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Startup Strategies

Small businesses are making a comeback. The Small Business Administration is lending money to startups at pre-recession numbers, and during the Great Recession, more Americans became entrepreneurs than at any time in the previous 15 years, according to the Kauffman Foundation, which tracks U.S. entrepreneurship trends. In fact, more than half a million new businesses started each month in 2010.

So if at least half of new businesses fail in the first five years, according to the SBA, and only 25 percent survive longer than 15 years, the big question we need to answer is, What do the successful business owners have that the others do not?

“Of the many startups I’ve seen go under over the years, I think the principal problem is the lack of good leadership,” says Tim Westergren, co-founder of Pandora Radio. Founded in 2000, the Oakland, Calif., company went public in 2011, reporting $138 million in revenue that fiscal year. “Great ideas are of course the kernel,” Westergren continues, “but ultimately, startups are about execution. Execution excellence requires a leadership team to be great—and consistently great at many things: great salesmanship, great at hiring, great at project planning, great at financial management, great at strategic decision-making and great at adaptation. It’s a lot to be good at.”

These entrepreneurs are good at a lot—enough to thrive despite the infinite obstacles new business owners face. So we asked them for their best startup advice, the words of wisdom that would have helped them in the early days.

Irwin Jacobs, Qualcomm founding chairman

Irwin Jacobs is a two-time telecom startup success. He is best-known for his role as co-founder of Qualcomm, the maker of an early and leading satellite tracking system that is the foundation of much of today’s mobile communication. In 2011 the San Diego-based company reported revenue of $14.96 billion. Before that the former MIT professor co-founded Linkabit, which developed satellite encryption devices and was sold in 1980 for $25 million. Today he serves as Qualcomm’s CEO emeritus and is active in philanthropy.

Get Ready to Be Wrong

The greatest lesson I can share with other entrepreneurs is that whatever you have in mind in terms of making something happen or the schedule on which you expect results, you are always going to be wrong. But you need to continue to be confident in what you are doing and examine new ways of accomplishing your goal.

When we first developed our technology for Qualcomm, we kept getting delayed. We couldn’t raise enough resources because investors didn’t think the technology would ever be available commercially. Every time we tried to do something innovative, investors would find a negative reason why it wouldn’t work. But we were persistent. We overcame critical problems in the product and found ways to make it a commercial success. We started the process in 1988 and didn’t bring to market a commercial system until 1995—twice as long as we projected. But the technology at that time was so exciting—what we were working on would allow much more efficient transmittance of data and voice. We had no idea that today there would be 6 billion cellular connections.

During such trying times it can be easy to get discouraged and lose confidence in your ideas. I advise new business owners to apply what I call the “4 a.m. test.” If you wake up at 4 a.m. in a panic over something and you can think through the issue and feel comfortable with it, go back to sleep and keep going with your project. If you can’t get back to sleep because the problem is too great, you may need to find a different path.

Build a Better Team

One of the most critical things to growing a small company is attracting and retaining good people. I led by example by working very hard and being excited about what we were doing. You have to sell your team on your idea—they have to be convinced they are going to work with good people and on very good things. It is also important to create the right working environment. Not only do you need the best equipment, but you have to break down any hierarchal structure so all employees feel their ideas are heard and there are resources to develop the best ideas.

The larger you get, the harder it is to keep that spirit of innovation alive. Now that we have 22,000 employees around the world, we continue to include everyone in emails and meetings that other companies might reserve for top executives. Once a year we bring together team leaders at a companywide meeting to present new ideas. We award monetary prizes for the winners and provide the resources to develop those ideas.

Don’t Forget Your Family

It is also important to consider your personal life when you are starting a new venture. Time is always a major constraint. I had a wife and four young sons when I was starting my business, and I always made sure to be home for dinner so we could talk about our day. Even if I had to go back to work at night, I always held that dinner time very firm.

Julie Smolyansky, President and CEO of Lifeway Foods

Julie Smolyansky was just 27 when she stepped into the role of president and CEO of Lifeway Foods in 2002 after her father, who founded the Chicago company in 1986, suddenly died. The move made her the youngest female CEO of a publicly traded company at the time. Smolyansky has since grown the company, which brought the Russian yogurt-like drink kefir to the United States, from $12 million in annual revenue to $65 million last year.

Innovate

Today the world is moving so fast we have to constantly innovate and reinvent ourselves. You can’t be a one-off product but must re-create your story every few years, give customers something exciting to look forward to and give the media something to write about. We’ve been making kefir for 25 years, and it is a 10,000-year-old product, so you might think, What else can you do with kefir? But we made it in a frozen form, and it is the hottest thing ever. It took years of research and development, but it’s revived the whole company and has reinvigorated the brand. It’s like we’re a startup again.

Budget

One of the important things my father taught me about running a startup rings true today, even though we are an established business: Be fiscally conservative. Whether I am spending my own money or shareholder money, I am very careful with how I spend. I know one startup where the CEO got a bunch of capital and went out and bought an $8,000 copy machine. We are a $100 million brand, and we don’t have that. When we needed new office furniture, we bought gently used items. Instead of spending on expensive office equipment, all of our profits go back into the product and marketing.

Not only does being frugal make sense financially, but it impacts your staff and investors. If they see that you are careful with how you spend money, they are more comfortable placing bets on you and investing their careers with your company.

Delegate

Passion for what you’re doing helps make up for your weaknesses, but recognizing your weaknesses is another important part of running any enterprise. You have to hire the best people to make you shine. For example, I am not very good at accounting and finance but love marketing and building relationships. On the other hand, my brother Edward, the CFO, doesn’t like networking or going out talking to people, but he really loves numbers. He can take one look at a spreadsheet and understand the health of a company. Edward and I have a symbiotic working relationship that helps drive our success.
 

 Delegating also includes handing off projects and tasks to make time for what is most important to me, both personally and professionally. It is easy to get sidetracked from my goals by constantly putting out fires. I have learned that to stay on task, I have to outline my short- and long-term goals, home in on what is really important, have action plans, and get team members to manage problem situations and take accountability. There are not enough hours in the day to do everything. 

Matthew Corrin, Freshii founder

Matthew Corrin founded Freshii in 2005 at age 23. Today the company has more than 50 restaurants where patrons can customize healthy salads, wraps and rice bowls. The Chicago-based venture grossed an estimated $50 million in 2011.

Educate Yourself

The first day we opened was the first day I worked in the restaurant business. I thought I would be shaking hands and promoting the business, but when half my staff walked off the line, I found myself washing dishes for the first nine months. From that experience I learned that I don’t ever want anyone to know more about my business than I do. No dishwasher can tell me the best way to wash dishes since I now understand all the nuances of washing dishes at my restaurants.

Craft a Culture

Another early mistake involved hiring a very expensive gray-haired operations person who almost killed the business. I thought by stepping back I could focus on growing, but what actually happened was that I stepped away from culture-building. This included the enthusiasm for the brand and dedication to listening to customer demands. Every metric that should have been going up was going down, and every metric that should have been going down—including turnover rate—was going up. It took two years, but I realized that while it is important to delegate some tasks, I have to be part of the culture that inspires thousands of hourly employees to come to work.

Remember Who You’re Serving

Another big lesson is to listen to the customers. It doesn’t matter what I want the business to be—if we are listening to our customers and making thoughtful decisions, then the business should be evolving to exactly what the customer wants. For example, we started out with the name “Lettuce,” and our product was 98 percent focused on salads. Our first store was in a Toronto location where customers had to walk to the store. I figured out quickly that people don’t want to walk through Canadian winters for a salad. At the same time people were coming in for our other products—soup, rice bowls and burritos. We quickly changed our name and our product focus.

Another way our business model followed customer demand occurred last year when we conducted a guest survey. Until then we were zeroed in on the customization aspect of our meals. But we learned that while customers might want control over some aspects of their meals, they didn’t want the pressure of having to completely create their own food. After that we changed our mission to be about delicious, nutritious and fresh foods—qualities survey respondents mentioned over and over.

Follow the Money

One of my personal mantras is to do the bad stuff first and good stuff last. For me, that means focusing on what I’m not good at—the numbers and spreadsheets. Our first location had incredibly high volume, so we could be very, very loose with the numbers. But sales tend to hide operational weaknesses, as they say. So I started to think about my business like it was a publicly traded company. I tracked the unit economics of things and got into the habit of measuring and documenting all elements of the business. In a way I was overcompensating for my lack of comfort with numbers by really focusing on those things. I vowed to myself to never let a week go by when I was shocked by the financial results—good or bad.
 

 Another important lesson I’ve learned is to stay liquid. I’ve been able to grow at a very fast rate through a difficult economy, but only as much as my cash flow has allowed me to. This forces me to be very careful with every dollar. One of my mentors thinks that if I had more money I would have blown my brains out. If you raise too much money too early, each dollar becomes less valuable, and before you know it you’ve spent every one. 

Maxine Clark, Founder of Build-A-Bear Workshop

Maxine Clark launched Build-A-Bear Workshop in 1997. The St. Louis company now counts more than 400 locations worldwide—where customers create and accessorize their own plush toys—and reported net retail sales of $387 million for 2011. The company went public in 2004 and is frequently named to top “best companies to work for” rankings.

Know Your Audience

When I first shared my idea for Build-A-Bear Workshop with adults, they often questioned my business concept. But every time I discussed the idea with children, they got excited. It was this energy that propelled me to move forward with my business plan.

One of the things that have helped us thrive in the competitive retail environment is focusing on why people come to Build-A-Bear Workshop. We did not invent teddy bears, nor were we the first place where kids could come to make them—there were factories that allowed kids to take tours and create their own stuffed animals long before we opened. But we put an entirely new spin on the teddy bear business. We are not a factory or a store, but a special, interactive place for families to come together, have fun and make their own furry friends. We like to believe that our guests (we call them guests, not customers) are really getting their stuffed animal for free and are paying for the experience.

I’m constantly trying to come up with ways we can take a conventional product or task and put our own unique spin on it by making it more bearish. We introduce a new animal every month and get new clothing items weekly. We also change the look of our stores several times a year. But we work to strike a balance between the newer novelty items that are available for a limited time and our popular standard items that are offered all year-round.

Partner Strategically

Much of our growth can be attributed to our co-branding partnerships, including the Major League Baseball Association, National Football League, Disney, Warner Bros. and Skechers. We look to partner with brands that are like-minded, with similar cultures and target markets, but most important provide a huge win for our customers. I’m convinced it’s always possible to make 1+1=10 partnerships as long as the relationship is built on compatibility, trust and cooperation, and each party will do everything possible to help the other succeed. Huge-leap strategic synergies may require sharing a cut of the profits, but adding one great company to another can mean amazing results. These partnerships give us exposure to audiences and markets we could not easily reach on our own—and vice versa.

Spread the Love

Our productivity is high and turnover low because of our “play with purpose” philosophy. We encourage our associates to have fun, which ensures that our guests have fun. Our culture is about the hug of a teddy bear. From the start, we made deliberate decisions to make this place special: Our workspaces are bright, colorful and full of furry friends. If an employee needs to work late but has a dog at home that needs relief, they’re encouraged to bring the pup to the office. If someone’s baby sitter cancels at the last minute, they can bring their kids to the office.
 

 When we started, I was leaving a 20-year career at May Department Stores [now part of Macy’s], where I had climbed the corporate ladder. At what seemed like the top of my career, my financial rewards in retail were very high, but my psychic bank account was near empty. I learned that it’s not how much money you make that defines your success, but rather what impact you have on the world and the people who are in your world. From the beginning, I knew I wanted to create a company with heart, and I am extremely proud of the company that Build-A-Bear Workshop has become. 

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