Category Archives: Start-up

PHZ.fi julkaisee uuden palvelun Euroveloitus.fi

Company Finance Start-up

PHZ.fi julkaisee uuden palvelun Euroveloitus.fi. Pääsimme heti mainituksi Helsingin Sanomien pääkirjoituksessa http://www.euroveloitus.com/blog/euroveloitus-hsfi-paakirjoituksessa/ .

Euroveloitus.fi tarjoaa kansainvälistä SEPA-suoraveloituksia vaihtoehtona kotimaisille E-Laskulle ja Suoramaksulle. Erona kotimaisiin ratkaisuihin, Euroveloitus (SEPA-suoraveloitus) toimii 32 Euroopan maassa, eikä vain Suomessa.

http://www.euroveloitus.fi

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Apple ALV kirjaukset

Android Company Finance Management Mobile Start-up

Aloitimme myymään Apple Store:ssa mobiilisovelluksia ja parin kuukauden päästä kilahtikin iloisesti muutama lantti rahaa tilillemme. Pää meni kuitenkin pyörälle kun yritimme miettiä miten kyseisistä maksuista tehdään kaikkien sääntöjen mukaiset ALV-kirjaukset.  Applen omat raportit eivät ole kovinkaan avuliaita tässä suhteessa. Jos haluaa päästä hieman vähemmällä, voi kirjauksissa oikoa jättämällä laskematta Applen myyntikomissiot, mutta itse ajattelin että on parempi tehdä se oikein ja ilmoittaa mieluummin suurempi suurempi liikevaihto (eli meidän liikevaihto on suoraan tuotteen myyntihinta 1.79 EUR – ALV, eikä esim. tilille tullut 1,09 EUR, josta Apple on vähentänyt ALV:n ja oman komissionsa). Sijoittajat ja verottaja ovat ainakin hieman tyytyväisempiä, kun liikevaihto paisuu ja kirjaukset ovat prikulleen ja itsekin voi varmistua että Applen myyntikomissio on laskettu oikein :)

Eli mikä ALV-kirjauksissa on ongelmana?

Ok, eli Applelta kilahti tilille 168,40 EUR. Kuinkas tämä kirjataan? Sain ladattua Itunes Connect:sta myyntiraportin, joka sanoo että meidän 1,79 EUR maksavaa Tier 2-hinnoiteltua sovellusta on myyty euro-alueella (Suomeen) yhteensä 150kpl ja 1kpl Ruotsiin hintaan 15 SEK. Tästähän siis tulee myyntiä euroissa 150 x 1,79 EUR +1.74 EUR = 270,24 EUR (15 SEK oli päivän FX-muuntokurssilla 1.74 EUR). Periaatteessa tässä meidän kotimainen firma on myynyt kotimaisille kuluttajille sovelluksia, joten siitä vähennetään Suomen 24% ALV ja Ruotsissa ALV olisi 25%. Käytännössä kuitenkin Apple Storen myynnin hoitaa Luxemburgiin (EU-alueelle) rekisteröity tytäryhtiö ITunes S.A.R.L., joten heidän vastuullaan on tilittää ALV. Jos kyseessä olisi tavarakauppa, niin EU VAT Threshold -säännösten mukaan jos yrityksen myynti esim. Suomeen ylittää 35000 EUR, niin heidän tulee laskuttaa ja tilittää ALV Suomeen, eikä esim. Luxemburgiin. Kuitenkin Threshold-säännökset eivät koske palvelumyyntiä, joten Applen myynti Suomeen (ja kaikkiin muihin EU-maihin) kulkee 15% ALV:lla. Toisin sanoen, vaikka suomalainen firma ei ole rekisteröitynyt Luxemburgiin, Apple Storen kautta pääsemme nauttimaan kotimaan myynninkin osalta Luxemburgin keveämmästä veroasteesta :)

Tilitys tuli tosiaan toiselta EU-yritykseltä Luxemburgista, joten kyseessä on kotimaan myynnin sijasta EU Palvelumyyntiä. Normaalisti esim. yritysten väliseen EU -kauppaan sovelletaan ns. “Reverse Charge” mekanismia, eli laskut ja maksut tehdään ALV 0%, ja ostaja lisää ja vähentää laskennallisesti oman maansa ALV:n kirjanpidossa. EU-palvelumyynnin raportoinnissa on kuitenkin pieni poikkeus normaalisääntöön, sillä ALV-ilmoitusta tehdessä veroilmoituksen kohtaan 312 EU Palvelumyynti tuleekin ilmoittaa ALV 0% myynti nettona, ja kirjanpidossa ei tehdä lisäys/vähennystä. Kuitenkin, EU-palveluostoissa Reverse Charge -lisäys/vähennys tehdään kauppapaikkakomission osalta.

Kirjaussääntö

Tein itselleni seuraavan kirjausohjeen, että oikeaoppisen kirjauksen muistaa seuraavassa kuussakin :)

  1. Pankkitili 1940 Debet 168,40 EUR
  2. Myynti 3000 Credit 233,48 EUR 0% EUPM 312 “FI 150 x 1.79 EUR”
  3. Myynti 3000 Credit 1,51 EUR 0% EUPM 312 “SE 1 x 15 SEK”
  4. Komissio 4460 Debet 69,98 EUR 24% EUPO “FI”
  5. Komissio 4460 Debet 0,45 EUR 24% EUPO “SE”
  6. ALV-saamiset 1760 Debet 16,90 EUR
  7. ALV-velka 2939 Credit 16,90 EUR

Lukujen laskemista varten pitää noutaa Itunes Connect:sta kohdasta Payments & Financial Reports sekä Earnings -tabilta kunkin kuun kaikkien valuuttojen raportit (pakattu CSV-tiedosto), että Payments sivulta tulostaa PDF:ksi Payout-raportti, josta näkee valuuttakonversiot.

Earnings -raportilta löytyvät seuraavat tiedot

  • Customer Price (EUR, SEK)
  • Partner Share
  • Quantity

Payout -raportilta löytyvät nämä tiedot

  • FX Rate

Ja vielä itse pitää tietää että esim.

  • Luxemburgissa ALV on 15% (Apple)
  • (ja Suomessa EU palveluostoihin laskennallinen ALV +/- 24%)

Myynti lasketaan kaavalla

  • (Customer Price SEK x Quantity / (1+LU VAT%)) x FX Rate
  • Kun kyseessä on euro-myynti, niin FX Rate = 1
  • Esim. (15 x 1 / 1.15) x 0.116 = 1.51 EUR

Myyntikomissio taas lasketaan

  • ((Customer Price – Partner Share) – ((Customer Price – Customer Price / LU VAT%)) x Quantity x FX Rate
  • Eli esim. ((15 SEK – 9.13 SEK) – ( 15 SEK – 15 SEK / 1.15)) x 1 x 0.116 = 0.45 EUR

Näin päästään vielä tarkistamaan että myyntikomissio / liikevaihto ≃ 30% eli n. sama jonka Apple väittääkin olevan heidän myyntikomissionsa.

Raportointi

Seuraavaksi EU-palvelumyynti kirjataan ALV-raportin kohtaan 312 nettomääräisenä (eli 0%) ja palveluostot kohtaan 314. Palveluostojen “Reverse Charge” summa lisäksi kirjataan vähennettävään veroon (eli oikeasti joutuu maksamaan tältä osin veroa +/- 0 EUR).

Toiseksi normaalin ALV-kuukausi/kausi-ilmoituksen lisäksi nyt pitääkin verovirastolle lähettää toinen raportti “ALV-yhteenvetoilmoitus”, johon pitää raportoida toiseen kertaan mille firmalle palvelumyynti on tapahtunut.

Summa Summarum

Tässä parit helpot esimerkit miten Apple myyntikomissiot lasketaan oikein, ainakin EU-alueen sisällä tapahtuvasta myynnistä. Jos myyntiä on EU:n ulkopuolelle, laskutapa muuttuu jälleen, pitää täydentää ohjetta kun myynti kasvaa laajemmalle :)

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Your deadly sins – Finding your personality

Management Start-up Work Psychology

I think there is good resemblance between the Enneagram  and Belbin Team Roles .

Enneagram

The Enneagram shows also the linkage (“wings”) between different role groups, which seems also to match my (limited) study of co-workers. For example I think most people (or at least the coders :) are on the “inner triangle” of 3-6-9 (Achiever, Loyalist, Peacemaker = Implementer, Completer Finisher, Team Worker. Further, the Myers-Briggs personality indicator is also closely related, but somewhat different.

I quickly tried to figure out a draft mapping between the Belbin Team Roles and the Enneagram:

Blue Inner Circle
3 Achiever = Implementer		(doing)
6 Loyalist = Completer Finisher?	(doing)
9 Peacemaker = Team Worker		(social)

Red Changer
5 Investigator = Plant			(thinking)
7 Enthusiastic = Resource Investigator?	(social)
8 Challenger = Shaper?			(leading)

Black Maintainer
1 Reformer = Monitor Evaluator		(thinking)
2 Helper = Coordinator			(leading)
4 Individualist = Spacialist		(doing)

What I found was that while the Belbin Team Roles gives a quantitative psychometric and good descriptions of the roles, but lacks further analysis and grouping of the arch-typical role groups. I have found that the same roles tend to appear with each other, while Belbin does not suggest this. However, the Enneagram suggests exactly this. For example the role Implementer is usually occurring with Teamworker (high diligence and drive for team cohesiveness), and Plant with Resource Investigator and Shaper (high inclination towards constant change). The Enneagram gives a try to map the groupings, while lacking the quantitative measurement tools and exact weighting of the Belbin’s test. By combining the both you get both quantitative exactness and good overview to guide for example forming of the optimum team structure and how to manage different personalities individually.

I have grouped the team roles in three colors by the inclination towards the change. The blue roles (“inner circle”) are rather indifferent to change or following the opinion leaders, while the black roles are resisting any change. The red roles are the drivers or initiators of the change. However, actually the Enneagram might be giving a better overview of the attitudes towards change having the “red” roles on the left and “black” roles on the right. This would mean that the role 6 (Loyalist/Completer Finisher) on the Inner Circle is actually pro-change, while the role 3 Achiever/Implementer is resisting changes to plans or existing procedures (as described by Belbin).

The Details
While my personal role is firmly on the red side (5-7-8), I find the descriptions to match rather well between the Belbin Team Roles, Myers-Briggs and the Enneagram. However, the Enneagram has also the “wing roles” with stress and security (or integration/disintegration) points describing the behaviour under stress or in a relaxed environment. For the role 5 (Investigator/Plant) I find, however, that the points are flipped.

According to the Myerrs-Briggs the 5-7-8 archtype actually thrives under pressure (role 8 Challenger/Shaper), while the Ennegram suggests role 7. Similarly I find that under relaxed situation I rather act like role 7 Enthusiastic/Resource Investigator (rather than 8 Challenger/Shaper) having vice of gluttony rather than forcefulness. Anyhow, although flipped, there seems to be linkage which is very similar to the psychometric results given by the Belbin’s and Briggs-Myers’ tests.

Leading Different Personality Types and Building an Optimal Team

Actually I started to investigate the Enneagram while I was analyzing the motivational factors of different Belbin’s team roles. For example to motivate a Shaper, you need to threaten his goal, or to provocate him. A Resource Investigator looses quickly momentum, unless he is stimulated by constant social interaction of opportunities and ideas. To motivate an Implementer/Team Worker one needs to establish rapport, promote co-operation and common social norms, rituals and procedures. The Enneagram actually gives a very good guidance of the basic fears, desires, vices and temptations of different personality types, giving a good ideas for individual coaching and leadership.

The key is to first map out the role mix of the team by doing the Belbin’s team role test. To build a successful team the role mix should be balanced, with a few considerations. For example the there should be only one person with role 5 (Investigator/Plant), since the Plants have tendency to disagree and fight each other. Also only one Leading role can be dominant, either the role 2 or 8. For a note, the Enneagram shows the Stress & Security points linkage between roles 2 and 8. I’m not sure, but I think this is an erroneous linkage,
since most probably one person can’t have two leading roles, which are conflicting so strongly (please give me an example if you have witnessed this nemesis-role :).
Similarly, I’m not sure if there is a similar schism between roles 1 (Monitor Evaluator) and 7 (Resource Investigator). It might be that this contradiction is not so important since these roles are not competing on the leadership of the team, and the role 1 is lacking drive to inspire others (he has tendency to demotivate at least Resource Investigators by being overly critical, though).
Test Your Personality
Here is a link to the Belbin’s Team Role test (unfortunately in Finnish) http://www.fujitsu.fi/cgi-bin/roolitesti.pl
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The Zen of Raising Start-Up Funding

Finance Start-up

I started recently to offer Financial Advisory consulting services for other Start-Ups due to my succesful track record in raising funding for my own companies. To leverage my combined experience in Financing and Start-Up business I’m looking for good business ideas to mentor, advise and to invest in. The idea is that if I get personnally convinced of the Start-Up’s potential, I can increase the value of my Business Angel investment 10-fold by pitching in government grants, other business angels and VCs :).

However, before you should contact me, you should first reconsider at least these two aspects:

1) Is your idea organized as a proper Growth Start-Up?

I recently read the magnificient book by  Timmons, Spinelli and Zacharakis: “How to Raise Capital” that I suggest every entrepreneur wishing to join the Start-Up funding game should read first. I will post an article about screening of the growth start-up requirements later, but to mention one, you should never for example say in your pitch that it’s enough for you to get 1% of the world’s market to be profitable. The VC would think that he would rather invest in the market leader who gets 50% of the market. Secondly you shouldn’t bother to invent a better mousetrap (an incremental improvement, where corporations thrive in), but look for distruptive market innovations (as defined by Clayton Christensen) that the large corporations are unable to follow or cope with. Mark Twain once said:

The best swordsman in the world does not need to fear the second best swordsman in the world, but rather the man ignorant of swords but knowledgeable about gun powder.”

2) Minimizing the need for capital

According to Timmons, Spinelli and Zacharakis, the difference between an entrepreneur and a corporate manager is that the latter one tries to maximize the amount of resources available for him, and yet thereafter to acquire a little extra to cope a downturn, while an entrepreneur seeks the opposite: to minimize the amount of resources required to run the business. From this truism, you can see many fundamental implications to the daily life of a Start-Up and why corporate managers will ruin your business.

From the financing point of view (and my Financial Advisory) the first step is thus not to raise the maximum amount of capital that you can, but the opposite minimize the capital requirements in the first place. Raising the money for a good idea is not the problem – the world has today (even after the financial crisis) an excessive amount of capital floating around and unable to find better yields than you get from the bonds and the interest (2-5%). Thus if you can tell a believable investment story (please contact me for help in converting your business plan to a fundable Investment Story and the “Investor”-language), there is no limit to the capital you can raise. One famous example is the Swedish fashion Start-Up Boo.com that raised 188M USD and burned it all in just 6 months by flying in First Class and living in 5-star hotels.

To launch a succesful Start-Up is like the Zen of Raising Finance – you should raise funding without getting any investments. Here are a few basic tricks that you should consider first.

1. Staging

The reason why the entrepreneurs should first consider substituting their intellect to the capital is that the longer you can manage keeping your business on the growth track without getting external funding the more your personal valuation will grow, or lower dilution. For example personally when I started CMAX.gg I invested the bare minimum capital for shares (0,01 EUR per share), applied two government grants and got the hosting marketplace launched in 3 months (using Agile/Lean Product Development methods; Extreme Programming). After proving that the idea is working, I managed to get the first extrenal investors to invest in at over 30x valuation to the price of my initial investment in just 9 months. Please calculate the ROI for my invested initial capital :).

The staging of the required investments is important from the entrepreneur’s personal valuation point of view, but also to practice the discipline of limited resources that gets you to think hard about the foundations of your business model. The more you think how you can run the business a few months longer without taking the bank loan, the lower capital cost you have and the higher valuation you can have, given that you progress in lowering the sunken costs, overall costs and the risk. In addition by executing the option to not purchase any resources you gain the flexibility to decommit quickly. You should keep all the time your multi-staged fund raising plan and the alternative options up-to-date for at least the next 3 years.

2. Bootstrapping

Bootstrapping is the process of resource minimization until the end of each stage or decision point (or raising the company up from the boot straps). A succesful entrepreneur Greg Gianforte (McAfee etc) stated:

a lot of entreprenreurs think they need money,… when actually they haven’t figured out the business equation“.

To avoid the faith of Boo.com, you should check first that you are thinking like an entrepreneur and your team is thinking the same way. If you nevertheless do have a corporate manager (who can be very valuable if used properly, please read Geoffrey Moore: Crossing the Chasm) or other non-entrepreneurs such as an investor on your team or board, follow the advise by Art Spinner: i) Treat your board members as individuals ii) Always be honest to your directors iii) Found an audit & compensation committee iv) Never found an executive committee.

Personally I managed for example to utilize my government subsidied Student Loan to raise the R&D capital for CMAX.gg. Secondly I managed to gain the experience how to run and fail an Extreme Programming R&D -project on a university project, so I got the skill how to avoid the largest tar-pits for free. Also our 5-member coding team used the university premises for the first month until we managed to rent an office from the local business incubator.

At least in Finland you can easily access a wide range of government subsidies for hiring all kinds of consultants. Unfortunately the Start-Up logic is the opposite – you can’t outsource the skill how to run your own business. The art of using consultants is also Zen-like: when you need consultants you should not use them, but do the work yourself. Only thereafter you know the tasks for which you should have needed the consultants for, but often you realize that there is no need for the consultants anymore. If you use the consultant without first being knowledgeable about the topic yourself, you are just wasting your scarce financial resources for no gain, and demonstrating mental laziness from practicing the entrepreneurial bootstrapping.

3. OPRs

The OPR stands for “Other People’s Resouces” meaning all the different ways how you can barter, acquire, consult and loan all kinds of valuable resources for your business. If you bother to deeply analyze and understand the business you are in, this is probably the most significant method, how you can manage to lower your capital requirements footprint the most. The alternative is to pay huge amounts of money to consultants (and ignore their advice) as what the large corporate managers do daily to avoid the mental stress and political risk of taking responsibility. By being knowledgeable about your industry you can easily tune your business model so that you can substantially minimize your capital requirements. The basic MBA -way is to find different ways how you can negotiate longer payment times and shorter invoicing durations. The best alternative is actually to get your customers to pay in advance, for example by having an advance customer account like on the #CMAX.gg marketplace.

Find different ways how you can loan money without interest from your FFFs, clients and suppliers. Try to get advance payments, postponing of government obligations, talk and ask for bids from consultants (for free advise), utilize people at trade associations and the tax office to investigate on your business plan details, and every smartly think all possible ways how you can avoid from using your most scarce resource the cash. The most suprising method to raise capital for your business is to actually to pitch your business case to and ask your customers to pay for you of the product or service you are providing :). Consider always starting  your business as a consultancy to bring in early cash flow, filling out your CRM prospect list, learn the domain industry details in a safe manner, and investing your excess cash flow in product development. If you don’t have any skills that your prospective customers would value, it is unlikely that you can leverage them by developing products either.

4. Lean Operations

Amar Bhide has said:

“a startup is like zero inventory in a just-in-time system: it reveals hidden problems and forces the company to solve them.”

Invest your personal time in learning the Lean principles by your heart. After knowing of the Lean, Kaizen, Kanban and all the related methods, study next the Six Sigma, which is the second sub-school of the TQM and allows you to find even more fundamental ways how to avoid waste and minimize your capital requirements in every operation from sales funnel to product development.

Summary

In another words, instead of first sending your business plan to the venture capital, think about the ways how you tune your business model so that you don’t need any capital in the first place, and the business model is generating large amounts of free cash flow when it grows. If your business is draining capital as it grows, you should not probably be growing.

The 99% of the world can afford mental laziness and avoid thinking very hard how they can manage their daily lives. The entrepreneurs however, do not have this luxury, but require the mindset of trying to always minimize the capital commitments for lower dilution and lower personal risk. The main tools for a succesful entrepreneur are the Staging of investments, Bootstrapping or minimizing the capital footprint, the Other People’s Resources and the Lean operations. Instead of hiring a consultant to do the thinking, you should invest your own brain capacity to do a small excersice in Excel and trying to simplify your business idea in a formula that tells yourself and the investors a success story.

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Finland is Missing the Bowling Alley or How to Find the First Pin

Marketing Start-up Strategy

I read Antti Hannula’s (Tikitagi) blog on Mårten Mickos’s comments on “How to build a Global Software Company” and agreed on him on all of the points. The challenge for the Finnish and other periphery market technology companies is the smallness – Finland is a pilot market, which means that it is easy to launch services, get a relatively high market share, but which is insuffucient to compensate for the R&D investment made. Secondly the Finns are notoriously bad in sales and marketing activities, or the national culture undervalues the importance of these activities compared to hard-core engineering and hard labour. Here is a summary of some points by Mårten Mickos, the founder of MySQL:

1. Finland is too small and expensive
- but maybe the engineers are the world’s cheapest ones, you get paid more even in China for high skill work
- Geoffrey Moore stated in the “Inside the Tornado” about the Bowling Alley Strategy that you should plan the how you turn over the Pins by the Word of Mouth – relations between the market segments. The first and worst property of the Finnish market is that nobody else in Europe understands the Finnish language (except for the Estonians) and thus the natural WoM-Pin Bowling Alley stops at the border. On the English -speaking world you can easily map the Alley, while by starting from Finland the Alley might not exist at all.

2. Finland is not good at producing software globally
- too many start-ups and SMEs investing (relatively) huge amounts on R&D create their softwares with Finnish-only interfaces – FAIL

3. Finns are slow
- the dominant idea is to risk-awersily get the products to the markets by starting small, and growing organically. Instead you should think big and design the products to be globally utilizable from the day one onwards.

4. Finns believe too much in subsidies and R&D grants over sales to customers
- in the other countries the governments don’t issue subsidies, but grant tax exempts for R&D activities and investments. Giving tax exempts is, however, against the core values of the Welfare State – everybody needs to pay a lot of taxes, unless of course, you don’t have any income (and you are applicable for grants and allowances).

5. Lack of will to fight – life is too easy
- why to bother to work hard if the social security system covers your livelihood, if you don’t work, and the high taxes ensure that you won’t get rewarded of your above-average gains

6. Unjustified belief in being on the leading edge (the country of Nokia etc.) and “test laboratory”
- too bad that you can’t make much money out of a test lab, since there are no customers

I have to admit that I have personally fallen in all of these traps with #CMAX.gg hosting marketplace. First of all we gained upto 70% marketshare on the Finnish online gaming server market in a relatively short time span and thought to expand to Germany to capitalize on our lucrative innovation. However, mostly due to bad execution and wrong people recruited for the management, not the business itself, the newly appointed Board managed to burn all the freshly raised capital just in 5 months in direct contradiction to the Business Plan, and the project was dead. This proves the lack of the bowling alley – nobody in Germany had heard of the market leader in Finland, or we would have known in advance about the market adaption challenges that faced us outside the borders. Secondly it seems that Finland is also missing the bowlers, who would have any experience on how to see where the pins are in the first place or how to hit them in the right place to initiate the domino-effect.

Producing the global software is also a more substantial challenge for the Finns than for example German or US companies, since due to the small market size we are missing the momentum to finance the functional expansion to adapt to the internationalization challenges. For example all international softwares have to support for example character encoding, locales, translations, currency conversions, tax regulations, legal differences and you can’t even host your website from Finland to Central Europe. The US companies have none of these extra challenges and have the access for larger amounts of customers and equity funding on their home markets. The EU tries to create a common internal market, but in many fields such as taxation it’s still a distant dream, and the fragmented language barriers won’t disappear by any Directive of the EU Commission.

Third, according to our initial plan we could have been able to start the internationalizations efforts already in 2005, but we had pitch for 2 years for different kind of small grants of a few 10k EUR’s before we finally got a VC convinced for a barely sufficient equity stake. We were already almost passed the opportunity window before the funding had reached the point that you could potentially have even a slightest chance to get the international business up and running, in theory. In the US we would have raised 10x the funding several years earlier and been able to provide adequate returns from the home market alone.

The fourth and fifth problem mentioned above are related to the grants, corporate managers retiring to the Start-Up scene and the too easy life provided by the Wellfare State. It might be also a good strategy to give money to the start-ups in small quantities, since otherwise it seems that the money is also quickly spent, especially if you let Corporate Managers to run a Start-Up (who have accustomized themselves to not care about the costs and who don’t have any substance or skill themselves, but outsource everything at a large corporation’s cost level). You can easily spend tens of millions of euros without ever seeing any return, and thus at least from the Government’s point of view it sounds like a good idea. The Start-Up business requires a different kind of management, or entrepreneurship, not management. Nevertheless the entrepreneurs, who have purified themselves from the corporate management culture, are still left with the Finnish national cultural backload of not trying hard enough, or not going as far what it takes to be truely succesful. This is instantiated in two phenomenon: the lack of sales effort and the tendency to ignore the necessity to do the hardest part of the work. The corporate managers are a better in the first part, they are accustomized to sell to B2B clients. However, the entrepreneurs are typically technology enthusiastics themselves and are anyway at least in their deep soul fearful from for example making cold calls or thinking about to be innovative in doing viral marketing (to cut costs). However, the lazy (or seemingly hectic) corporate life have accustomized the managers to 1) specialize and 2) to delegate, meaning that they offer little substance for the challenges of the daily life of a small company since you 1) need to know quite a lot about every aspect of running of a company, you just can’t make it if you are not willing to learn. The corporate managers are usually not willing, and 2) you don’t have the financial resources, departments and skill pool accessible for a large corporation, so you need to do often everything from accounting and cleaning to sales brochures by yourself in the start. Anyway, if you don’t know how to do accounting yourself, you don’t know how to outsource it either. Your outsourcing partner (accounting company) is mostly interested in how to charge you extravagant amounts especially if you don’t precisely know how the accounting should be run cost-effectively. There is simply no way out of the fact that to run a Start-Up you need to learn and fast.

Finally the Finnish national idea of being the “mobile technology test laboratory” has always been a strange idea for me, since I can’t see the money. Typically the customer requirements from country to country vary wildly, and by designing a successful service for the Finns doesn’t mean that it would be successful in Sweden, Germany, or in China, without some substantial modifications and local adaptions. To develop a global software, you need to develop the product to adapt by minimum two in different countries, to draw the generic design that is common to these markets. Otherwise you are building a local software company that can’t every grow to sizes that would justify the trouble in running a growth oriented Start-up. A good idea, however, is to start a local company on a large domestic market, like the US.

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It’s Not Your Fault – Blame the Designer

Software Engineering Start-up Testing

Most people don’t realize how often they actually do mistakes. Every wrong move or thoughtless action, even if you can recover it immediately, is still a mistake that could have been possible to perform flawlessly. In general, people don’t admit doing errors, especially publicly in fear of becoming shamed. Six Sigma suggests as the source of the most of the cost in the products the so called Hidden Factories, or error corrections that are performed by the employees without informing the management, to avoid taking the blame, but incurring nevertheless the cost of the error. However, the belief that the mistake that you just made would be your fault is actually not true! If you just made an error, it’s actually not your fault! Instead, you should point your finger to the designer.

At Toyota the Kaizen continuous improvement and learning organization uses the following framework for blaming and learning from mistakes. You can adapt this philosophy also on your personal life, but I discuss it from the entrepreneur’s point of view.

1. Blame the Instructions

If you don’t have instructions how to perform a specific task, the work design and management is to be blamed. The definition of the management and entrepreneurs is actually not do any work, but to manage the organization of work, meaning how exactly you should perform your tasks and which tasks should be performed in the first place. The work of an entrepreneur is to organize the factors of production so that you can convert ideas into practice filling out a market niche. The work of the managers is to find optimal organization of the work for a given problem. The worker should not be interested of the management of the work, since it’s not his primary interest, as long as the company stays afloat and employment is guaranteed. Similarly, a manager or entrepreneur who is not interested in the continuous improvement of the work processes is not performing his job properly.

The current and western management nomenclature tends to omit the first and primary factor of production as irrelevant – the standardization of work. However, the as any basic economics book can tell you straight-on, without standardization of work there is no economies of scale and the work remains ad hoc in nature and economically unfeasible. In the western countries the emphasis is put on the innovation, or the Deming’s PDCA -cycle, how to improve the current work process by radical innovation. Unfortunately most often the basics are forgotten in the fuzz of innovation and the management fails to standardize the work after or before the innovation, resulting in utter chaos and high costs. No wonder that the jobs are continuously being outsourced to China and India.

Secondly, if by a miracle a standardized work process would exist in your organization, the instructions might well be incomplete, inaccurate and ignorant of the most common error modes. The first corrective action at Toyota is aimed thus on improving the instructions so that the by following them the work can be performed succesfully.

Yet a more advanced philosophy for standardization is the Six Sigma -approach that tries to identify and mitigate the sole possibility of producing an error. The Japanese call this principle as Poka-Yoke, or error-proofing. The idea is that by eliminating the source cause for errors the work process can be performed flawlessly producing significant quality and cost improvements.

2. Blame the Machines

If despite improving the instructions you still make them, you must turn the look on the machinery and tools that you are using to perform the task. For example if your computer is crashing and preventing you from performing your work, it’s not the fault of the instructions or yourself, but of the computer. Thus you should find a new tool or machine design that makes it impossible to perform such an error.

The Designed for Six Sigma (DFSS) -method tries to achieve exactly this. 80% of the quality problems can be tracked back to the design board, and thus it is not possible to reach the higher levels of quality (5 and 6 sigma) without taking the high quality in account already on the drawing board. The DFSS tries to eliminate the potential for producing Critical-to-Quality (CTQ) error in advance by for example preferring usage of proven components, analysing the potential error modes (FMEA) and the Voice of Customer.

The Japanese have developed a 14 level model of intelligent machine automation (Jidoka). The idea is to convert the machines to automatically detect errors in themselves. The idea comes from Toyota’s founder’s Sakichi Toyoda’s automatic weaving machine that automatically detected a broken loom. Six Sigma suggests of using simple automatic pass/fail -gates for investigating the quality level on a production line. The same idea is called as Test-Driven Development in software engineering, where you before starting of the coding define the end product by writing automated unit and acceptance tests.

3. Blame Yourself

If you are not able to follow the instructions or the standardized process, it’s your fault. In this case Toyota considers a task for you that you are able to perform according to the instructions. However, before blaming on the human factors, one should consider the two previous steps if they have rendered the work inhumane to perform, and if the blame can be still be placed on the Work and Machine Design first.

Of course, if you are unable to follow the Kaizen continuous improvement -cycle, the blame is truly only on yourself :)

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Start-ups! Beware the Corporate Managers

Start-up

Beware hiring of the Corporate Managers, especially the 50y+ ones that you most commonly tend to contact you spontaneously, in the Start-up -context. Typically they are suggested to be hired on your board, as the VCs typically want to strengthen the team with some seasoned expertise. Geoffrey Moore describes one (and only one) use for corporate managers – if they are from the target customer company or industry, they can act as successful sales managers for acquiring the first successful sales. However, they bring with some unexpected and harmful backage that the entrepreneurs should be aware of. I would not recommend to use the corporate managers for any other task than for the one described by Moore. Here are some reasons why:

Failure to Fail

The problem is that while the start-ups should be capable of failing fast, the middle-aged corporate managers often have worked their whole life in a culture where failing is not tolerated, especially in the upper-management. Thus, they will to the end and also afterwards disagree from having made any bad decisions, or changing their opinions even though the objective data would show the opposite. In the large corporations the vast resources enable the managers to dismiss their mistakes silently, but for the start-ups the consequences can be dire indeed as their resources are thin. The habit gets the worse the older the manager is. Finally they trust only into their “instincts” and dismiss all other information. In my personal example the hired-in corporate management insisted of using the just acquired funding for a large advertisement campaign on the launch, in direct contradiction to the original marketing plan, which was used to rise the funding in the first place. Due to the hastening of the launch, it happened in the middle of the holiday season and in the wrong media, with no effect. Too bad that the investment was spent out in a record time. The board had even more bolder and aggressive ideas of wasting  the money even faster and to even more inefficient targets, but they couldn’t be implemented due to the cash crisis.

Lack of Functional Skill

The second problem with the corporate managers is that they have customized in having a large support organization (payroll, accounting, marketing, sales, R&D) to which they can delegate their tasks to, and assume that these functions hold sufficient expertise to perform their tasks adequately. However, the start-ups are different. Most often the only expertise you have is what the entrepreneur has between his ears. By introducing the corporate manager, the costs can quickly sky-rocket beyond any reasonable level sustainable for start-ups, especially when the corporate managers have to use outsourced resources. The problem lies within the assumption of the corporate managers that they can use the outsourced accountants as they have used to utilize their in-house counterparts, delegating every smallest detail without ever gaining full understanding what the task actually consists of. The outsourced accountants are extremely happy, as they can start to invoice the start-up at high rates (60-150 EUR/USD/h) for performing routine work that should be paid at 10-20EUR/USD/h).The large support volume of the large corporations enable them to provide in-house support functions with lower cost than by hiring them from outside. Too bad that this is way too expensive for the start-ups.

Disregard of Details

One common habit for all corporate managers is their lack of interest in detail. This is actually the essence of management – a manager should not be an expert in the given field, but to hire the right experts. The large corporations and public organizations practice management daily – and hire experts and consultants for high fees to solve their specific problems. Also the education is nowadays tuned up to fulfill the needs very specialized skill needs of the corporations. If you are an accountant, it makes no sense to know anything about IT-systems or marketing.

This is, however, not the case for small companies. An entrepreneur who disregards the small print in the term sheet, or trusts an inexperienced or a wrong lawyer, even when paying sizable fees, will in the end pay dearly for his ignorence. Timmons, Spinnelli and Zacharikas calls this phenomenon in the magnificent book “How to Raise Capital” as the Legal Circumference. An ignorant corporate manager will sign deals that are not only very difficult to live with, but also create tight limitations and constraints on future choices, which is potentially disastrous.  Entrepreneurs simply cannot rely on attorneys and advisors to protect them in this vital matter, but have to put their skins in the game. A corporate manager on the other hand will thrive to avoid all responsibility.

Taking for Granted

The next shortcoming is closely related to the previous one. By having lived in a large corporate organizations, someone else has built the structure of the company to function long before the manager joined the organization. The start-ups are a blank sheet – on the first day of operations you don’t have payroll, accounting, bank accounts or even idea exactly how each of these necessary processes should be organized. Neither do the corporate managers, they have always lived in a world, wherein all the processes have existed and been functional. They have never given a though to the idea, how they they are actually organized, as the processes have worked well enough for so long time that nobody remembers anymore, how they were setup initially. Too bad for an entrepreneur, who wants to delegate this task. You simply can’t. You will have a hard time finding anyone, who would have even a slightest idea, how the basic processes should be bootstrapped from the scratch. Especially do not ask help from the corporate managers or outsourced accountants/lawyers/other specialists, as they are not experienced in these questions.

Inability to Adapt

Due to the lack of true understanding and lack of expertise of domain skills, the cost of hiring a corporate manager will be high – since he is an expert in management. Thus he will utilize his only skill, and delegate everything regardless of the cost. What the start-ups really need instead is experts, who have the domain skill (accounting, legal, coding) and can contribute his skill in exchange to stock options or any other non-monetary ways than by paying in cash. Hiring a manager to manage the outflow of the cash is suitable only for large corporations that can bare the overhead. The corporate managers are truly unable to operate in an environment, where every cent matters. Thus, the entrepreneur should never let his eye from the efficiencies of every detail of the operation, unless it’s so profitable that you can sustain the overhead-waste of large corporations (revenue less than 2M EUR/USD). Although the managers might benignly be offering their help to the start-up even for free, the managers are unwilling to learn any skills that would make them actually useful. Instead of wasting your time in talking with the managers, who can’t perform any valuable work, look for skilled specialists, buy some books and learn the basics of litigation/tax law/marketing by yourself. Because nobody else will do it for you, and you don’t have the money to hire a specialist for every task, unlike the large corporations.

Lack of Commitment

The corporate managers have accustomized themselves also to the habit of not having responsibility of anything. Rather than being risk taking (as an entrepreneur by definition has to be), the managers are risk-awerse, trying to identify personal risks and continuously finding ways to distance personally from potential consequences. From the entrepreneur’s point of view the corporate managers are like rats, who eject themselves overboard immediately if some danger can be perceived. For example in CMAX, the VCs demanded of hiring a new board member. However, the chosen board member after first accepting the task and having paid for the task, communicated after receiving the up-front (government allowance grant) payment that he is not really interested in having any formal position in the company, but would rather be a non-voting advisory board member.

The chairman of the board (also a 50y+ corporate manager) performed a coup by agreeing with the minority shareholder VCs to dismiss the entrepreneur and the CEO (which was accepted by the entrepreneur in belief that the work load would easen) and starting to manage the company (by the corporate management-style as described above). However, as the lack of functional expertise, the true cost of delegation and the inability to adapt became evident, the entrepreneur had no choice, but to force the dismissal of the previous board and taking control of the company once again. The lack of commitment is not something that a start-up needs. Ultimately the captain is required to steer the ship around the rocks. I suggest that you arm the mouse-traps well in advance and get rid of the corporate rats before they eat up your grain-stock permanently.

Never Let a Corporate Manager to Pitch for Finance

The one more disastrous failure came after the coup, when the corporate manager participated the funding pitch. By being ignorant of also this functional expertise area, he slipped to use the potential funding for advertisement and sales. Unfortunately the funder was a government agency that was prohibited from granting funding for any kind of marketing activities, and this critical funding application was denied. The entrepreneur, who had successfully raised 8 previous funding rounds had to sit on the side in disbelief of the performance of such a stupidity, trying to unsuccessfully to save the loss. The teaching of this story is that due to the lack of commitment, lack of any kind of domain expertise except for the management/delegation skill, the managers are simply unable to perform the story telling required for a successful pitch. The financiers are very good at discovering the applicant has actually no idea what he is pitching for, yielding only quick disapprovals of applications.

The habits of the corporate management are very difficult to change. The entrepreneurs and the corporate managers are two different breeds that live on the different sides of the Chasm (you know, the Geoffrey Moore’s one). The entrepreneurs are the visionaries and the technology enthusiastics, while the managers are the pragmatists and conservatives, not believing anything that is not referred to them by other managers. Thus the managers are viewed are actually a stubborn flock of self-referential sheep, who are very disastrous to be involved in any start-up -company. Instead of hiring corporate managers, you should staff your board with other seasoned entrepreneurs, who have actually been crossing the chasm before, and know the travel on the both planes. Be warned.

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