What’s the biggest difference I see between a $1 million technology company and a $10 million technology company?  You might think it’s something like the quality of their products or the size of their management team, but it’s not.

The key difference is that the $10 million company is completely committed to being known as being the best at something important in their market.

Yes, you actually have to deliver on your promise of being the best, but that’s not enough to grow past the wall most tech startups hit at about $2 million in revenues.

In the early days, the CEO and the executive team can sell all the customers personally. The sales relationship and trust developed by the founders are required to sell the first customers and create revenue as startup. But at some point as you grow, the CEO can’t be involved in the sales relationship with new customers.

Frontline CEO selling is important, but it doesn’t scale.

As you grow, the next customer won’t be buying from the trusted CEO – they are buying the best known solution available in the market.

Being known as the leader of your category is the only way to grow big.

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Where do CEOs of small service companies struggle most when trying to create a “scalable” service business that can grow to be a large company?

They underestimate the amount of refinement and development of their service offerings, marketing execution, internal processes and company culture. By a factor of 10. At least.

I have worked with dozens of successful CEOs of project-based service businesses on their new scalable business enterprises. All but one of these leaders drastically underestimated what it takes to create a growing business that doesn’t rely on the principal’s involvement to attract and serve new customers.

• What it takes to make a great customer experience happen every time — without the founder in the room
• What it takes to have their story sell in Peoria without a face to face meeting with the owner
• What it takes to build a brand that people know about and trust
• What it takes to grow steadily and predictably

Think about the services we buy from national brands — like coffee from Starbucks, car service from Sears, our gym membership, online travel booking, buying books from Amazon. All of these used to be local services, but now they are large services businesses that (on the whole) work way better than our local providers.

When McDonald’s was getting started, there is no question that the founder, Ray Kroc, put at least 10x more effort into product definition, marketing execution, internal processes and company culture than the local hamburger shop. Truth is, Ray Kroc put at least 100x more energy into the things that would scale his business to change the world. He was a fanatic. And he created one of the world’s largest companies.

Amazon puts at least 100 times more energy into their customer experience and marketing than your local bookstore does. Think Geek Squad compared to your great local computer handyman. It’s a completely different game when the owner isn’t the frontline salesperson to their customers and is no longer the chief service provider.

Is it a simple incremental step for an expert consultant to write a book, build a national brand and create a growing training business? Nope. It takes 100 times more refinement and energy to build all that — compared to the effort of their next client engagement.

CEOs creating scalable service business need to think more like they are creating a consumer product business than running their old project-based custom service business. Like creating a software product or a national retail chain or a writing a book.

Make great pies on holidays that your family raves about?  Building a national pie business brand takes a lot more effort and energy.

Is 10 times the effort enough? 15.5 times? 55 times? 100 times?  There is no minimum number. Sorry.

You simply need to be an unstoppable fanatic about your customer experience, your processes, your company culture, your sales pitch. Steve Jobs? Fanatic. Debbi Fields of Mrs. Fields Cookies? Fanatic. Amazon website designers? Fanatics.

If you aren’t making people crazy about attention to detail and fanatical refinement of the things that scale your business, you probably aren’t doing enough to achieve the success you dream about.

Are you the chief fanatic?

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In the last two years, there have been a growing number of new organizations and events that provide education, ideas and connections to Phoenix entrepreneurs. If you haven’t visited these groups lately, you’ll be surprised how many local leaders, nationally-known experts and talented specialists show up to these events to network and share ideas.

Whether you are a seasoned technology leader or a startup newbie, there are a variety of well-run groups that have plenty to offer. Here’s a list of the best local organizations and events that support Phoenix tech entrepreneurs.

TiE Arizona

TiE Arizona is the local chapter of TiE, the largest global association of technology entrepreneurs. Useful monthly meetings with networking and interactive sessions on venture funding, growth issues and CEO success stories. Local TiE Charter members  (experienced, successful leaders) also help with mentoring and connections for budding entrepreneurs. www.az.tie.org

AZ Tech Council

The Arizona Technology Council is Arizona’s largest technology trade association that connects local technology executives, provides monthly educational forums and represents Arizona tech companies in public policy initiatives. www.aztechcouncil.org

MIT Enterprise Forum

The MIT Enterprise Forum Phoenix is a chapter within MIT Enterprise Forum, a global organization that promotes entrepreneurial networking, inspiration and education. They bring local, national and even global leaders together throughout the year to discuss real issues and hear success stories. www.mitefphoenix.org

Arizona International Growth Group (AZIGG)

AZIGG hosts monthly events with local experts who provide information and resources to Arizona-based business owners as they look to grow internationally.  These are effective discussions that appeal to local leaders in medium or large companies in many industries.  www.azigg.com

Invest Southwest

Invest Southwest is a popular annual capital conference in Scottsdale that connects local Arizona ventures with knowledgeable angel and VC investors. The annual event each December features investor presentations by 8-10 entrepreneurs, networking, and nationally-known keynote speakers. www.investsouthwest.org

AZ Entrepreneurship Conference

The AZ Entrepreneurship Conference is an annual event for the Phoenix entrepreneurial community, hosted by Valley startup maven Francine Hardaway. The full-day event is held every November and includes nationally known speakers and local expert panelists. Great networking, too. www.azentrepreneurship.com

Gangplank

For the younger, web-savvy tech entrepreneur, Gangplank in Chandler is a great place to get work done, network with other startup junkies, learn from tech and social media experts, and get connected to people who can help market or build out your idea. www.gangplankhq.com

FastTrack

FastTrack is a practical education program that provides existing and aspiring entrepreneurs with the knowledge and skills they need to grow their businesses. Delivered by experienced entrepreneurs, FastTrack is sponsored by the Ewing Marion Kauffman Foundation supporting business enterprise. www.fasttrac.org

Enterprise Network

Local business executive networking group that meets monthly to hear from speakers on funding, growth and other business issues. www.enterprisenetworkaz.ning.com

ASU Technopolis

ASU Technopolis offers several intensive entrepreneurship programs including one-one coaching, an eight week “Launch Pad” course, workshops, and mentoring programs. The program operates within the Office of the Vice President for Research and Economic Affairs at Arizona State University. www.asutechnopolis.org

Women in Technology International (WITI)

Phoenix WITI is the local chapter of the global WITI networking and career advancement group for women in leadership roles in science and technology businesses. Local events cover career development, networking and technical topics. www.witi.com/phoenix

Association for Corporate Growth (ACG)

ACG is global association for the professional financial community. Monthly meetings and events include topics on corporate growth, corporate development, and mergers and acquisitions. www.chapters.acg.org/arizona

Score

The Phoenix chapter of SCORE is a group of experienced businesspeople who advise small business owners on all aspects of running and growing a small business. SCORE counselors volunteer their experience and knowledge to help small business owners in a variety of industries. www.scorephoenix.org

Vistage

For CEOs, owners and C-level executives, Vistage (formerly called “TEC”) is a peer group and coaching organization that allows leaders to share and learn from other entrepreneurs in a confidential group setting an and experienced facilitator.  www.vistage.com

Angel Investor Groups in Arizona

There are several angel investor groups that hold regular meetings to hear pitches from selected Arizona entrepreneurs, including ATIF and Arizona Angels. Learn more here.

Ironically, I believe the recent growth in events and organizations is fueled by the explosion of social media conversations and information on the Web. At some point, people just need to have face to face conversations and hear the stories firsthand.

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The other day I met with two CEOs whom I know, each leaders of emerging technology companies. They are both exciting entrepreneurs, but they each had different stories to tell about their businesses.

One company was growing profitably, even against the headwinds of the economy; the other was struggling, despite extensive sales and marketing activity.

Why the difference? The growing company has a narrow focus.

The successful company has figured out their strategic focus and is clearly trying to be one thing for one customer segment, after many years of trying to be all things to all customers in their changing market. They have already made the hard choices and are laser focused on telling one compelling story to their narrow target market. This CEO can explain their strategy clearly in one sentence. Now they are growing again.

The floundering company is still trying to create various products for multiple customer groups – and not winning in any segment. This little company has separate solutions for business professionals, small businesses and very large businesses. They spend a lot of time and money to reach these different customers because their story isn’t clear and they have to promote in different ways for each market. This CEO can’t clearly explain why his product is different than the competition and what their mission is as a company. Their employees are confused and their investors are frustrated.

Why doesn’t the struggling company simply redefine its strategy to focus on the battles which they can win?

It’s because they don’t want to give up any potential business that they might sell now or hope to sell in the future.

Of course, it’s hard to decide to narrow your focus as a company: hard on the ego, hard on short-term sales, hard on the customers you leave behind. But it quickly makes your business easier to run: easier to communicate to the market, easier to execute, easier to please your customers, and easier to grow in the long run.

“Narrow your focus to create growth” seems unintuitive to aggressive, sales-oriented entrepreneurs. But for small, cash-starved companies, you don’t really have a choice – you have to focus on only fighting the battles you can win.

“Man who chases two rabbits catches none.” (Confucius)

Are you chasing multiple rabbits in your business?

———

Want an example of lack of focus?  See what happened when Dell chased too many rabbits.

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It wasn’t on the 10:00 TV news, but the most important news last week came from India, where national elections resulted in a strong win for the Congress Party and the prime minister-elect Manmohan Singh. Over 417 million people voted during the six week election period.

The world’s second most populous country – and largest democracy – strongly supported a party that promotes economic liberalization, political stability and sensible foreign policy. The effects of this election will be felt across the world throughout this century.

Starting in 1991, Mr. Singh was the Finance Minister who pushed through economic reforms that enabled India’s economy to grow more rapidly and to create a more modern financial system. The Indian economy has been growing 8-9% per year since then. On the day the election results were announced last week, the major index of the Indian stock market jumped 17%.

The importance of both India and China in global economics and politics cannot be understated. Small annual increases in consumption and productivity in these countries over the next 25 years will create huge markets for goods and services that will rival the current consumption leader – the U.S.

Nominal GDP of the world’s largest economies in 2007 (millions)

* From Comparison between U.S. states and countries nominal GDP, IMF data on Wikipedia.

Although the GDP of India is currently much smaller than that of the U.S., China and other countries, the enormous population and an increased growth rate will create a global powerhouse that will rival the top economies. The election of the growth-oriented Congress Party, rather than religious or communist coalitions, means that India is more likely to ascend to a position of global economic power.

Are you ready for a world where India and China have larger economies than the U.S.? It will likely happen in the next 50 years.

Outliers is the latest book from best-selling author Malcolm Gladwell.  He also wrote The Tipping Point, one of my favorite marketing books. Gladwell is an astute social researcher and a master storyteller. His other books and his columns in The New Yorker magazine are always interesting and practical.

In Outliers, Gladwell analyzes the circumstances of unusually successful people and shows another dimension of their “self-made” rise to greatness. He answers questions like these:

• Why most professional hockey players from Canada have birthdays in January, February or March
• Why success is not always related to intelligence above IQ’s of 120 and higher
• Why Bill Gates, Steve Jobs and many of the magnates of the technology industry were born in 1954 or 1955
• How elite athletes, programmers and musicians often share a common trait – they all had the opportunity and persistence to put in at least 10,000 hours honing their craft

The answer, of course, is that success in any field is not just a matter of talent. Talent is important, but so is our parents’ social status, our timing in demographic and economic trends, and simply the amount of effort we put into the task. Someone with superior talent could be born at the wrong time or place and miss achieving prominence.

Why are Asians better at math than others? Gladwell shows how hard work and persistence are the key drivers to developing math skills — not genetics, social status or cultural background. The Asian work ethic is the main difference. The Japanese school year is 240 days long on average; it’s 180 days in the U.S. The difference in math scores fades when U.S. students put in the same level of effort.

I don’t think this is Gladwell’s best book, but his research and anecdotal vignettes certainly make you think about his thesis — that success depends on combination of factors. Success is truly when talent and hard work meet opportunity.

In my own case, I have had a relatively successful career in the PC software industry for the last 20 years. Was it my innate talent or my “ideal personality” for the industry? Well, maybe a little of that, but I can’t discount the fact that I started my career at the exact time when the software industry was just awakening for a 15-year run of incredible growth. My timing was lucky and I made the most of it. Not so lucky for the business school grad who wants a job in  investment banking in 2009.

The study of the nature of success of individuals isn’t just practical advice for you and me – it’s about our cultures, our economies and our futures. Which trends will help us or hinder us? How successful will our children be in the future?

Gladwell would not discount the personal effort and intelligence it takes to succeed, but he would take into account the sociological and economic changes happending in the world. Macro trends like these will have a major impact on the success of my children, who will be joining the workforce in 10 years:

• Globalization of information, labor markets and finances
• Growing populations and economies of China and India
• More powerful computers, mobile devices and communications technology
• Underperforming educational system in the U.S.
• The overwhelming debt obligation of the U.S. government
• Demographics in the U.S. — aging of the Baby Boomer generation and population shifts
• Health, environment and resource changes
• Changing views of capitalism in the U.S. around risk-taking, investment and regulation

All of these factors create challenges and opportunities for our children. I personally believe it’s going to be harder to succeed for our kids than it was for us. They will be fighting some life-changing trends that are likely to make things harder overall.

In Outliers, Malcolm Gladwell vividly demonstrates that there are no simple answers to our biggest questions. He writes about examples of unusual individual success, but his thesis applies to other complex challenges we face: how we educate our children, how to prevent another  financial crisis, how to lower costs in our health care system or how we successfully market our businesses. These are complex problems that that involve many factors, including a little luck and lots of hard work.

Simplification works for marketers who want to increase the effectiveness of communication, but it’s not so simple when trying to understand how to solve big problems. Einstein said, “Everything should be made as simple as possible, but not simpler.” We run the risk of getting thing very wrong when we oversimplify.

To understand out biggest problems and opportunities, it is never is about just one thing.

——

Summary of Outliers on Wikipedia.

Find Outliers on Amazon.com.  (You really should buy the Tipping Point, his best and most useful book, if you haven’t already.)

Video interview with Malcolm Gladwell that summaries key stories from Outliers.

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Twice a year, the DEMO conference showcases promising new startup technology companies to press luminaries, venture capitalists and industry influencers. Many companies that are now big and well-known were launched at past DEMO events.

I asked someone who was at the conference this week to summarize the  trends and highlight cool companies. Aly Saxe of Ubiquity Public relations is one of the best startup tech PR consultants I know. Ubiquity regularly launches startups at DEMO. Here are her thoughts on the this week’s event:

Update from DEMO 2009 from Aly Saxe
At DEMO 2009, innovation is alive and well, but it’s coming more in a trickle than steady stream. Usually a theme emerges from each DEMO event. Last year, it was “freemium apps,” before that picture sharing technology, before that enterprise security. This year it’s a little cloudier – literally.

The big theme is that all of these new applications designed to make our lives/work easier now live in “the cloud,” not on our desktops. For those who are a little “foggy” on cloud computing, it simply means that the software that resides on a vast server farm somewhere, not on your computer, and is accessed via the Internet.

While this year’s roster of presenting companies feels considerably lighter than previous years (only 39 companies compared to 68 last year), there are still some noteworthy startups to mention. Here are the companies/products I thought were the coolest and have the most potential to be successful:

Always Innovating – This company’s small Touch Book tablet computer lets you email, browse sites, play games, and watch videos from anywhere – just like with your iPhone or netbook (tiny laptop). The cool differences are that the Touch Book is extremely light (less than 2 lbs), the touch screen can be taken off completely, and the technology is based on open source software and hardware. You can even mount it on your refrigerator as a magnet.

Asourion Mobile Address Book – This is a very cool app for iPhone users. You can link contacts in your address book directly to Flickr photo sets, Facebook pages and Twitter feeds of those listed in your contacts. The company will also release an API that allows developers to link additional social networks to the contact lists. See your friends and colleagues social pages instantly, anywhere, anytime, right from your address book.

Skout – The last time I went to a bar and experienced a cheesy pick up, Clinton was president and “ladies night” meant $1 beers. I’m not in their target market, but Skout Out got my attention. They have developed a fun way to use technology to make money off of drunk singles. (There are worse business models.)

Here’s Skout’s self-described product description: “Skout Out is a dating tool that helps singles find and flirt with others in their immediate vicinity. Leveraging LBS and 42″ touch-screen plasma displays, people looking for love only need their fingers to flirt, send virtual gifts and even music to the people that dazzle them. Skout Out currently interacts with hundreds of thousands of Skout users via their iPhones, cell phones and laptops to find love on Skout’s mobile dating service.”

Not surprisingly, VCs say investing is still happening but they’re being more cautious. Also, Chris Shipley, the long time executive director of DEMO, is exiting this year. For those of us who have been attending DEMO for years and gotten to know this incredibly kind, dedicated and insightful person, it’s a sad departure.

The overall tone of DEMO this year is reflective of a lackluster time. Everyone is trying to keep it going – we’re staying optimistic and we’re going for it. But compared to shows in earlier years, DEMO 2009 has the gusto of a light breeze on a mid-July day in Phoenix.

Aly Saxe
Ubiquity Public Relations
aly@ubiquitypublicrelations.com
(602) 268-6849

Every day I hear stories about how the recession and financial crisis are creating havoc in the business world. Uncertainty and fear have taken over. There is constant discussion of layoffs, budget cuts, financing problems, purchase delays and decreased demand. This recession affects every industry and companies of all sizes.

For most entrepreneurs who are just starting during this tough economic environment, it doesn’t feel like the “best time to start a business,” as we always hear during a downturn. However, there are some advantages that small companies can leverage now to stay afloat and build a better foundation for growth.

Here are five advantages for small companies during this recession:

1. It’s easier to be frugal
It doesn’t take as much cash as it did just last year to create and grow a business. Almost everything is cheaper than it was just six months ago: rent, hardware, software, travel, staff, commodities, advertising, services. Prices are coming down and there are more free or cheap services than ever. It’s even cool to be frugal again. There is far less stigma in being  a virtual business that does not have a permanent office or full-time employees.

2. You can attract great people
If you are trying to grow your business and to do great things, you need great people at all levels of your organization. The good news is that it’s a lot easier to attract the best full-time employees and part-time contractors now than during the boom times. Layoffs and business challenges are no longer affecting just the bottom 10% of employees – the best and brightest are looking for opportunities and they are generally happier to work for less salary and equity than a year ago. It’s not much fun to work at many big companies right now, so your cool startup can look relatively promising.

3. Big companies are on defense
The economic challenges are drastically affecting large companies in ways that create opportunities for the little guys. When big companies cut back, they focus on their core businesses and typically delay new and innovative projects which are more risky. Who wants to champion a new and unproven business initiative when your company is struggling and your coworkers are getting laid off? The harder an industry is hit, the fewer things will get done by big companies. Smaller companies can strike now when the big guys can’t fight back.

4. Reaching your customers can be cheaper than ever
One of the biggest challenges in growing a small company is finding and converting new customers. The Web has opened up new ways to reach people and get your message across that don’t require traditional advertising and  promotion expense. If your crowd likes you, they will spread the word for you using very powerful Web-based social media tools like Facebook, Twitter, YouTube, forums, blogs, texting and more. (You do need a remarkably valuable product or service more than ever, so your fans can promote you to their friends.) Although social media marketing does not require advertising expense, it does require significant effort and commitment to foster relationships with your community. Smaller companies with passionate leaders can do this better than the big guys, in most cases.

5. Crisis creates change, change creates opportunity
Entrepreneurs and innovators often underestimate how long it takes for “the market” to actually change and adopt a new product or service, even when the new way is better than the old way. Guy Kawasaki talks about the “10X rule” for new products: your new product has to be at least 10X better than the old product for people to change what they are doing. In times like these, when our biggest institutions, plans and traditions are being challenged, an environment is created where change can happen more quickly. An acceleration in the “change factor” allows new things to move into the mainstream more quickly. That’s great news for startups, bad news for the old guard.

All of these factors are reasons why many great companies are created during downturns. Crisis and dislocation in the economy create opportunities for those who can be frugal, focused, and aggressive.

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Netscape co-founder Marc Andreessen appeared on the Charlie Rose show last week for a great 1-hour interview that should be required viewing for any business leader who wants to see how Silicon Valley innovators think and what major technology trends are important.

He offers his rapid-fire perspective on the major trends and influential companies in technology today. These companies and technologies are changing the way all companies compete and grow: iPhone, Google, mobile phones, e-books, Facebook, Twitter, Intel, Amazon, cloud computing, Microsoft and more.

Watch this show on Google Video.

He is enthusiastic about disruptive technology, of course. He reveals his optimism about the future of innovation which creates exciting new businesses that will fuel our economic future.

Amidst the doom and gloom, “Innovation is not dead.” Viva Silicon Valley!