Last time, we were talking about how to “Think Like a Reporter“.  My goal was to convey the importance of asking good questions in order to figure out how things actually get done and what the critical elements are in your business.

Today, I’d like to take it one step further and showcase an interview I was fortunate enough to secure with Cheni Yerushalmi, the managing partner and co-founder of Sunshine Suites in New York City.  In the interview, I’ve tried to apply the principles of good questions in order to create an environment that’s conducive to storytelling.  Then, getting out of the way and letting Cheni tell his story.

The other key point I would like to offer up as a takeaway from this experience for all of you is to stay alert for opportunities to expand your networks and your knowledge base.  This interview would not have happened had it not been for: 1) Cheni’s willingness and his courage to put himself out there, 2) the enterprising, public invitation from Gary Vaynerchuk, founder of Wine Library TV and author of Crush It, and 3) my recognition of the opportunity and taking action.  These are all voluntary actions.  How can you ever bottle up this mix of bravery, curiosity, inquisitiveness, openness, and indeed playfulness that’s required to create something out of nothing into a “formula” or a “job description”?  This stuff doesn’t show up on your desk with a neat little bow on it, conveniently labeled and packaged for consumption.  You have to create it and I think that’s a useful lesson.

Instead of existing in a constant state of “beware”, move into a state of “BE AWARE”.

Back to the point, we are talking with Cheni Yerushalmi from Sunshine Suites in NYC about business, entrepreneurship, recognizing opportunity, and the critical measures that determine success within the business.

I’ll summarize and paraphrase some stuff here to keep the wordcount net-friendly, but feel free to look for some of Cheni’s other recent appearances here, here, here, and here for more great content.

Sunshine Suites NYC with Cheni Yerushalmi

What is Sunshine Suites?

Sunshine Suites is an office community in New York City specifically designed for entrepreneurs to get out of the house and network with other entrepreneurs in a cool environment.  Sunshine has 2 locations and houses roughly 600 businesses and 1400 entrepreneurs at any one time.  Far from being just another co-working site, Sunshine is serious about creating community!  In addition to a place to work they offer mentorship, events, gym memberships, affordable healthcare, and even access to a timeshare in Vermont’s ski country!

The types of businesses incubating within Sunshine runs the gamut, “every company under the sun”, as Cheni and his partner Joe will sometimes say.

What motivated you and your partner, Joseph Raby, to start the Sunshine Suites?

Sunshine Suites was the result of the frustrations experienced, as an entrepreneur, with the lack of both affordable office space and community support available in the city.  It was the realization that “there must be a better way”.

Leveraging each other’s strengths, as all good founding partners do, Cheni and Joe took the initiative to create the tool that they wished they had when starting out.

So, what would you say to people unfamiliar with the NYC start-up scene?

Historically, the NYC start-up environment has been difficult but it’s improving.  During the heady days of the Dot-Com’s there was interest from investors and lots of money flying around, but not much of an infrastructure to support the companies.  Since the bust, it has been a slow process of building that infrastructure and creating an environment better suited for start-ups.

A couple great examples of groups supporting this infrastructure are the New York City Economic Development Corp and the Coalition of Office Space Providers.

The message coming out of New York right now is innovate and build partnerships because right now nothing is being taken for granted.

How do you measure success at Sunshine?

Feedback from the community is most important.  Of course, we keep track of revenue and occupancy rates, but these numbers don’t provide any context that we can act on.  Obtaining real feedback from members through regular surveys provides a more accurate gauge of whether or not Sunshine is living up to customer expectations and provides direction that’s actionable.  Fortunately, entrepreneurs don’t tend to be shy about sharing their opinions so we know exactly where we stand.  It’s particularly important for the ongoing success of the business since 70% of new memberships are created through referrals.

How do you balance the qualitative elements relating to feedback with the quantitative numbers side?

The business model itself isn’t very complicated.  We know the model works and, being a “for profit” business, we need to keep track of the numbers.  But, revenue is not the overriding consideration and the numbers can be misleading.  Our success is more accurately measured by the happiness of our community.  We like to think of this as a place where we help each other to succeed.  For us, it’s better to look at something like, how many companies have we been able to graduate from Sunshine? We also work with entrepreneurs who want to be more active in the management of the programming.  We call these guys “Shiners” and it’s this level of engagement that tells us we’re doing something right.

You mentioned companies “graduating” from Sunshine Suites; is that a formal process?  Is there a ceremony or what?

It’s funny you mention that.  We’re working now to create a more formal process and you should see something in Entrepreneur Magazine about it in the near future.  Entrepreneurs who have “graduated”, our “alumni”, tend to stay active at Sunshine, providing mentoring to other entrepreneurs.  As well, we provide workshops, panel discussions, and bootcamps.

What do you see for Sunshine Suites in the future?

We are looking at expansion.  We would like to expand into other cities, but we want to be careful.  Every city is different.  They each have their own ecosystem and it’s important to know the environment and the people in order to provide something of value.

Distilling the meaning in relation to Indicee

So, how do we relate what Cheni told me to what we are trying to achieve at Indicee?  Simple.  The most important performance indicators for the business DO NOT come from the financial reports.

We all know the requirements for financial reporting.  A full set of financial statements are crucial for dealing with banks, tax authorities, and investors; but it’s like Cheni said, these numbers lack the context that’s needed to guide meaningful actions on the part of managers.

Using Indicee increases the contextual meaning of your numbers and guides action in that way, beyond the financial statements.

Your customer’s happiness is not an Income Statement line item.  The path to knowing your customer comes from looking at operational measures; things like behaviour, feedback, distribution, and consumption.  This requires building the additional dimensions into your reporting structure to capture these things.

Final thoughts and random words to live by

Working within a start-up environment and having worked for start-ups in the past, I fully appreciate and applaud what the Sunshine Suites community is doing.  I would also point to other great examples out there such as TechStars, YCombinator, and our own local BootupLabs and Network Hub doing great work incubating companies and providing mentoring in order to tilt the playing field a bit in favour of innovators and disruptors who will create the next generation of market leaders.  You could even look to mainstream media and programs like Shark Tank in the US and Dragon’s Den in Canada and the UK as a means of educating and illuminating what goes into building companies. You have to look past the TV-silliness, but it’s there.

I encourage anyone who is interested in this stuff to get involved.  Check out a networking event, look for people to follow on twitter, talk to your local politicians and get talking to each other.

During our conversation, Cheni told me about when he and Joe were last in Vancouver.  The two of them flew into YVR with 2 bicycles in boxes, they assembled the bikes in the airport, then rode from Vancouver all the way to Tijuana, Mexico.  He went on to tell me that he never buys a round trip ticket when he’s on vacation.  He buys a one-way ticket in order to stay open to the opportunities that present themselves. I think there’s a great lesson in that philosophy and it exemplifies what being an entrepreneur is all about.

Enjoy.

Related posts:

1. Quarter End Reporting – A Time for Reflection
2. Accounting for I.T. in the Finance Department
3. The Meaningful Scorecard

“Buy the ticket, take the ride” – Hunter S. Thompson

Now, this isn’t a critique of the inevitable conflicts (real and perceived) inherent between these various groups.  Nor is it a post about the differences between Accounting and Marketing.  In order to do that, I am missing one critical piece.  My good friend Dan’s “Top Ten Differences between Accounting and Marketing List“.  Maybe with your help, readers, we can convince him to give it up.  Add your thoughts in the comments section!

NO.  This post is about posing a simple question:

How are your Year End spreadsheets doing?

Year End is upon us!  Everyone knows, thanks to these accounting blogs:

• Look at Last Year’s File
• Accounting Nation
• Accounting WEB
• CPA Trendlines
• re: The Auditors
• Junior Deputy Accountant (warning: Language)
• and Going Concern

Everyone knows that Audit Professionals have been raked over the coals of more stringent regulation and oversight the past few years (for all the good it’s done!).  And, if my experience is at all representative of our collective experience on the industry side, the auditors have been passing all of that regulation onto you!

Preferred method of passing = The Paddle

The paddle will be heading your way again soon enough.  Time to rollover all those Year End files and clean up for prepping 2009’s close.  The rigors of financial reporting compliance are staring us right in the face once again.  Oh, and Merry Christmas by the way.

Of course, I think that if the past 2 year’s have taught us anything, it’s that regulation is ineffective in preventing fraud.  I would like to know where Frank Abagnale jr. stands on this issue.  Abagnale is the character upon which the movie Catch Me If You Can is based and for the past 35 years he’s been helping the FBI, businesses, and government cope with matters of fraudulent activity.  I highly recommend his book, Art of The Steal, for anyone interested in learning more about specific industry-related fraud risk.

Ultimately, prevention is the key; and if that’s true, historical financial reports will never fulfill that role.  I realize that doesn’t mean we shouldn’t try, but my view is that (anecdotally) auditors are getting hung up on details that bear little or no relation to the real risks.  Reason has been traded for checklists.

Be that as it may, you guys are still going to be toiling over this stuff, at their mercy, in the very near future.  At the same time, you will be expected by your management team to provide ACTUAL insight into the ACTUAL operations of your ACTUAL business.

Operations.  This is where the rubber meets the road.  Here is where you can’t “juke the stats“.  Yet, due to the pressures around the financial reports (case in point above), our operations reports are given second billing (if that – after payroll, A/R and collections, admin, etc).  To give you an idea of how much they are marginalized, there isn’t even a Wikipedia entry for Operations Reports!

I don’t see the issue with the auditors changing or going away anytime soon.  For me, there’s no reason to be optimistic or to engender optimism in you regarding that!  This is the system we live with for the moment.

Operations Reporting has to find a way to fit within the time constraints given these other pressures.  Either it fits in by 1) doing less or 2) doing more in less time.  How would you prefer to deal with your Operations Reports?

Do you have questions about the difference between Financial Reports and Operations Reports?  What are your views with respect to how this all fits together?  Let us know in the comments (and don’t worry, no salesperson will visit you).

When you talk about the true viability of the business, what does it really mean?

Closing links:

• Here’s a great segment talking about why we should question Ratings Agencies
• Embedded copy of IDCs Predictions for 2010

Enjoy!

Top 10 IT Predictions for 2010

Related posts:

1. Business Reporting ≠ Dishwasher Job
2. The Roots of Business Reporting Technology
3. The Importance of Stories

The Art of War, Chapter 2: Waging War

“Sun Tzu said: In general, the strategy for employing the military is this”:

If there are 1,000 4-Horse Attack Chariots, 1,000 Leather-armoured Support Chariots,
100,000 Mailed Troops, and Provisions are transported 1,000 li, then the domestic and external campaign expenses, the expenditures for advisors and guests, materials such as glue and lacquer, and providing chariots and armour will be 1,000 pieces of gold per day.

Only then can an army of 100,000 be mobilized.” *

* Sawyer’s translation

As an accountant who has worked in a bunch of technology start-ups; when I read this, the first thing I do is try to extrapolate Sun Tzu’s Quarterly Burn Rate.  It’s a bit tougher to try and calculate Cash Zero date seeing as, if the campaign is successful, you will have gained “the masses of All Under Heaven” – AKA “priceless”.

After spending a fair bit of time getting to know Indicee lately, the next thing that naturally came to mind was whether Sun Tzu’s Accounting system ties to his ERP system.  If he has Pieces of Gold in one system and Numbers of Men in another, he could be spending a ton of time cutting and pasting reports in Excel to get his Departmental Salary Breakdown by Headcount!

As a lark, I hacked together some Data to represent Pieces of Gold on one report and Numbers of Men on another report based on Sun Tzu’s numbers.  Pretending these were generated from different systems, I uploaded them to Indicee to see if I could combine the 2 reports into a single report.

Dating back to roughly 500BC, The Art of War is widely acknowledged as the greatest book of strategy ever written.  It pre-dates paper – the original would have been painted onto slats of bamboo.  It is also widely acknowledged that concepts from the book have applications far beyond the realm of warfare.  Personally, I think The Art of War is more useful than a library full of Psychology textbooks for understanding human behaviour.  Not in the Gordon Gekko kind of way.  Who can forget Michael Douglas in Wall Street?  Or for the real cinemaphile, Vin Diesel and Giovanni Ribisi parroting Wall Street in a sleeper flick called Boiler Room?

That said, the pop culture stuff really doesn’t do it justice.

I like the little snippet above.  Not only is it a slice of life from the Spring and Autumn Period of Chinese history – a period of time between roughly 722BC and 481BC.  It exemplifies that real expenditures are required to create gains.  1,000 pieces of gold a day.

Sun Tzu’s budget didn’t exactly break out all the costs for me in detail though.  In order to actually look at this in Indicee, I needed to figure out the cost on a line item basis.  I had to get creative.

So, I went to the most warlike company around, KKR (Kohlberg, Kravis, and Roberts). Sure, some of you may argue that Goldman Sachs is the more warlike.  But to me, KKR cemented their status back in 1988 with the LBO (Leveraged Buyout) of RJR Nabisco.  A transaction that was later immortalized in the film, Barbarians at the Gate, with James Garner and a cast of other hooligans that you are sure to recognize.  Back when $20 billion meant something!

I looked for a Profit & Loss (P&L) statement and anything I could find about employment by department for KKR.  I wanted to find comparables.  I couldn’t find much.  KKR was a private company up until a couple years ago. They went public just before the “unpleasantness” so I went looking for their public reports.  I found precious little detail there either.  Another similarity perhaps?

I had little to go on.  So, I used KKR’s relative split between Investment Expenses and Administrative & General Expenses to get the ball rolling.  I categorized all of Sun Tzu’s expenses as one or the other.  Then, I started taking guesses as to how the Expense statement might hash out.

With the 100,000 men, I created some departments and allocated guys keeping in mind KKR had 2 founders employed and 12 general partners (I believe) back in 1988. I employed copious amounts of artistic license in coming up with the following breakdown.

This is still Sun Tzu’s time though.  It’s 500BC.  Not surprisingly, the system didn’t recognize this date.  So instead I used a rough guess of the traditional Chinese calendar year, being approximately 2196.

Here’s a flyer: 2196 will be a leap year!

What was the end result?
After uploading all this stuff, I found the Quarterly Cash Burn for Sun Tzu’s operation was:

If I had to compile this information on a quarterly basis for a real business, I would just create this report once and then upload new data to Indicee as required.

The point of it all

Going back to my original thoughts, what if Sun Tzu’s Accounting System and ERP System didn’t talk to each other?  In this case, I would use Indicee to combine the data from the 2 reports to come up with something like this:

Now that I’ve set up this as a question, I will be able to add new data as it becomes available and Indicee will add-on to the existing stuff.

Sun Tzu never had it so good.

– Remember, next Tuesday we will be posting Part 2 of Interdepartmental Language Barriers Post—

Have a great weekend!

Related posts:

1. The Meaningful Scorecard
2. Quarter End Reporting – A Time for Reflection
3. Strategic CFO: Get in the Game

“Hard work is a prison sentence only if it does not have meaning”
- Malcolm Gladwell, author of Outliers

“Finding the one or two key numbers that drives success in your business, and bringing them to everyone is very powerful in a business”
– Joe Knight, co-author of Financial Intelligence

The inspiration for this post was a management improvement video (13 minutes) posted on You Tube by http://www.harvardbusiness.org of an interview with Joe Knight, co-author of the book series “Financial Intelligence”, Business Owner, and Harvard Business.org blogger.  The central message of the interview was that everyone in an organization benefits from understanding the numbers by which success is measured within a business.  The trick is finding the right numbers.  Particularly in today’s climate hearing about transparency is nothing new, but what doesn’t get as much play is this idea of narrowing the focus on measures of performance.

With respect to the numbers: Thanks to technology, we now have ALL the numbers available ALL the time. Reports have become super-robust because they can.  Although there’s an argument for providing surplus information and letting the end user choose which parts to digest, there is also a great danger.  Knight argues that providing less information to end users can actually produce better business intelligence.  The process of asking the questions and finding the underlying systems within an operating group can enable a more focused, effective approach to providing reports. First, understand the work flow and underlying system of work for operations groups; then, develop measures around them.  It’s easy to say, but when was the last time these conversations have taken place in your business?

“Business is like a game, and if you don’t understand the finances, you’re basically playing a game where you don’t know score”
- Joe Knight

According to Knight the emphasis should be, and this is where the interview really resonates with me, on providing a small number of operational metrics in a simple way and providing them to everyone.  He rightly points out that the people receiving this information probably don’t want to be accountants, and have little or no interest in double-entry accounting “no matter how exciting it may appear to be”.  For Accounting and Finance guys like us, it then becomes an exercise of translating Business Intelligence into Practical Intelligence in the reports we create to achieve an optimal value.  It would be like one of us attending an advanced physics lesson.  We would get way more out of it if someone simply dropped an apple on our heads.  Sometimes less is more.

The implied point here is that results are distributed throughout the business, not just to top managers.  Doing so, creates what Knight dubs “psychic ownership” so that even though employees may not BE owners of the business they start to ACT like owners.  This occurs when an employee can make the connection between his/her own actions and the financial result.  That is why the choice of what gets communicated is so crucial.  Finding one or two key drivers to the business that correlate with the financial results will accomplish this task.  Malcolm Gladwell, (author, and columnist for The New Yorker), makes a similar point, in his best selling book Outliers, about the importance of being able to see the link between effort and reward.  Gladwell contends there are 3 important qualities that define “meaningful work”, 1) autonomy, 2) complexity, and 3) a connection between effort and reward.  FYI, Outliers provides some interesting views through a number of entertaining anecdotes ranging from Bill Gates’ early days to The Beatles.

The book is about elements that contribute to the conditions for success.  The effort-reward piece is illustrated using The Garment Industry of 1890s NYC.  This turns out to be the roots of several top litigation firms in New York.  The moral of the story is that being able to see the connection between effort and reward creates a positive feedback loop.  Hard work becomes meaningful work.  I highly recommend it.

Ultimately, the “score” of the business is represented by the Financial Reports, right?  As accounting professionals, we know the complex process whereby these reports are created. As well, there are the intricacies and nuances associated with the interpretation of these reports.  We have the proper training to derive meaning from them.

Based on my experience, most of us are keen to share any and all of this information (confidentiality permitting) with colleagues.  In the video, Knight argues that we may be guilty of over-sharing; providing far too many KPIs.  If “KPI” is being used to describe every line item in the P&L, you’ve got a problem. The Law of Unintended Consequences kicks in, inadvertently confusing people.

There have been several studies recently on the behaviour of shoppers that would appear to bolster this line of thinking.  Shoppers who are given an abundant choice of product buy less than those given just one or two choices.  If we view the recipients of our internal management reports as “shoppers” and the reports we create as our “product” in conjunction with this behavioural insight that Knight suggests, we can create more effective reports.  At which point, as Gladwell illustrates, we will be able to show the link between effort and reward.

The result is the Meaningful Scorecard; communicating the numbers to people in “a way that gets at what’s important” and “how it affects them”.

So, the question is, what actions and activities correlate with success in your business?

Related posts:

1. RELEVANCE
2. Running the gauntlet of Year End Business Reporting
3. Improving Your Month-end Throughput