May you triple your profits
Over this past holiday season, I’ve been indulging in some mindless classic TV, courtesy of Netflix. I was finally able to watch Star Trek: Deep Space Nine from the beginning and complete my thorough knowledge of all things Star Trek.
While major Kira works to restore political stability to her home planet Bajor, and Commander Sisko fights off invasion from the ominous “Dominion”, my attention kept turning towards a much less glorified character (one might even say the comic relief), but one, I realized, has much to teach a budding entrepreneur like myself. That is, the much maligned, but somehow endearing Ferengi, Quark.
Ferengi is not the most obvious role models. Against the utopian backdrop of the Federation, they are greedy, selfish, sexist, and downright backward. But, there is more than meets the eye to Quark and, deep down, he is quite principled. In fact, Quark and most of his enterprising brethren live by a particular set of business principles called the “Rules of Acquisition”, which Quark sticks to devoutly for better or worse. I find that with a favorable enough interpretation, that they hold more than a few amusing, yet insightful, nuggets of wisdom. So, if you’ll indulge me, here are a few of my favorites.
Rule of Acquisition #3: Never pay more for an acquisition than you have to.
File this under common sense if you want, but I still like it. As one angel investor once said to me, “if your revenue is greater than your cost of acquisition, you have a business model”. This also echoes the sentiments of the value investing philosophy in general. The ability to spot a bargain (or, just as important, something overpriced) is the key to consistent success.
Rule of Acquisition #7: Keep your ears open.
Knowledge is power. Educate yourself and keep informed in and around your market space. Network with others, collaborate with complementary businesses and be on the lookout for mutually beneficial partnerships.
Rule of Acquisition #8: Small print leads to large risk.
Closing a deal feels great, but euphoria can cause you to gloss over important details. I can’t tell you how many times I’ve heard of someone getting screwed because they didn’t carefully review and consider the details in legally binding agreements. Read important contracts carefully, don’t gloss over the details, and question anything you do not understand or agree with. Consult with your advisors and with your lawyers, but beware Rule #59: Free advice is seldom cheap.
Rule of Acquisition #9: Opportunity plus instinct equals profit.
Over time, as an entrepreneur, you will develop instincts. Trust them. Some of the biggest mistakes we’ve made, so far, have been a direct result of ignoring our instincts. When your instincts tell you that there is an opportunity – go for it (but with your eyes open). Likewise, when your instincts warn you off, consider them carefully and act cautiously.
Rule of Acquisition #13: Anything worth doing is worth doing for money.
To me, this goes right along with offering your product for free. When building a product (particularly early on), you should avoid doing things for free. Steve Blank suggests that to test a business hypothesis, one must get potential customers to part with either time or money. It can be tempting to offer things free to early adopters. Don’t, otherwise, you won’t be certain that it’s really worth doing.
Rule of Acquisition #16: A deal is a deal … until a better one comes along.
It’s just business. While I don’t recommend breaking deals with people (especially the legal kind), while your business model is being developed, you may need to change many things about it, from the pricing model to the services being offered. Respect early adopters and business deals you make, but don’t let them sink you.
Rule of Acquisition #18: A Ferengi without profit is no Ferengi at all.
It seems like, a lot of tech startups are more driven by traction and user growth than revenue and, ultimately, profit. As great as having lots of users may be, the ultimate purpose of a business is to deliver something (a product or service) that is valuable enough that there are customers who will pay for it. Sure some startups might get a lucky acquisition on user growth alone, but for everyone else, I suggest a revenue driven business model.
Rule of Acquisition #44: Never confuse wisdom with luck.
Do not assume that, just because your competition made it big, they got lucky. Likewise, never assume that success implies wisdom, and just emulate the habits and behaviors of successful people and business. Wisdom is always hard earned. Even a foolish Hu-man should know that Steve Jobs’ success is not likely attributable to taking a calligraphy course.
Rule of Acquisition #57: Good customers are as rare as latinum – treasure them.
Chalk another one up to common sense if you want, but identifying your good (or best) customers can be difficult and requires careful attention. A good business should be able to differentiate the customers that make them money and which cost money at a glance. Without the right metrics, you might be surprised.
Rule of Acquisition #58: There’s no substitute for success.
And the first rule of tautology club is… Regardless of the obviousness of this one, as an entrepreneur, “success” is still the one true positive outcome. There are many ways to measure success, many paths to get there, and, typically, many failures along the way, but the pursuit of success is what drives us the whole way.
Rule of Acquisition #59: Free advice is seldom cheap.
This is possibly my favorite. Even when advice comes from someone with significant relevant experience, no two businesses are alike. Businesses are experiments and in any good experiment, the starting conditions and current environment are critically important. These are always changing, so it’s important to remain skeptical, at best cautiously optimistic, when it comes to advising. No one will know your business better than you.
Rule of Acquisition #65: Win or lose, there’s always Hupyerion beetle snuff.
Another one of my personal favorites. I am not saying that you should go out and snort crushed beetle shells (or anything else for that matter), but life isn’t all about business. Everyone should have an activity that grounds them in the face of failure and adversity or to celebrate after successes. We may live to work, but that still doesn’t mean it’s all work. Taking time out after either successes or failures gives me a valuable restart, a fresh perspective, and a new fervor to jump back into it.
Rule of Acquisition #75: Home is where the heart is… but the stars are made of latinum.
Just as Steve Blank urges us to “get out of the building”, the Ferengi recognize that the best opportunities for profit are found “out there”. Opportunities are found where one can explore and learn. Whether it’s just getting out of the building to learn from customers, leaving a good job to start a business, or moving to an entirely new city. The biggest opportunities are rarely found by staying put.
Rule of Acquisition #82: The flimsier the product, the higher the price.
This goes out to anyone who’s running a paid beta. When you sell something that is incomplete and buggy, your customer may be paying a higher price in lost time and heartache. So, always keep in mind the pain and suffering of those loyal early adopters, and try to keep them happy (but avoid offering your product for free, see #13).
Rule of Acquisition #89: Ask not what your profits can do for you, but what you can do for your profits.
New entrepreneurs often put way more into their business than they get out. There is reduced salaries, long hours, personal loans, etc. It’s a lot of giving in the beginning without much (or any) of getting back. But, persistence and tenacity will yield to profit. As long as it is in line with the rest of the rules.
Rule of Acquisition #109: Dignity and an empty sack are worth the sack.
This one goes to anyone who has ever been demoralized in a presentation, a pitch or a sales activity. The world’s a stage and, sometimes, its critics can be harsh. Whether it was a tough feedback, a tough question or quite frankly, just plain insolence, you can learn from the experience and be ready for it next time. In fact, the praise can teach you nothing, but the criticism can teach you how to prepare for a similar situation in the future. And that is worth losing a little dignity for.
Rule of Acquisition #117: You can’t free a fish from the water.
Make sure you find a product market fit. A product without a market is of no use to anyone – and nobody will be willing to pay for it. Please see Rule of Acquisition #13: Anything worth doing is worth doing for money.
Rules of Acquisition #190: Hear all, trust nothing.
As important as it is to keep your ears open, a healthy sense of skepticism and a bit of caution is well advised too. Not all advice is good advice (see: #59).
Rule of Acquisition #192: Never cheat a Klingon… unless you’re sure you can get away with it.
No. Never cheat your customers, period. You probably won’t be able to get away with it (the internet is watching you). This is where I side with the Klingons. In cheating, there is no honor! Kapla!
Rule of Acquisition #194: It’s always good business to know about new customers before they walk in your door.
If Steven Blank wrote the Rules of Acquisition, this would have been Rule #1. (Though according to the Ferengi legend, the first rule written is #161, by the Grand Nagus Gant in order to make the Ferengi add the 160 rules that precede it.) This is the pillar of customer-driven development. And the more you talk to your customers, the more you will be ready for the ones that are going to buy your product in the future. Ask for feedback and treat it like gold. It is possibly the single most valuable thing you will ever get in your business.
Rule of Acquisition #214: Never begin a negotiation on an empty stomach.
As important as it is to acquire profit, it is equally, if not more, important to look after yourself. We Hu-mans, don’t function well without food and sleep. Just recently, I stayed up till 1:00 am to work on something and the next morning, I had to redo it all. It was wrong, it was sloppy and I only thank my lucky stars that I checked it over after a good night sleep or I may have lost a customer. Eat, sleep and exercise properly and regularly. These things are literally on my to-do lists.
Rule of Acquisition #223: Beware the man who doesn’t make time for oo-mox.
For those not familiar with Ferengi mating rituals, oo-mox is an act of rubbing earlobes for pleasure and relaxation. I may be judged by workaholic entrepreneurs for suggesting this, but work-life balance is critical to longevity in the business. The race is long, and the hare never beat the tortoise. There are countless blog posts from entrepreneurs about burn out with chronic fatigue, stress-induced depression etc. Let those be a warning. Push yourself, but know your limits. Develop good productivity habits, learn to eliminate waste and “work smarter, not harder” as they say.
Rule of Acquisition #255: A wife is a luxury… a smart accountant a necessity.
Despite obvious gender issues that can arise from putting this one in here, I must say that, as a wife, I could not leave this one out. Have a clear understanding of what are the critical people necessary to take you to the next level and only hire those people. You do not need a Chief Financial Officer or the Chief Strategy Officer before you have a bookkeeper and a product. Know what you need and focus only on that.
Rule of Acquisition #261: A wealthy man can afford anything except a conscience.
Given what this probably means to a “true Ferengi” I’m not sure I agree with the intention of this one, however, I’m just a foolish Hu-man so I’m going to suggest a less obvious interpretation. I’d never do anything in business that wouldn’t let me sleep at night. A wealthy man can afford many things, but a clean conscience is priceless. It is earned with hard, honest work. Be honest. Do good.
Rule of Acquisition #266: When in doubt, lie.
Well, maybe not lie, but lets face it we’ve all have to fake-it-till-we-make-it at one time or another. It’s a valuable skill. Keep your cool and your confidence. You’re not always going to have all the answers, when you don’t, wing it.
Rule of Acquisition #284: Deep down, everyone is a Ferengi.
Let’s be completely honest, deep down most of us are motivated, at least in part, by selfish things: success, personal and public achievements even profit. But since motivation is important in our lives I say go out and be the best damn Ferengi you can be!
Rule of Acquisition #285: No good deed ever goes unpunished.
Even if you are out to improve the world and people’s lives, someone is not going to like it. I can’t think of a single product out there that is for everyone. So don’t fret when someone says that your product sucks. That is just a poor wordsmith’s way of saying it is not for me. No matter what you do, no matter how low a price you set, no matter how great experience you provide, someone is not going to like it. The sooner you accept this, the sooner you’ll be able to focus on what your customers want rather than what your non-customers don’t want.
So, there you have it. Out of 285 Rules of Acquisition, only about a quarter of them were written out and I further reduced that list to the ones most applicable to start-ups. I must acknowledge Ira Steven Behr, an executive co-producer of Star Trek: Deep Space Nine for collecting all Ferengi Rules of Acquisition in a book Ferengi Rules of Acquisition as told by Quark to Ira Steven Behr.
May all of you triple your profits.