Welcome to the Eventual Millionaire Podcast. I’m Jaime Tardy and today we have Michael Burcham on the show. Michael is the President and CEO of the Nashville Entrepreneur Center. He has been a serial entrepreneur in the healthcare industry and also teaches at Healthcare Innovation and Entrepreneurship at the Owen Graduate School of Management at Vanderbilt University. He has got a ton of knowledge in him and I’m really excited to have him on the show today. Thank you so much for coming on, Michael.
MICHAEL BURCHAM: My pleasure. Good to be with you.
JAIME TARDY: So first off, let’s start with what type of background do you have and did you always know that you always wanted to become a business owner?
MB: My background, I grew up in a very rural part of the South. Moved to Nashville to work in healthcare. Started my career at Hospital Corp of America which is a terrific place led by entrepreneurs and almost a magical place to learn business startup skills. Eight years in I got the itch to start my own businesses. In ’92 left there and began sort of my own entrepreneurial journey. So, for the past 20 something years, I have been raising capital and creating my own businesses in the healthcare space.
JT: Wow, so you have a lot of knowledge. What’s the best piece of advice you have for someone who is just starting out?
MB: For one, I would say make sure that your shiny object makes money otherwise it’s just art. Know really the business and really understand how your business model compares to the other business models in your space. If you can figure out how your idea can actually have more than a single revenue stream or so, you’re probably well on your way.
JT: That’s one of the questions that I was actually going to ask you is how do you find out whether your ideas are worth anything because we all can do some research but how do you really know whether it’s a go for an idea?
MB: There’s really five tests that an investor would use and I think those are really good tests for an entrepreneur to use themselves. The first is who is creating this and typically it’s very challenging particularly to cross the million mark by yourself. So having a team is extremely important and making sure you’re complemented well. I think second is making certain that the business model you’re following provides you a way to scale revenue. So many people start with a simple transaction based business – I have a product, I find a customer, I sell it. I’ve had one sale, I’ve got to go find the next customer.
Revenue streams that are subscription based or revenue streams that are multiple with a company are much easier to scale past a million dollars in revenue. A third is understanding the profile of the customer and making sure the pain you’re solving is a pain that customers have so much of they will pay money to get it solved. The fourth area is understanding how to manage your cash flow you get to profitability.
And then the final is making sure you know how to building a momentum. It’s sort of the sexy factor around a business concept that gets you in conversations, customers, in the news, so that people hear about you through probably the best marketing of all which is word of mouth.
JT: How do we go about doing this? These tests are amazing and awesome and I’m sure you do this quite often, but how can someone who is listening today really use these tests in their own business?
MB: First and foremost, in the business model, look at the competition. Understand the kind of margin they produce on a cash flow or even a basis. See how you compare to that with what you’re building. If everyone else in your space is producing a 15 or 20 percent bottom line and your model and the way you built your business produces a 12, you probably shouldn’t be in business because you can’t outperform what’s already sitting there.
If you believe you have something that is leveraging technology that can make you better or faster, cheaper than what else is out there and you can produce a better margin, chances are you have a scale business that you could. So the very first test I use on any of my ideas is I get a model design done often in a flowchart form and a very simple financial table and I’ll compare that to everyone else I see in the space and how they do. I can compare myself to a public company through their reporting. I can compare myself to private companies using databases like Capital IQ or folks who have done a recent transaction or simply asking potential customers where they buy this from today and from whom and at what price.
JT: So it sounds like you really just want the data and I mean then the data will tell you whether or not it’s a good idea to move forward at least at that initial stage.
MB: Well the data is sort of the, think of financial metrics as a scorecard of the game called entrepreneurship. You can watch football but if there were no scoreboard and no one ever kept score, you know, you just watch as you run up and down the field all the time. That’s why the second accountant’s score counts. All the financial metrics of a business are a scorecard and it lets you know are you winning or losing at this game.
So even before you begin the game, setting a basis of what you expect to do and then beating that is an incredible way to keep score on yourself to make sure the time and money you’re spending to refine this idea is going to matter in the next six months, year, year and a half.
JT: Yeah, that’s brilliant. No one would watch football without a time limit or a score. So that’s a very good point, definitely. Okay, so what else can we do? How can we find the profile of our customers? What’s the best way to go about doing that?
MB: I try to first get individuals I’m working with that are starting a business to give me a picture of the potential customer and their pain and then I ask them to really describe what are the other kinds of things that individual buys, what else do they buy that’s like what you’re selling and what gives us any insight to know they want to buy what we have to sell. Typically once you get a really good picture of the customer, it’s very important to stop the design of the business for a bit and get out in front of five to eight or ten potential customers, share with them what you’ve got, get feedback, see if it’s something that they are inclined to at least consider, even in an early beta test if you’re that early.
Or if you’re beyond beta, seeing will they adopt or use what you have. I mean it’s sort of a crude way to say it but if the dogs don’t eat the food, it’s not going to matter. So you really have to make absolutely certain before you are too far into this that what you have designed really solves a pain that people want to pay to get a solution for.
Often I see a lot of early stage companies that there is a pain and the entrepreneur has designed a product or service to solve the pain but the customers or potential customers just don’t care if the pain is solved or not. They’ve learned to live with it and they’re not willing to buy a solution. They’ll take a free solution if it’s easy but they’re not looking to buy a solution.
JT: So how do, I’ve also heard this, where you’ll go and you’ll ask someone would you buy this and they might say yes because they don’t actually have to put up any money right now and they might tell you your idea is great but not actually front the money when it comes to it. How do you guys get around that and people just saying, “That’s a great idea, I would love to buy this” and having people turning around and not actually want to buy it?
MB: Typically you ask three basic questions. One, under what conditions would you buy it? Second is what price would you pay? And third is when can I expect that you and I would sign a letter of intent for that purchase? It draws the sandbox very tightly about yes I’m interested. Often an entrepreneur gets so elated with a customer or a potential customer saying yes I would buy, they immediately close the bag, go back to the office and say yeah somebody wants to buy this thing without getting the clarifying things and once we know under what terms or conditions at what price and when, then we know if we really have a potential sale or not.
Most of the time, unless you’re selling a consumer disposable product like a soft drink beverage or something, there is a sales funnel and there’s a process a customer goes through from being a prospect to hearing about it to some sort of engagement or letter of interest to a close. Early companies struggle with understanding what is that sales process or sales funnel and how to really quantify the customers that are moving through that and what’s the probability of a close or a sale or happening.
But understanding that really clearly is the big difference it makes in learning to scale a business, particularly when you’re going to get beyond a few hundred thousand and get into north of a million or maybe five or ten million. Those kinds of deals typically happen when the entrepreneur or CEO really understands not only their business model but a sales process and a sales funnel.
JT: So how do we go about getting that layout of sales funnel and the testing and the metrics and the making sure it works? What are your best suggestions on that?
MB: That suggestion is to, if you have an existing customer today, ask them the process they went through to make the decision. If you are projecting your first customers and you haven’t actually gotten customers yet, put your best thoughts on paper of what is the process and then test it with potential customers for the process. The metrics of the probability of close will actually be validated over time.
Once I have 20 customers I’ve sold something, I can look at the time it took from my very first engagement with them until they said yes and whether that was a minute online because they found the shopping cart easy to use and their credit card processor worked. It could be five months in a consultative sale. Regardless, there is a process and understanding what happened with the fallout versus who moved through gives you a really good sense of how to assign some of those probabilities on a selling process.
Most businesses if you look at the data, most businesses fail because of lack of customers and that lack of customers forces us to be sub-optimizing revenue or cash flows dry up and we don’t have a business. It’s not that the idea is necessarily a bad idea, it’s just an idea that no one wanted to pay that price for to get the solution.
JT: So how can we find out ahead of time. Are all these techniques just it in order to find out whether or not we’re going to fail on a lack of customers later on?
MB: I don’t know that it’s necessarily just it but it’s certainly a really important center part of it. If we think about it carefully, starting a business, a person who is going into that mindset immediately has this feeling that there is a pain. I’m going to solve this pain. I’m going to get this product to the customer and when I do, they’re going to want to buy it. What I find is so many individuals will spend six or nine months in the planning process and never once go out and meet with potential customers and engage them about the idea.
The thing to remember is all of our ideas, all of our business ideas, mine included, are all magnetic north about ten degrees. If ten degrees was a perfect homerun success, all of our ideas, no matter how well we planned, are off because they’re based on assumptions. That gap between a perfect homerun idea and where we are at that ten degrees either way from north is the gap that causes us to burn cash and not get customer traction or adoption.
So that iteration back and forth between us and customers is what allows us to close that gap and as we close that gap, we move to profitability and real scalable success. There are companies that are three and four and five years old still struggling just north of a breakeven point though they may have almost a million in revenue not really putting money on the bottom line because they’re still operating at ten degrees off north.
Their processes are sub-optimized. Their sales process is slow. Customers are sort of happy, sort of dissatisfied with it and closing that gap is the secret to success and it only happens when we are iterating back and forth with customers in a pretty rapid fashion to really go from what we perceive they want to buy to really understanding and delivering something that is irresistibly good that people will always want.
JT: That is excellent advice. So I actually just got off the phone with a client of mine who we were talking about this exact same thing and she also talked about not looking desperate and not looking like they don’t know what they’re doing. So how do you approach that when you’re asking your customers?
MB: And without looking desperate?
MB: I think that the way I have always approached that is I assume that in order for someone to switch from what they’re buying today, because very few markets are brand new markets, most of the time, someone is either buying someone else or buying something we’re a substitute for. Michael Porter described that really well in his writings. We’re either offering a competitive product to something out there or a substitute and replacement product that’s more technology based or something.
In that case, the thing that we have to remember is that the customer has to realize that the pain to stay with what they have today is a much worse pain than the pain to switch to our solution. So when we approach the design and the customer with something that’s elegantly simple that is less painful than what they’re doing today, that hopefully has some competitive advantage in it that it’s better or faster, less expensive, more robust, more reliable. Something that has a feature set that’s better than they have today.
Very rarely are we going to look desperate. When we look desperate is when we’re offering to sell the same product someone else has and we’re slightly less expensive or slightly more expensive and we’re trying to convince a customer to leave an established relationship and forge a relationship with us and the pain threshold of each is pretty much the same. There’s no real win to the customer other than maybe a few four, five or six percent lower cost to do and, as a result, the customer just feels why bother. There’s not a lot in this for me.
So understanding the pain threshold of a customer and making your new option less expensive to switch or making certain that the pain is certainly less to switch and there’s an advantage is the best way to not look desperate. Otherwise, if you’re simply offering the same thing you are going always look desperate.
JT: So what about the timeframe? What it sounds like is, you said they fail because of lack of customers and you figure how long does it take before they find out whether or not these customers are willing to pay money for this pain and trying to deal with cash flow and stuff like that. So can we talk a little bit more about that?
MB: Sure. That’s a very good question. I don’t believe it takes a long period of time. One of the reasons we established our entrepreneur center is to give early stage entrepreneurs a very structured process to work their idea through, to understand the opportunity and the way I view this is in about three months or about 14 weeks you can work from idea to investable story. During that process, you should be able to get three to five letters of interest or intent from customers that is committing them to buy something.
In my view, if within three months of working an idea you aren’t there, you’re probably not going to get there. If you’re committing time everyday to work on this idea, it just doesn’t take a long time because, you know, selling a customer on a solution isn’t like a flight to the moon. It’s simply making sure what you have is a better alternative for that customer than what they have today. So my guess is it doesn’t take a long time. I’ve seen the companies come through that I work with here and typically within 90 days we get them the first three to five customers and investable story and then the next 90 days we can typically raise half a million to a million of capital to help them get lost if they need capital.
JT: See, that’s really invaluable. I mean knowing that a lot of the times business owners go okay I’m ready, I’m going to start, this is it, my year now begins or whatever it is. But knowing that you can test and prove an idea out in three months means you can test and prove four ideas in a year if they don’t work.
JT: Which is huge.
MB: You absolutely can because, as you think through it, so many times people sit down and they start writing a business plan like they’re writing a novel. It’s just the worst thing you can possibly do. One should always start with some sort of visual picture or flowchart or even a few power point pictures. I don’t care, but some visual of this is what I’m trying to create and then get that in front of three or four trusted advisors to get feedback and as soon as you have what feels like a prototype of what this might be, a service or a product, get in front of some potential customers and say this is what I’m thinking would solve your pain.
This is how it would look. This is how much it would cost, what it would do if I build this and get it for you, is this something you would do? Then really start drilling into under what conditions. If you do that back and forth, you can usually have that prototype pretty much ready to go within a month. That second month you can use to refine it based on the feedback you’re getting from customers and in that third month, you pretty much can say okay let’s get this into a launch plan.
Let’s get our social media tools up and do we need to scale this as a product and have them build or is this a service and I have to cue up the way we’re going to do the service. But I firmly believe you can test some idea to start up in three months.
JT: So what are the costs of that? It sounds like you don’t need a prototype or anything truly in that first three months. What have you been, in your experience, the costs of those first three months of testing out the idea?
MB: I’ve seen folks spend as little as $2,500 out of pocket and as much as ten or fifteen thousand. I’ve seen a few customer product prototypes had to be built and the prototype was 20 or 30. I don’t see people spending a lot of money and so many cities now even have entrepreneurial programs, entrepreneurial resources. There’s Start Up America with partnership with a number of initiatives to help entrepreneurs with any kind of support. It can totally be done on the cheap.
I think in three months for less than $10,000 you can pretty much completely test an idea and be ready to launch. But I see companies every day doing it for couple thousand or less or just about $500 or $600 a month investment in your idea. That’s a pretty tiny cost to figure out can you make something work.
JT: Yes, excellent. So tell us a little bit about the process of venture capital and I mean how to go about getting it and who really needs it? Does everybody need it? I mean tell me about your experience.
MB: No, about five percent of the people starting companies actually need some sort of venture money. Typically a third may need some sort of cash support. Most of us get it from either friends and family or our own line of credit or an SBA loan or something like that. It’s virtually impossible to get a bank loan in a start up unless you have collateral. So unless you are willing to mortgage a home that is paid for or something, most of the time people get their startup cash from friends and family or an SBA loan of some type.
Those who do need venture money should understand that venture funds are looking for a scalable business idea that has an exit strategy and that exit may be in five to seven years we want to sell this company to X, to this kind of entity or this kind of strategic buyer because we’re creating a product or service they need or we would sell this to a financial private equity fund who is going to infuse a lot of capital into it and make it sort of a big national player that one day may go public or be sold into a public entity of some type.
Most of the time, I see entrepreneurs who perceive they need venture money but have never thought about what is the exit strategy and without an exit, an investor can’t invest because they make their money by selling that investment at some point to make a return on their capital. So you simply can’t approach venture unless you actually know how you might exit the business.
Most early stage companies that need capital that’s in the venture category often start with seed funds or angel investment. A seed fund may invest as little as ten to fifty thousand and often a seed investment is all you need. It’s usually done by a high net worth person in your community or even someone you know and trust. Angel investment typically is next. Angel money may raise as much as a half million dollars. I have individuals with that all the time.
We have two angel networks in our city and about 200 individual angel investors and if your product or service meets some basic investment criteria, those things we talked about earlier in this conversation, it’s pretty easy to get a meeting, get a term sheet put together and raise and that may be all you need is three or four hundred thousand dollars of investment and that’s really not venture. That’s early stage angel. It’s typically done by networks of individual investors and that can be done relatively quickly. Average angel investment round takes about three to four months to get done.
Venture money typically is a million north. Early venture is one to three. Typical venture capital is three to eight million dollars. If you’re going to raise that kind of money you will definitely need a profitable business. You will need a business that can be scaled to multiple cities and a model of how you plan to scale it and grow it. They typically buy into the fact that you’ve got one or two proof of concepts up in one or two cities. You’re now ready to scale this to multiple cities and you’re going to use their capital for growth.
So venture, typically by definition, is all about growth capital and then private equity is just a very later stage, much bigger bucket of venture money that’s done to really scale in a macro way. You may have a regional presence, you want a national presence.
JT: Thank you for all that great information. So what is an angel looking for? They’re not looking for an exit strategy specifically?
MB: Well they are but they also like to invest in products or services that they know so, in my city, there are individuals who have made their wealth in healthcare, healthcare services, technology, entertainment and digital media. Those are things Nashville is known for. So an angel investor here who made money in the music industry space or a digital media space is often interested in investing in new start up ideas in that category because those start up ideas could be service providers for the larger companies.
They could also be eventually sold into one of those larger companies. Angel investors who have made their money in healthcare love to tinker with new healthcare ideas. Particularly, post health reform. There’s a million and one new things entrepreneurs could do in the healthcare space. It’s 20 percent of the GDP. It’s not going anywhere. People are always being born, getting sick and dying. So healthcare is a part of our lives. So it’s a very, for our city, it’s a terrific space for individuals to be starting companies in because there’s a complete pipeline of purchasers within ten miles of your door.
JT: Another great idea. That’s great. So when you’re dealing people, what do you think separates the successful entrepreneurs from the unsuccessful ones that you’ve seen?
MB: I would say perseverance is the number one and being open to coaching is number two. And by perseverance what I mean is we tend as entrepreneurs to fall in love with our idea but the minute we put it in front of a potential customer, they begin to tell us what they like and don’t like about our idea and it’s like somebody takes their fist and hits you in the gut. It takes about 20 good hits in the gut before your idea gets refined to something people really want to buy.
I see a lot of very smart people who could easily be entrepreneurs who simply quit after their second or third or fifth or tenth gut punch and, you know, you just got to get your 20 in until you’ve gone back for the next 15, you haven’t done it enough. Also, what I mean by being coachable is you hear 20 opinions of your idea and you don’t literally take every opinion at face value but you pick up what are the common themes I’m hearing. I bet with 20 perspective customers, what four or five common themes is coming across in all of those that may make sense that I do a modification or a morph of this idea?
Those are typically the secret sauce that if you do those 4, 5 sort of trends you’re getting from talking to 15 or 20 customers, those are the things that moves your idea from being 10 degrees off north to dead on so that you can really have a real winning idea and success.
JT: So how do we make that better in ourselves? How do we know when to ask the right questions and how to get and encapsulate that information?
MB: In making it better in ourselves, the first thing we have to do is commit without fail that we’re going to work on this idea. I shared with you earlier it can be done in three months but that’s not working at it on Saturday afternoons or Sunday mornings. That’s literally spending time every single day on the idea. I think it takes the same perseverance to be an entrepreneur as it does if you want to lose 30 pounds or you want to quit smoking. It’s enormous sense of self control because there’s so many fun distractions from going out with friends to everything else you can do instead of starting your business.
All of those things, while they’re fun distractions, will keep you from being successful. In my view, if you are going to start a business, you have to commit yourself that this is what I’m going to do and I will spend time each day making this happen. That discipline drives us to, okay what are we going to get done today? What customers are we going to talk to? What have we learned today from the people we talk to, studying this idea? What isn’t working about it? Am I getting the social media strategy to move forward? Do I have a financial plan or not?
There’s so many wonderful tools now on the web that you can really use to scour and scrub your own plan, it just takes the perseverance of doing it. So where we find it in ourselves, I think it’s drawn from that same resource that makes people resilient in being able to do all kinds of things. The journey of an entrepreneur isn’t one of those where it’s sort of a luxury take it or leave it sort of thing.
It’s the same commitment as a significant weight loss program or a smoking cessation a bit because you’re pulling yourself away from a set of habits you would normally do with your time and forcing yourself through a lot of control into a set of habits that may not be common and comfortable for you. So I think that’s sort of the number one thing people should keep in mind that think they want to start a business is finding that strength to really have the self discipline to spend time every single day on their idea.
JT: It’s funny, that’s actually one of the questions I really wanted to get into because what we hear about is entrepreneurs have to work 24 hours a day when they’re starting, that sort of thing. But then I also talk to business owners who are like well how come it hasn’t happened for me yet? Well, it’s a side business right now. You’re doing something else and therefore it’s taking a lot longer than you think. In your experience, how many hours do you think are really necessary to sort of get that three months in? How many hours a week?
MB: It’s a trick question and let me tell you why I think it’s a trick question. It’s a trick question because entrepreneurs aren’t awarded or rewarded, excuse me. Entrepreneurs aren’t rewarded necessarily by effort or hours. We’re rewarded when the outcome, the product or service we’re producing actually does something that people care about. I see all the time individuals who are totally putting in crazy hours.
The things they are spending their time on are so unimportant. I mean they’re refining Page 21 of a business plan describing an operating model in an area form that no one is ever going to read. That’s a complete waste of energy. So I would submit to you that it’s much more about what constructively are you doing every day and less about are you doing it for 12 or 24 hours.
I mean my own personal philosophy is I give everything a really good six to ten hours in a day if I am working on a new idea but I spend another two hours thinking about the idea and another two, probably a meeting with potential customers and I go through this in phases. I mean the first phase I go through is typically framing the idea, drawing a picture of if. Thinking about my two or three sentence elevator pitch or speech and then what’s my purpose. What pain am I solving for whom?
Once I think I’ve got that down and that may be the first two or three days when a new idea hits me and I put it in my journal and start thinking about it. The next thing I do is I start thinking about the model and in my business model, who am I being compared to or will I be compared to? Who’s competitive in this space? What are their margins? What’s the model type I’m going to use? Is this a subscription? What is this? Is there any actually property I can manage to have here? Can I trademark or copyright or patent anything? How do I create barriers to entry to this?
What’s my structure going to look like and that structure will drive what needs I’m going to have and then what technologies can I leverage? Typically, at that point, I’m drawing a flow chart of the business that begins with a customer saying I have a need and ending with me getting paid and looking at all the boxes in between. From then, I can go lots of places. I can start thinking about the management and the market I’m going to use. What’s the operating plan?
But I spend very structured time going from 10,000 feet to ground level in each of those categories and I try to construct visual ways that I see this happening and then once I have a complete visual perspective of the thing, then I may sit down to first probably draft a slide deck that I’ll share with potential investors, advisors, people I trust and customers. Only after I’m getting some nods of the head there, would I ever sit down and formally write a business plan.
JT: So you’ve done this many times before as you can tell. So that’s very different. It seems so systematic the way you do it and it makes perfect sense. It’s exactly what you were talking about before where you don’t have to be married to an idea but you’re dating it and you’re figuring it out and you’re figuring out enough to get the information out there.
MB: Exactly and if you take the analogy you just described, date the idea don’t marry it yet, what you will find is the feedback you will get will make your idea better and better and better. Ideas thrive in a market where people are talking about them. If you’re the only one talking about it and thinking about it, it’s probably a really bad idea, you know, because it’s only good to you. If you can share it with some folks and I have people all the time say to me, “Well won’t somebody steal my idea?”
That’s just such a sad little commentary because it usually speaks to me that it’s a pretty naïve first-time entrepreneur because I can go to any dinner party or cocktail party or conversation with a group of people, even a school event with kids, and I’ll pick up six to ten great business ideas just listening to the conversations around me. The reality is I’m probably not going to go do any of them because in order to actually do an idea, you have to do this thing called execute and the execution of an idea is what makes it valuable. There is no ideal market. It’s not traded, if you go anywhere on Wall Street and look, there’s no market of ideas.
JT: Darn, some people would be rich, right?
MB: There would be because people walk around with a million ideas in their head and it’s like gosh, I should be an entrepreneur. I should be a millionaire now. All the ideas are, they’ll see a product come to light and say, “Well I thought of that three years ago.” They have. The problem is you didn’t execute. You didn’t do anything with it and the entire value system and the entire market is built around execution.
I literally believe you could have three entrepreneurs start with the exact same idea and the same capital today and in six months they can each have a company up and running. The company value and who is going to scale big will be so different and it had nothing to do with the original idea. Had everything to do with the process of how they went about executing the idea and I’ve done this in laboratories with grad students over and over again. You get five teams of students the exact same idea, the exact same capital and the exact same time and they’ll be miles apart in three months.
JT: That would be a good reality show.
MB: And the truth of it is it has everything to do with execution. It has everything to do with the entrepreneurial mindset, with a systematic way of evaluating getting feedback, refining and moving from that 10 degrees off north to true north because all the ideas are off the true north and so yeah, start with a good idea but intuitive in the head I know it’s not the perfect idea just yet.
So the refinement of the idea, the dating process with the idea and refining it is ultimately what will lead me to great execution and make it a world class idea. Simply drawing my idea on paper and then going and doing just that is a clear path to complete failure.
JT: So what about information overload? It sounds like most of what we’re talking about right here is action and not information and I know nowadays lots of people get overwhelmed with information overload. Do you have any tips for that?
MB: I do. When I am framing an idea, I have a very simple little rubric I put all my data into so every idea has a collection of little folders. One of those folders is what is this product and who has one like it so that I have all my product things together. A second folder is who are the potential customers? A third is what’s my distribution; how am I going to get this product to those customers and so I’ll have a whole folder of just distribution ideas and methods and thoughts and data.
A fourth is the customer intimacy and value. How are customers going to fall in love with this? Those four boxes drive all revenues. Nothing else drives revenue in a company – those four boxes. And so those four folders gives me every piece of data I need to drive a revenue in a company. Now I can go back to the product folder and put three other folders with it. One is what’s the critical resources I’ve got to have to design this product. Another folder would be who are the key partners I need so that I feel larger than life and have some outsource relationships to make this possible.
And then the third folder I put on the other side of the ledger has to do with what am I going to do to this product or with these resources to make this product? Sort of the essential recipe if you will. So the product, the critical resources, the partnerships and then the recipe, those folders together make up the entire expense side of a business. So if you look at the ledger, if the revenue is greater than the expense, you’ve got a business. So those folders drive, for me, every business idea.
Let me give you sort of a metaphor. We have this amazing chef in the south named Paula Deen and I don’t know if you’ve ever seen her cooking shows or not.
JT: Oh yes, her books are everywhere. Yeah, definitely.
MB: Her favorite ingredient is butter. Everybody knows that. If she’s going to make a dessert, it’s butter and sugar and flour and usually cream instead of milk and eggs. That’s the basic ingredient for every dessert. She probably has 400 desserts and all the other ingredients are little adds to those five basic ingredients that make desserts. A home run business, one that scales well north of millions of dollars is a business that has elegantly simple ingredients much like her cakes or pies.
But those ingredients are put together in all kinds of combinations of ways to make all kinds of products. When an entrepreneur can get that vision in their head and say you know what are the five to eight or nine simple ingredients that can be uniquely mine, that I can mix in a variety of ways and make three and four and five products or services that have different revenue streams associated with them or sell to different customers or in the food chain, you’re on your way to a very successful scalable business.
If you have one thing you do for one type of audience, it’s not necessarily a bad thing. In the entrepreneurial world we call that a one trick pony and you’ve got to be really sure your pony can always do that one trick or you don’t have a business.
JT: See that’s extremely simple advice. It’s probably not easy but it’s very simple and straightforward advice. That’s great. So you have so much information. What have you read, I think I saw a booklist on your website? What are some of the best books or you also mentioned tools before on the web that are really out there. What sort of things do you have for resources that you could tell us about?
MB: One of my favorites is a book called Business Model Generation. It’s also an iPad app. I use it to catalogue all my ideas. It’s how I use the nine folders I was telling you about for every idea and at any one point in my life I’ve got 15 ideas cooking in there. But they’re all cooking at different stages and I kind of know the next couple I want to do at some point but I really like that particular book.
There is another one that I really like called Art of the Start and it’s the entire process of a start up business and what you do, Guy Kawasaki did that book and it’s just fantastic. It’s an easy, easy read for a complete novice. On the strategy side, the book blew us some strategies. One of my favorites it really helps me think about how to be radically different than what’s sitting in the market today and with so many new technologies entering the market, we can really take a current product or service in the market, mix in new emerging technology with it and you’ve got a completely new recipe.
I read lots of Seth Godin books. He has some from purple cow on through. He’s got some great analogies to help you think about new ventures and what you might do to put a venture together. Those are some of my short list of things I like to read. And then, you know, I just love to read the blogs that are out there as well. There’s some amazing blogs on the marketplace and entrepreneurship that really do speak to the journey of entrepreneurs, things that are working, things that are not working, what people might consider and try. All of those are terrifically, terrifically good.
One blog in particular I love is written by Mark Schuster whose blog is called Both Sides of the Table. It is a terrific one. He was an entrepreneur turned venture capitalist and is constantly writing terrific articles for entrepreneurs to pick up new thoughts on. Hopefully those are some helpful ones for your followers.
JT: Perfect. I also want to mention I interviewed Guy a couple months ago. So if anyone hasn’t listened to that that’s listening to this right now, go ahead and go back to the archives because there’s a great interview with Guy Kawasaki too.
MB: Very good.
JT: Excellent. So this has been great. I really appreciate it. The last question I always end with is what’s one action that everyone can take this week to move them forward towards their goal of a million?
MB: Well the one action I would say is look at your most delighted customer that you have today, no matter how small you are, figure out what has exciting them about the product and think about where do you find a way to do more of that because when you have a reference account customer that you have delighted, when you can find a way to scale that particular element of a business, you may find that so many of the other things you do are just simply noise and you’re dragging down your opportunity and your time investing in things that just sort of hit but not completely.
So one delighted customer that you have and what really creeps the magic for them and really focusing your energy around that event, that process, how that works is probably the most amazing thing any entrepreneur can do. But if you’ve had a business that has been around for a year or so and you’re struggling a bit, it really helps you chop away some of the noise, really refine your strategy. Probably saves you some capital and gives you an opportunity to have another spurt of growth.
JT: Brilliant advice. Thank you so much. So tell me where can we find out more about the Nashville Entrepreneur Center and where we can find out more info on you.
MB: You can reach us at entrepreneurcenter.com on the web and we have a whole toolkit here to help early entrepreneurs. If you’re interested in me particularly, it’s michaelburcham.com and you can follow me on Twitter or Facebook or LinkedIn.
JT: Perfect. I will definitely put all those links in the show notes so everyone can take a look. I loved your blog and the stories. You need to finish your about story because it didn’t finish. It said coming soon and I was waiting eagerly for more information. So everybody else stay tuned for that too.
MB: I’ll try to spend a little time this week giving you another little glimpse, another layer of Michael, okay?
JT: I appreciate that. It was really great. You should write a book. But thank you so much for coming on, Michael. We thoroughly enjoyed it and have a wonderful, wonderful week.
MB: I hope you do as well and thank you for the opportunity to share my own story.
JT: Take care.
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