Every new business needs one person who is going to make important decisions about how the business is to move forward, no matter what the rest of the group consensus is. The problem with many startups is that they can have multiple founders, and by virtue of having many founders, there’s not one person early on who is accorded the responsibility of making the decisions to get the business beyond idea phase; rather they all want to take part in the decision-making process. In order for a business to become a business, the people within it need to implement their ideas, test products, and interact with customers, leveraging positive customer service and word-of-mouth-marketing. The CDM is the leader in the group who gets the members to stop talking and start acting.
Here are four reasons why every company needs a CDM, and some of the key decisions every CDM needs to make to ensure his business survives and thrives.
Not all the founders are valuable to the business. When ideas are tossed around at the inception of a startup, there’s very little at stake. The project is still in idea phase and you have time to project the number of ways that your customers will use your product and what that product will look like before getting results to show what actually works. Some of the people involved in the project serve a technical or mechanical purpose that would normally be outsourced to an employee or contractor. But when the business finally starts getting going, the people that matter most are the manager and the financier. There’s typically one person within the group whose vision is the prevailing one and another (or group of people) whose money will be used to fund the beginning operations. Just because someone was around to share a few ideas at the inception of a project doesn’t mean they are needed to operate the business. If this person (or multiple persons) is preventing the company from moving forward because of their unrefined and muddled ideas, then it might be better to move on without them and use some of the funds to fill in their role, especially if they are demanding a significant amount of equity in return for their participation.
The launch timeline has shortened. The time a business has to get an idea to market in the form of a product or service has never been shorter. New innovations disrupt great ideas every day turning promising startups into failed projects. Figure out what value you can add to your market, what that product looks like, and get it in front of customers to test your business’ viability. The quicker your brand can be associated with a real product and with effective problem solving required to troubleshoot issues as they arise, and the sooner you can learn what about your product needs to be changed, the better positioned you will be to adapt to innovations within your industry. The longer it takes you to launch your product and realize what information you should be taking away from it, the less likely you will be to succeed. Sometimes the difference between perishing and succeeding is a matter of no more than a day – or even hours; therefore, a CDM needs to be established to pivot the company to a place of safety from where it can iterate again to insure its future.
The opportunity cost of capital has never been cheaper. At a time when real returns on investments are arguably the lowest they have been in years, companies can have far more “at-bats” than they have had in a long time to learn about their business and customers. The reason for this is because there’s far less risk in losing out on 2-3% investments (such as government bonds) than there would be otherwise if the economy were better and yields were higher. Therefore, companies have more “real” opportunities to generate returns on their deployed capital because the effective rate of return on their uninvested money is almost zero. But in order to have an at-bat, and create opportunity, you must step up to the plate. The concept of opportunity cost of capital refers to the fact that if you have a dollar tied up in one thing, it can’t also be tied up in something else. If a dollar is tied up in an investment that yields 5% when it could be in another investment vehicle earning 10%, then you have to find ways to free up that dollar so that it yields the higher 10% return. While the opportunity cost of capital is cheap, the risk of not making a decision to not generate a higher return than what the market can yield is also a danger in not acting decisively. Businesses need to know that their capital can do more for them if deployed correctly, but the only way they can find out how to deploy it is to be decisive about their business model, find out the best ways to get ROI (Return on Investment), and repeat the process again.
Because getting credit is far less important than getting results. A business is not meant to be a vehicle for vanity. A business is about having a vision, establishing a concept with a scalable profit margin, and creating a positive culture that improves the lives of the people within the organization and the community of which it is a part. I see so often when startups at the very beginning worry far more about equity percentages, press attention they’re going to receive, and setting up conference calls than getting down to business and selling their product. There comes a point in time in which the CDM needs take charge of the critical decisions that involve creating the essential product and selling it. If you’re that person then step up to the plate and worry far more about putting the best people in place that are going to help you get the results that you need than about how others feel about getting the credit that they think they deserve.