What is the opportunity that you find yourself in today? What people did you meet to get here? What are you going to do to create more such opportunities?

I am on my way to Ft. Lauderdale to meet with my EO Insignia Forum. My close friend Joe has a place there, so we are going to spend some time at his condo. I really enjoy going to meet up with my EO friends and spending time with them. It is always a very stimulating and worthwhile experience.

I come away with a greater connection and understanding for their struggles and successes, as each one walks their own path. It opens me up to what life has to offer and awakens me to my limited perspective when the diversity of these successful entrepreneurs come together to share their minds, experiences, and visions.

You rarely understand the true power of these interactions in those specific moments. I have witnessed not only the financial but also the immense emotional impact of these exchanges. The emotional benefits of not feeling alone when leading a company is very comforting, and I look forward to spending time with these dynamic people.

Last week, my local EO Forum participated in a Forum boost. We brought in a forum trainer who exposed ways to share and go deeper with your forum mates. Sharing very personal things, like those that you may not even tell your spouse, is very powerful and humbling to the participants.

I once read that the two things that will impact your life the most are the books you read and the people you meet. My life experiences allow me to see the power and reality of that statement in action.

Think about this example. Joe has hired a personal trainer, Jess, to be with him for a month to focus on healthy habits in nutrition, cardio, weight training, and overall healthy balance. Jess lives in New Jersey. A mutual friend introduced her to Joe, and because of this new connection with him, she made a decision to leave her home and travel with us. This will have her meeting new people, experiencing new situations, making new connections, and opening doors to new opportunities. Who knows what this one connection and one decision could mean for the many forks that will appear in her life and where they will take her?

Do you seek situations to meet, learn, and grow with other people? What are the opportunities there?

I discovered some interesting reading in Warren Buffett’s recent annual report from Berkshire Hathaway. I have read this report for years and always find it to contain valuable information. I found some of his comments in this recent report rather intriguing given how he threw himself out to be a political ping pong as of late.

When you open the report, one thing stands out right away. Just look at how Berkshire’s performance compares to the S&P 500 from 1964 to 2011. The difference is astronomical. Over that period, Berkshire generated a 513,055% total return compared to the S&P 500 at 6,397%. This translates to compounded average annual gains of 19.8% compared to 9.2%. Having a history in the investment world, these numbers are super impressive, and they lend Warren an immense amount of respect and financial acumen.

On page 18 of the report, Warren talks about investments that never produce anything but will get purchased because the investor hopes the price will go up. Increasing prices on an asset that doesn’t produce anything only happens when many others want to buy it too and drive the price up. One asset that is representative of this is gold. Warren says “Gold, however, has two significant shortcomings, being neither of much use nor procreative” and “if you own one ounce of gold for an eternity, you will still own one ounce at its end.”

He then goes on to compare the cumulative stock of gold (worth about $9.7 trillion) with what productive assets you could buy. With that amount you could get 400 million acres of US cropland and 16 ExxonMobils (worlds most profitable company). The land would produce $200 billion, and all the ExxonMobils would produce $640 billion per year. That is $840 billion returned to you every year for the same investment amount compared to getting back zero from your gold.

I agree with his thinking here. Given these statements and an earlier comment in the report stating he is giving most of his money to philanthropies, I have two questions for Mr. Buffett.

First, given this line of thinking about spending money on productive assets, whether I had $5 million or $5 trillion to spend, invest, or be taxed, wouldn’t you rather have it in the hands of a productive producer for society (like yourself) rather than a non productive producer for society like the US government ?

Second, if you think we should have an estate tax on successful people like yourself then why are you not giving all your estate to the US Government instead of giving it to productive, accountable charities like the Gates Foundation which takes great pains in making sure their money is spent productivily?

Being an entrepreneur, I have a mind set to create something better and to “maximize” the future. One of the things that I like to maximize is time. The problem with that is time is not scalable; it cannot be expanded with increased use. What do we do then? Since you and I can’t change the fact that we all have 24 hours to utilize in a day, we need to approach it differently.

From the perspective of the majority, we all go to work and put out a certain number of hours. If you want more money, then you work more hours, right? This is because you are paid for being at work, either by the amount of time worked or by the project or production. For example, when we are building a custom software project, we receive payment for the hours we work on the project or, if we quote a fixed price, for the completion of the project itself.

When you work this way, you must ramp up each project and exert the time and energy into understanding each client situation, becoming familiar with the client’s environment, solving the problems, writing the code , testing the code, getting it stable, and then you do it all again. In order to grow and expand your profits, you need to acquire more time, more resources, or both.

We have the opportunity to build one software project and sell it over and over again. You build it once, but you can sell, lease, or give the software to a couple or even a few billion people at minimal to no additional cost to the company. This would be the same as a contractor building an apartment complex with 5 units but leasing the same space to thousands of users.

We are building software tools such as Sluice, which we are able to lease, thus multiplying the revenue as more people use them. This only works if you create real value for people by solving a big pain that is so troubling that they will spend money to get rid of that pain.

To be scalable outside of software may take some creativity, but even with fixed assets it is possible. For example, think of turning a condo unit into a time share unit. You can sell the unit to one person for lower revenue or to 52 people buying a week for more revenue.

What are you doing to make your time scalable?

As an entrepreneur, I consider myself a pretty optimistic person.  I look to the future and see a rosy picture filled with visions of a lifestyle that incorporates my dreams.  I will sacrifice now acknowledging that I will see better times ahead.  Knowing that the little steps of progress I see in my company is leading to something better really gets me excited, and the optimism overflows even more!  Have you ever thought this could be a little risky?  I didn’t, but let’s explore this some more.

When I was preparing for India, I knew I needed some good reading material to entertain me on the 24 hours of travel time I would have each way.  I went to Barnes & Noble to search and came upon a really good book called “Thinking, Fast and Slow” by Daniel Kahneman.    Daniel won the Nobel Memorial Prize in Economics in 2002, and with this book he aimed to “improve the ability to identify and understand errors of judgment and choice in others, and eventually in ourselves, by providing a richer and more precise language to discuss them.”

 I have found this book to be very interesting and mentally stimulating in the same vein that I did with “The Black Swan,” which you can read more about here on my blog.  I have not finished the entire book yet but was very intrigued with a chapter called “The Engine of Capitalism.”  Here, Daniel discusses the advantages of optimism and how it leads to happier, healthier, more resilient people.  The optimists are the inventors, the entrepreneurs, and the political and military leaders, which he points out are not the average people.  They get there by seeking challenges and taking risk.

Most interestingly, he discusses how an optimistic bias can blind an entrepreneur from seeing the full risk of an undertaking or the decisions they make.  In study after study, Daniel shows that optimistic people were not capable of predicting or generating the results they expected.  What do we do with this overconfident optimism?  Daniel suggests one option would be to do a “premortem,” and I see another option of firing “bullets.”

The premortem occurs when the organization has almost come to an important choice but still before the big decision.  They gather a group of people involved in the assessment, and they write a brief history imagining that they implemented the decision and it died, so now they have to imagine they are looking back and come up with reasons why it might have failed. Daniel says this does two things.  First, it overcomes group think when it appears a decision is moving forward.  Second, it opens up the floor for knowledgeable individuals to express their doubts when they may have been suppressed by the leader before.

I think there is another way to handle overconfident optimism, and that is to fire bullets, as Collins discussed in “Great by Choice.”  When you test the market reaction by looking for empirical evidence with small, low risk exposure (firing a bullet), your confidence comes from real world market feedback.  Only then do you fire the big cannon ball without worrying that your optimistic bias got in the way of a venture that could have been devastating to your company.

I know my over eager optimism has gotten in my way and has been costly. How are you managing yours?

Side note on the 4 Billion Customers’ blog last week:  I read David Meerman Scott’s blog this week, reinforcing the mobile expansion to all parts of the world.  He was in the jungles of Central America and experienced tribal people with no running water or electricity using mobile devices to better their world.  Check out his blog.

So much of what we do in business is about the things we need to get done.  I need to write a report.  I need to send e-mails to my clients.  I need to create a budget.  I need to put a plan together for the next quarterly meeting.  On and on it goes with stuff we need to do in order to make progress in our business.  Nothing is wrong with this, especially when it creates progress.  Progress has been determined to be the number one motivator of both business owners and employees.

However, we really ought to find the things that we need to STOP doing!  It is the one thing we, myself included, often neglect to do.  What is it in my business or my world that I need to stop doing?  Business guru Jim Collins and coach to the Fortune CEO Marshall Goldsmith emphasize this topic frequently.  They ask, “What is on your STOP doing list?”

When we want to create value, we want to DO something.  At times, we can create value by stopping the things that are wasting our time, distracting us from important work, and keeping us from clients and other people vital to our business. 

There are various things I find myself doing that I should stop.  I should stop having my e-mail open all day long because I get distracted from what I am working on every time I receive a new e-mail.  I need to stop not writing the important things on my calendar because time management is event management.  I write my blog when I happen to get around to it rather than putting it on the calendar and letting the calendar manage my events.

I also need to stop looking at things once, leaving them, and then coming back to spend more time on them.  I will read an e-mail, leave it to do something else, and continue this process by moving on to something else again instead of taking care of it right then.  This is a major waste of time, and I need to STOP it.  When something comes up, I should get it done now, move it to the calendar to do at a later time, delegate it to someone else, or delete it and move on.

What do you need to STOP doing?

Think about that!  If you had access to 4 billion customers, how would that impact your marketing, your strategy, your vision, your opportunities, and your profit potential?  Well it’s coming, and I see it happening right before my eyes.

Let me back up for a moment and give you some perspective.  As I write this, I am at my office in Pondicherry, India.  I started Efficience with my partners April and Rich back in 2004 and came to India shortly after to set up the office.  We started with one full time team member and one intern and then quickly added five more.  We have now grown to 40 bright, enthusiastic, hardworking men and women.   

When I started coming to India, none of the team members had cell phones.  Cell service existed here, but the phones were expensive, and most didn’t see the value in having one. This continued for a few years.  Now all our team members, from the lowest to the highest paid, have cell phones.  At this point, eight of them have smartphones, and I see the rest upgrading in a year or so.  I can see this new global customer base growing right before my eyes.

You may remember reading the Software Monster blog I wrote about how new software applications, Software as a Service (SaaS) tools, and apps are eating up the legacy business of a huge number of mainstream industries.  This was based on an article that Marc Andreessen, founder of Netscape, wrote in the Wall Street Journal.  Now, he has another article out that deals with the expansive opportunity that putting a handheld computer or communication tool connected to the entire world is offering by bringing customers to your doorstep.

In a CNet article called Marc Andreessen Predications for 2012, Marc discusses how smartphones are now in the hands of about 2 billion people in the developed world, and in three to five years they will be in the hands of 6 billion.  Can you imagine what to do with 4 BILLION New Customers?  I have been advocating the power of connectivity since the early ‘90s, and this adds an exponential growth factor to that, which compounds the potential.  If you read any futurist thinkers like Ray Kurzweil, it looks like we are much closer to that Singularity moment.  You can check out his book here.

Marc ends the article with how opportunities and growth wrap around smartphones saying, “Local merchants, like local restaurant owners, are going to have a smartphone app they can use to dial up customers on demand. Whether that’s from Groupon or Foursquare — any of these companies can do that. A lot of small business owners are going to start running their businesses from their smartphones.”

Your marketplace is not your backyard anymore; it’s not even your country.  We recently launched a requirements gathering tool called Sluice, and it gets 60% of its sign-ups from outside the US.  I can already envision all kinds of great opportunities with this mobile expansion, and we are moving our company in that direction for the potential it offers.  What are you doing to go after the soon-to-be total of 6 billion new customers?

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.

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.

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.

Watching the news these days doesn’t leave one with much hope for the future, when all we’re hearing is about inflation, unemployment and national debt.  Reports are spreading of an ongoing recession and even a possible depression before things get better.  So what is an entrepreneur to do?  Constantly trying to keep your head above water can get discouraging when you have nothing solid to look towards.  As much as I’d like to bury my head in the sand sometimes, I know that’s not a viable option.  Instead, I practice the Stockdale Paradox, which is to retain faith, regardless of the difficulties, AND confront the brutal facts, whatever they may be.

The fact is, things are not good out there, but this does not mean that there is no money or opportunity.

Let’s first consider how we view the world around us.  The word recession is defined as two consecutive, negative quarters of economic activity.  Does that mean that everyone stops spending money and the economy comes to a complete halt?  Not at all!  Now consider this:  the Gross Domestic Product (GDP) of the US was at $14.54 trillion in the 3^rd quarter of 2008, on an annualized basis, just before the financial meltdown.  That number never fell below $14.24 trillion, even at its lowest point in the first quarter of 2009.  So what does this mean to you?  There was still over $14 trillion being spent in the economy every year; money that you could be hustling for a share of.

Even though the overall drop was not significant, some industry sectors took a tragic hit, as much as 50%, while others grew by 20% or 30%.  In times like this, the Clipper Ship Strategy can be useful by positioning yourself to where your money is being spent.  This isn’t necessarily an easy thing to do, especially with big industrial and manufacturing centers.  It’s a little more feasible to move towards the money if you’re in the service sector, and much easier for information based businesses.  The point here is just to keep moving.

Something else to try and practice, and not just when times aretough, but all the time, is to focus on what you do best and hire others to do what they do best.  The simplest way to put it is to play to your strengths.  For example, we have engaged Kopp Consulting to go out and do our cultivating of new business for us, since our strength lies in the relationships and solutions, not sales.  Obtaining new business is a venture that requires focus and attention.  In our experience, when the relationship team is trying to do the job of the cultivation team, we lose focus and don’t see optimal results.

Kopp learns about your business and has their own secret sauceto finding the right clientele and getting you in front of them.  In the months ahead I will share more of our experience with what Kopp is doing for us. 

My last thought on this topic is this question: how hard do we make it for our customers to find us?  Go ask everyone in your office if they have used the phone book in the last week, and then ask them the same question about Google.  I have seen it done and the difference is eye opening.    Content and key words are key to getting found in search engines.  Have you Googled yourself lately?

So with a recession in the air, are you keeping the faith, confronting the brutal facts, focusing on what you do best, and can your customers find you?