The Brain Trust You can't put them on your staff (unfortunately), but you can put their best new ideas to work. Ten small business thinkers worth paying attention to.
(FORTUNE Small Business) – If you could assemble the world's most perfect board of directors, whom would you put on it? You'd probably want some theoreticians from the business schools, a venture capitalist or two, maybe a sales pro. In fact, if you gave it enough thought, you'd probably come up with a list pretty close to the one we've assembled on the following pages. To find our dream board, we flipped through every Rolodex in our office and worked our Palms to the bone. We talked to all the people we knew with small business expertise and had them talk to everyone they knew. The final list we settled on includes specialists across a broad range of subjects, but they all have something to offer, regardless of whether you sell fan blades or French toast.
Consider Chris Shipley, a technology analyst at IDG. After covering the tech world for almost two decades and meeting with some 400 companies a year, she has developed a reputation for finding the most promising technologies before anyone else. (Right now she likes software being delivered cheaply over the Internet; for more, see page 52.) Or Malcolm Gladwell, a staff writer at The New Yorker and author of The Tipping Point, a book that demystifies the way products seem to take off on their own. (Got something you want to sell? No advertising budget? He's on page 60.) Or even consultant David Birch, who tells you how to grow your business at light speed (page 62). Ready for more? The meeting will now come to order.
HIGH-END SOFTWARE ON THE CHEAP Chris Shipley, 41 Technology analyst, IDG
In the sometimes effusive world of technology journalism, Chris Shipley is a voice of reason. (Her advice to those who gripe about e-mail spam? "Get a delete key.") Shipley has been writing about technology since 1984, currently as the editor and publisher of DEMOletter, a newsletter considered a must-read in the industry. She's also the executive producer of IDG's DEMO conferences, a famed launching pad for new technologies. (Java and the Palm Pilot debuted there.) In a typical year she meets with about 400 technology companies, giving her a unique perspective on what's coming. Right now, she says, formerly costly software systems are going mainstream--thanks to the Internet--and becoming an option for small companies.
"Since I've been covering technology, small business has been a Holy Grail," says Shipley. "It's very fractured, so it's a difficult market to reach." But the Internet has made that a little easier, specifically with software distribution. She points to Salesforce.com as a good example. The company sells software that helps salespeople keep track of customers and contracts (in geekdom, it's called customer-relationship management, or CRM). These programs used to be limited to corporate sales departments, but Salesforce.com is distributed over the Internet and costs just $50 per person per month, whether you buy it for one person or 400.
"So much infrastructure got built so quickly," Shipley says. "A smart person looks around and says, 'What can I do with this?'"
SHUT UP AND LISTEN! Linda Richardson, 56 Sales consultant
Linda Richardson has some advice for anyone who works in sales: Stop talking and start listening. For 25 years Richardson has worked with clients like Dell, J.P. Morgan Chase, and General Mills to help their salespeople close more deals. Those companies pay tens of thousands of dollars for her advice, but it's just as applicable to small business, so we'll give you the Cliffs Notes version for free.
For most of the 20th century, she says, salespeople lugged around a suitcase full of samples. Today the Internet can give customers far more information in just a few keystrokes, and chances are they will have researched your site before you ever meet them. "The No. 1 mistake salespeople make is pitching their products and ideas too soon and in a generic way," says Richardson. Instead, she says, you need to listen in sales meetings, and when you do talk, ask questions.
An example from Richardson's own experience (after all, she runs a small consulting business, simply called Richardson, in Philadelphia): She was pitching her training services with a new employee of hers, who wanted to go in, lower the lights, and give a slide presentation. She overruled him, saying they'd do the pitch her way, by listening to the client. At the end of the meeting, they won the contract, and her point was proved. "We were the only company that asked about the client's needs and showed how our solution addressed them," she said. "Everyone else went in, lowered the lights, and gave a slide presentation."
FAMILY FEUDS Ivan Lansberg, 48 Author and family-business consultant
Ivan Lansberg parachutes into family businesses that are in the midst of succession trouble. And those troubles are rarely so straightforward as an aging patriarch choosing between two sons. In fact, Lansberg is one of the very best there is at sorting out the most complex issues of succession, when ownership is fragmented by divorce, two or three marriages, multiple crops of kids, and legions of cousins, nieces, and nephews--not to mention all the women who are now as interested in running the company as their brothers are.
Lansberg has a Ph.D. in psychology from Columbia, and his book, Succeeding Generations, is considered the last word on succession issues. After teaching stints at the business schools of Columbia and Yale, he co-founded the consulting firm Lansberg Gersick in New Haven. Not convinced yet? He's also a founder of the Family Firm Institute and founding editor of its journal, Family Business Review.
Because his clients have such complicated, often nontraditional families, he frequently has to help them come up with nontraditional solutions. One of Lansberg's clients since 1983, for example, is a second-generation partnership of five siblings. While the transition to this second generation went smoothly--one sibling is in charge, and the others each run their own division--the third generation is now reaching the age at which they're ready to take on more responsibility. Unfortunately, there are some 27 cousins, ranging in age from 10 to 35. Which of them should get a shot at the top job? The family couldn't possibly accommodate all the cousins who will want management positions (even with applicable child-labor laws in force), so it came up with some different ideas, among them a small venture capital fund to help the cousins start their own companies.
Lansberg also insists that potential successors prove their worth before taking over. It's a seemingly obvious requirement, but one that far too few companies actually follow through on. Many parents, he says, balk at putting their kids into a position where they might screw up publicly. "The resistance to proving that a child can do the job is all about the parents' sheltering them from risk," he says. "But leadership is about the tests you have to pass along the way to establish credibility."
Dealing with family members is tough, he says, but giving people more responsibility than they've demonstrated they can handle will only create more problems for the company later on. Sometimes, Lansberg says, "you have to have the guts to say, 'Son or daughter, this job is not for you.'"
TECHNOLOGY IN EXTREMELY SMALL PACKAGES Steve Jurvetson, 35 Managing director, Draper Fisher Jurvetson, a VC firm
Three years ago Steve Jurvetson was an obvious choice for new-economy poster child. He'd earned his bachelor's degree in engineering at Stanford in just 212 years, graduating first in his class. Then he made partner at the prestigious Silicon Valley venture firm Draper Fisher in a record six months, when he was just 28. Jurvetson's initial investment in Hotmail made him a legend in 1998 when Microsoft bought it for a reported $400 million, and soon Business 2.0 was calling him "the Valley's sharpest VC." These may be different times, but while most of the venture industry is still suffering from a tech-related hangover, Jurvetson remains almost boundlessly optimistic. Currently he's focused on companies in the emerging field of nanotechnology.
Nanotechnology is the science of building machines and materials at the molecular level, where key components are measured in nanometers, or one-billionth of a meter. The technology has generated a lot of headlines lately, thanks to recent breakthroughs like the development of nanotubes--tiny cigar-shaped molecules of carbon that are just a few atoms thick, yet stronger and lighter than steel and able to conduct electricity or heat extremely well and extremely accurately. Nanotechnology applications now being developed range from the fantastic (a supercomputer small enough to fit in your hand) to the mundane (stain-resistant khakis and longer-lasting tennis balls).
Some VC firms have been openly skeptical that nanotechnology will live up to its hype, but Jurvetson says he's a believer, and he thinks small companies will be the ones doing the most exciting work. "When things are stable and predictable, large companies execute best," he says. "When you have a lot of radical change and disruption in the tech sector, as we do now, it's generally a good time for startup companies."
A few nanotech products first developed by entrepreneurs have already made their way to the market, such as stain-resistant pants made by Dockers and Eddie Bauer with "nano-whiskers"--tiny appendages like peach fuzz around each fiber that create a cushion of air around it. So if you dump a glass of merlot in your lap, the wine will bead up on the fuzz and not stain the fabric. Similarly, Wilson Sporting Goods recently started selling special tennis balls that use nanoparticles to more tightly seal the rubber sphere, trapping air inside and reportedly doubling the balls' lifespan.
Jurvetson says that applications like those, while practical enough, are nothing compared to what's coming. He sees more exciting developments in electronics--like carbon nanotube televisions and computer monitors as thin as today's liquid-crystal flat-screen displays but crisper, cheaper, and more energy efficient.
Jurvetson's firm has already made some early-stage investments in nanotechnology startups. One such company, Denver-based ZettaCore, is using a molecule similar to chlorophyll to make memory chips that retain their data even when the electricity is turned off. That could lead to instant-on computers that are cheaper and use less power. Another DFJ-funded company, Konarka of Lowell, Mass., is developing solar cells by depositing a thin film on sheets of plastic. "The solar industry has long been hamstrung by the incredible cost, weight, and fragile nature of glass solar cells," says Jurvetson. "Imagine unrolling a sheet of plastic on a roof in a remote part of China or India."
In his hunt for the Next Small Thing, Jurvetson cautions against predicting too far into the future. "In the 1950s people thought, If you had atomic energy, why wouldn't you put a nuclear reactor in every home?" Americans may have seen the future of technology, but they hardly knew how it would ultimately be used. Such speculation, he says, is always approximate at best. Still, truly revolutionary ideas don't often lend themselves to conventional predictions--they're frequently no more than inklings in the mind of a curious entrepreneur. "The most interesting ideas," Jurvetson says, "can't yet be categorized."
FRANCHISING Peter Birkeland, 41 Adjunct professor, U. of Minn. Carlson School of Management, and author of Franchising Dreams
If most americans were asked to name a franchise, they would likely come up with about a dozen megachains: McDonald's, Jiffy Lube, Dunkin' Donuts, Subway. In fact, about 1,500 American companies in 75 industries use the system, contracting 320,000 individual franchisees who employ eight million Americans--roughly one out of every 17 workers. But the study of franchising has long fallen to economists, whose theoretical language can't really sum up the experience of selling Slurpees at 7-Eleven. Curious about this void, Peter Birkeland devoted his doctoral dissertation to the subject, spending four years interviewing dozens of franchisors and franchisees and even working for six months in the trenches of "King Cleaners" (a chain whose real name he conceals for legal reasons). The resulting book, Franchising Dreams, offers the first comprehensive study of that peculiar business niche.
One of Birkeland's key findings is that both sides complain about it. People who buy a franchise often gripe that they're locked into a contract in which every last detail is already decided for them. (At McDonald's, franchisees have to mix the bathroom cleaning solution according to a set formula, and Body Shop franchisees are forced to put their customers' purchases in plastic bags even though paper bags are cheaper and better for the environment.) On the other side, corporations argue that without such limits, franchised locations would turn into free-for-alls, and customers would get wildly inconsistent service. The companies often have to sue merely to get their more creative franchisees to stick to the contract.
What's the solution? Birkeland says a little compromising on both sides wouldn't hurt. He cites one restaurant franchisee from an urban area who griped about having to close at 11 p.m. (he actually wanted to stay open later). "Things don't really get hopping in the black community until after 11 p.m.," he said, "and that was continually reflected in our sales." He was finally able to persuade the franchisor to extend his hours until 2 a.m., and predictably enough, sales improved. "But," the man added, "getting them to make the change wasn't easy."
Rather than focusing merely on enforcement, Birkeland says, a franchisor might be better off treating the arrangement as a collaboration--by offering pilot programs in specific regions or even just by listening more often. Unfortunately, he says, the companies that take steps like these are all too rare: "Franchisors tend to assume their model works, and if it works in Milwaukee, it'll work in Newark."
DISMANTLING THE OLD BOYS' CLUB Myra Hart, 62 Professor, Harvard Business School
It's still a man's world, unfortunately enough, and Myra Hart has the numbers to prove it. A former Staples executive and currently a professor at Harvard Business School, Hart researches how venture capital money flows (or doesn't flow) to women entrepreneurs. Her findings? All too often the fairer sex doesn't get its fair share.
Before you dismiss this as the work of some radical feminist in an ivory tower, consider that Hart's own story is pretty traditional. She spent her early years raising a family and didn't get her MBA until her late 30s, then signed on with Staples in 1985, when the company was still considered a startup.
At Harvard, Hart tries to help women entrepreneurs by opening up the capital markets. She's chair of the Center for Women's Business Research and helps mentor female students looking to launch a business after they graduate. Sometimes, though, she has to let them in on some bad news. In 1999, according to her research, women's share of all venture capital investment was just 5%.
Part of the explanation, she says, is that women are usually interested in launching retail and service businesses, while venture capital firms are most commonly looking for new technologies to back. Unfortunately, there may be no easy answer. Hart advises her women students that if they really want an easier time finding capital, they should stick to technical fields. "Women who go to MIT have a much better chance to get venture capital than do history majors," she says.
THE GOOD, THE BAD, AND THE UNETHICAL Laura Hartman, 39 Professor, DePaul University, and business ethicist
The spectacle of executives being led away in handcuffs may become an image that defines our times. But if small business owners dismiss those troubles as the excesses of a dishonest few, they could be making a serious mistake. So says Laura Hartman, a professor at DePaul University and one of the nation's most renowned scholars on business ethics.
Hartman consults with big companies like Dow Chemical and Brunswick, and her main point for small (or any) business is that ethical cultures don't just happen. They're the result of diligent effort--frequent, scheduled conversations between you and your employees about what the standards of your company really are. If you never raise the subject and assume people will inherently do what's right, you're leaving yourself vulnerable. "Just go around and ask people what the core values are that define your company," she says. "You'll probably get as many answers as people you ask. You have to realize that perceptions are so different."
She tells company owners that issuing a boilerplate statement about corporate values is the absolute minimum they can do, and it's never really enough. As a boss you have to set the standard yourself, constantly keeping your actions above reproach, and you have to talk through hypothetical scenarios with the staff so that they'll know what to do when they come up against an ethical dilemma and you're not around. After all, says Hartman, "with just ten commandments, you're screwed when you get to the 11th problem that isn't covered."
EQUAL-OPPORTUNITY INVESTING Larry Morse, 51 Co-founder of VC firm Fairview Capital Partners and specialist in minority entrepreneurship
The news for minority entrepreneurs in recent years has been mostly upbeat: Institutional investors have placed about $3.5 billion with minority-owned companies over the past seven years, more than in the preceding 25. A big part of the reason is Larry Morse, co-founder of Fairview Capital Partners in Farmington, Conn. If you're a minority entrepreneur, you almost can't afford not to talk to him.
At Fairview, Morse helps manage $850 million in institutional investments, which he parcels out to venture capital firms that in turn fund young companies. Of that $850 million, about $350 million is now with black-, Hispanic-, and Asian-American-owned businesses. That's one out of every ten institutional dollars in the country devoted to such efforts. "In the ethnic business community he's very well known," says Darryl Wash, who was mentored by Morse before founding his firm, Ascend Venture Group, in New York City. "We call him 'the Doctor.'"
The term "doctor" isn't an exaggeration: Morse earned a Ph.D. in economics from Princeton University. He also spent ten years at two VC firms before launching Fairview. Much of his time now is spent mentoring would-be entrepreneurs and impressing on them the importance of what he calls "social capital"--the network of friends and acquaintances whose help is indispensable in starting a business. Every entrepreneur uses social capital, of course, but Morse argues that for minorities the network is harder to plug into. "There are places where, as a minority, you would be greeted as being foreign," he says. Hard work helps, of course, but sometimes even that's not enough. "Could a minority go into business libraries and call 100 people and find their way?" he asks. "Maybe. But you can take two years to figure it out, and by then your idea may be too late."
That's why, he says, the most important step for minority entrepreneurs is to find the experts who've gone before them. Consider Christy Haubegger, who talked with Morse before starting Latina magazine in 1996 and still confers with him today. He helped get her business plan into shape and, since she had no publishing experience, urged her to find a corporate partner. Haubegger eventually worked with Essence magazine to publish Latina. It now has a circulation of 250,000.
Even with the recent progress by minority businesses, Morse isn't satisfied. "Thirty years ago an African American who owned three Burger Kings was considered very significant," he says. We've come a long way since then, but still not far enough.
TREND ANALYST Malcolm Gladwell, 39 Staff writer, The New Yorker, and author of The Tipping Point
Business is full of mysteries. what made my big fat Greek Wedding, a $5 million film, into the top-grossing independent movie of all time? Why did Hush Puppies, a languishing footwear brand, abruptly become a hot item for the fashionable set in the mid-1990s? Surprises like those have confounded everyone from the marketing departments at big corporations to small businesses with minuscule research budgets. Malcolm Gladwell, a staff writer at The New Yorker, set out to explain these mysteries of popularity in his bestselling book, The Tipping Point. Among his findings is something he calls "the law of the few": the idea that there are certain personality types who can create change by word of mouth. Captivate these critical people, he says, and your message becomes contagious.
While covering the AIDS epidemic for the Washington Post in the early 1990s, Gladwell began to see social behavior in terms of epidemics: dramatic changes that build slowly to a critical mass and then explode overnight, seemingly in response to the smallest of changes. "I wrote the book because I thought people were getting very mechanistic about change--'If we do this market research and focus group and this level of TV ads, we can create a hit product,'" Gladwell says. "I think those explanations are less and less relevant."
Rather than blanketing a mass audience with advertising or PR, he says, you can be more successful by targeting three types of people who have great influence: those with plugged-in social circles (called connectors in the book), infectious and persuasive personalities (salesmen), or people with a reputation for expertise (mavens). For example, Hush Puppies "tipped" because a handful of well-connected fashion designers in New York City started wearing them and putting them in their runway shows. The result--sales of the classic suede model went from just 30,000 pairs in 1994 to 430,000 pairs in 1995 and almost two million pairs in 1996.
Gladwell estimates that perhaps three or four people out of 100 might be these influential types, and he suggests what he calls "maven traps" to find them. The software industry does this with beta testing, offering consumers a chance to preview and rate its new products. "It's billed as product development, but it's also brilliant marketing," says Gladwell. "The kind of person who's going to take time out to test your software is a software maven. If you enlist them and get their respect and trust, you'll be rewarded when people go to them and say, 'What should I buy?'" Influential people come from all walks of life--Gladwell cites a nurse trying to spread the word about breast cancer and diabetes in San Diego's black community. The most effective way to reach them? Through their hairdressers.
A hit on the lecture circuit, Gladwell insists he doesn't have the magic wand for success. But his message is perhaps most comforting for a small business without national brands and multimillion-dollar ad budgets: Little changes really can have large effects.