by Mike Van Horn

“When we launched early in 2001, we thought the economy was at the bottom, so we planned for aggressive growth,” said Chris Reid, partner of Verus Technology Solutions, Inc. “Instead, our market declined another 30%.” 
Verus, a developer of specialized software systems based in Corte Madera, California, has seven employees and has grown to over $1 million in sales during its first eighteen months. The principals, Shawn Westerhoff and Chris Reid, have complementary computer experience, and decided to merge their two consultancies. With the help of angel investors, they launched the combined operation. 
Their systems side focuses on network design and maintenance, security, and server-based projects; the other side on developing custom software, designing advanced databases, and integrating handheld devices with these. 
Their clients are companies with twenty-five to a hundred desktops that want to use these technologies to increase their productivity without having to hire more people.
Even in the best of times, many start-up entrepreneurs fail to make the transition to running a self-sustaining, viable company. Verus has faced challenges familiar to many:

Over-reliance on a few large customers
Time and materials mentality
Doing too much themselves
Losing sight of their plan

As they near the end of their second year, Chris and Shawn have made major progress on these, and Verus is now self-sustaining. How did they make this transition, and what are the lessons for others?

Drawing on the power of a group of peers
Shawn and Chris emphasize that one key to this transition has been participating in a peer advisory group—ten business owners that meet half a day each month under the guidance of a trained leader. 
Chris and Shawn had a formal group of advisors from the beginning, including their financiers. These people were both supportive and hard-headed. “They’ve been invaluable in showing us where our weaknesses are and helping us make tough personnel decisions,” Chris pointed out. “However, we haven’t met with them on a regular schedule—maybe every six months.” Shawn added, “We always prepare financials, marketing reports, and other materials for these events, and reviewed our progress with them. But we weren’t staying disciplined between the meetings.”
They face a familiar start-up entrepreneur’s trap: Things change very rapidly, and original assumptions need to be reviewed regularly. But they tend to keep an extreme focus on day-to-day operations, on getting the work out, thus risking getting seriously off course. So the discipline of a monthly meeting has proved invaluable. 
“Our monthly peer advisory meetings are like our ‘management executive committee’ in contrast to our formal board meetings,” says Shawn. “Monthly meetings force us to stay much closer to the real operational data and to continually scout the market.”
Staying accountable to their goals
Before launch, Verus went through a rigorous planning exercise, projecting revenue and growth, and laying out assumptions and strategies. Then, like many entrepreneurs, they didn’t keep updating their plan. Furthermore, a plan developed to raise capital is often a poor guide to day-to-day operations. 
If a business plan isn’t dog-eared and coffee-stained and scribbled on, it obviously isn’t a living document. We helped Verus create an Action Plan that focused not just on their vision and long-term goals and strategies, but on the everyday action items needed to accomplish them. Their concentration should be on marketing and selling, getting the work out, hiring and training, changing their management practices. 
Many entrepreneurs shun planning; feeling that conditions will change before the ink is dry. Our philosophy of planning has three tenets: 
• Plan for what you can, and then plan how you will cope with the things you can’t plan for. 
• Don’t carve your plan in stone; update it as often as necessary to keep pace with changing circumstances.
• Stay accountable to your goals to independent advisors. 

Chris and Shawn made their Action Plan presentation to their advisor’s group. They told what their toughest challenges would be, and how they would measure progress throughout the year. Since then, they update their advisors on the key performance measures at each monthly meeting.
This regimen is causing a major shift in their management style. They have to stay on top of the data in order to make monthly reports. “We’re computer guys. Watching marketing status and cash flow reports hasn’t come naturally.” Emerging problems become apparent during their monthly reports. With the group’s help, they think things through to completion, and leave with a solution they can implement right away. 

Maximizing the return on their creativity
“With our consulting background, we were mired in time-and-materials mentality,” said Shawn. “We priced all our jobs on how long they would take. It was tough for us to get beyond this perspective.” A pricing question they brought to their advisory group forced them to re-think this basic assumption. They asked the group how to price a service that included a software component they had previously developed. But all the responses from the group forced them away from their cost- and time-based outlook.
 “How much would your competitors charge for the same product?” they were asked. Much more, it turned out. Two or three times more than Verus would charge! The entire round-table, almost in unison, asserted, “You need to change the way you price!” 
“The timing was perfect,” said Chris, “since we were making a presentation on this project that afternoon. We redid our proposal based on the group’s input, and the customer completely accepted it.”

This discussion of a single situation prompted Verus to make major strategic shifts:
• From Selling Time to Selling Value. What was the value of their package to their customer? What problem does this solve for the customer? What does it cost them not to have this capability? How much would the customer have to pay a competitor for a comparable product? Their answers to these questions led them to a much higher price. 
• From developing unique applications for each project, to adapting these unique products for multiple clients, to marketing a commericialized product on a broad scale. While they don’t want to become purely a product company, they see this strategy of leverage as a key to their continued growth and profitability. 

“This discussion has challenged us to rethink what business we want to be in,” Chris sums up, “from just selling our time to selling products with ongoing service built in.” This allows Verus to get the most from the synergy of their two services: Some customers start by buying their products, and then need customization, training, support, and upgrades. Others start by buying consulting, and then see the value of installing the product.

Building a diverse customer base
They had each brought a few major clients with them, so initially Verus relied on a few large ongoing projects. But soon customers were cutting back or paying slow. Proposals that had been automatic sales were increasingly contested by competitors. 
To compensate, the Verus crew focused on maximizing billable hours, by working more and more. But of course the longer the hours they worked, the less time they had for developing new business.
A marketing model we use is called “Boulders, Rocks, and Pebbles.” These refer to different types of customers. 
• “Boulders” are large customers that can dominate your schedule. It’s wonderful when they are continually buying from you, but if they cut back or change vendors it is devastating to you. 
• “Pebbles” are very small clients; the cost of getting the job and administrating the project may be greater than the profit margin. 
• “Rocks” are the solid, mid-range customers or projects. Solidly profitable, yet no single project dominates your work. 

Verus had boulders and pebbles. Their “boulders” were purchasing less and the “pebbles” weren’t filling the void. But these were the ones Verus was accustomed to working with, and with whom they were comfortable. 
We worked with Verus to redefine who their “solid rock” customers were. What industries? Where are they located? How to reach them? What problems do they face that Verus is uniquely situated to handle for them? What size and kinds of projects? How many of these customers does Verus need in a year? What is the best type of marketing to bring in this number?
Their answers to these questions have formed the basis of a much more realistic and concrete marketing plan. 

Adopting an executive mentality
The mark of a strong executive is the ability to assemble a top-flight team and create the environment so they can do an excellent job, and then let them do the jobs they were hired for. Chris and Shawn, like many start-up entrepreneurs, were used to doing it all—despite having a committed team of employees. They brought in the work, took the lead on the projects, and ran the company. They made a couple of poor hiring decisions that cost them dearly, not only in money but also in lost opportunity. As Verus grew, they were outgrowing their management infrastructure. Too much was falling on their shoulders. They compensated for this by working all the harder. Nose to the grindstone! Maximize billable hours! But who was running the store? 
We are working with Shawn and Chris to “promote themselves to CEO,” which means they have to behave like executives. We use a model showing the Ladder of Executive Capabilities:
• On the bottom rung you are a worker in the trenches. 
• One rung up you are supervising and managing others. 
• On the third rung you become an executive, responsible for guiding the company, achieving its vision, using its resources effectively.
 
In Verus, like most other new companies, Chris and Shawn operated daily on