Lessons From Guria
This week I’ve been running the Guria Accelerator in Port Moresby, alongside my colleague Anna Moegerlein.
We’re working in partnership with the Women’s Business Resource Centre, and together we’ve recruited twelve incredible entrepreneurs.
There’s a great energy amongst the group, and that trust allowed us to have some tough/beautiful conversations about where each business is heading.
Here are some of the lessons and “aha!” moments we’ve had this week…
We start our small group sessions with an origin story; a hand-drawn timeline of the entrepreneur’s journey.
This is the chance to hear about how the entrepreneur decided to start something new, the highs and lows of the last few years, and the factors that influence their decisions.
It gives everone in the room such great context for understanding the history of the business model, and why they founder made various choices along the way.
I think I’ll be using this process in my sessions from now on.
Profits Are Not “Whatever Is Left”
We often see social entrepreneurs view their profits as “whatever is left”.
This attitude devalues the usefulness of a surplus, treating it like an optional extra that they could take or leave.
Profit is what keeps you alive, and lets you survive whatever bumps and rainy days that life will inevitably throw at you.
Mike Michalowicz has an interesting book called Profit First, which talks about the idea of treating profit like an expense.
He argues that most people take their expenses out first, then profit is whatever is left over.
Instead, we should take our profits out first, then use whatever is left to determine our expenses.
This forces you to be creative or a little ruthless in determining which expenses are actually necessary, rather than accepting them all and keeping hardly any profits.
I like this approach, and feel like it can help founders to trim expenses rather than trim their margins.
Messy Businesses vs Messy Business Models
One of my favourite conversations was with an entrepreneur who felt overwhelmed by the messiness of her business – to the point where she was apologising to the room.
A group of us sat together and mapped out her story and her Business Model Canvas in detail, asking lots of questions along the way.
Looking at the documents, we saw something interesting.
This isn’t actually a messy business at all.
It’s a straightforward business model, one which consistently delights customers and makes a healthy surplus.
The founder has fought through incredibly messy circumstances along the way – duplicitous co-founders, unsupportive families, personal risk, sudden emergencies – and has managed to build something resilient.
That was an emotional revelation – separating the state of the business from the founder’s personal journey.
Most Value Propositions Are Code For “Behaviour Change”
When we talk about Value Propositions, it’s easy to list the tangible outputs our products/services create:
“You’ll have 60% faster internet”
“Your clients will have access to top quality educational resources”
“We’ll teach you how to create great content for your website”
These are the “what”, but where’s the “so what?”
What’s implied behind each improvement?
The answer is often behaviour change – how will this change the way people think and act?
If they have faster internet, what does that do for their typical week?
If clients have access to good online education, is the inference that they’ll read more and learn faster than before?
If a customer is able to create great content for their website, what flow-on effects are they hoping to see?
If you’re describing what your products and services give people, you’ll need to follow that up with the new/improved behaviours they can expect to see.
People don’t want a gym membership, they want to be the sort of person who happily goes to the gym.
They’re picturing a better version of themselves
The product without the behaviour change is worthless.
How Does Your Customer Measure Behaviour Change?
You’ll need to understand how your customer comprehends and measures this behaviour change.
If you’re giving students access to better learning materials, how will you know that the materials are working?
If your customers implement a new marketing strategy, how will they measure their return on investment?
What indicators tell them the most compelling story?
Third hand anecdotes?
The eye test?
If you don’t know, that’s totally fine –make sure you can find out over the next few weeks.
Who Do We Need To Persuade On Prices?
One entrepreneur mapped out her wonderful origin story and her strong business model, but then changed her demeanour when we got to Revenue Streams.
Despite a track record of happy customers and a long list of compelling Value Propositions, she was uneasy about charging for her expertise.
We saw a fork in the road, so we checked in;
“It feels like you’re uncomfortable about telling customers your prices.
Who do we have to have the debate with – your customers…or you?”
She instantly replied “Oh, it’s with me”.
That honesty is so valuable – it’s possible to change the way your prices are framed to make customers more relaxed, but perhaps customers aren’t the problem.
Perhaps the problem is the founder feels uneasy about stating their value in financial terms.
This is incredibly common, totally normal, and yet we’re not going to let it continue.
The founder’s honesty let us skip to the real conversation.
The Nervousness Discount
Being cheap is overrated; customers don’t actually like things that are cheap.
Benjamin Franklin said “The bitterness of poor quality remains long after the sweetness of low price is forgotten”.
What customers love is finding something great and getting it for a discount.
Which would you rather buy: a $50 pair of shoes, or a $100 pair that are 50% off?
This allows us to identify a common phenomenon; an entrepreneur has a great product, and states a low price to their early customers.
You’re not cheap; you’re worth the full price but offered up “The Nervousness Discount”.
We all do it, and there’s a good time and place for it – especially when we’re still fine tuning our offerings and packages.
But let’s call it what it is – giving a discount because we’re nervous.
Deadline For The Nervousness Discount
You might be thinking “Isaac is going to tell us to never use the nervousness discount”.
Actually, I’m happy with the discount – as long as there’s a deadline.
Permanent discounts will severely limit your financial sustainability, but they can be used for a little while.
My request for our cohort is to draw a line in the sand, and say “we’re charging full rates as of December this year”.
This gives you time to iron out any issues, and makes you more comfortable with your real prices.
If You’re Delighting Customers, They’ll Be Happy To Pay You For More
We often imagine the arguments and push-back we’ll get if we set higher prices.
My only question is, are you picturing this coming from your happy customers, or people who don’t really see the benefits in what you’re selling?
There’s enormous power that comes from telling some people “This isn’t for you”.
This phrase separates the detractors from your genuine market.
Please don’t set your pricing to appease your detractors.
Finding Great Staff vs Training Great Staff
A big limitation for several of our entrepreneurs is the difficulty of recruiting great staff.
For each business it’s worth asking; are we able to find great staff out in the wild, or do we take decent staff and teach them how to be great?
Both scenarios have upside, but it’s important to know which of these you’re trying to do.
Pursuing the wrong option can be costly, refining the right option can create a pipeline of excellent staff.
If you’re hiring great staff, what attributes are you looking for?
Where are these people working at the moment?
What are they looking for?
If you’re training great staff, what do new hires have to bring to the table?
What skills or attributes can you give them?
How do you spot a great candidate?
The first step to answering these questions is to analyse your current top performers.
Where did they come from?
What do they do that makes them different?
Where might their clones be working today?
Two Stages Of Trust
When an entrepreneur is enticing new customers, there are two stages of trust building that are essential for making a sale.
The first stage is the moment the customer takes you seriously, mentally categorising you as someone who is credible and worthy of their attention (even if only for a few moments).
The second stage is the moment a customer decides to trust you ahead of all the other groups who could offer something similar.
They have to pick you, trust you enough to take your suggestions on board, then happily pay their bill.
These two moments are probably invisible at the moment, but they can certainly be improved.
How might you speed up the process of winning trust?
How might you make it easier for customers to pick you ahead of your competitors?
Two Types Of Value Proposition
This same principle goes for brands; there’s the moment where a customer decides they’re interested in a particular category of products/services, and then the moment where they pick your brand over the rest of the market.
For this reason, you might need two sets of Value Propositions.
e.g. the Value Proposition of a hot pizza for dinner vs the Value Proposition of picking Pizza Place A over Pizza Place B.
Once a customer is sold on the idea of pizza for dinner, all communication needs to go to “why us” rather than “Isn’t pizza great?”.
Dave Trott describes this as the difference between brands and branding.
Coca Cola is the market leader, so they just have to sell the benefits of cola and they’ll get customers.
Pepsi on the other hand needs to focus on why they’re better than Coke – if they just advertise the benefits of cola, people will instinctively buy more Coke.
For this reason, each entrepreneur needs to know the sales pitch for their industry/category, as well as the pitch for choosing them over their rivals.
Soloists And Conductors
When you’re a new business, you get to do a bit of everything.
This is a great way to serve your first customers, but it doesn’t scale.
For example, you can be the person who goes to sales meetings, creates content, edits and uploads it for clients, gathers feedback and sends out invoices.
That’s perfect for the when you have 5-10 customers.
What happens when you get the 14th customer?
For most founders, this is like playing every instrument in the orchestra.
My question is – do you want to be a soloist, or do you want to be a conductor?
Being a soloist is great, but you might be better off finding a job in an excellent company rather than running your own business.
My sense is that what most founders want to be is the conductor – the conductor plays the orchestra.
This changes how a founder has to think; they want to learn a bit about each role in the business, but then find a soloist to take over the role.
The conductor can direct the orchestra with grace and precision, but this is quite a different skillset to a soloist.
Turning Intuition Into Checklists
Founders do whatever it takes to serve their first clients – sometimes going above and beyond, often using a lot of improvisation.
This generates a lot of great insights, which often evaporate into thin air.
It’s tough to describe what you want your staff to do, but it’s even tougher to watch them do things the wrong way.
You naturally do things that seem instinctively right, and these need to be documented so that they’re preserved.
My suggestion is to create checklists for all of the little steps you take in serving each category of customer, I suspect these may have 50 boxes each.
There’s a good book called The E-Myth Revisited by Michael Gerber that covers how you can implement this in your business, capturing your natural hospitality into your staff’s daily routines.
Unreasonable Is A Point Of Difference
In one of Seth Godin’s recent blogs, he wrote:
“Being stuck is reasonable.
That’s precisely why you’re stuck…
The only way to get out of the spot you’re in is to do something that feels unreasonable, that’s unreasonable in the short term, that a similar person in a similar situation would say is unreasonable.
Because if that wasn’t the case, then you wouldn’t be stuck, would you?”
For your industry, your success probably comes down to you being unreasonable.
It’s reasonable to drop quality to save on costs.
It’s reasonable to cut a few corners.
It’s reasonable to let the call go to voicemail, and respond on Monday.
It’s reasonable to tell the customer that it’s their mistake and not your responsibility.
It’s reasonable to go the distance you’re paid for, not the extra mile.
In what way are you unreasonable?
How can you teach your team that this is what makes your brand successful?
What Do You Run Out Of First; Customers Or Capacity?
When making revenue forecasts, we have to estimate the number of customers we’ll serve.
It’s easy to ramp up this number using hypotheticals, which can quickly turn into fiction.
The two main constraints an entrepreneur will face are either running out of potential customers (the market is limited) or running out of capacity (the business is limited).
These two caps are useful, because they help us understand the limitations of our industry and prevent us from making impossible forecasts.
Which one is it for your business?
Three Types Of Financials
A lot of people talk about “the numbers” to describe a few different things.
When they say “I need to learn how to read the numbers” they often mean their complex financial statements.
These have a purpose, but the best place to start is with your unit economics – the amount you earn, spend and keep from each sale.
These can be calculated by looking at the revenue from each item, minus the cost of each ingredient/component/activity, giving you the gross margin (how much you keep after deducting the costs of goods sold).
Once you know what you make from each unit sold, we can add up all of the overheads (like rent, salaries, utilities, etc), then use that to calculate the point at which we break even.
e.g. We make $25 margin per widget, we have $4,400 of overheads per month, so we need to sell 176 widgets per month to break even.
This gives you a sense of whether or not this is a good business model – how reliably can you sell 176 widgets per month?
Lastly there are your personal financial circumstances.
You might have won the lottery, encountered expensive legal costs, won a $50,000 grant or accrued gambling debts.
These affect your bank account and your mood, but not so much your business.
A good business model with bad personal circumstances has some optimism about it.
A bad business model with money to burn soon turns to chaos.
Targeting Genuine And Hungry Customers
It’s easy to start your market analysis with broad statements, such as “we’re selling to everybody in this category”.
You want everybody to use your products and services?
You want to be optimised to suit everybody?
When you think of it like that, the answer becomes “We want to sell to people in this category who are genuine in their efforts and who are hungry to learn/improve.”
That’s a much better segmentation of the market.
Why sell to people who aren’t genuine?
Why sell to people who don’t want to learn or improve?
Do We Need A Highlight Reel?
John Hegarty tells a great story about a change his ad agency made when pitching to clients.
They used to get difficult interference, objections and scepticism towards the agency’s ideas, which made it hard to produce remarkable advertising.
Then they made one change – they started their new client meetings with a 10 minute highlight reel, all of the agency’s best work.
This drastically changed how clients engaged with them, they just wanted an ad like that for their brand.
Less interference, more trust.
Could you use a highlight reel (of sorts) in your meetings?
Am I Passionate About A Particular Tool, Or Passionate About Using Tools To Help People?
It’s easy to see your business as an organisation that creates a particular product or service e.g. “we build websites for other businesses”.
My question is always “what makes you so passionate about websites?”
Sometimes I get a proper answer, but more often that not the response is “oh we’re not, we just think they’re helpful for other businesses”.
In that case, it might be wise to not pigeon-hole yourself as a website builder.
You’re helping businesses look more professional, improving their reputation and attracting more customers.
You’re using great tools to do this job, and at the moment websites are the best tool.
But you’re probably in love with serving the customer, rather than being in love with the process of building websites.
Tools come and go, whereas good service is perpetual.
Guria means “to shake up” in Tok Pisin (the local language in Papua New Guinea), and we’ve seen a lot of shaking up in this program already.
Anna and I are genuinely excited to be back later this year, and can’t wait to keep walking the journey alongside such remarkable entrepreneurs.