Doesn’t it seem like some of these people making it big in the business world just have this epiphany one day about a great idea, then they just go and make it happen…ending up with millions and sometimes billions later on?

This was not my experience.  What I’ve seen is that, one day you start working on this small idea, then somewhere along the way you stumble upon a bigger idea, which usually isn’t anywhere close to your original idea.  If you have gone down the path of an entrepreneur, is this how it happened for you?

One of my biggest successes was starting a mutual fund, but it didn’t just come up out of the blue.  First I took an internship in college to learn about and sell insurance.  I built on that by starting a financial planning company with my late partner Robert Loest.  From there we tried an investment newsletter, but that only generated a few subscriptions.  Robert thought that money management was the future, so we went in that direction.

After a few years of managing individual client money that was slow and hard to grow, I had the idea of starting a No-Load mutual fund.  This newly discovered path came from the many paths before and the knowledge accumulated along the way.  It helped us take a firm that managed 20 million to managing a billion in 5 years. 

What I have experienced is that we get started on something and it leads us down a path towards success, but it’s not a straight path.  It’s only after we fail with an idea or two (maybe more) and keep trying that we discover new paths along the way.  Success is a serious of steps and discoveries that take lots of focus and drive to get past the down times and potential lack of interest in the marketplace for your ideas.

A former venture capitalist, Peter Sims, did some very interesting research that backs up my thinking on this topic.  Did you know that initially Google was a project to improve library searches, and was not founded on the idea of being a major search advertising powerhouse that it is today?  The major picture animation company Pixar first started as a hardware company.  Twitter was also not an original idea. Sims goes into more detail in his new book Little Bets: How Breakthrough Ideas Emerge from Small Discoveries.

At my current company, Efficience, we focus on building multiple, easy to use web applications an put them in the market place to see what works.  We might change and evolve an existing application several times before we get it right, or we might start down the path of creating an application and discover something completely different in the process, winding up on a new path instead.

I am writing this from our office in Pondicherry, India, where I’m working with the amazing team of software architects, programmers, quality assurance engineers, test engineers, and designers that we’ve built over the last 7 years.  This year our Chief Software Architect, Chris Nolan, joined me so that he could experience some hands on time with the team.

It’s always incredible to come here and see the evolution of our office, people, and the efficiency in what we’re doing.  I really do enjoy spending time with them and seeing how their lives have improved, experience their day to day, families, and their passion for making things work better through software.

After spending a few days here, Chris made a comment about the quality of the team we’ve built, and how he was impressed by the dedication and loyalty of our team (we had 0 attrition last year), which is what inspired this blog.  In an environment of extremely high turnover (18-25% standard across India), and people headed in every direction like they are in the streets, this isn’t something you hear very often. (check out this video)

Here in India, the idea of getting a significant pay increase is thought by most to only come by working on the next big project, adding it to a resume, and then taking it to the next potential employer.   Staying in one place and experiencing considerable salary growth is not common….except at Effindi.

What makes us different?  It’s not been easy, that’s for certain.  We’ve learned a lot of things the hard way, but in that we’ve walked away with a very stringent hiring process that eliminates an average of 20 people for every single potential hire.  In a country with a billion people and a large percentage seeking a position in middle class status, there is a flood of people going into software development…but not all of them possess the right analytical and logical skills to be quality developers.

We start with our office manager doing a screening phone call, followed by a technical test that takes close to 3 hours for most, after which they undergo an in-depth technical interview by our team leads in India.  Once they pass that interview, they are interviewed by Chris and me via video conference when we’re not in India.

My part of the interview consists mostly of company culture perspective, finding out what they’re looking for and determining if it matches up with the growing, learning, scalable, family, and entrepreneurial environment we offer.  Culturally, over here they want to be close to their family, many of them still living with their parents.  Adding team members that reside in our city or in nearby villages is idea, although it’s not uncommon for many to travel 3 – 8 hours each way on weekends to be with their families.

 We pay the best wages in the area, don’t work on Saturdays (except under extremely rare circumstances).  We stimulate the team with constant learning, where most places do not allow for on-the-job learning/training, as we want to see all of them grow and reach their highest potential.

We have made it a priority from day 1 to make our office in India different…to make it stand out from the slew of other development companies in India.  This doesn’t only apply to India, but to our US team as well.  We know what we want, so we set ourselves up to get what we want, and we stick to the plan.  Sometimes it’s a very long, tedious process, but it’s a process no less and one that we must adhere to in order to continue being successful.  Do you know what you want, and do you have a process that sets you up to get it?

If you’re an entrepreneur, have you ever looked at how you went about starting your business?  Does it seem a bit unorthodox when compared to how people told you it should be done?  This stimulating topic is backed with years of research, shedding light into the mind of an entrepreneur.

When I first started reading on this topic, I found it fascinating because it made me feel less like a renegade for my unconventional method of starting a business.  I hope this knowledge can perhaps help someone out there who is exploring the concept of being an entrepreneur, or possibly help someone like me who simply needs to feel good about the way entrepreneurs go about making things happen.

Last week I mentioned how I started a mutual fund.  What I did not mention was my process, which went against what every book I read in college taught me.  I did not go out and do a long term planning analysis on growth and demographics of people investing in mutual funds.  I did not use this data to pick the right target market to focus on.  I did not do financial projections, a business plan, a prototype or even spend time thinking about raising money.

What I did do was just decide one day that starting a mutual fund would be a better path than the one I was currently on.  THEN I WENT OUT AND DID IT!  I used everything I had learned to that point and paired it with my burning desire to make it happen and push forward.  I started calling people that I knew could either help me themselves, or get me in touch with others that could. 

According to a research and a paper written by Saras Sarasvathy back in 2001, entrepreneurs think in an “effectual” way compared to a “causal” way.  In the effectual way, entrepreneurs start with 3 means to getting things done:

1. Who we Are – which means our traits, tastes and abilities
2. What we Know – which is our education, training, expertise, and experience
3. Whom we Know – our social and professional networks

It’s likely you’ve heard stories of entrepreneurs starting out borrowing money from family, friends and even maxing out credit cards.  This is the effectual entrepreneur in action.

So, how did you go about starting your business?

Next week I’m going to go deeper into understanding the effectual entrepreneur and how they operate as compared to the casual approach.

In my last blog I talked about having a process to get things done so that you can do more and get where you want to go. Sometimes you need more than just a process, you need help. A good resource for that is a coach, one who is experienced and knowledgeable in the area we need help.

Marshall Goldsmith and Bill Campbell.

At my company, Efficience, we want to take it to another level. We could use some help in a few key areas, so we are working with the coaches at The Great Game of Business to create awareness around our critical numbers and setup a better profit sharing arrangement. These key areas will get the entire team in the game, and motivated to work together and to go after the big objectives.

Soul Purpose Institute, on and off for the past 10 years as my life/success coach. He has challenged me and helped me gain insight about myself that has been invaluable to my personal and business growth. From my experience, coaching has made all the difference in the world.

EO are great for being around other businesses owners, offering a forum group which is a lot like having your own private board.

Last week I discussed a study done on Entrepreneurs by Sara Sarasvathy that I found fascinating.  Her study analyzes the characteristics, habits and behaviors of what she calls the species entrepreneur.  She traveled to 17 states and met with 30 founders of companies ranging from $200M to $6.5B, covering a variety of industries.

So what she determined is that there are 2 methods of reasoning, effectual and causal.  The causal approach is one that you commonly find in books.  This is where you have a predetermined goal, a given set of means, and you work to identify the most optimal, efficient, and financially feasible way of reaching the set goal. 

The alternative is the effectual approach.  This is the method of the entrepreneur, and it is when you have a particular set of means, and out of that comes the goal.  This happens with the day to day feedback you receive from employees, partners and the marketplace.

Causal thinking is much more structured, whereas Effectual thinking is more creative and exploratory.  Most people can think both ways, but the startup entrepreneur tends to prefer effectual reasoning for new ventures.  Sara used cooking dinner as a great example of using both types of reasoning.  The chef that goes into their own kitchen, knowing exactly what ingredients they have and exactly what they are going to cook is a causal thinker.   The chef that goes into an unknown kitchen with unknown ingredients and creates a meal is an effectual thinker.  To do what the second chef did demands something more – it takes imagination, spontaneity, risk taking and salesmanship.

The three principals that Sara digs into are:

1) While causal reasoning focuses on expected return, effectual reasoning emphasizes affordable loss.

When I started the mutual fund I limited the attorney to a fixed cost and sent in $1500 to the SEC to get it registered. I knew what my risk was at each step.

2) While causal reasoning depends upon competitive analyses, effectual reasoning is built upon strategic partnerships.

When we started the software company, we did a project that was going to save our client money, but we reserved the rights to sell the product to all the other dealers in their industry. Thus, we partnered with our client.

3) While causal reasoning urges the exploration of pre-existing knowledge and prediction, effectual reasoning stresses the leveraging of contingencies.

Our software company is building web based applications to help businesses be more efficient. We don’t know which one the market will love so we are building multiple ones for our contingency.

Do you recognize any traits of an Effectual Entrepreneur in yourself? Does this give you insight into why you analyze things the way you do?  Successful companies are being built every day this way, so we can all take a big sigh and know that we are not so alien afterall.

Coach John Wooden of the UCLA Bruins basketball fame of the 60’s and 70’s. During his tenure he won 10 NCAA National Championships over 12 years. He was called “Coach of the Century” by ESPN. His path to success was made up of many secrets that apply not only on the court, but in business as well. Here are 3 that I have found most meaningful:

Secret 1 He used many sources to rate his players on where they stood on the team, from his assistant coaches to the players themselves. Last but not least, he knew that this was not a fool proof process. Mistakes are made in any hiring or recruiting process, but when that happens, dealing with it quickly is most important.

Secret 2 Secret 3 In business, we know that our decisions will not always make everyone happy. With time or a better understanding, though, they usually see that the decisions were in the best interest of the company and therefore to everyone working in the company.

Be Quick – But Don’t Hurry by Andrew Hill, a former player under Coach Wooden. I have experienced most of his keys to be true and hold a deep respect for his wisdom. After all, he was the Coach of the Century….

A few weeks ago I joined with 740 other EO members for the EO Texas University, where we were exposed to some exciting speakers and events.  Among them were: Terry Jones, founder of Travelocity, Alvaro Uribe, former president of Columbia, Warren McDonald, who lost both of his legs during a climbing accident in Australia, and Kai Huang, who’s company RedOctane created Guitar Hero.

They were all amazing speakers, but the one I want to share with you in detail is Gene Kranz, the flight director during the Apollo 13 mission crisis (click here for the netflix movie).

Gene’s motto is “Failure is not an option!”  He led a team of young engineers through what seemed like insurmountable fear and doubt.  He helped these young engineers pull it together and deal with one crisis after another as they worked to bring the three astronauts home safely.  And to top it off, he did it front of the eyes of the world as everyone watched and prayed the astronauts would not be lost in space.  The movie Apollo 13 with Tom Hanks is a very good depiction of the real events.  (Link to movie)

Just a short time before this mission, Gene’s team at mission control listened to the dying screams of three other astronauts that burned to death in space.  On the topic of bringing home the Apollo 13 crew, Gene said “I will be damned if we are going to lose any more men under my watch.”

Gene explained to us about the Foundations of Mission Control, or core values, and how as a leader he was determined to live up to them.  I want to share them with you because I feel that they are significant principles in business and life.

Discipline…Competence…Confidence…Responsibility…Toughness…Teamwork

Discipline – Being able to follow as well as lead, knowing we must master ourselves before we can master our work.

Competence – There being no substitute for goal preparations and complete dedication, for space will not tolerate the careless or indifferent.

Confidence – Believing in ourselves as well as others, knowing we must master fear and hesitation before we can succeed.

Responsibility – Realizing that it cannot be shifted to others, for it belongs to each of us. We must answer for what we do, or fail to do.

Toughness – Taking a stand when we must, to try again and again, even if it means following a more difficult path.

Teamwork – Respecting and utilizing the ability of others, realizing that we work toward a common goal, for success depends on the efforts of all.

Gene believes that it was the resolve to work and abide by those Foundations of Mission Control that ultimately brought the crew back safely. What are your core values and how much importance do you place on them? 

Last week my company, Efficience, went on our annual retreat. This is where we take a few days to get away from the office and plan out our year, define our focus and strategize around threats and opportunities.

I’ve recently mentioned the Great Game of Business team, as we’ve been working with them to define our critical numbers and set in motion a profit sharing program with our team. What we discovered with our coach Bill is that our key critical number is our gross profit margin. In our financials, we’re tracking the cost of building software as the cost of our team in India, US employees not including partners, servers and software to run operations. As most of you are aware, the difference between these expenses and our revenue gives us our gross profit, from which we derive our gross profit margin as a percentage.

Why this is important is that we’ve created a profit share based on a schedule that begins as soon as we start making a profit. For each level of profit, a number of hours are distributed to each person (the same number). As profit goes up, the number of hours goes up. Breaking their salary down to an hourly rate, multiplied by the number of hours given, is how they determine what their share will be.

The best thing about this is that it drives productivity…since the higher the profit margin is, the more money they all make. Suddenly things like how to be more productive and efficient become top priority, since hiring more people, adding more servers, or purchasing more software that we may or may not need directly affects their income.

My first impression after presenting the plan was that the team was really enthusiastic. They were excited to have more than just a set amount if profit went higher than we planned…then so would their bonuses! Not to mention they are all able to see how their efforts can grow the company. I’ll keep you updated as we continue down the entrepreneurial path together…

How many times have you heard “I spend so much time in meetings, I don’t have time to do all the things I say I’m going to do in those meetings”?  It’s a constant battle I face, trying to improve our meetings so that they are as productive as possible in the least amount of time, and ultimately beneficial to our business.  After all, business is about bringing a group of people together to accomplish something, together.  So you could say that these gatherings are one of the most crucial parts of business.  It’s difficult to align people without that infamous word “meeting”.

Imagine a US football team in a huddle.  Before each play, the offense and defense take a few seconds to analyze where they are, what down it is, what they think the opposing team will do and their own next play options.  Next the coach or quarterback will call out a play that takes everything into consideration.  In the same way, when people are brought into a meeting they discuss what they are trying to achieve, what is in the way of achieving that and any progress they have made.

We work diligently to make our meetings productive so that they keep us moving forward, but I find that we still manage to drift a little along the way.  Last week after our usual Monday morning meeting with our Team leads in India via video conference, I kept the team together and asked one question.  What is standing in the way of us becoming a better company?  I set the timer and everyone had 3 minutes to write down their thoughts.  

At the end of 3 minutes, one at a time we went around the room, each team member and team lead providing one idea.  As we gathered ideas I started a list of them all, and then went back around and each person ranked their top 3.  For their first choice, I put 3 marks, second I put 2 marks, and third I put 1 mark.  At the end, the ideas with the most points are the most pressing issues, and therefore are the ones that we will begin discussing.  As a group we brainstorm possible solutions to the barriers, then finalize what our next step is towards making our company better in that area.

In my experience, meetings provide the best opportunity for true collective intelligence…where ideas feed other ideas, and new ideas grow.  Taking the time to talk about pains, stucks, competition or even opportunities, you are supporting the work of your team and making meetings productive.  Research shows that one of the biggest motivators for employees is progress.  When you have a productive meeting, your team feels that accomplishment and thereby leaves the meeting more motivated.

What are you doing to create value? I’m sure you’ve heard, as I have, that business is all about creating value for those around you. I recently saw a post by Robin Sharma on five points to protect your company. The fifth point he made was: Become Obsessed with Value Creation. The point says “This is not some pie in the sky idea. It’s a hard hitting business growth tactic. Obsess over how you can add more value to more people and the revenues will take care of themselves.”

My success coach, Steve D’Annunzio, talks about value from 2 points of view: subjective and contextual. He says that “we are moving out of the age of information and moving into an age of context” and “that no truth exists without context”. For example, let’s look at the context of a simple drug like pain medication. It can make you feel better from that kidney stone, but it can also become an addiction or it could alter your mind to the degree of committing suicide.

In the age of information, Steve defines value as a product, service or idea that eliminates threats, fulfills obligations or capitalizes on opportunities. In the age of context, it is defined as any product, service or idea that energizes and empowers you MORE than the energy, time or money that you spend to get it.

So what does value mean to you? How do you know when you’re providing value to your customers? I would say that increasing business is a good indicator. When your customers are waiting in line for your product or service, you are adding extreme value (think Apple). If you’re seeing a declining customer base and decreasing profits, it’s probably a good time to start asking your clients how you can provide them more value.

From my experience, you have to have thought and desire to find value. Sometimes it slaps you in the face with a client ranting “why the heck doesn’t your service allow this?” If it’s not slapping you in the face, simply ask your clients what they need from you that would eliminate a threat, fulfill an obligation or capitalize on an opportunity. Sometimes clients just don’t know what they will find valuable until they have it.

The book Blue Ocean Strategy has an exercise that can come in handy to help find the value that you or your clients don’t currently see. This is a great book, filled with lots of insight on how to swim out in the vast blue ocean of competitors instead of floating around in the red ocean of shark infested competition. Next week I will go further into value creation from the Blue Ocean perspective.