know you have a product or service that has proven it will be profitable. Don’t take loans out to build something early on that you haven’t proven has legs. But once you have proven it, then it’s time to make the investments that will take you from short-term profit, to a long-term sustainable business that makes money while you’re on vacation.

Prove profit. Then shift from profit to growth, and know that growth will cut the heart out of your short-term profit so you can build a long-term profitable business.

What to Obsess About at Startup

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And why

Most business owners obsess over the wrong things at the wrong time, costing time, money and even the business itself. What should you obsess over? When?

At startup we obsess over three things we shouldn’t:

1) The beauty and design of our product.
2) The beauty and design of our marketing (logo, business card, complex website, wrapping our van, etc.).
3) Focus groups, or other outside opinions that don’t involve someone’s wallet.

These are not things to obsess over at startup. They come later (in a future post we’ll discuss when these things become more important).

What should we obsess over at startup?
1) Sales – Are people buying right now, without fancy marketing, fancy packaging, or a fancy logo? Sales is NOT a focus group of people SAYING they would buy it, but cash actually exchanging hands. If this isn’t happening, don’t bother with a logo, website, focus groups or making the product prettier.

Nothing matters if people aren’t willing to buy the product long before it’s perfect. If the basic product isn’t enough to draw people in, then all you’ll be selling once you make it pretty is – “it’s pretty”. Google, Facebook, Basecamp, the automobile, cell phones, printers, TVs, radios, movies, cosmetics, you name it – none of them were very good when they came out, but sold anyway because the basic idea was really good. They got pretty later.

Focus first and foremost on selling a first generation product or service. If it doesn’t sell without the bells and whistles, the bells and whistles are very unlikely to make it sell more.

2) Close Ratios – How many Connections become Buying Conversations become Customers? Do I know the “close ratios” of Connections to Conversations to Customers? If I don’t know these numbers early on, I have no clue how to grow my business. After “Does it sell?”, nothing matters more than your close ratios. Knowing these defines all of your most important activity about how you will find customers in the early stages.

Example: I need 10 new Customers a month, which means I need 30 Buying Conversations (33% closing ratio), which means I need 90 Connections (33% ratio). If you don’t know how many people you need to reach to make a sale, you’re employing the Random Hope strategy of business. Good luck, because luck is all you’ve got.

3) Profitability – not “Am I profitable right now?”, but “Will this product/service be a profitable business?”

I worked with one client who I encouraged to make a few prototypes quickly, and take them out and see if they would sell. Instead they did focus groups, spent tens of thousands on product design, focused on product name, logos and branding, and put together a highly complex integrated marketing program with a great website, email campaigns, social media, etc. The product did not sell.

Marketing is what you do AFTER you have a viable product that sells on it’s own merits. Marketing will not make it sell, or will only make it sell nominally enough to fool you into staying in business.

When I started Crankset Group, for almost the first year I had no business card and a simple billboard website (1/2 page-no scrolling, almost no info, one email address), just to prove that most businesses don’t need marketing at first. They need to sell something.

Marketing is not the key to selling your product. Producing something that people want to buy before it’s beautiful is the key. If they will buy it when it’s slightly rough, they’ll love it when it’s refined.

At Startup, Profit Potential is Good
And don’t be fooled if your product or service sells like hotcakes right out of the gate without good marketing. Check your pricing and make sure this business will be profitable.

A few years ago in the TV series “The Office”, Michael Scott started his own paper company. He was able to pick up a lot of clients very quickly, seemingly proving he had a great business. Then his accountant told him that his pricing was too low and the more clients he landed, the more money he would lose.

Top line revenue is not profit. Profit is the number at the bottom after you pay for everything else. Because you may have startup expenses, you won’t actually see profit right away, but the profit potential must be very clear from the outset. Get outside eyes on this (i.e., accountant). Like Michael Scott, you almost certainly will be clouded, believing you see profit potential where there is none.

Sales, Close Ratios & Profitability Potential
People buy great marketing only once. If your product isn’t sellable without great marketing, it will die quickly. Word of mouth is the most powerful marketing you have. Make something people want, and serve them as they buy it. If it sells and it will make you profitable, then you can employ marketing to expand the reach of a product that is already viable.

Next week we discuss what to obsess over after you begin to grow.