The Hockey Stick Principles: The 4 Key Stages to Entrepreneurial Success

The Hockey Stick Principles: The 4 Key Stages to Entrepreneurial Success

by Bobby Martin
The Hockey Stick Principles: The 4 Key Stages to Entrepreneurial Success

The Hockey Stick Principles: The 4 Key Stages to Entrepreneurial Success

by Bobby Martin

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Overview

In The Hockey Stick Principles, author Bobby Martin shifts his focus away from all the hype about rapid growth and the pursuit of funding and instead takes a look at the real process behind getting a good idea off the ground.

Many business books fuel unrealistic notions about what a good idea looks like, how fast a founder should attract investment, and how quickly growth will take off. The problem with this mythology is that it can sometimes end with entrepreneurs abandoning their dreams too soon if they don't see immediate results.

Using a hockey stick as a metaphor and highlighting four key phases, Martin shows the healthy way a business should grow and uses entertaining stories and interviews with successful entrepreneurs like the founders of LendingTree, Under Armour, and iContact, woven throughout the book to not only share a wealth of advice, but to chronicle the ins and outs of these different phases:

-The Tinkering Period: The tip of the stick, or the time when you first develop and hone your idea.
-The Blade Years: The formative years when growth can be flat and navigating the unpredictable process of creating a company can be rocky.
-The Inflection Point: The crucial point in time right before your business takes off when it's important for
entrepreneurs to prepare and make decisions to properly manage rapid growth.
-Surging Growth: Once your company proves that they have potential, you need to optimize that growth and
scale up in a sensible way.

Innovation almost always involves a number of challenges, misdirections, and uncertainty and can take several years of struggle. But The Hockey Stick Principles gives aspiring entrepreneurs and those in the midst of the messy process a realistic, human, and inspiring understanding of what starting an innovative business is like, while teaching you what to look out for along the way as you shepherd your business through to success.


Product Details

ISBN-13: 9781250066381
Publisher: Flatiron Books
Publication date: 05/24/2016
Sold by: Macmillan
Format: eBook
Pages: 288
File size: 931 KB

About the Author

BOBBY MARTIN has cofounded two successful startups, one of which, First Research, a leader in sales intelligence, was sold to Dun&Bradstreet. He’s deeply involved with five other startups as an angel investor and advisor. Martin is chairman and cofounder of Vertical IQ, a leading provider of sales research insight for banks. He speaks frequently about entrepreneurship at universities around the U.S. and at corporate events. In 2006, he was the recipient of the Triangle Business Journal's "40 Under 40" Award in Raleigh.

Read an Excerpt

The Hockey Stick Principles

The 4 Key Stages to Entrepreneurial Success


By Bobby Martin

Flatiron Books

Copyright © 2016 Bobby Martin
All rights reserved.
ISBN: 978-1-250-06638-1



CHAPTER 1

Hitting the Ice: Beginning to Develop Your Idea


When you have an idea for a new product or service, even if you believe it's a really good one, you can worry that you might be pulling a Kramer, Jerry Seinfeld's lovable but wacky neighbor, who was always cooking up product and business ideas for his company, Kramerica Industries. Who can forget the mansiere (a bra for men), the coffee-table book about coffee tables, the roll-out tie dispenser, and the periscope for cars that would allow drivers to see better in urban traffic? Unfortunately, he had little success with any of his ideas, but that's not because they were all just wacky. One of them was to introduce rickshaws to the streets of Manhattan, which became a booming business not in New York but in dozens of other cities across the United States. Kramer's problem was that he never buckled down and wrestled with the realities of actually building a company. That is the only way to find out whether your idea will work, no matter how good the idea seems to be.

I believe that one of the most pernicious misconceptions about entrepreneurship is that the best way to go about it is to come up with a truly great idea and then right away build a slam-dunk business model and write a detailed business plan for executing it. This seems to make great sense, but there are many problems with this notion. Probably the biggest is that while some successful entrepreneurs do hit on their ideas in a eureka moment, most often ideas emerge over time, and most of them need a good deal of tinkering with.

Many hugely successful entrepreneurs started with ideas that were deeply flawed in their original iteration. If you are convinced that your idea has to strike everyone you discuss it with as brilliant and has to readily generate a good model that answers all the tough questions about market size, cost, pricing, profit potential, and competition, you are likely to give up on an idea that may well eventually be made to work.


Good Ideas Don't Grow on Trees

Hockey Stick Principle #1: You don't need a good idea.

I loved an article in Business Insider titled "This Man Turned Three Bad Ideas into Fortune 500 Companies," in which the CEO of Gallup, Jim Clifton, is quoted saying that his favorite entrepreneur is billionaire and former Miami Dolphins owner Wayne Huizenga. He points out that Huizenga's three highly profitable start-ups: Waste Management (the trash business), Blockbuster Video (video rental business), and Auto Nation, Inc. (a chain of used car dealerships) were arguably bad ideas. Clifton did much of the research for Huizenga on Blockbuster, and after his research, he didn't think it was a good idea.

So why did Huizenga succeed in each case? (Blockbuster was a huge success until Netflix came along and ate its lunch, a danger we'll discuss later in the book.) Clifton credits his success to "extreme optimism, his unstoppable determination, and his incredible energy." The most basic reason, though, is that Huizenga figured out how to tweak, build upon, and develop his initial kernels of an idea into good ones over time.

Clifton also researched Ted Turner's Cable News Network's twenty-four-hours news idea and concluded it wasn't a good idea, either. He wrote, "No one wanted more news, and the news Ted was going to show was just a reel of reports played over and over again." He concluded, "Twenty-four-hour news is a mediocre idea." Of course, Turner went on to turn it into a fortune.

Tesla's electric car is a more recent example of an idea that plenty of analysts predicted would be bad but has turned out to be a big success. In 2003, entrepreneur Elon Musk invested $6.35 million in the business despite the fact that the big automakers were backing away from electric cars then because they were proving to be unprofitable. For years, Tesla looked like a bad idea. In 2009, it lost $55.9 million with only $111.9 million revenue, proving the big automakers were correct. So what does Elon Musk do? He invests $75 million more to keep it afloat. By 2014, Tesla had revenues just north of $3.2 billion.

Start-up success is predicated not so much on the idea as on the development of the idea, as well as the tenacity and will to succeed. This is why the common approach of starting by writing a detailed business plan, unless it's written for the benefit of investors to better understand your basic plans, is so flawed. Even the best-researched plan is only hypothetical; it's really just the addition of more ideas to your main idea. I've seen so many founders think of the plans they've written to get started as arguments for their concept, almost as if they are a proof of concept. In no way is that true.


Hockey Stick Principle #2: Starting with a business plan is an exercise in self-deception.

A real danger in writing a detailed business plan from the get-go is that having made such a good case for your idea, you may narrow your thinking too early in the process when instead you should be in an exploratory mind-set.


At First, Just Tinker

For years, most experts have encouraged aspiring entrepreneurs to "research, research, research" and "plan, plan, plan" before starting. When I did a book search for "before you start," 2,185 book titles came up. The Small Business Administration says: "The importance of a comprehensive, thoughtful business plan cannot be overemphasized." But while a good business plan can be important further down the road and is essential in seeking outside funding, spending lots of time researching and writing one up front is not the way to go — and you may not even need one at all.

A fascinating study conducted by William D. Bygrave, a former director of the Center for Entrepreneurial Studies at Babson College, one of the most highly regarded entrepreneurship programs, found that there was little difference in the success of the ventures of founders who graduated from the program who wrote formal business plans versus those who didn't. "We can't find any difference," he reported. Another well-respected scholar of entrepreneurship, Stanford professor Steve Blank, who is also a serial entrepreneur, has applied experiential wisdom to his study of the process. He writes, "There's only one reason for a business plan: some investor who went to business school doesn't know any better and wants to see one. ... Entrepreneurs often mistake their business plan as a cookbook for execution, failing to recognize that it is only a collection of unproven assumptions." And regarding that investor you're hoping to sway, 90 percent of the time, your plan is not going to be what gets you funding. As we'll further explore later, demonstrating proof of concept and actual revenue growth are what attract outside funding.

I've met so many aspiring entrepreneurs who spent two to three years researching and planning their concept and crafting their plans, imagining how the business could best work, pondering whether or not they could afford to devote their time to it, contemplating whether or not to bring in a partner, writing an elaborate business plan, analyzing their personal budget to see if they could afford to quit their jobs, and stalling because they were afraid to take the first step. Such people consider the "right" things for their business plan: market size, pricing, break-even quantities, scalability, required financial investments. And there's no question that eventually you've got to figure those things out. But don't fall into the trap of believing your plan can tell you how to actually build the business. As the founder and CEO of sports undergarment firm Under Armour, Kevin Plank, says, "I think sometimes entrepreneurs can get caught up with theorizing, hypothesizing, business planning — at some point, put the freaking pen down and go do something. Go find out if you can make your product."

My study and the in-depth interviews I conducted with successful founders revealed that most successful entrepreneurs do not start in a particularly strategic manner — defining the required tasks, setting tight deadlines, keeping checklists, writing formal business plans, and developing break-even cost analyses. In fact, most of the successful founders I've interviewed and most of those whose stories are told in this book didn't start by crafting a detailed plan, and many had no plan at all.

Ryan Allis, the founder of e-mail marketing firm iContact — whose story we'll explore more in chapter 2 — makes the important point that too much planning may sway you from digging into an idea you might be able to make work. "When we first started, I'm really glad I didn't know what I know now," he reflects. "Otherwise, I might not have done it, you know? Sometimes a little bit of naïveté or even ignorance helps." He says if he had more thoroughly investigated the competition, he would have found out that several other entrepreneurs were entering the same market and he thinks that might have stopped him there. That's a common mistake.


Hockey Stick Principle #3: No idea is yours alone; you can never escape competition — you have to outcompete it.

The fact that others are doing what you're setting out to do — or have failed at doing it — doesn't necessarily mean you shouldn't start trying your idea out. The initial research Graham Snyder, the inventor of the SEAL SwimSafe device, conducted showed that other companies had tried using technology to prevent drownings. In the late 1990s, Poseidon Technologies had invested $30 million developing video technology to detect if swimmers are at risk of drowning, but the system was only installed by two hundred swimming pools worldwide. Video detection is prone to errors, and the Poseidon system was expensive. He believed a more reliable, affordable device could be made.

I think sometimes founders focus on lots of market research and on writing business plans because it seems like the professional thing to do. They're often concerned about appearances, worrying that people, including their families and friends, to whom they may be going to ask for funding, will think they're being irresponsible if they don't draft some sort of plan. Brian Hamilton, the founder of financial-analysis software firm Sageworks, made a great point about this conundrum when I interviewed him: "Spending so much time planning is just silly. You can't explain that to someone who hasn't started a business because they will think you didn't know what you were doing. Well, the fact is it's true. You don't know — you're just trying stuff. That's what [a start-up] is."


Don't Start with a Road Map, Either

Hockey Stick Principle #4: Following a road map is a road to the predictable; innovating is an uncharted journey of discovery.

You may be thinking, But isn't there some time line I should be on or some game plan I should create with benchmarks for progress so I don't just waste my time? After all, that's the way the leading innovators in the corporate world innovate. They've developed tools like product road maps, three-, five-, ten-, and twenty-year business plans, and a number of disciplined methodologies, such as Customer-Centered Innovation Maps, the discovery-driven planning method, or the R-W-W ("real," "win," "worth it") process, developed by innovation strategist Lance Bettencourt, which industry giant 3M has used to manage 1,500 innovation projects. New product projects are given strict time lines and budgets, and while trial and error is often accepted for some specified period of time, progress must be measured and reported on often. Many experts on innovation advocate for this kind of highly disciplined process, such as the authors of the book Ten Types of Innovation: The Discipline of Building Breakthroughs, who write, "Innovation almost never fails due to lack of creativity. It's almost always because of a lack of discipline." They assert that innovation requires a "simple, organizing system — an underlying structure and order governing what works and what fails."

In the corporate world, this approach can work well, but that's often because the innovation is incremental, a comparative tweak to an existing product rather than a disruptive new product with a new market. A great case to illustrate this point is Procter & Gamble's launch of the Tide Pod laundry detergent capsule. It offers the modest incremental convenience of not needing to measure and pour your detergent, which was enough to make it a big success.

But that's just one successful example. In reality, even with these elaborate and closely monitored processes, the fact is that best estimates are that 65 percent of new products created by established corporations fail, which is why many corporations have been pursing alternative methods of innovation, including P&G, which has developed an open innovation program called Connect + Develop for generating new products through crowdsourcing and cocreation with outside partners.

You are not a corporation, and individuals are free to innovate in a much looser, more experimental fashion, which is vital for unleashing your creativity. Don't let any rigid process dictate terms to you. Always keep in mind that to survive each step, founders eat the apple one bite at a time.


Do Begin Tinkering with Your Model

What I do advocate you do at the start, as a means of beginning to think through the practicalities of how to build your product and business, is to craft a provisional business model. But you should do this as you begin taking actions to explore your idea. You should develop this model in tandem with making your first explorations into how feasible your idea is. Think of this early stage model not as your set of answers to how the business will work but as your set of hypotheses to test.

The best approach to formulating your model is to begin by considering this essential set of questions:

• Who will your customers be?

• What benefits will your product or service offer them?

• What competitors will you have, and what extra value are you offering customers?

• What processes will you be creating and then continuing to run the business?

• What financial, physical, and human resources will you need to run the business?

• How will you sell and deliver your product at a price — or prices — that generate a good profit?

• How much will it cost to produce the product, and how much can you sell it for?

• How much pricing power will you have?

• How will you market your product and build customer relationships and loyalty?


I don't suggest writing detailed answers for each of these at this early stage. It's best to come up with conjectures and then to explore the ins and outs of the practicalities for each as you proceed to take action. One device that many entrepreneurs have found helpful for organizing their thoughts about their model and coming up with action plans is the Business Model Canvas put forward by Alexander Osterwalder and Yves Pigneur in their book Business Model Generation. The canvas is a visual map of nine essential elements — or, as they call them, building blocks — of making every business, putting all of them next to one another on one page in order to help you keep them all in mind as you search for your solutions. The building blocks are:

• Customer Segments — the various groups of customers you're targeting, such as teenagers or married couples.

• Value Proposition — the commonly used business term for how your product will solve your customers' problems and satisfy their needs.

• Channels — the means by which you will sell your product, such as online retailers, your own Web site, brick-and-mortar stores, or through distributors.

• Customer Relationships — which refers to the various means you'll use to manage and build relationships with all your customer segments, for example, social media or a customer relationship management (CRM) online system.

• Revenue Streams — or where your sales will come from, such as product sales, subscriptions, or renting of office or warehouse space you may own.

• Key Resources — all of the inputs you'll need to make and deliver your product, such as raw material if you sell a tangible product or programmers if you sell an online product.

• Key Activities — everything involved in making, marketing, and selling the product.

• Key Partnerships — the people or companies that you'll outsource work to, like suppliers or anyone you might go into a co-venture with or make licensing deals with.

• Cost Structure — delineates the total set of costs you'll incur.


One thing I like about the canvas is that it doesn't suggest a linear, step-by-step process but, by putting the blocks side by side, suggests one on which you will be working toward solutions for multiple components at once. One of the first things entrepreneurs learn is that the building process is simply not a straight, sequential one. As we'll see more in chapter 3 on getting to market, once you're engaged in earnest in your lead-up to launch, you will have no real choice but to work on parallel tracks in developing your product, your sales, and your marketing, and those tracks will be looping ones, often with byways you find yourself going down. Sometimes you'll have to take three steps back on one track just as you're taking two forward on another. The sooner you begin getting used to this, the better, and it's more helpful to not even have a conception in your mind — or on paper — of a linear, orderly series of next clear steps.


(Continues...)

Excerpted from The Hockey Stick Principles by Bobby Martin. Copyright © 2016 Bobby Martin. Excerpted by permission of Flatiron Books.
All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher.
Excerpts are provided by Dial-A-Book Inc. solely for the personal use of visitors to this web site.

Table of Contents

1. The Proven Principles for Achieving Hockey Stick Growth
Stage I: The Tinkering Stage
2. Hitting the Ice: Beginning to Develop Your Idea
3. Skating on Thin Ice: Leveraging Seed Capital to Get Started
Stage II: The Blade Years
4. Let the Game Begin: Getting to Market
5. Always Be Shooting to Score: Marketing and Selling During the Blade Years
6. Fighting Your Way off the Boards: Improving Your Model to Achieve Takeoff Growth
Stage III: The Growth Inflection Point
7: Go, Go, Go!: Ramping Up Your Newly Discovered Model
8. Playing in the Big Leagues: Raising Growth Capital
Stage IV: Surging Growth
9. No Goal is Scored Alone: Building and Managing Your Team
10: Leave the Ice or Skate On? To Sell or Not to Sell

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