Business 2.0 had a great article back in June about how entrepreneurs are creating instant companies by coming up with great ideas and outsourcing just about everything.
Here’s an excerpt:
In sum, four guys with a great idea, some good contacts, and a loan to cover initial inventory figured they could go head-to-head with Nike (NKE) in just 60 days.
Two months later a factory in China was churning out the clogs, the slip-ons, and, yes, the Mary Janes — 16 styles in all. The rest is footwear history. According to Van Dine, in 2004 Keen sold $30 million worth of shoes — around 700,000 pairs — with Mary Janes and other nonsandals accounting for 45 percent of the total. To put that in perspective, it took Teva three years to reach just $1 million in annual sales. Within months of Keen’s launch, some of the most highly trafficked hipster websites and outdoor-gear blogs were singing the brand’s praises, generating free buzz worth hundreds of thousands of dollars. “You could say we were birthed full size,” Van Dine says.
Keen’s overnight rise reflects many elements of traditional brand building: a product customers love, a talented management team, even old-fashioned tactics like telling retailers the shoes are sold out just to stoke demand. But the company’s swift transformation from industry nobody to brand somebody also makes Keen something else: an example of a new breed of product-oriented startups that’s going from concept to contender at warp speed.
In apparel, toys, sports equipment, electronics, motor vehicles — you name it — small but savvy new companies are wedging themselves into established industries, unburdened by the fixed costs of infrastructure past. They’re doing it with the help of resources never before available so cheaply to startups, like outsourced manufacturing, Internet-powered publicity, and robust design tools. To get to market fast, they farm out everything they can, from logistics and billing to sales and support. “This,” says Timothy Faley, managing director of the University of Michigan’s Institute for Entrepreneurial Studies, “is how the manufacturing moguls of the future are getting started.”
The keys to success in fast company building seem to be:
1. “some good contacts”
2. powerful design tools
3. outsourced manufacturing
4. internet-based publicity
The author quotes a business professor who says these fast moving companies seem to “farm out everything they can, from logistics and billing to sales and support.”
I’m trying to figure out how Provo Labs, my newly christened internet business incubator, will be able to start and fund at least a dozen successful internet companies in the next three years.
I think this Business 2.0 article contains several keys and definitely reflects the kind of mind-set that our small internal team needs to have.
Some good contacts. I have about 3,000 contacts in my Blackberry and Yahoo Mail database. My assistant and I are going through all of them to categorize them, list their talents and skills, and to identify contractors and potential employees that could meet current and future needs.
Phil801, our COO, has relationships with scores of developers. By using Monster.com, elance, local recruiters and our own blogs and email lists, we should be able to identify skilled people who can meet any need, quickly and cost-effectively.
So our Provo Labs weekly meetings might look something like this:
Paul. Worldhistory.com needs a multi-user blog functionality and we need to recruit 100 history teachers to blog on different topics.
Amy. We’ve got 12 open source developers in our talent database that can do that.
Phil. Trent is available and he can do this in a few hours.
Phil. Why don’t we ask Dave to do a fax campaign to 10,000 public and private schools and offer a bonus to history teachers who run the most popular blogs during the next three months.
Paul. Okay. Have him run the creative past Bruce before he goes live.
Amy. I’ll take care of that.
Phil. Blastyx needs 100 gb of storage space for the new video streams we’re going to be hosting once our contract filming teams visit client X and client Y.
Paul. Call Erich, ask him to add a new harddrive to our server. Dan just bought a bunch of hardware on eBay, so have Erich check with him first and bill us for this.
Phil. I just emailed him.
Amy. We need 4 more contract writers for ConstantPR because our press release demand is really picking up.
Phil. Danny can hire 4 more people for us within a week in the Phillipines office.
Paul. Do it.
Paul. We’ve got to get our traffic up on directory.net. I think we should bid on another 10,000 or so keywords.
Phil. I’ll ask John to send us a list of the next best 10,000 keywords using his keyword analysis tool, and I’ll send them over to Jim to upload them to Google and Yahoo Search.
Paul. We also need to test new landing pages on the sponsor sign up page.
Amy. I’ll email 3 landing page designers and ask each one to submit a new design by tomorrow evening.
Phil. Jimmy can roll them live so in two days we’ll have some data.
Outsourcing almost everything. If our small team can get to know the customer needs (based on customer feedback and management input) for all of our companies as well as the skills sets and availability of hundreds of outside web designers, back end developers, hardware engineers, web analysts, search engine marketers, copy writers, email marketers, recruiters, and business development people in dozens of large and small companies, then our planning meetings will be rapid-fire.
First we’ll brainstorm for each of our companies. “Of all the things we could be doing to increase revenue, grow traffic, or cut costs (improve efficiencies), which should we try?”
Second, we’ll ask ourselves, who can do this quickly and well?
Third, we’ll make decisions and communicate them.
Fourth, we’ll use Tadalist.com (or maybe we’ll upgrade to BaseCamp after reading this Business 2.0 article again) to keep track of who is doing what and when.
Our core competencies need to be:
1) creativity and vision. We get that by attending all the best conferences, networking like crazy, brainstorming often and sharing freely with everyone we meet (not holding our cards to our vest), and reading all the best books and blogs.
2) talent scouts. Every one we meet is a potential contributor to one or more of our companies. We must always capture contact information and categorize the individual so they show up in our talent database. We’ll flag contractors differently than potential full-time employees.
3) clear communication. We need to be crisp about communicating expectations, deadlines, and compensation.
Internet-based marketing. Three years ago we started 10x Marketing with a vision that every internet based company that we ever start in the future will likely be successful if we can have world class internet marketing available to us instantly.
So Provo Labs can outsource internet marketing to the team at 10x Marketing, or we can find independent contractors or other agencies that we can mobilize instantly around any new idea or web site that we launch.
One of our companies, Blastyx, will focus on internet-based publicity generation that will reach out into the blogosphere as well as capture the attention of traditional media. This is going to be hot.
So we’ll utilize Blastyx to help launch each new company.
Conclusion. We live in an exciting era where great knowledge and empowering tools are available from sources worldwide.
But most workers today, even though they use email and the Web, are not really knowledge workers.
The mindset discussed in Business 2.0 is radically different from what people are accustomed to.
Most businesses have tons of unproductive employees.
The Entrepreneur’s Manual published in 1977 by Richard White Jr. discusses this problem:
“Scientists and engineers have a way of measuring a machine’s actual output against what that machine would do if there were no frictions, inefficiencies, or lost potentials. They call it effective output. If a machine’s effective output is too low, the engineers redesign it to lower its frictions, improve its inefficiences, and realize more of its lost potentials.
There is no “machine” with greater capabilities or more flexibilities than the people who will work with and for you. What percentage of output would you guess that most companies realize from their people with respect to what they could realize if everyone gave his fullest to the company? Would you believe that the average large company realizes between 1% and 3% effective output efficiencies? According to the Institute of American Business Consultants, the average bureaucracy realizes between 0.25%-0.50% employee effective efficiency, the average industrial firm with greater than 10,000 employees between 0.5% and 1.5%; the average firm with greater than 500 employees, 1.0%-3.0%.
We’ll discuss ways of rigging your company so that you’ll incorporate the incentives and the systems to increase your team’s output efficiences to between 10% and 15% later, but for right now it is important that you realize that your start-up can work extremely well with from 1/4th to 1/10th the number of warm bodies that your competitors must carry.”
I think the Business 2.0 article and the hypothetical meeting I described above (where we rapidly match ideas with people and make assignments quickly) could describe companies that may achieve output efficiences approaching 50% or higher, if that is even humanly possible.
I believe we at Provo Labs have the proper mindset; let’s hope we also have the network and the skill set to pull this off — to become the Idealab! of Utah.