Using components - Tim Ferris and Prof. Faltin in an interview

Prof. Faltin's Book "Brains versus Capital" ("Kopf schlägt Kapital" in German) and "The 4-hour workweek" from Tim Ferris are two books which are on the must-read list for every entrepreneur. Accordingly there are always in the Top Ranking at Amazon. The two books also have in common that they show that an innovative, sustainable business model is more important than capital. Furthermore you can give your start-up wings by using professional components to which you can outsource the non-core activities of your business. Watch below the interview. You can also read the transcript below.

Prof. Faltin:

This is the Entrepreneurship Laboratory at the NEXT Conference in Berlin.
We are lucky to have Tim Ferriss with us. Thanks a lot!

Tim Ferriss:

My pleasure, lucky to be here

Prof.Faltin:

Wonderful, thanks!
You have written a world bestseller “The 4-hour workweek”.
We are in Entrepreneurship and you are in Entrepreneurship as well.< What is your recommendation? How to get to a 4-hour workweek?
What we do is, we promote components. Don’t do everything yourself.
Start with components and limit yourself to the most important things,
for example the concept. What is your opinion on that?

Tim Ferriss:

I think the concept is the same actually. The starting point from much of this depends, on where you are in the majority of an entrepreneur.
So, if you are a first time entrepreneur, you need to try a lot of things, before you know, where you good at. And also what yields the best results. And I think for the second portion of that, yielding the best results, the 80/20 analysis, which can be implemented to identify the 20% of customers, who produce 80% or more of your profits. Whether the 20% of products or services, produce 80% of your revenue, whatever your matrix are, is very very important.
Once you know, what you are good at and what you enjoy and they overlap,
that is what you can focus on.
And then being able to breaking it into components and delegate either eliminate it, is just a good option.
Delegate those components outside of that small sliver you focus on.
And I think, it is extremely important from the very beginning to focus on working on your business, as supposed in your business, as an owner, CEO for example.
Really thinking about the structure and even if, to use a very simple example, you have a bakery, one bakery. If you want to have a smooth operation, I think it is helpful to try to develop a process and processes, as if you going to have a hundred bakeries. You don’t have to be big to be good. I think you can be very small and be very good. But thinking about process and thinking about components, as you put, is very important.

Prof. Faltin:

I understand that most founders try to save money. They ask their friends or some people, but I think it is important to have professional people.
The concept must be able to finance to employ professional people.

Tim Ferriss:

Oh absolutely! You can employ people, full-time, you can get people as contractors, you can also get people as advisers. So I think your options, depend on, whether your self-financing, “boot-strapping”, what we would say in the US. I have never taken personally any outside money. So I have always, started small, build up, dollar by dollar.
If you are travelling the more traditional Silicon Valley start-up round,
you are going to raise money. It is very helpful. And also for the long charity in the success of the business to have advisers. A number of my friends, are serial entrepreneurs. What they have done is actually to get 4 to 5 advisors, in the beginning and offer them anywhere from, let’s say, a quarter from a point, meaning 0,25% or 1% of a company, somewhere in that range and then develop,refine the business model with these advisers and than use their creditability also to get better investors.
But I think that, you want to have the best, whenever possible.
And I think you should view business relationships, particularly with co-founders, the same way you see a marriage. Take it seriously, because, it is lot easier to get into a relationship than to get out of a relationship.

Prof. Faltin:

That is an interesting point, because almost everybody likes to work in a team and it sounds very good and comfortable and you are a little bit skeptical about that. You say there are a lot of mistakes done by choosing people for social reasons, but not for business reasons.

Tim Ferriss:

Exactly! The personal chemistry is important, but what happens very often, you find people, build the team around them, who won’t say “no” to them.
And you have 5 people, who think exactly the same or you have 1 person, with a very strong personality and than 4 people, who aren’t going to disagree with him. That doesn’t improve anything. If you have a very refined business model, that is the first step. If you add people to that, than you can multiply the results. If you have a bad process or an unrefined business model and you add people to it, than it just multiples the problems.
It is very critical, whenever possible, to try to scale in size, revenue etc. without scaling in headcount and at least to do the thought exercise. Try to improve the model first and that add people second.

Prof. Faltin:

So creating and improving the business model, that is a task of the lead entrepreneur, before he chooses his team?

Tim Ferriss:

Yeah I think so, you can bring in advisors, but the way I think you should choose advisors, is people who,
Number 1. Know things, that you don’t.
Number 2. Have experience, that you don’t.
Number 3. who are strong-willed enough to disagree with you and that is extremely important.
So there is an anecdote, I read in the “Effective Executive”, it is written by Peter Drucker, great book, it is a small book, I am sure it is in German.
And there is an anecdote, I don’t remember the exact business tycoon, but an icon in business. He had a meeting, and anytime, he had a meeting, he would say in the end “Does anyone have anything to add to this, any disagreements, discussions, questions?” If everyone said “No”, he said “alright great, we will schedule another meeting and then you can come back with questions.”

Prof. Faltin:

So he forced them?

Tim Ferriss:

He forced them, exactly! And I think that meetings is just one example.
In every meeting, you have a few things.
Number 1. You can brainstorm as a group, but only one person can make the
decision. Very important!
Number 2. is that, there should always be someone to play devil’s advocate, meaning to just taking the opposing view. Just to argue, discuss it.
Number 3. at the end of the meeting, you should have very precisely next steps, that are delegated/assigned to specific people.
And if you don’t do that, than a meeting, is just a waste of time

Prof. Faltin:

Let’s talk about capital. Most people still believe, that capital is a bottle neck, when you start a company. I don’t believe that. What is your opinion?

Tim Ferriss:

I don’t really believe that.
Number 1. There is one pragmatic position, which is supported by the data certainly. It has never been easier, at least in the web technology start-up scene, to start a company. You can rent for example architecture on Amazon. So you can certainly test enough and prototype online, for next to no money.

Prof. Faltin:

Before you put in a lot of money?

Tim Ferriss: Exactly!

Prof. Faltin: The proof of concept first.

Tim Ferriss:

Yeah, exactly, which is extremely important.
Number 2. If you can’t improvise in the beginning, to get started, than you probably can’t alter improvise later. Than you just don’t start your own company.
Quite frankly, I think that, a lack of capital is usually an excuse. There are some exceptions, like biotech companies, with big long sell cycles.
But usually, if you look at Microsoft, you look at Apple, you look at Facebook, look at something else, outside tech, Alibaba in China. Jack Ma, he’s been quoted very widely, saying “we had a few advantages, when we started, we had no money, we had no plan, we had no experience.” And so every Dollar, they spend, every decision, they made, they took very seriously and that resulted in a better company.
So I agree, I don’t think capital is the biggest limiter.

Prof. Faltin:

You have been in Germany now for a few days, and you have probably speaking to a lot of entrepreneurs and start-ups. What is the difference, in climate, in believers of the German start-up scene, compared to your American experience?

Tim Ferriss:

Well, I would say, there definitely are some differences, that I observed. But even in the US, I live in San Francisco, and it is a very unusual place compared to the rest of the US, even New York. It is totally different, because there is such a density of entrepreneurship and venture capital and just believers. It is a core group of believers in entrepreneurship. In Germany and Europe in general, what I have seen and it is not always the case, it is more common, what you might call, in New Zealand, they call it Tall-poppy syndrome. The Tall-poppy syndrome, means that, if your flower gets too much higher than the other flowers, people try to cut you down. And so I think there is a lot of cynicism and skepticism.
I also see less support for entrepreneurs, than in the United States, because the United States is a very young country. It is a very recent experiment. And I think that, you combine the protestant work ethic, with a capital system and democracy, you get a very unique recipe for entrepreneurship.
I don’t think it is limited to the US, not at all. There are amazing companies in Brazil, in Germany certainly, China, everywhere. But it is less widespread.
So I am hoping that it will change. But I do think, if someone wants to start a company in Silicon Valley and it is a huge idea, people are like “alright, we might get started” and they provide feedback, but they don’t say “that is ridiculous, you can never do that”, that is very uncommon. You get more of that, I have seen more of that in Germany, watching people interact.

Prof. Faltin:

What would you recommend for German founders, in such a situation, insist in a good business model? Go ahead, be more optimistic? What is your point of view?

Tim Ferriss:

I would say, be optimistic and be confident, but that confidents must be based on action. And there are a lot of terrible business models and lot of terrible business ideas and the way you don’t waste all of your time and capital on that, is that you test it very early. I mean, before you make your product. You should be trying to sell it, absolutely! If you can’t sell your product than you don’t build it.

Prof. Faltin:

Don’t focus so much on the business plan, go for the clients first?

Tim Ferriss:

Exactly and it will help you, with your product and business design. Try to sell the concept first or sell the product. You see people do this very well across the world, in different ways, for example online. But you can’t just ask people their opinions.
If you do a focus group and you ask people “would you buy this?”
If they say “Oh absolutely, I buy this” You say “Oh great, we have good news. I’ll giving people 50% discount, if they preorder today” and than, if they go “ah”.
You know they were lying. Because people tell you what you want to hear.
So you have to make people vote with their money, if that’s possible.

Prof. Faltin:

With their money in advance. With a real check.

Tim Ferriss:

Yeah absolutely. Another way is to use a site like “kickstarter.com”.
There are probably other examples of that.
Secondly is that, you need to surround yourself with a good peer group.
So if you want to be a tech entrepreneur, you really need to seek out the tech entrepreneurs around you, and try to find them.
And if they are not in Germany, save up and buy a plane ticket to Holland, or to London, spend 2 weeks in a place like that. If you start getting depressed, if you really feel badly about the prospects, if it is a reflection of other people around you and not the actual business concept itself. Perhaps you should take a trip to Silicon Valley for 2 weeks and use couchsurfing.org to stay at people’s houses and just get to meet people in that world. So you don’t feel as isolated. I think a lot of businesses fail, when people simply feel alone in their challenges and they lose confidence and they stop.
Whereas if you surrounded to people trying to build companies, you see, they all have the same problems.

Prof. Faltin:

Maybe a last question. I neither think that capital is a bottleneck too. If there is a good concept, there is money,capital available.
But I think the lack is good concepts.
Would you agree on that?

Tim Ferriss:

I would agree with that. I would also further say, that if you want to get capital, you just have to show that customers are responding well, even if you haven’t produced a product yet. If customers and people are responding well to the idea and that there is a large enough market for the VC or Angel to get a Return on their Investment.
If you are bootstrapping, than it’s a different story altogether. But if you are raising capital, you must answer two questions. Show that the team can pull it off. That’s the first question. I mean, any Investor I know, and a lot of these investors are smart and good entrepreneurs. The first thing they do is, they flip to the teampage and look at the teams.
You also have to convince them, that you are the person for the job. And as long as you can do that, I think the world is your oyster. As we would say.
I think there are going to be many, many billion dollar companies.
I think, we will see more billion dollar companies, tech companies in the next 10 years, than probably in the last 30 to 40 years. I really believe that.
We will see how the US public markets do. But beside the fears of some kind of implosion. I think we are going to see some phenomenal companies.
It is really exciting time to be an entrepreneur.

Prof. Faltin: Thanks a lot Tim for the interview.

Tim Ferriss: My pleasure, thanks for having me.