Impact of the Cyprus bailout on people there

The terms of the Cyprus bailout were unprecedented. In exchange for a €10 billion emergency aid package, Cyprus in March agreed to E.U. demands to effectively confiscate up to 60 percent of any depositor’s holdings above €100,000 held in two of the country’s largest banks, Bank of Cyprus and Laiki Bank. Now Germany claimed that this was to penalize the money launderers who had contributed to the crisis (itself questionable). As a result of this, many businesses have been plunged into immediate bankruptcy. They cannot pay suppliers, salaries, rents or running costs. Schools and hospitals are running out of money, farms cannot buy feed for animals and the country is being plunged into misery and a financial situation that will take up to ten years to recover from. Private citizens had wired money in to close on houses, only to see most of it disappear before the sale could close. Lawyers holding money in escrow have seen the money vanish while still being liable to pay their clients.

There has never been a bailout like this, and had the terms been applied to a larger country, it could have led to global chaos. It is as much of a "punish the innocent and uninvolved" plan as one that hits the mark of hurting the guilty.

Travels in Cyprus

I recently returned from Cyprus, where the banking crisis continues. While people have been hurt by having their bank accounts raided, businesses, schools, hospitals have been hurt even more. Driving in Cyprus, around 20-25% of shops are shuttered, many probably permanently. Yet, if the purpose was to eliminate Russian money laundering through Cyprus, I still saw 747s from Russia arriving at Paphos's tiny airport.

I also spent some time in Turkish occupied North Cyprus, which only Turkey recognizes (and subsidizes). Long poorer than the rest of Cyprus, it shows signs of pulling ahead. Cars are newer, commercial and residential development is moving fast. My forecast is that in ten years, the North will be wealthier and more separate from the South. Whereas in the South, virtually everyone speaks excellent English, in the North few and fewer do.

More to come!

Why do people not understand that lead generation is a key part of sales

Not recognizing the need for lead generation comes from a naive view of selling. Sales is not simply a transactional process where a buyer, who has spent the time to understand all the options, investigated each thoroughly, then makes a completely rational decision. Rather, it is a messy process, where many decision makers in a company, each with superficial knowledge of the options, make a subjective decision based on a brief and rarely complete trial, in a situation of having little time available. The final tie-breaker is trust, and sometimes it can be the biggest factor. Lead generation efforts are essential to complete these fully.

Start-ups rely on execution

People often assume that once you have the idea, all is plain sailing. Yet many failed start-ups were based on good ideas (which often succeed in other hands). What made Facebook succeed where Friendster and Tribe did not, or LinkedIn where eCademy or Ryze did not, was the right execution. This does not mean that all went smoothly. A lot of scrambling went into the success, and a lot of quick recovery from mistakes. Yet, all too often, execution is underestimated and the value of the idea is over-estimated.

You don't have to be crazy to found a start up, but it helps

As H.G. Wells said, “all progress is made by unreasonable men.” Of course, he was wrong. There are many unreasonable women! Each year, in the USA alone, there are over 100,000 start-ups. Only about 10,000 get any outside funding at all and only about 1,000 get VC funding. The biggest VCs only fund low single digits per year, and the small ones may only fund any every other year or less often. Even of those funded by VCs, about 50 will become real businesses, and probably fewer than 5 will pay back the investment in the multiples they hope for. So, almost all founders waste years on the business and lose a lot of money. A very few make a fortune, a few more make a living.

Nevertheless, were it not for such people, the country would not progress and grow. Fortune 500 companies, in aggregate, are job destroyers. It is the medium sized and small companies that grow employment and advance technology available to the market. Even the best corporate labs have only a small proportion of the technology they generate commercialized. So the country, and the world, needs start-ups to sustain our growing population, even at the cost of dashed dreams and bankrupt entrepreneurs. But why do intelligent people found businesses if the ods are so intimidating?

Perhaps, it is, as they say about lottery tickets, “you can’t win unless you buy a ticket.” That is probably one of the reasons, but there are others. Firstly, most founders do not know how slim the chances of success are. Secondly, they have an idea that they totally and passionately believe in. They usually over-estimate the quality of the idea, but it is still normally a good idea. Thirdly, they assume that both selling and getting investors will be easier than it is (after all, it is self-evidently, a brilliant idea).

As a result of this, founders can be unreasonable managers and partners. They are so convinced of the rightness of the idea that they do not accept anything that is at odds with their own vision. Now there are founders who are very different, but a balance is important. There are ten key guidelines that can make the success of a start up more likely. These are:

1.     A team of equals is more likely to succeed than a single founder. There is a lot of work to do and rarely can one person alone do it all. Furthermore, it shows that the founder(s) can work with other people, and the idea is good enough to get several people believing in it enough to put their lives on the line.

2.     Having a defined target market. If the business cannot narrowly define its market, it cannot optimize its product, its message, its pricing and its distribution channels.

3.     Solving a recognized problem in a new way. If the target market does not and never does, recognize a problem, then however technically brilliant the product or service, it cannot succeed.

4.     Openness to new input. Often founders are so monomaniacal that they keep on with a plan even when they get new input or experience problems. While constantly changing is harmful, openness to change is essential.

5.     Too much focus on product vs. acquisition of customers. Getting customers is key, as a source of revenue, but also it enables easier funding and continuous product improvement. Paying customers give better product feedback than ones that are trying it for free. Balance spending against sales and marketing with spending on programmers.

6.     Having too little money. It takes a lot of time to get funding, and if the founder does not get 12-18 months of money, then the he or she can spend all of his or her time chasing money.

7.     Spending too much money on the wrong things. Fancy offices do not matter, people can work from home if needed, as long as there are people who can make or deliver the product and people working on sales and marketing.

8.     Choose the right location. Not all locations are created equal. Too many founders pick a location because they live there, or want to. Just because it’s a big city, it may still be wrong – Chicago or Dallas is almost always a mistake for a start up in technology or fashion. You need a culture that is start up friendly and that has an infrastructure to support you. For example, investors would rather invest locally than have to get on a plane to attend a board meeting.

9.     Make all your early people feel like founders. They will have a stake in the success of the business rather than just being employees there for a salary.

10. Make sure that you and all on the team make this a serious, energetic effort. You can’t play with a start up on the side and expect that it will work. Too many people are dilettantes for years and even if it is a good idea, they drift for so long that they fail, still having spent lots of money and time.

So, if you have an idea, go for it. Recognize that it is hard, but the potential rewards are great. Do all that you need to do to maximize your chances of success, and balance some insanity with intelligence.

The purpose of a startup..Peter Drucker

Peter Drucker famously said that the "purpose of a business is to create a customer. Often people forget. They come to believe that the purpose of their business is to build a product, grow an organization, get funded, or create an efficient supply chain. While these may be essential means to an end, the end is always to create customers. If too much effort and money is spent on the intervening steps, then too little will be spent on Sales & Marketing. This is often the case in start-up where founders can believe that the product speaks for itself, it will become successful through word of mouth or viral efforts, and will need little formal advertising or selling. Particularly today, many talk about avoiding product categories that require a lot of of Sales & Marketing. However, experience tell us that there is no such thing as a free lunch. Nothing will substitute for the tried and tested. Trade Shows and mailing lists are not glamorous compared to a Twitter account, or a partnership with a high profile company, but working the basics is essential for success. What Peter Drucker said half a century ago still holds true.