Building a Product vs. Building a Business

Building a Product vs. Building a BusinessToday is the launch day of StartOpz (!) which is my new app that adds premade processes to business tasks such as expense reports, time off management, and invoicing. I hope to grow it into a sustainable business. I had some thoughts on that process that I am sharing here along with the wisdom of many men and women smarter than myself.

While the goal I mention is a sustainable business it does start with a product. Without that there is no business. The better the product you build the better chance of success your business has.

If you can’t build a great product it doesn’t matter if you can build a great company. – Ben Horowitz (Andreessen Horowitz)

Building your product was a huge undertaking. Finishing it deserves a celebration. But it is only the beginning.

“Coding is 5% of the solution. It is only a portion of the story.” – Amit Chatterjee (Hara)

“There is a big difference between a feature, a product, and a company.” – Cyriac Roeding (Shopkick)

The product that you have poured your sweat, blood, and tears into is something that will make your customer’s lives better. You’re certain of it. You might have even tested the value proposition before building. But you have only just begun your journey.

“A startup is ultimately about whether or not you can create a business around the product.” – Ann Miura-Ko (Floodgate Fund)

Birthing your product unto the universe creates a tiny flicker of light amongst millions or billions of other stars. That light could takes years before reaching anybody.

Without marketing few people will see it. Without a sales process they will have no way to buy it. Without accounting you will have no way determine profitability and do your taxes. Without systems you will not be able to scale. Without a team you will not be able to build new products.

A business is the vehicle you will use to drive all of that forward.

“Building a company is very different than starting a company.” – William Hsu (MuckerLab)

Starting a company is paperwork. Building a business is harnessing the determination with which you built your product to the many activities required to allow it to live in this world.

A lot of the things you do while building your product you will also do when building your business. Instead of developing software you’ll be developing relationships. Instead of testing for bugs you’ll be testing marketing campaigns. And don’t forget about continuously improving your product!

Values and Ethics

I am starting off this look at building a company by looking at the somewhat abstract topics of ethics and values. Even though they are abstract they are the bedrock on which you build your company.

I have never been quite sure of the difference between the two so I’ll say that ethics are your values in action. Conversely, if your actions do not reflect your values then you are acting in an unethical manner.

“Values are what guide your behavior when no one is looking and you don’t think anyone is going to find out.” – Carly Fiorina (Former CEO, HP)

Business have responsibilities to their owners, their employees, and their customers. Capturing those in words as the company’s values will guide everything the company does going forward.

“Values are things we repeatedly come back to.” – Justin Rosenstein (Asana)

Challenges to uniformly acting ethically are that events in the real world are rarely black and white and that each person might view situations differently (relativism) due to different upbringings, education, or religious views. Being able to reference the company values for all interactions will keep the company, and all of the individuals that make it up, pointed in the right direction.

“It is a lot easier to make decisions if you have a value system.” – Mari Baker (PlayFirst)

One thing I had not thought about until I had heard the following quote was that even though the concept of values might be abstract the implementation of them might not be and thus something you can quantify and measure (something that will serve you well across all aspects of building a business).

“Have corporate values and measure performance on them.” – Mitch Kapor (Foxmarks)

Building a Team

If you have not already started hiring then it is something that you will do down the line as your business grows.

“Everything starts with having the right team.” – Thomas Prescott (Align Technology)

When you are in hiring mode it should take up an extraordinary amount of time as a bad hire early on in a company can have disastrous consequences. Those include morale, culture, and the time wasted on training them. Just as important is the opportunity cost as your first hires are the pipeline for many of your future hires as referrals are key.

“When you’re hiring the first ten people you’re actually hiring the first one hundred people because the first ten will bring ten along with them.” – (Patrick Collison)

For the first hires I often hear that you hire people whose strengths are where you are weak. If you are good at sales but poor at finances then hire somebody who is not just good, but great at them. That way you both can focus on your strengths.

“Surround yourself with the best and brightest minds.” – Amit Chatterjee (Hara)

The caveat is that even the best and brightest need to be a good fit for your team. If you create a position just to get somebody on the team then you will end up with confusion as to their role and, by extension, others’ roles. And do not forget to check their references.

“When you do reference checks, you’re not just looking for the bad stuff. What you’re really looking for from that person’s previous manager or co-worker is how you can help that person grow.” – Ben Congleton (Olark)

Some of the lessons I have personally learned over the years are to never hire somebody who has only worked for family (typically somebody right out of school), that what university somebody comes from is a poor indicator of their work ethic, that what university somebody comes from ceases to matter after a few years in the workforce (unless they are in sales or positions that require a good deal of networking) as they will learn a lot more in one year on the job than four years in any school, and that great employees can be anybody from anywhere.

“Celebrate diversity.” – Teresa Briggs (Deloitte)

Once the company is large enough that you are ready to delegate hiring to a specialized department, or to let each individual department do their own hiring, make sure that you are putting your best people in charge of the process.

“A-quality people hire other A-quality people and B-quality people hire C-quality people.” – Cindy Padnos (Illuminate Ventures)

At the end of the day you are potentially spending more time with your team that you are with your family. Make sure they are a group of people who bring out the best in you and each other.

“Build a team who can challenge who you are.” – Sukhinder Singh Cassidy (JOYUS)

Culture

Culture is something you should think about prior to hiring. It sets the tone for an organization that will last longer than many employees. Culture touches all parts of a company from employee interactions to customer service to investors.

“Culture is the most important part of any organization.” – Ken Wilcox (Silicon Valley Bank)

How excited (or not) employees feel when getting out of bed in the morning is hugely affected by the atmosphere of the office. Toxic culture leads to low job satisfaction and burnout.

As the business owner it is up to you to define the culture you want.

“Be conscious of what kind of company you want and what kind of culture you want.” – Mari Baker (PlayFirst)

A good culture might be one where everybody values the contributions of all employees from the janitor to the CEO. But you cannot just describe what you ideal culture is. Culture is not words and cannot be conjured out of thin air. Culture comes from all of the day to day interactions, policies, and structure that make up your business.

“Culture is the behaviours you reward and punish.” – Jocelyn Goldfein (Facebook)

When you get culture right you unleash your employees and get output that is more than the sum of its parts.

“Culture is a wind that blows everybody in one direction.” – Cyriac Roeding (Shopkick)

Your company is going to be leveraging the different strengths of the individuals that make it up in a way that is consistent with the company’s values.

Personally I am an advocate of a culture that values innovation as I believe it is the only way to become a leader in an industry (it is important to note there is a lot of room in any industry to innovate and the same can be said about any organization). Continuous innovation is the only way to maintain that position.

“Reward your risk takers because sometimes they are driving the most innovative ideas.” – Teresa Briggs (Deloitte)

Strategy

It is not until you have culture conquered that you can move onto developing strategy:

“A strategy without a culture is meaningless.” – Marten Mickos (Eucalyptus)

Strategy is the higher-level plans that dictate the direction the company will go while tactics are the ways you utilize resources to implement strategy. Strategy = big. Tactics = small.

“Think big. Think strategy.” – Ron Gutman (HealthTap)

A strategy that is too broad will be difficult to implement. Therefore you should create separate strategies, each with explicit resources and responsibilities, for each major component of your business.

“Have a customer development strategy in addition to a product development strategy.” – Ron Conway, Mike Maples Jr. (Angel Investors)

“Create a market positioning strategy.” – Stephanie Keller-Bottom (Nokia)

Executing on a poor strategy can actually lead you further from your goal of building a sustainable business and you will have wasted resources, possibly hurt morale, and shortened your runway. So creating a good strategy and implementing it is paramount to achieving your goal.

“Strategy and tactical implementation equals success.” – Mark Forchette (OptiMedica)

Your company does not exist in a vacuum and you cannot lead it with your head in the sand. Communication is an important part of strategy:

“The people capable of changing strategy need to be the ones hearing good news and bad.” – Steve Blank (Serial Entrepreneur)

If you are not getting feedback in the form of metrics or verbally then you are not going to know if you strategy is working, if it needs to be tweaked, or if you need to change course completely.

Of course while strategy is important you are going to be spending a lot more time executing it than you did thinking it up. And as always, ideas are worthless without execution.

“The business world is 1% strategy and 99% tactics.” – Matt Rogers (Nest)

Marketing

Sales differs from marketing and is very dependent on the type of business and the type of customer you are trying to close. If you are just starting up you likely do not have a huge budget to hire sales people (but it is absolutely something you should be concentrating on yourself). But businesses of all sizes should be doing marketing to get people into the top of their sales funnel.

Of course before you start implementing an initiative you should have a strategy on how you are going to do so.

“Before you can market you need to have marketing strategy.” – Donna Novitsky (Big Tent)

Current marketing wisdom, in particular for SaaS products, is to start marketing even before you have a product.

“The initial tests of sales and marketing doesn’t take a lot of capital. You can do it online.” – Kate Mitchell (Scale Venture)

Content marketing in the form of blogging, tweeting, or a mailing list will help you develop an audience who will be receptive to hearing about your product as you build it and will be your first customers when you finish it.

The recent “growth hacking” phenomenon is quantitative in that you set up your marketing efforts in a way that you can measure and then adapt your efforts by doing more of what works and less of what does not.

Importantly you should remember that marketing is a long game. Rarely does somebody become a customer the first time they hear about your product.

You shouldn’t worry about the current quarter. You should be focused on building a pipeline. – Amit Chatterjee (Hara)

Finance

For many entrepreneurs outsourcing many of the financial tasks such as bookkeeping and tax filing is a wise choice. They are time consuming and are not drivers of growth. However it is important for every business owner to understand them in order to gauge the financial health of the company and to allocate resources effectively. (And to make sure that the people you hire for those tasks do not take you for a ride.)

“Learn to read a balance sheet and understand cost accounting.” – Steve Ballmer (Microsoft)

Knowing where your business stands at any point in time is captured on a balance sheet. It shows the things that are owned by a company (assets), the amounts owed by the company to others (liabilities), and the investments by the company’s owners (equity).

Those balance out in the following equation:

Assets = Liabilities + Equity

An example of the balancing is when the company borrows money it creates a liability to the bank/bondholder/loan shark. That money is then deposited into the company’s account and listed as an asset.

Assets typically are cash in bank accounts, accounts receivable (money owed to the company by customers), equipment, buildings, and inventory (for businesses that manufacture products). Liabilities are typically debt, accounts payable (money owed by the company to suppliers), taxes, and wages.

The tracking of revenue and expenses is what is known as an income statement (called the Profit and Loss Report in Quickbooks). Having more revenue than expenses makes you profitable (yay!).

Revenue – Expenses = Income

As opposed to the balance sheet which captures a picture on a given day, an income statement looks at the business over a period of time. Specifically what the revenue and expenses were between two dates.

Do not forget about taxes and interest as expenses. You might have “operating income” (- EBIT – Earnings Before Interest and Taxes) when your gross margin is more than your cost of running the company but could end up with negative net income after you pay the bank their interest and the IRS your tax bill.

The last accounting report you will want to look at is the cash flow statement. A business runs on cash (“cash is king”) but for various reasons the earnings reflected on the income statement are not always available as cash when needed. For example you cannot make payroll with sales you have booked but have not been paid for. (This is where the differences between cash and accrual accounting become apparent.)

“Income statements and balance sheets are lagging indicators.” – Carly Fiorina (Former CEO, HP)

The equation for cash is more complicated that the others:

Cash = Current Liabilities + Noncurrent Liabilities + Equity – Accounts Receivable – Inventory – Noncurrent Assets

An example of the balance here is that when you pay the $3,000 bill from your lawyer you are reducing cash by $3,000 as well as current liabilities for $3,000.

Any accounting software you use will be able to automatically create all of these reports for you.

Keep a close eye on the financial statements (at least once a month) so that you are able to make educated decisions on the many spending decisions posed to you. Do not hesitate to ask your bookkeeper or accountant to explain to you anything you do not understand.

Operations

You are investing a lot of time, money, and effort in building a company. The more efficient a company is the more value it creates with every minute and every dollar.

“What you’re doing when you’re building a company is building an engine.” – Keith Rabois (Khosla Ventures)

Creating systems to manage your business will help free up your time as well as free up your mind. It is easier to delegate tasks when you have a system in place. A step-by-step checklist creates a repeatable output that you can hire people to implement. Also, having each step of the process written down allows you to question them (whether they are necessary at all), measure them, and make improvements on them.

(StartOpz can help you with some of the operating processes you currently have for your business or will be implementing to help you concentrate on growth.)

Even when you are a solopreneur taking away the worry about forgetting a step allows you to use your mind creatively. Getting ideas and tasks out of your mind and onto paper is the basis for Getting Things Done. When you can be certain that things are under control on the ground you can more easily think about things at the 30,000 foot view.

Conclusion

Building your product was just one step of your larger goal of owning and running a successful and growing business. Every day will bring new challenges and hopefully what was covered here helps provide a foundation and framework in which to meet those challenges (and turn them into opportunities!).

A great entrepreneur is focused on the goal. They make their companies successful by staying agile, passionate, driven, and tenacious. – Steve Blank (Serial Entrepreneur)

Best of luck with your entrepreneurial journey.