Josh Padnick’s Blog

When I first started out in business you could sum me up by just two traits: highly ambitious, and totally clueless. It’s not such a great combination, actually.

Mark Cuban says that in business you can fail an unlimited number of times as long as you don’t have a really catastrophic failure (like this guy, although even he managed to get back into his element). The great thing about business, Cuban says, is that you really only have to hit it big once and then, well, you’re set!

I take a thought like that, and I mix it with another thought I have:

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A few years ago I read a book by Brian Tracy about the laws of business success. The book was basically a list of observations Tracy made about success in business (that was an insightful sentence).

Anyways, a lot of the laws centered around finding someone who’s successfully doing what you want to do and copying every aspect of them. A lot of laws talked about how you get compensated for exactly the value you create in the world (an idea I’ve seen expressed elsewhere and continue to be fond of). One law in particular made an unconscious impression on me:

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When I was in college and dreaming about my super-success story in “someday” mode, it was typically a vision of pure ambition. The “who” part about the people I’d actually be working with remained mostly unspecified. The “how” part didn’t really matter. The “what” part just had to involve my core interests of technology and business.

So, in 2003, I started doing entrepreneurship for the first time. I lived in an apartment alone at the time, and decided that I would be a Web/marketing consultant and work out of my home. I had good credentials, so I was fortunate to get a $12,000 contract by being introduced to a company through a family connection. I had no budget, no strategy, no vision, no plan. I basically had one room dedicated to being my office and I had a client.

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I recently stumbled upon RockStartup.com. It’s basically a documentary, split up into several episodes, that covers the birth of the website PayPerPost.com by following around the CEO/Founder, Ted, and the PR person, Britt.

PayPerPost (”PPP”) is a weird concept — PPP pays bloggers to write content, sources content from Publishers, and then earns money by charging advertisers to put ads on their blog sites. It’s been controversial because blogging’s rise to fame is due to its unbiased nature, and paying someone to blog, well, I guess it’s hard for them not to be biased.

But the success of PPP is another discussion. I’m more interested in the man behind PPP, Ted. Based on 10 minutes of watching RockStartup, I defnitely saw some “patterns” I’ve seen in other entrepreneurs.

When I was at Wharton as an undergrad, in my Senior year I took an Entrepreneurship course where you had to build some unique software, come up with a business plan, and then pitch it all to VC’s.

Our idea was terrible. We were going to build a system for people running political campaigns to help them get a sense of how people were planning on voting. We had a barcode-scanner-pen that scanned in a person’s survey responses, and then aggregated all the informaiton so that a campaign director could see how people felt about a variety of issues.

When I joined the team, I was the only undergrad. We were led by a charismatic, tall, deep-voiced MBA and everyone seemed to buy into his leadership cred. Eventually, people started dropping off our team for one reason or another. I think more than anything they just didn’t believe in what we had going on. But I needed this class for some kind of requirement so dropping the class wasn’t an option for me.

So I got to work pretty closely with our head guy. He was a former VP from Morgan Stanley, a Berkely-educated computer science graduate, and an imposing guy. He seemed intelligent, driven, and confident. I was actually pretty intimidated by him for a while.

But as we got to work together, one thing became clear to me: he had this idea that he was destined to be a multi-million dollar entrepreneur success story. And he was busting ass to make that a reality. The product itself, the concept, the company, the vision…none of that really mattered a whole lot. It was more about the success factor, the prestige of being a self-made man, a clever entrepreneur who saw the opportunity and cahsed out at 35 years old for $10 million…or something like that.

I can think of at least two other times I’ve seen that ilk of entrepreneur: Startup.com, the movie. Those guys succeeded in raising a lot of money, and spent a lot of time and money doing soul-searching, but not a whole lot actually adding value for the world. The guy was a former Goldman Sachs Investment Banker and again, had the air of “I’m a smart businessman who knows how to make millions of dollars in entrepreneurship.” Their company has since folded.

And the latest example? Although I have but 10 minutes of edited video footage to base my thinking on, I give the honors to Ted of PayPerPost.com. The cheering about raising $3 million, the getting up at 4am to hand out signs at the Today Show…somehow it didn’t have an authentic ring to it. It seemed more like token, crazy things entrepreneurs are supposed to do to make their companies successful. I guess it can all be summed up by being more about the experience of entrepreneurship and hitting it big, than your passion for whatever you’re doing.

By contrast, I know of a family member who grew a wildly successful company from scratch. He raised no money; his company was financed by getting new clients. He LOVED what he did. He retired in his 40’s and always talks longingly aobut his work days. He’s financailly set for life but is still involved in new business ventures.

I know of a local entrepreneur here in Phoenix who simply loves web design, and has made a lot of clients very happy by doing what he does best.

I think of Howard Schultz, CEO of Starbucks, whose story is vividly recounted in a book he co-authored, and how his passion was the idea that Coffee could be a bridge to creating community in America again. It really had nothing to do with feeling like a clever entrepreneur and mkaing millions of dollars.

I think of Bob Parsons, CEO of GoDaddy, who made $50 million and nearly spent it all on GoDaddy before making it profitable. Despite being insanely wealthy, he’s admitted he’s not motivated by money, and just loves building a great company.

Look at Mark Cuban — a billionaire who actively writes about his businesses on his own blog!

My point is that there are entrepreneurs who are out for the glorty and the dollar signs, and then there are the people who really believe in what they’re doing, and how it will make a positive difference.

I think the truly succesful entrepreneurs — ironically — don’t really fret too much about *being* successful entrepreneurs. They just focus on adding value for the world, on overcoming challenges people said couldn’t be overcome, on taking their passion and doing something amazing with it.

Hell, I love learning foreign languages so much that I would almost be happy to accept a non-paid position to direct a foreign language products company. Not that I plan on leaving my current position, and in reality I’d probably want some actual salary or compensation, but *emotionally* that’s how I feel.

Anyways, I guess what it comes down to is that, as the brilliant Paul Graham pointed out, people choose their careers based on three criteria: (1) Prestige, (2) Ambitiousness, and (3) Doing What You Love.

I think the best entrepreneurs have most of their eggs in (3) and the rest in (2). I think the others have most of their eggs in (1).

Recently, we’ve been hiring several new people for Omedix. The nice thing about hiring someone is that they have no prior expectations about how things work. There’s no prior expectations about salary, bonus, benefits, commissions, work/life balance, degree of responsibility, etc. I basically get to establish a fresh baseline for their expectations based on the initial employment offer I make.

So, that’s caused me to think pretty hard about what kind of company *I* would want to work for, and what kind of employment situation *I* would want if I were applying for a job. After all, working today is a 2-way street. The “employee” (I hate that word but at least it conveys my point for this posting) — anyways, the “emplolyee” has to prove they can make worthwhile contributions to the company, and the company has to prove they’ll provide a rewarding, fun, well-compensated work experience. If the employee can’t cut it, the company hires someone else. It the company can’t cut it, the employee goes to work for someone else.

That got me thinking: I would HATE to work in a purely salaried position. It’s not so much that money is everything; I would just hate the idea of having a fixed compensation regardless of how much value I actually created for the company. Sure there might be a “you did well” bonus at the end of the year, and incremental raises, but for the most part my compensation would be fixed.

On the other hand, one of the things I really love about my current job is that, financially, if I create a lot of value in the world, I will be financially compensated for that. Conversely, if I royally screw up and wind up using a lot more of the world’s value than I create (otherwise known as when expenses exceed revenue), then I have to live with that. It can be nerve-racking sometimes, but also thrilling, and I like that.

So, anyway, my thinking is that today is just a different world. Back in the day, people would go to work for a large, established company, earn a flat salary, have a fairly predictable job, and be rewarded with pension plan and other long-term benefits after something like 30 years of service to the company. Yuck!

Today, people are constantly hearing about billion-dollar acquisitions ($1.6 billion for YouTube), and it no longer seems completely shocking when we hear about a 30-year old multi-millionaire. The super-fast rise of the Internet created a sort of “anything’s possible” mentality, and I think a lot of people in the “Net Generation” (let’s say that means anyone born in 1975 or later) have encountered the idea of working hard on an idea that might change the world, that there’s something intoxicating about it. The romance of it is alluring to our generation in a way that just wasn’t that common 50 years ago.

We see 30-year old Google billionaires, and use websites created by some guy out of his college room, or download software written by some guy who was a high school dropout, or visit the restaurant of some guy who’s only 35 that we all, I think, have a desire to taste the nectar of “anything’s possible”.

Set against that kind of backdrop, how exciting can it be to work at a predictable, corporate job earning a straight salary mostly independent of how well you do? I say that our generation demands something spicier. We want our companies to throw down the gauntlet and say “If you can produce, we will deliver.” We want to work in an environment where our salary, our potential, and our responsibility are limited only by what we think we’re capable of, not constrained by the shackles of bureaucracy or “how we do things here.”

And so, with Omedix, I’ve tried to do the best job I can to create that. My goal is to make “mini-entrepreneurs” out of every single member of our team. People shouldn’t be asked to bear the financial/emotional risk of starting a new business, so a base salary with benefits is still appropriate. But we also shouldn’t be constrained, so I think a very potent bonus structure is important.

We should each know how much we “cost” the company — the total cost of our salary, benefits, and bonuses. And we should each know how much value we GENERATED for the company. And so we should each have a sort of “profit”. And since it takes time, money, and energy to create the infrastructure in which that profit is created, most of the profit should go to the infrastructure — to the company — but a healthy share of that profit should go to the person that earned it in the first place. The more “value profit” you earn, the more you should be compensated.

I haven’t perfected the system just yet, and I’ll be honest — it sometimes feels like I’m playing with volatile chemicals when structuring incentive programs — but the right chemicals mixed together creates a powerful “chemistry” and lot of energy, and drives people to work harder, have more fun, make more money, and love their job. What could be better?

Details to follow…

They told it to me in college but it took me about 3 years to really get it. The single most important concept in any business in any industry is Value.

How much of it do you create? How much of it do your clients think they’re getting? What’s the difference between what the stuff you sell costs and the amount of value it provides?

I know it all sounds really simple, but this singular concept is so fundamental to the success of every business and yet receives so little attention in popular literature on entrepreneurship.

I guess it all really hit me when I met with a prospective client and realized how little they valued our services. This client was actually a healthcare consulting firm and wanted a website to help prospective clients learn about their service offering — they do not currently have a website. I asked: “How many new clients would you ideally like to get over the next few months?” It turns out that they really only wanted one or at most two.

“What would happen if you got more than two clients?” I asked. Well, it turns out that would be more than they really wanted. “Would the site benefit your existing clients at all?” It turned out that it would, but only in marginal ways. So it all came down to one key question: “What’s the value to you of a really great website?”

Well, as it became clear, not that much. Now, that’s all well and good if this client were dealing with a freelance web designer who can put together an ultra-basic site in 10 hours. But our sites involve an in-depth discovery process, custom design, usability analysis, search engine marketing, and lots of other things. The problem is the amount of time it takes us do those things makes it all more expensive than the consulting firm really values it for.

And so we realize, capitalism has told the consulting firm that using us would be overkill and told us that the opportunity cost of delivering our services to the consulting firm would be high — too high, actually. Because while we’re working with him doing a very basic project, we’re not working with a client who might see the value in all of our services.

Other Examples All Over the Place
There are lots of other examples of when “cost” and “value” deviate from expectations.

Starbucks
No one could have guessed that people would be willing to pay $4.00 for a latte, but you know what, paying $4.00 for that latte gives you a fun experience in a social environment, involvement in a cultural rite, and of course a hot tasty drink. If you think about it, the $4 really is there.

Our Omedix 1-800 Number
When I first got a 1-800 number for Omedix, I expected to pay about $50/month. Honestly, I had no idea what it cost. $50/month seemed like a reasonable value to me. But the company actually charged *$9/month*. Okay, great! Six months later, their prices doubled — now it’s $18/month, but it’s still a bargain. They could double their prices again and I might get a little ancy, but I’d still probably stick with them because it’s a pain to switch.

Salesforce.com
We pay $65/user/month and this is probably worth about $1000/user/month to me, maybe even more. I cannot begin to express the positivity I have for Salesforce.com.

Public Relations Services
I could easily go out and spend a good $5k/month or $25k/month to get good PR for Omedix around the city, state, country, world, whatever. If we were a huge company (like 1,000+ people) and felt like we were ready to “be revealed to the world” this might be a good investment, probably several times over. But at this point, $5,000 bucks a month? I don’t think so. The costs that the PR company has vastly exceed the value I would get out of such a service.

Surefire Signs People Don’t Value What You’re Offering

The point to me is that you absolutely must make sure there is a congruence between the value people get from your services and the cost you incur to provide them. It’s getting easier and easier to spot when there’s a problem here. Here are some of hte surefire signs:

The client asks us to lower our pricing while still offering the exact same services

The client wants to do business with us but can’t bring themselves to sign the contract

The focus of the discussion is the price, not the service and value creation

Surefire Signs People *Do* Value What You’re Offering

On the flip-side, it’s a world of difference when you’re dealing with clients that do recognize the value of what you’re providing.

The client thanks me profusely just for meeting with them to talk about our services

The pricing discussion essentially amounts to the client verifying that our prices are reasonable and at least somewhat in line with what they expected, but the actual price itself doesn’t really matter

The client pays their bill on time

The client loves working with us and gives us lots of referrals

The client wants to utilize more of our services to further expand the “goodness” they’re experiencing from our servers

This doesn’t mean to me that we can charge whatever we want. I couldn’t sleep well at night if we sold a website for $50,000. It simply doesn’t cost that much to produce it, and although the right client probably would get that much value from it, it’s way above what the market’s offering and therefore uncompetitive. But at the same time, I’m finding more and more that not only are the clients who value our services more willing to pay for them, they also are friendlier, happier, less stresses, and — most amazing of all — actually wind up taking less of our time. I’ve even had clients apologize for calling me to bother me when such time is in fact part of their monthly service!

The Key Takeaway

I don’t ever want to say that we’re “above” any clients, or anything elitist like that. Rather, the key takeaway for me is that, for those clients that don’t see much value in what we do, we need to have a solution that is inexpensive for us to produce and inexpensive for them to buy (that’s our Starter Package).

Conversely, for the clients that really love what we do, we should have a solution that is reasonably planned-out so as not to be overly expensive for us to produce, and reasonably priced so that we are both competitive with the market and well below in price what the client perceives in value.

I just wrote a posting on my grievances with “Industry Research Reports”. Check it out at the Omedix Blog.

Every few months i am privileged to exchange an e-mail or have a phone conversation with a friend, family member, and business mentor of mine. This individual is simply brilliant — a total natural and superstar at business. He started his own company in the 1980’s with 1 person and $0 revenue and grew it to over 1,000 people with offices in three cities and then sold it at a relatively young age. And to boot, he’s a great guy. WOW.

Recently, I was discussing a persistent “paranoia” I often wrestle with for our company. What if our services under development aren’t as popular as we think they’ll be? What if we don’t meet our sales quotas? What if competitor X forms Deal Y that prevents us from realizing our full potential? Since it’s real-life we’re dealing with, there are an infinite number of what-if’s.

American folklore tells us that entrepreneurs are risk-takers. That they are brave pioneers who dare to believe and who max out their credit cards because they feel so passionatley about their idea. They’ll go to any length to realize their dreams, and they’ll work around the clock to achieve the American Dream.

Sure sounds like a mythic, romantic notion…but you know what? The best entrepreneurs aren’t like that at all! What my mentor helped me to realize is that the most successful entrepreneurs are not risk-takers, they are risk-mitigators. Yes, they take risks, but smart risks. Enterpreneurs don’t invest in a stock and hope; they think about what will happen if the stock goes up, if it goes down, how much money they have, and what they can do instead to achieve their goals. WHOAH…

The implications of this thought process are incredible. It seems simple enough, but it really does make all the difference in the world. What it means is that YOUR PLAN IS EVERYTHING. Everyone knows you can’t predict the future with 100% certainty, so how do the world’ best entrepreneurs just seem to know that things will work and beome amazing successes again and again?

The answer is they don’t know how things will turn out, but they do know that no matter how things go, it’s been planned for, and they’ll have enough money to stay afloat, and it meant that Assumption X was wrong, and they’ll have to change Y, Z, and W to fix things. The best entrepreneurs don’t max out their credit cards because they “believe.” They minimize their expenses as much as humanly possible until their plan has been validated.

McMurry Publishing, a local Arizona business started by Preston McMurry in the 70’s and that’s since grown to become — to my knowledge — the largest PR firm in Arizona started with $0 venture capital and $0 investment. Preston just didn’t spend until he had clients. That was his plan. How do I know this? I asked him directly when I heard him speak.

Don’t get me wrong; enterpreneurs are taking risks, but it’s the way they take those risks that distinguishes the mediocres from the greats.

For me personally, it means that, almost to the point of neuroticism, I have planned for just about every contingency I can think of. I don’t know what the future holds, but I know we can adapt either way. I don’t know if we’ll meet our sales quotas, but I know what levers I can push and pull if we don’t. I don’t know if our products will be the runaway success I sure hope they’ll be, but I know if they flop entirely we can weather the storm. The future may not be certain, but it doesn’t really matter, does it…

I am by no means the first (or last) person to say this, but services like Skype are changing all the dynamics of phone systems.

Consider the following: Right now Omedix pays about $185/month for a basic phone system that allows incoming calls to be answered by a main receptionist and routed to the appropriate person. We all have voicemail, conference calling, and two lines.

Some people at Omedix work remotely full-time so if I were to call them on the phone, I’d be looking at a long-distance call, which by the way we pay $0.12/minute for (ouch!). So on average our phone bills hover around $300/month –> almost $4,000/year.

Now consider skype. Skype is an Internet-based phone service that lets me download skype software and talk to anyone else who also downloaded Skype software for free. The quality is actually *better* than what we get over our old school phone system.

But we can’t expect all our business partners and clients to be using Skype, right? That’s true, which is why Skype has “SkypeOut” which lets me call any phone number in the USA or Canada for free. Actually, that “for free” part is a temporary promotion which may or may not end by the end of the year, but even if it did end I think the standard long-distance rates are around $0.02 or $0.03/minute.

Oh, and there’s SkypeIn so that people have a number to call us. How much does that cost? About $4/month. Of course, we want to have a PhoneTree , and of course it’s only a matter of time before some enterprising entrepreneur sets that up. In fact, one entrepreneur may have already set that up: check out Sky-Click.

In fact, Sky-Click sets you up for an entire call center. Wow! So I’m sure there’s something out there that turns your Skype number into a PhoneTree System. Or suppose I decide to use AllDayPA and have the Omedix phone lines staffed by a 24-hour receptionist, and with a sophisticated sounding British accent no less! I don’t know the pricing there, but since I’m only paying for time used, it’s still much less expensive than the system we currently use.

So, basically, we could set up Skype to make our long-distance calls free or virtually free. We could setup All-Day PA to eliminate the need for a phonetree (you can provide a script to help them direct your callers). We could all receive our voicemails off of Skype or messages from the receptionist off an e-mail. *Every* message is retrievable remotely, and we save money.

We are definitely living in a different world. If you call Omedix and hear a British voice, now you’ll know why!

Josh

P.S. We switch out a few different people to answer the phones now (versus having a dedicated receptionist) so these comments wouldn’t place anyone’s job in jeopardy.

There’s a very interesting phenomenon I’ve noticed about many entrepreneurs — they often start multiple companies.

I remember when I was a Wharton Undergrad, one of my fellow students was very entrepreneurial and particularly impressive. He was one of those rare breeds of entrepreneurs who was very very book-smart, and very very, well, entrepreneurship-smart. He started one organization while at Penn whose purpose was to enlist Penn engineers eager to gain experience to provide free tech services (network setup, PC configuration, security, etc.) to the nonprofit community. By the time he graduated that club was still going strong.

This same individual also had ideas for other companies, participated in a startup, and later went on to found a very impressive non-profit whose mission was to help donors find charities they could give their money to by providing an objective measuring system of a non-profit’s credibility and effectiveness. What a brilliant guy.

The thing is, I’ve seen so many entrepreneurs who take that enterpreneurial mindset and apply it not just to one enterprise, but to many — the so-called “serial entrepreneurs.”

One of the really cool things about getting experience in entrepreneurship is it means that you have experience going from absolutely nothing to creating value in the world. For myself, I was almost completely clueless when I started — I didn’t even realize that you actually needed a budget to run a business (this was after getting my finance degree at Wharton no less; just goes to show how hard it can be to break through the mold of conditioned thinking).

Eventually, I understood — thanks in large part to my endless questions of other enterpreneurs I greatly respected — that it all starts with your lofty, dreamy vision. And then you take that vision and translate that into a mission — what your organization will do. You take that mission and develop vague ideas of products & services. You take those products & serivces and develop a vague notion of what it will cost to deliver them. You take those operational procedures and then develop a first draft budget to see how many widgets you need to sell how soon, and then because your budget is most likely completely out of whack, you iterate.

The budget has you losing $10,000/month, so cut the fat from the operations. If you add one tiny constraint to your services no one cares about, your cost goes down to $5,000/widget…and in order to meet your expenses you need to sell 50 widgets, but you’ll need to allocate some funds for marketing, so increase your expenses, which means you’ll need to sell 75 widgets…and so forth.

That iterative thought process that starts with a vision is guided by your budget and ends with the details is my symphony of epiphany after two years as a full-time entrepreneur. I feel like some people got that naturally — Michael Dell, Andrew Carnegie, some of my mentors — I had to sit down and really internalize it. It’s not intellectually hard. In fact, intellectually, it’s so easy to get that it appears not even worth discussing. But it’s the juice of which entrepreneurial dreams are made.

Okay, so how does all that relate to social entrepreneurship? Well, taking the entrepreneurial juice, it’s worth asking, doesn’t this stuff apply to the non-profit sector, too? And the answer is it totally does.

Here’s my non-profit dream that I plan to pursue someday:

Here in Phoenix, it sometimes seems as though there’s a strange invisble line between the local Hispanic population and the local White population. Actually, let me qualify that — there’s an invisible line between those who only speak English and those who only speak Spanish.

I’ve spoken with several Spanish-only speakers and asked them about their experience living here as a Spanish-only speaker (or maybe I should say “communicated with”…my Spanish is probably best described as “proficient”). Anyways, if you can’t speak English, it really kills a lot of your job prospects, apparently you often find yourself in awkward situations (like using the public bus system and the English-only driver tries to speak with you), and a lot of English-ony speakers seem to act with frustration toward Spanish-only speakers, sometimes to the point of rudeness.

Here’s the other thing I’ve discovered. A huge proportion of the Spanish-only speakers that I’ve spoken with (not exactly a scientific sample, but an anecdotal one at least), want to learn English, but they simply don’t have the time or money, or frankly any idea where to begin. Worse, English is a pretty tricky language to learn. There are countless excpetions, strange spellings, inconsistent pronunciations, and many colloquial words.

Might it advance our society any if all these aspiring English speakers could have a reasonable, low-cost or free way of learning English? Might that not open the door to opportunity, allow them to engage more in our society, bridge that invisible line because now communication is possible?

The answer is I don’t know yet, but I think the effects would generally be pretty positive. So my big idea for social entrepreneurship is to setup an extremely low-cost (if not free) program for helping Spanish-only speakers learn English. Surely, some such programs already exist, so here’s my catch — I want to use a commercial language-learning method that I personally am in love with that I have not yet seen as going from Spanish to English (they do of course have English to Spanish).

I’ve used this language method to teach myself “proficient” Spanish at least to the point where I can have full conversations with people in Spanish. I learned French from scratch, and at my peak, became conversational. Currently I’m learning Italian and hope to get to conversational status, too. I’m no language genius; I just enjoy learning new languages and the method makes it dead easy. In fact, all I do is listen to these CD’s while I drive around in my car; no writing or even memorizing. I do confuse other drivers when my windows are open they see me asking if you’d like to eat dinner now in Italian to no one in particular, but that’s a small price to pay.

Anyways, what if we took that language method, developed a program to go from Spanish to English, and set up free classes for anyone who wanted to come in and listen? Alternatively, what if we gave away walkmen, discmen, or inexpensive iPod equivalents and distributed the audio course there so anyone working by themselves (for example, cleaning), could simply listen to the program and participate out loud while working?

There would be a single “surge” of resource investment upfront in creating the program, but then it’s just about distribution. You could set up classes, teachers, audio programs, a website. If you made it all freely available, would it not become dead easy for people to learn English?

One qualifier here: I have no political opinions about the language barrier. This is not me “getting people to where they need to be” or with any other kind of political agenda. It’s just a thought and I think it’d be cool to do and make a genuinely positive impact in people’s lives.