Your Experiences are Your Core Differentiators
Businesses are not evolutionary endpoints. Businesses can be endlessly inventive. Why is it that putting a bookstore on the internet would lead to the world’s richest man? If price isn’t your differentiator, you’ll work really hard to find one and fail. A business plan tells you if it’s worth doing. Will this have been worth doing?
What’s the smallest thing I can do in the shortest amount of time that will give me evidence to confirm or disconfirm my core thesis? Root in your own experience, not in somebody else’s business book. Your experiences are your core differentiator. That’s what you’re bringing to the party.
The person screwed on price wins on convenience or timing.
I want a startup because all the cool kids have a startup. Really? Every new business is a start-up.
Chris’s advice on starting a new business?
- LOW OVERHEAD. If you can ever get your overhead covered 100%, you should immediately go start a business.
- OVERREACH. Don’t be too creative when you don’t need to be.
- PROTECT. Keep the parasites out.
- TIMING. Look at the timing of when you want to expand your market.
Is it worth doing? Well, the business plan says it’s a good idea. But looking back, it was a bad idea. Here’s the story of Chris and Corey’s friend, Sushee Perumal.
Corey Frank (00:33):
Before this call, we were talking about one of the aspirations that you have, the super power you have is the ability to see a business and to deconstruct it in front of the founder’s very eyes and build it up again about how to kind of eliminate some of the pratfalls or painful financing lessons that most founders and startup businesses have. So, yeah, let’s talk a little bit about that.
Chris beall (00:54):
Sure. It sounds like fun.
Corey Frank (00:56):
So when you look at a traditional business, right? How many businesses have you helped over the years and just, “Hey Chris, can I buy you a beer? Can I grab 20 minutes? I’d like to run this idea by you.” So imagine the nightmare scenarios you’ve saved people from. I know I count myself on that list from preventing me, saving myself from me, I guess, is what you do best. So what are some of these common challenges that guys like me when I want to start a SAS business, and I have dreams of getting the series A and raising my three, four, $5 million and setting forth on this path to prosperity. What am I not thinking of?
Chris beall (01:32):
Oh, yeah.
Corey Frank (01:33):
What do guys like you have being on the trenches and having that 1,000 yard stare. What do you do to prevent me from hurting myself?
Chris beall (01:40):
It’s a great question. I don’t know if I know the answer. I feel like I respond on the spot to different people’s challenges, different business challenges. I don’t know the answer to the first question, by the way, I suppose it’s in the 100s because I like other people’s businesses. I just do. I’m fascinated by them and I’m attracted to the courage and I want to talk to people have a slightly naive courage to plunge off into the unknown. Pretty sure that they’ve got something, but also pretty sure that they should probably talk to a few people before they just put it all together in detail and then wonder why it didn’t work. And I do think one of the biggest errors that folks make is they business plan for the wrong purpose.
So they business plan for purpose in general of mapping out half that they’re going to take and saying, “It’ll be glorious. Here’s how it will be glorious.” And the amount of confirmation bias that goes into business planning, like stunning. And the other thing that they tend to do is take the intermediate products of the business plan, which are something like, “Oh, if we do A, B and C based on the size of the market, then we’ll have growth that’s of such and such a percent per year.” And then they use that growth of such and such a percent a year as though that’s the fact not the actions that are required to get it. And then tend to back into using canonical means and therefore we’ll spend a certain percentage of it on marketing and a certain percentage of it on sales.
And we’ll hit this mark here in two years because other people do and all that kind of stuff, right? It’s all canonical. And one thing I think I mentioned on a previous episode is that businesses are more different from each other than people are from each other. Because businesses are not evolutionary endpoints. They didn’t come from anywhere except out of the mind of somebody within the constraints of the society, in which they live. The laws, the mores, the available resources. So businesses can be endlessly inventive. I mean, look at Amazon, there’s a business that’s so bizarrely invented in its concept that to this day, I think if you took any sane business person back through the premise, except for Jeff Bezos, who is clearly insane in a very good way, you wouldn’t be able to get from where it started to where it is today on any path you could have predicted or even wanted to go now.
Why is it that putting a bookstore on the internet would lead to the world’s richest, man? Why? Well, whatever it is it had to do with the core belief that he had, which is something along the lines of. I have a business idea that has to do with a couple of things. And I’m guessing I’d never met him, but I’m guessing one of them is, we could exchange profits for market dominance and we could demonstrate market dominance in a market by sacrificing profits, but it has to be a market which price is important. And in order to make that, so it’s got to be a commodity, well, books are a perfectly fine commodity. And new ones are born every day and they need to be promoted and they need to be sold. But at the margin, buying a book from one guy and buying it from the other or the same thing, you get the book in either case.
So now we’re kind of down to price. As a bookseller online, especially, if price isn’t your differentiator you’re going to work really, really hard to find one and you’re going to fail. So I said, “Well, how do you do that?” Let’s see, I got to buy him for something. So I run a really cheap operation with wooden doors for desks and all this cheap stuff, right? Intelligently cheap, keep your overhead way low, keep the operating costs of delivery way low, looked for economizing and savings everywhere. And then, oh, last trick take no profit. And the stock market will reward me with more money than the profit I could have taken over any given period of time. That is the increase of value of the stock will recognize that I can do this over and over and over and grow. Right? It’s that kind of inventiveness that I think is so interesting in business.
And I think sadly, a lot of people who have those kinds of ideas, don’t pursue them in a clean way, because instead of asking themselves the right kind of question, which is, what must I never do in this business? If I believe what I believe, what must I never do? Right? If I truly believe what I believe is the why behind this business, what must I not do? Instead they back their way into something that they know damn well, they shouldn’t do. And they do it because somebody says, you have to do it. Somebody says you have to raise money. Somebody says, you have to have an office. Somebody says, you have to have a VP of sales. Somebody says, you need a technical co-founder, whatever one of those things happens to be, right? Somebody says something. And instead of thinking it through from first principles, how do I know that? In fact, why even pay attention to that?
The question is, what do I need at the minimum to confirm my thesis, the reason, my why. To confirm it or disconfirm it with the smallest negative impact and the fewest people, especially people that I care about. And it comes down to, well, now you’re in the business of doing an experiment. So now you’re doing science and the opening of every business is passion. I want to do it, follow it immediately if you do it really well, with a tiny bit of math, is it worth doing if it works? That’s the purpose of business planning, by the way. The purpose of a business plan is to answer this question. If it works, would it have been worth doing? It’s actually a retrospective done in advance. It allows you to look at the future and say, “In the case where it all works great, would it have been worth doing for me, for the other stakeholders and for the world? Would it have been worth doing?”
And that’s what a business plan tells you. The first sort of business plan, especially one that you’re ever going to present to somebody to raise money. But since you’re the first investor and your time is worth more than anybody’s money, for sure your time is worth more than anybody else’s money. Right? You got to ask yourself the question, am I going to invest the time? Well, you got to see the future. That not accurately. You must not see the future accurately. That’s a really bad idea. You have to make a business plan that answers this one question. So if it all works out, will this have been worth doing? Then having done that, you throw that business plan away. Now that you’ve convinced yourself to make the investment or somebody else in case you really, really, truly believe you need somebody else’s money, which in general, you don’t, but maybe you do.
And then you ask yourself the question. What’s the smallest thing that I can do in the shortest amount of time that’s going to give me evidence to confirm or disconfirm my core thesis? And in general, your core thesis is somebody needs something that they don’t have today, and I think I can provide it based on an insight or some other advantage that I have due to my background or my circumstance. If my circumstance or my background, doesn’t give me advantage to provide something for somebody who has a problem that I can solve, I don’t even know why I’m in business. So that’s rule number two is, root in your own experience, not in somebody else’s business book. Your experience is the core of your differentiator. That’s what you’re bringing to the party. You could be bringing your circumstance. Maybe you were born rich or something like that.
Some people say you’re 6’8, and you weigh a lean 265 pounds. And you can put your elbows over the rim. Well, maybe you should invest in learning how to play basketball. You never know what that might pay off, right? Like can be a good one. Your circumstances may have not have been over your own creation. That’d be a version of being born rich, no matter how poor you are is if you happen to have a super skill, you’re a mathematical prodigy, right? You’re a sales genius. You’re a psychopath who can talk people out of their money for reasons that they will never understand. That’s a bad one, but it would be a gift that you could use to start a business. And many people have used that last one as a gift to start business.
Corey Frank (09:54):
True.
Chris beall (09:55):
Bernie Madoff may well been a guy who did that and the best of the ones that talked themselves into it. They believe they’re doing good stuff, man. That’s a really good disguise. So, [crosstalk 00:10:06] those are the two things though. And they’re generally not done.
Corey Frank (10:09):
And instead what’s done is take a heaping load of confirmation bias and discount. Both of those two rules, big time.
Chris beall (10:16):
Yeah. Big time. And then following a formula. And there was a modern version of this and Silicon Valley was super popular. I used to talk to lots of young people. Who’d come to me and say, “I want to do a startup.” It’s like, what does that even mean?
Corey Frank (10:30):
Yeah.
Chris beall (10:31):
Well, I want to do a startup. But why? Because startups are where it’s at. Well, there’s no such thing as a startup. That’s a nonsense concept, right? It doesn’t even mean anything. All businesses at some point start, that’s not a unique characteristic of a business that it starts. They all start. That’s like saying, instead of saying, I want to be president of the United States. You say, I want to have been born. Well great. Wonderful. We’ve really accomplished something here in terms of our understanding of what to do next. Right? So I want to do a startup. Well, okay. So in what? Well then they’ll get usually to something that’s in their core. I know the young man come to me of somebody close to me. And he had a passion about how the relatives of old people who were sick, got screwed in medical pricing, medical services pricing.
Corey Frank (11:24):
Okay.
Chris beall (11:25):
And that the family members couldn’t figure out how things should be priced. And when you can’t do price discovery, and you’re a buyer on a short timeframe, you tend to get screwed. That’s one of the great principles of life, right? If I got to buy now, it’s like the seller who’s moving. And I know somebody right now is moving from her house to Tucson. So she’s got to get rid of her stuff by the closing date. It’s got all the ducks in a contract, right?
Corey Frank (11:50):
That’s right. Yep. Yep.
Chris beall (11:51):
So she going to get the best for that white couch? No, somebody’s going to get that white couch for 100 bucks. And I guarantee you that white couch is worth a lot more to someone, just not to anybody she’s going to find in that amount of time, right? So being a buyers, is the same thing when you’re under time pressure and you can’t ice discovery efficiently, you get screwed.
Announcer (12:16):
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Chris beall (13:11):
That’s the definition of, I was like the number one mechanism. That’s why the economy also is some people are under pressure time pressure devise. Some are under time pressure to sell. In neither case, do they find the price, the correct price, the market, whatever the correct market price is. And there’s a transaction and somebody wins and somebody loses, but that’s okay because the person is screwed on price, wins on convenience or timing or whatever it is. Right? So it’s kind of funny though, when you say, okay, so you want to do this startup. So this guy wants to do a startup. And I said, “Well, what do you think your first step is?” He says, “Well, I’ve got to find a technical co-founder.” “Well, why is that?” “Well, because I don’t know how to write code.” “Okay. And how do you know this has something to do with writing code? Do you know enough about this to know that it’s worth writing the code?”
“Well, I know that people in the circumstance gets screwed.” Got it. We started with the passion, go write the business plan, that shows why this is a great idea in the future looking back if, it works. And then you’ll have some sense of what it is, but no, your problem isn’t finding a technical co-founder, that’s not your problem. And your desire can’t be this type of startup because all the cool kids have a startup. But you see a lot of that in business. And then you’ll get folks who are at the opposite end of the spectrum. We were talking about our mutual friend, Sushee Perumal, right? And Sushee runs a company called MaxSold. And I don’t think he’ll mind us talking about him because the guy’s just absolutely a dear.
Corey Frank (14:42):
He’s the only one that listens to our podcast anyway.
Chris beall (14:44):
That’s right. He said he listened to every episode, at least once. He said he binged on us, Corey, he binged on us. Sushee, thank you so much. That’s why the numbers went through the roof last week.
Corey Frank (14:54):
That’s right. That’s right.
Chris beall (14:55):
Listening over and over. But he has a brilliant business, brilliant, brilliant business. And he went about it the right way. Step-by-step starting with, is it worth doing? And this is a guy who has tried various things, starting an airline. You can go to susheeperumal.com or wherever he out there and check it out. His story is unbelievable. It’s told beautifully. He must have talked to somebody who told them how to tell him a good story, because a good idea. Sure it wasn’t me. But he’s kind about the step-by-step. Now he’s taking a little bit of money right now. That is a very, very considered thing to do because he’s figured out who needs it. They buy it all the time and they just got to figure out, okay, so how do I spread this out? How to escape it.
Corey Frank (15:39):
Wait, hang on. Did you say that a founder of a business actually has a business that’s running and throwing off cash, and then he’s looking for money? I thought Chris had happens the other way around. You actually have the money first.
Chris beall (15:50):
Yeah. Different approach, different approach. It’s a very, very much a bootstrapped approach. And the beauty was he had an insight and then he went out and validated, or I would have been not happy, but content, I suppose, or accepting of a hard disk confirmation. It says, this is a bad idea. Business plan says, it’s a good idea in retrospect that from the future, looking back on it, if you were to make it great, but the facts of going out and exploring the needs, it’s a bad idea. But the fact said it was a good idea. In fact, right here in little port towns in Washington, where I live, we were walking along one day, about seven months ago and saw somebody with an apron with his company’s name on it. And that apron said, MaxSold and she was standing in a driveway. And I went over and asked her, “What is this?”
We’re out in one of the outposts of the world. This is the Quinn for peninsula. If you go that way, 300 yards, you are swimming to Canada. The picture behind me is Seattle. I’m a little ways away from that. And I asked her, “What do you think about this thing that you’re doing? Whatever it is.” And she said, “I do estate sales for a living. I’ll never do another one. This is the only thing that I will ever bring to my customers.” She didn’t know that I knew Sushee. I just asked her a question. Clearly he’s found, he struck a nerve out there. And we’ll need to get rid of their stuff. And I don’t know if he came up with it and, he acted surprised when I said it today. I say to people, “Okay, Sushee’s business, MaxSold. What does it do?”
It sells everything from the sponge under the sink to the Ferrari in the driveway and gives you the money. I mean, that’s pretty good, right? From the sponge under the sink to the Ferrari in the driveway, we sell it and we give you the money.
Corey Frank (17:33):
We’ll get him on as a guest.
Chris beall (17:34):
Yeah. We’ll get him on. He really is great. He’s great. He can’t even fly to the US right now, even though he has an airplane and all that good stuff from the airline he started, which didn’t work out, but learned a lesson or two, and it’s on his site. But my point is going through the motions of starting a business is not starting a business. And going through the motions of starting a company, a VC funded company is almost surely not starting a business. It may be starting a company, which as we’ve talked about before is an R&D.Lab for a future acquirer. But dominance plays don’t come out of their, dominance plays they come out of figuring out a real need, figuring out something to do about that, that can fit within everybody’s cost parameters now, and for a long time to come. So there’s profit.
And then figuring out how to scale it. Now today Sushi and I were talking about scaling and that’s the flip side is you can create demand, but what if you have to service it locally, can you create enough local service centers, capability, or whatever you want to call it in order to scale? Well, that becomes a fundamental business problem. And you need to then understand finance at another level because each one of those is a unit of being finance. How are you going to finance it? You have to think that stuff through. This is where talking to people who built similar shaped businesses is worthwhile.
If you’re going to be a four legged animal, talk to the other four legged animals, don’t talk to the kangaroos. Don’t talk to the monkeys that hang from the trees, talk to the other four legged animals and say, “How did you solve this particular problem? And there’s no business books that’ll tell you that stuff because there’s too much variety. In this case, I happen to have some experience from the past around 2003 and making that kind of financing and operational equation work in the real world. And so I could share that with them, not as some mentor or whatever, but as a guy who put one of his, another four legged animal, right? Running ConnectAndSell is not like that. It doesn’t resemble it at all. It’s just completely different animal.
Corey Frank (19:36):
So when you look at, with that Chris, when you look at all the businesses that you’ve been a part of, either as an investor, a board member, an executive or CEO, and you see that when any of those businesses that maybe didn’t do as well as you’d like, was it personnel? Was it operational? Was it financial? Was it plumbing? What do you see when you get above the trees and you look at maybe the businesses that you’ve been a part of, or again, affiliated with or invested in, what’s the residue that maybe you’ve learned, certainly going to be different for everybody, but from what makes Chris Beall Chris Beall today, right? The Market Dominance guru here is the collective residue of experiences that enables you to now take a left turn when it previously took a right turn and to learn why it’s important to take the right turn. What would you say is the collective aggregate of those experiences? What would you say to us?
Chris beall (20:36):
Number one, I’ll go chronologically because it’s easy to do for me. Because I can go back to when I was pretty young, because I started, starting businesses and one sort of another one, I was probably 11. First one was super successful. People needed it. They needed to have work done around their house and in their corral and stuff like that. And a couple of hardworking kids with some tools and razorblades and whatever could do anything and priced it right, sold it right, knocked door to door. As my first door to door sales job was selling our own stuff and it was super successful actually. It was a very successful business.
Key to success actually in that one, low overhead. I lived at my parents house and [inaudible 00:21:12]. So I had the energy from the food and time on my hands and I could go make a business. By the way, if you can ever arrange to have your overhead covered at 100%, you should always immediately go start a business. It’s always better than having a job. Always. I would recommend this to any kid who’s thinking about college. Who’s not a big fan of college. There’s a bunch of them.
Corey Frank (21:34):
Sure.
Chris beall (21:35):
So tell your parents, instead of me costing you 100 grand a year, how about you put me up at home and I’ll go start a business and it’s going to be a grinded out business of some kind, because that’s how you do things. Go, [Walmart 00:21:47] , Cuban. Yeah.
Corey Frank (21:49):
If you get your GNA covered, that’s a big piece of that.
Chris beall (21:52):
You’re good. You’re good. And that’s the number one thing to do actually in any business. Number one, not is so what do you believe when you’re not believing? Right? I mean a business or life is like a race horse. It eats while you sleep. How much does it eat while you’re sleeping? So that was one that worked really well. It eventually ended because my business partner took up other interests. We aged out of it, I would call it. And went and did other things. And then on another business that went, a software business, I was in I’ll come forward, quite a ways that went bad. It was very sad. It was the first Unix-based ERP company. So think in 1983, ’84, imagine on Unix, which nobody built commercial software on at the time, the vision was Unix and it’s whatever comes after it turned out to be Linux, same damn thing really. Will dominate commercial software because it lowers the effective cost of software development by letting a developer spread their output over many kinds of computers.
And at the time there were many kinds of computers. So one developer suddenly becomes 40 and that arbitrage was too irresistible. So instead of thinking up some brand new ERP system, we took one that was fairly popular at the time and just went ahead and looked at it and said, “Well, at least this thing’s useful. Let’s just build this, but in Unix land.” And we did it and it was superb. I mean, it was built in a beautiful way, made every release on, every Monday morning, we would release software. Always worked pretty much bug free, got customers like Honeywell and all sorts of wonderful brands, right? Motorola, folks like that. [Shewish 00:23:32] Chemical out of salt Lake city was a big customer of ours, found a niche in continuous flow manufacturing because some of the things we did in our underlying mathematical model could handle units other than one, two, three. It could actually count to 0.5 or 0.3726, right?
Corey Frank (23:49):
Which lesson was target the niche?
Chris beall (23:52):
No, that was. The good lesson was, don’t be too creative when you don’t need to be. You don’t need you stand at your genius on this damn thing. Right? So the genius was in seeing that this could be a differentiator that’s really fundamental with regard to being able to develop what the market needed. And then the chase, which was smart was down this continuous flow manufacturing route, but the company blew it and we blew it because the venture money that was in, which was some of the smartest venture money in the world, firm is still around. I won’t name them because I’m a nice guy, but they’re big and they’re still around. And I had friends have gone to work there as VCs, since they got impatient and wanted to make it go faster and be liquid. And that was only three years into it.
So what was wrong with that? Well, it wasn’t that kind of product. So while we had product market fit, we didn’t have investor and company product type fit, an ERP product. You want to treat it like SAP did. As an infinitely long road, you’re going to go down and you’re just going to become more and more dominant as you solve more and more problems in the world because nobody else can get to your stage of understanding of those problems and having the code, the integration of services on the customers that allow you to be able to go solve the next problem that is go vertical to vertical. And so they got impatient and they decided to shrink wrap the software and sell it as a standard package, fast, fast, fast, and nobody wanted it. So they actually created it. And the investor impatience created per product market non fit, where there was already product market fit.
Corey Frank (25:32):
So that disconnect between the investor and the founder in that disconnect on the thesis and the breakup strategy is what should have been ameliorated or talked about at the beginning? So arguably that wasn’t the type of investment that was a snug fit in their portfolio, but they did it anyway.
Chris beall (25:52):
They did it anyway. And they expressed their dissatisfaction by bringing in professional management. And that’s a standard failure mode for all these businesses because professional management is the rough equivalent in many VC situations, ventured back situations of a salvage job. So a kind of a hatchet job, right? You come in and you trim costs and you arrange for the thing to be sold. It never got sold except the software got sold to a big company and became the core of a series of very exotic, automated distribution systems that were kind of second to none, a 20 year ahead of their time kind of things. But the business as a result went away. And there you go. I mean, it was ahead of SAP, who knows? You never know how these are going to play out. I mean, but it’s a game that, the game needs to be played out over 90 minutes, turning it into 90 second game is a bad idea.
Corey Frank (26:45):
Yeah.
Chris beall (26:45):
That’s just all there is to it. And then I’ve seen that another standard failure mode is overreach. So when times are good, these things can fail because somebody thinks that, one of the businesses I was involved with, we had an opportunity to sell the business for a lot of money, billions and billions, really a lot of money on a very lucky set of circumstances where a company that didn’t have that much money into it. It was perfectly positioned at a particular time in the market to sell to a public company in an all stock deal with no lockup. And it was a one week long plan to a close and the whole bit, but that ran counter to the notion of the company’s liquidity path, which was to an IPO. So when 2000 came along and the beginning of the tech crash happened, the IPO was no longer viable and the company could neither be sold appropriately, nor could it go IPO.
And so it got trapped. It’s just, what are those two, the two not quite mythical water feature Scylla and Charybdis, right? You get caught between those two. And it’s if you turn this way, it’s bad. If you turned this way, it’s bad. And so some billions of dollars of potential upside were lost and the company ended up selling for, I believe in 2005 for 19 million, with 11 million in cash, still in the back. So that’s a mistake of just an overreach. It was just a moment where there was so much boldness and certainty that liquidity was ours that instead of taking the money, and this is really common with us, right?
[Rich Plumage 00:28:16] told me years ago, am I a corporate lawyer, one of those companies many, many years ago, he told me on a round of golf once and I’m afraid. I said, “Rich, it’s clear. You’re a wonderful human being. And you’re a great professional, but it’s clear you haven’t spent all your time on the golf course.” And he said, “Well, maybe not.” I said, “Well, what have you learned all these years? 40 something years of doing this stuff, helping companies with finances?” And he thought for about four holes and then stopped me and said, “One thing, take the money.”
