I read Growing a Business last week, a book by Paul Hawken of Smith & Hawken. The book is pretty old, from 1988, so there is no mention of the Internet, little about software, and nothing at all about startups. In fact, I was struck when the author mentioned the computer for the company. Not a, but the.

Even so, the book is a must-read for anyone who actually wants to build a business that makes money, contributes to society, and does something useful. Hawken doesn’t go into a ton of specifics about finding an idea or market, but he says a few things I’ll keep in mind going forward:

Address problems that money alone cannot solve.

If you’re chasing after an idea that could be solved by an estabished company throwing some dollars and people at it, that’s likely a bad sign. (Whether they do it, can focus on it, etc., is a different consideration.) If you hear about people paying consultants or contractors to do something and it still sucks, there just may be an opportunity there.

Money goes where it causes the least embarrassment.

This one relates to the whole “no one ever got fired for picking IBM” thought process. It’s true, both when it comes to internal spending and when it involves VC funding. Why does it seem like funding cycles come in waves? Why did a bunch of social networks get funded all at the same time, but then it took a few years and a risk for the new wave (led by Facebook) to get additional funding)? Why do some entrepreneurs repeatedly get funding when they have no past success while new guys find it impossible to even get in the door?

Focus on a niche instead of developing a new market.

Hawken discusses how hard it is to create a whole new market, one that people don’t realize is needed or one where the benefits are not apparent until you try it. Instead, he suggests focusing on a niche. If it buys in, you can explore and grow from there.

Also discussed are building a good culture, focusing on customers, funding, and lots of other great insights. The lack of technology talk produces a list of business lessons and people skills necessary for those who want to create a business instead of just raising funding or boosting egos.

I finished Guy Kawasaki’s book Rules for Revolutionaries yesterday, and there is one chapter in the book I wanted to highlight because it summarizes some common mistakes when building a business.

Kawasaki calls these mistakes death magnets, the “traditional habits and patterns of thinking that seduce companies”. Here are his top ten:

1. picking low-hanging fruit – make sure your initial market focus fits not those most rabid for your product (the early adopters who will nitpick), but those who are strategically viable.
2. just sucking less – don’t be happy with just sucking less than your competitors, because you will remain open to a new market entrant.
3. overemphasizing budget – remember to take opportunities when they come even if it costs more than you wish.
4. overemphasizing consistency – don’t fall into cycles and patterns just because that’s they way it has been before.
5. attacking too many markets at once – this one is so awesome it gets a quote: “You have to pay your dues by knocking down barriers and dominating niche markets one at a time.”
6. diluting your brand – don’t waste any brand recognition by going in an odd direction.
7. outsourcing – don’t outsource core competencies.
8. mimicking the big guys – don’t copy processes and activities just because a big competitor does it.
9. lowering prices – gaining market share, killing competitors, increasing profits on volume… none of these are a guarantee.
10. assuming that “best product wins” – one of the greatest business lessons ever

The book was written in 1999, so it’s great to see how applicable these points are today. I wonder what Guy Kawasaki would say now about #9. The freemium model emphasizes the 0 price point as a way to gain market share (and mind share).