Tag Archives: planning

Refuse to Lose (Investors’ Money)

Clarence Wooten, who sold his start-up Image Cafe to Verisign 7 months after founding for $23 million, told an audience at MIT/Sloan recently that there are keys to the entrepreneurial mindset. Barb Darrow with GigaOm summarized his comments into 12 lessons:

  1. Paycheck is an addiction. Not unlike crack cocaine. Entrepreneurs have to break that addiction to build an asset that will pay off long-term, not in a weekly paycheck.
  2. Beware of naysayers. Because 99 percent of this country works for the 1 percent, they  have risk-averse employee mentalities. Don’t listen to them.
  3. Just do it. Be like Nike. There is no roadmap. If you don’t do it, it won’t get done. Work lean. Corporate people are used to resources — HR departments, assistants but entrepreneurs do it on their own.
  4. Fail fast, fail cheap. You will fail a lot because you’ll need to try a lot things. So do that on the cheap. Instagram’s first product  – Brbn — failed but they distilled that app to its bare essence and it caught fire.
  5. Partner pitfalls. It’s scary to be out there alone. You want someone to share the ups and downs. Often one partner will work harder than the other but share the same upside. Share the downside as well and don’t necessarily split equity equally. Set up reverse vesting:  When you issue founder’s stock, make sure it vests in case someone leaves they don’t leave with all equity just with what has vested.
  6. Be naïve. Unlearn what you learned in corporate America about hierarchy. Being naive means being ballsy. Facebook turned down a $1 billion offer from Google and people thought Zuckerberg was crazy. He wasn’t but he may have been naive. That paid off pretty well.
  7. Business is a team sport. Would you rather own 100 percent of a $1 million-a-year business or 20 percent of a $100 million-a-year business? Everyone needs equity. You need as much brainpower as possible.
  8. Challenge your comfort zone. I knew I had to put myself out there speaking in public. I wasn’t comfortable with it but I did it.
  9. Image matters. People judge you when you talk about your company and you have one chance to make a first impression. If you’re not a design person, don’t do your own logo. Crowdsource if you need to.
  10. Shadow of a leader. You determine what your company culture looks like. Build it as a place you want to work every day. People watch you. At Image Cafe, I brought in a CEO who was religious. I wanted to act like a customer to get competitors’ pricing and she said “absolutely not.” She set the ethical tone.
  11. Investors want their money back. This is important. Investors back you. Your integrity is on the line. So know your exit strategy. I’ve never lost an investor’s money and I carry that chip with me every day.
  12. Cash and customers. Lessons 1 through 11 you can learn on your own but for #12 it helps if you have some education and understanding finance and marketing.

Wooten feels that entrepreneurship is a combination of talent, preparation and hard work. Following the 12 guidelines above will give you as an entrepreneur a chance to be more successful.

Secret Judo Guides Start-Up Success

What do you know about martial arts? Here’s a few things I found through a combination of sources:

  • Karate – is a series of punches, blocks and kicks that focuses on strength and offensive techniques; a primary theme is to either put or catch the opponent off guard and then attack.
  • Tae Kwan Do – incorporates many aspects of karate, but with more emphasis on the use of feet and spinning/flying kicks.
  • Jujitsu – uses strikes, kicks, strangles, locks and takedowns to disarm the competition, still aimed at offensive techniques for the most part.
  • Judo – uses throws and its intent is to avoid an opponent’s strength while redirecting its power to one’s benefit.

Tom Tunguz (whom I have quoted before), in his blog Ex Post Facto, encourages entrepreneurs to recognize the highlights of  judo philosophy  in never trying to fight strength with strength, and to find ways to maximize leverage. Tom also references Peter Thiel (from a series of lectures given at Stanford Graduate School of Business) who describes the use of a “secret” to secure a unique niche within your target market. The “secret,” though is not as one would think, but instead “something just not widely believed to be achievable or feasible. In other words, it’s an insight, a thesis that isn’t widely held.” The Secret becomes the “flywheel” of Jim Collins’ strategy – a series of well-executed small decisions that others find it near impossible to duplicate. For many entrepreneurs, the choice of distribution channels is a ripe field for building out one’s “secret.”

Tunguz writes of distribution:

Many companies are now using distribution as their secret – mobile app stores and Facebook Open Graph enable startups to access hundreds of millions of users in ways that incumbents simply aren’t prepared to leverage. Expensify uses mobile app stores to acquire hundreds of thousands of SMBs in ways that their market’s incumbent, Concur (market cap $3B), simply can’t copy. Branchout is building a massive job network on top of Facebook to compete with LinkedIn. If LinkedIn were to copy Branchout, they would marginalize the value of their existing network because LinkedIn would cede their graph to Facebook – an example of the classic “innovator’s dilemma.”

In order to remain relevant, (solve the innovator’s dilemma), entrepreneurs must find a way to continue to grow new ideas within their organizations, less their businesses become to mainstream and lose their uniqueness. This is where/how moving to principles-based strategy trumps reliance on a skilled technician and his or her own suite of strengths and abilities. Continue to recognize what strengths competitors have, then find a way to use those strengths against the competition and towards one’s own competitive advantage!

How Raleigh Can Learn From Chile

In the May issue of Entrepreneur Country, Joe Haslam of Stratemic Capital enlightens readers about the start-up scene in Chile. Most Americans know Chile for its rich produce, not its economic strength in South America, and definitely not for the ecosystem that has been created for entrepreneurship that is paying off handsomely.

Going back to the 1970s, Chile has taken a progressive stance on key economic decisions. Milton Friedman and a number of his associates from the University of Chicago inspired free market systems that have been customized by local conditions. Nicolas Shea and Vivek Wadhwa in the past decade have sought to make Chile a destination for entrepreneurship. Shea attended Stanford University and set about to do a Southern hemisphere version of Silicon Valley. Wadhwa challenged the start-up model of some groups who provide office space near a university and hope for something wonderful to happen. Instead, he advocates a people-centered approach:

To create a tech center like Silicon Valley, you need to first attract smart entrepreneurs from all over the world. Then you have to create entrepreneurial networks; instill a spirit of risk-taking and openness; and build mentoring systems. You also need to provide seed financing to start-ups. The money is easy; everything else requires a change in culture that usually takes decades.

Wadhwa and Shea launched Start-Up Chile at the beginning of 2011. Here’s the concept:

  1. Anyone from anywhere can apply
  2. Winners would be required to move to Santiago, Chile
  3. A one-year visa is provided to facilitate entrepreneurship
  4. $40,000 in seed capital is offered as a prize
  5. The Chilean government would NOT take an equity stake

When Haslam met with the director of Start-Up Chile and a representative from CORFO, the government agency tasked with improving competitiveness in global markets, he asked a lot of questions about how the program was put together. They admitted that bureaucracy had to give way in recognition of results.

  • The website for the contest received more attention than the official national tourism site. 
  • Visitors of the program spent about as much in tourism dollars as the awards themselves.
  • Well-known entrepreneurial icons are “dropping in” on the Chilean scene these days.
  • 1600 applications from 70 countries.
  • 220 foreign start-ups in Chile now, employing 180 locals and 143 abroad.
  • $8 million in VC money has been raised by the first batch of award winners.

Chile has realized some important economic development principles. Notably:

  1. Start-ups are a strong job creation tool.
  2. Large companies are more costly to attract and retain.
  3. Diverse populations experience economic growth.

Earlier this past week, we blogged about Pittsburgh’s Experienced Dreamer contest to attract entrepreneurs to town.  Whether the locale is Santiago, Pittsburgh, or Raleigh, the principles work. We need to do all that we can to foster entrepreneurship–it just may be the key to a healthier world economy!

On a purely local note, Innovate Raleigh has followed some of the steps in the blueprint. We need help from Raleigh Wake Economic Development, mentoring organizations like EntreDot, and fresh sources of seed capital. Additionally, more collaborative workspaces like some of the incubators in our area (Cary Innovation Center being an example) will help foster the natural network nurture necessary. We can do this–but it requires “all hands on deck!”

 

 

Too Young to Merge?

The folks over at Under30Ceo provide a great service to young entrepreneurs in discussion after discussion about the top issues faced. In one of today’s articles, The Daunting Task of Merging Companies as a Young Entrepreneur,” Jordan Guernsey (founder of Molding Box) discusses how youth can be both an asset and a liability in merger negotiations and assimilations. He also speaks candidly about how valuable a merger can be under the right circumstances. His point/counterpoint:

 

Why Age Can Be an Entrepreneur’s Problem

Obviously, with experience comes expertise. I’d pick a dentist with 30 years of experience to do my root canal over a recent college grad still clutching his diploma. The same philosophy applies to young entrepreneurs. They commonly lack the knowledge and experience necessary to developing a successful startup.

Another common age issue stems from what I like to call “The Good Old Boys Club.” This club is comprised of traditionally minded career entrepreneurs who have been in the business for years. It’s intimidating to think of discussing mergers with these types of individuals. This is because established entrepreneurs view upcoming young professionals as needing to prove themselves. It’s a rite of passage. Basically, young entrepreneurs are forced to break down this wall and build a sort of trust in the entrepreneurial community by showing what they can achieve.

Why Age Should Be an Entrepreneur’s Advantage

It can be frightening for young guns to approach an established company with merger opportunities. However, my experience has shown that young entrepreneurs can actually have the upper hand in these situations. For example, young professionals are still willing to take on huge risks for huge rewards! Their spirits have not yet been broken by failed ventures, and they are willing to take a gamble with mergers. Great ideas generally don’t come from cynical entrepreneurs.

Furthermore, those just entering the entrepreneurial world can offer fresh perspectives, and are not held down by The Good Old Boys’ way of thinking. This acts as their competitive advantage over entrepreneurs who have already been around the block. Utilize this fresh viewpoint to see potential merger opportunities that others may have skipped over. If a business strategy doesn’t work out, young entrepreneurs still have the energy and tenacity to bounce back quickly.

In order for a merger to work for you, you must have polished skills in forging alliances and making good decisions quickly. The pressure to grow and expand makes a merger look appealing. The “gut check” is whether you are willing to give up some control in order to meet your growth objectives.

Molding Box acquired another company in order to offer additional services desired by customers. With a legacy of 10 years of operations, the acquired company brought instant credibility.  Other young ‘treps should not underestimate the value of perception.

Make sure that your cultures and values are well-aligned, however, or you may end up worse off than pre-merger as the transaction has to be reversed.  A target with a strong leadership team and solid brand equity can be a tremendous asset in your own search to establish “street presence.”

“Let no man despise your youth.” It’s an old saying, but very relevant to the young entrepreneur.  You prove you belong when you make good strategic decisions-regardless the age!

 

Start-Up Key: Sell to Educated Customers

Tom Tunguz of Redpoint Ventures has a WordPress blog I follow, Ex Post Facto. While many of the posts are over my head in terms of technology terms, his posts on carving out a market advantage always catch my attention. Today’s post, “How to Pick Your Start-Up’s Market,” makes the point that the Goldilocks Principle is key–picking a market that is right-sized; neither too big nor too small.

Tunguz credits the Blake Masters blogs, and Peter Thiel’s summary classes in particular, with illustrating what others have learned through expensive market plays. In “The Last Mover Advantage” class, Thiel argues that:

Too small a market means no customers, which is a problem. This was the problem with PayPal’s original idea of beaming money on palm pilots. No one else was doing it, which was good. But no one really needed it done, which was bad.

Markets that are too big are bad for all the reasons discussed above; it’s hard to get a handle on them and they are usually too competitive to make money.

Tunguz attempts to explain major internet successes by combining Goldilocks with Last Mover:

  • Google – last mover in search and search ads. The search market was roughly half of the $8B market– not too big, not too small.
  • Facebook – last mover (at least for now) in social media. Social media ad market was less than $1B when the company started.
  • Dropbox – near last mover in consumer storage. The industry was considered unprofitable by investors given Mozy and Carbonite’s trajectories and was at most $2B at the time the company started.
  • Apple – near last mover in portable music players and computers. What a turnaround we’ve seen.

Common across all these examples is significant market growth driven by one company who brought much better product design, strategic management and effective sales processes. It’s easy to point to the product differentiation – later founders used previous product generations and built something significantly better. But it’s also easy to overlook the importance that sales had on most of these companies.

  • Google had a team which mechanized closing and on-boarding large search partners growing the revenue base dramatically.
  • Dropbox focused significant fractions of their engineering team on optimizing conversion-to-paid funnels. And they maxed out the refer-a-friend program.
  • Apple built the best retail experiences which today drive a huge, but undisclosed fraction of sales.

Significantly, Tunguz goes on to say that each of the example successes were selling to a market that someone else had educated. It is important that the target customers already knew both the Problem and the Solution the product(s) were created to address. In each case, others had been first-to-market, but were not offering premium products. With a premium product and an educated consumer, the start-up enjoys favorable pricing and better selling scenarios. Who wouldn’t want those factors in their favor, right?