No Autopilot

Keep track of what's important.

There's no such thing as "Autopilot" when people are involved. If you're Accounts Recievable is growing too fast, start making collection calls. Yes, you deserve that money. Yes, it's supposed to be in your bank. No, the money won't find its way to the bank by itself.

Unless the process is completely automated (and even then) keep track of the stuff that's important to your company (hint: cash). The other stuff you can sweep up on a weekly/monthly/quarterly basis, do that. As a young company: cash is king, cash is happiness, cash is the life's blood. It's important.

Customer expectations: important

Cash: important

The rest: you can slide for an hour or two.

optimizing your code to work 0.001% better than competition when the customer won't notice the 5 milisecond savings in his life: no so important

Regan overused this Russian mantra, but it does highlight the way you should work in the early days: "Trust, but verify."

Conventional wisdom

Overmatter had this to say on conventional wisdom

I’m not going to argue the point that the old guard is more interested in guarding the old ways than innovation. This is true. You keep your job by not rocking the boat, in most industries.

However, the old guard can give you insights on the problems and needs they were trying to solve with their solutions of 5/10/15 years ago. What you have to do, is the dirty work no one ever wants to do, go through the data again. Come up with a solution to the expressed need. If the answer is good. (not better, GOOD. Better != GOOD). Then you may have a solution to an existing need. Your advantage is the past 5 years of experience, innovation, change in the industry. The old solutions were good, but may no longer be so.

A brand new solution maybe be desired, but won’t be adopted until it’s worth the switching costs, the retraining, the new industry standards, etc. This is why new markets/industries can easily adopt the latest technologies, and old line industries are burdened with artifacts of age.

Never average

Take an entrepreneur and an investors, put them in a room, and there is 0% chance that they'll be "average joes". The personalities required to go out an start a company, or fund a company are not the typical american citizen. Therefore, anyone in the room who believes that the rest of the populace is "just like them" is nuts. Egos, intelligence, beliefs are all involved in a whirling dance.
Recognize that this is part of what created and drives these people. You'll be working with/for them, and it's part of what makes them tick. How this helps you, I have no idea. But remember, handle them with care, and they won't bite.

No so bright

I’m going to do something that I’ll probably regret again.
Unlike some myths that abound about VC’s:
I don’t know everything about everything.
I probably don't know anything about anything.
Maybe I get access to a mystical website when I finally start my own fund. But for now, I know enough to make a reasonable decision.

And when I don't know, I ask. Contacts, other investors, domain experts. This is why I can not sign an NDA. If I can't ask I can't be of any help as an investor. You don't have to be a genius to be a VC. But you know, this job might be easier if I was.

Tsunami

Right now, the death toll is estimated at 23,200.
I know this number will rise as time goes by, and when we look back at this number, it will seem small and quaint.
Most of what we do will never compare to the power of December 26th's event.

It does help you realize how small we are against the ocean.

One more bit

Value and worth are subjective metrics. Just because someone else has a valuation in mind is no reason to lock yourself into their mindset. Often times the final agreed price has an economic benefit to BOTH parties, buyer and seller. If there was a negative penalty to either side, then the deal would be off. However, in most cases, both sides are better off having made the deal than not.

Just because an investor is going to “miss” on the low side for him, doesn’t mean that the number won’t be acceptable, or provide an economic rent to the seller. Consider the other costs that are involved in finding another investor to make an offer. If they are too high, then the deal is “good” in the sense both parties get what they want. If the costs are low, then the deal may be “bad” in that someone is getting a negative economic return.

Every deal is exactly the same, unique.

Why you want an intelligent investor.

Valuation

No one really knows what valuation to put on a company. Classic Economics states that any price offered is less than or equal to the value of the good to the buyer. If the price is to high, then the buyer walks away.

Therefore, knowing that it is unlikely to get the price/valuation just right, the buyer (investor) is going to miss on the low side.

This is why, an intelligent investor, someone who knows and understands the sector can actually offer a HIGHER price, fully confident that they are not purchasing the company at a premium to value. But willing to bid a price that will guarantee them they are the main guy and will be in the deal.

Industries “Grow”

Every industry has artifacts from a time past. Forms, documents, procedures or traditions from an earlier age. They all say “If we could start again….” But we can’t, this is the environment you’re working in, and the conditions you have to face.
The best people who understand the problems faced 5, 10, 15 years ago, are the very people who faced those problems back them. They understood the core problem that existed, and the solution that was adopted. Better technology, new information, better processes now exist than did back then, but no one was able or willing to fight the inertia of the industry. These are the people you need on your team, or at least your advisory board. Things aren’t the same now, but the ones with experience have the best chance of seeing where the trends are moving, and how to position your company to be successful.
The standard warning of listening to the people who say “It can’t be done,” applies (don’t listen to them). If they say "It won't be done." Pay attention

No longer an American right

This article, from redherring should convince most folks that innovation is no longer the sole domain of the US. Other countries are getting into the mix. Silicon Valley, Boston, Seattle are not the only places discoveries will be made. And the new discoveries will be made for less money, will be made in more areas, and with fewer controls.

A new era of innovation is coming, and it will not have "Made in the USA" stamped on it. We've seen this before, but never in so many different regions, and in so many different fields.

We're going to be in for a wild ride.

Big enough to matter

Small enough to win, big enough to matter. Makes sense, right? Those are the tasks worth your attention. Achievable and significant.

With Markets, look at your real customer base, not the people who "could" use your service. The ones who WILL use your service. If the market isn't large enough, (big enough to matter) reevaluate the time/money/effort it will take you to succeed. If you are willing to sacrifice the resources in order to say "I did it." That's one thing, but recognize this is no longer a true business, but a hobby.

How will you know if your market is large enough? Ask, figure out the need you're servicing. How badly they need to change, what is going on to accelerate the change, and who is going to make the change first.

Don't make the solution first, and then search for a problem, only to realize the market's so small that it doesn't matter to anyone else but you.

How has VC been doing?

I found this paper written about Private Equity performance, by Steven Kaplan and Antoinnette Schoar.

It uses info from Venture Economics, and gives a pretty good analysis of funds in general.

The point? Good funds tend to do well, and bad funds stay bad.

Warped mind

This business really does strange things to your mental model of numbers and cash. Every so often, I need a touchstone to remind myself how much cash is CASH. As a private company, clearing $400,000 in net profits, and without reinvesting into the company, meaning it goes directly to the pockets of the owners, isn't bad.

In an industry where millions are invested, and returns are (hopefully) higher, looking at stable companies with positive cashflow is a rarity. Some folks can be very happy working, owning a business of moderate size. They're not investment vehicles, and never will be. But that doesn't mean there's no space for them in the economy.

Sit down, figure out what YOU really want out of the business. And ignore all the advice telling you otherwise. Don't be the guy who writes down he needs 5 million, because he hears that's the amount a VC wants to put to work. Figure out what the business itself needs, and go from there.

There are a lot of niches out there. Find your customers, find your fit, and be a success.

Metrics

Good metrics will tell you how you’re doing. Bad metrics will demand to be appeased, and will distract your company from succeeding. So which ones should you use? All and none of them. Not helpful advice? It isn’t supposed to be.

Raw data, becomes information, becomes knowledge. It takes massaging and effort to take the numbers and understand what’s going on with the business. However, focusing on the numbers, instead of a healthy company is what drives management and investors to distraction.

For years, we’ve been trying to have short-cuts on understanding the health of the business. P/E ratios, Quick ratios, cash flow, income statements, etc. Each give a glimpse of the business, and as long as nothing else changes, they can be used pretty accurately. We should be so lucky. Things always change, customers have shifting demands, competitors never do what they’re ‘supposed’ to do. And by the way, we all happen to work in an economy that has its own movements shifted by an invisible hand.

Good companies, healthy companies tend to look a like. The deeper you dig down, the further you explore, the more you find, the same thing. Robustness, solid customer relationships, good supplier relations, etc.

Use the measuring sticks, keep track of how you’re doing. But don’t focus the business on the numbers. The numbers should reflect the business, not drive the business.

Pricing

Joel on Software has this bit on pricing.

He has some good points. People don't know how to count. And most pricing is off.

Prices are determined by the credit limits/sign limits of the people you're talking to. Not always by the value/worth of the product.

Also, after his econ 101 bit. Joel's right on price segmentation. It's not a bad thing, it allows people to pay what they value the software at. It also allows the producer to pick up all "economic rents" The benefits/money that would be lost if someone would be willing to pay a higher price.

There are always a lot of moving parts in every decision. Some parts are more important than others.

Things they are a changing

OK, no trite quote of “The only thing that’s constant is change.” (sorry)
Right now the dollar is down, and the Euro is high. Yen and Yuan are being supported by their banks.
What does this mean to you? A small company?
Go overseas. Go international, get some protection against rising rates, falling dollars.
Earlier, a company had to be 5 years old, or more before they would consider an overseas office.
No longer.
It’s not easy, nothing ever is. However, you don’t have to go it alone. This is one of the times you’ll be happy with the fed and the local governments. They’ve been trying to encourage commerce with these other lands.
Recognize you’re going to be playing the role of “ugly American” and use it to your advantage. People will want to talk politics with you. It’s OK. Remember what your mom said, ”Be nice.” And use the conversation as a way to build trust and familiarity.
Remember the cultural differences, but recognize the value your company brings.
Globalization/international commerce/time zone management. It’s not too early to consider these elements. And know, just as every city, state, region is different within the boarders of the US, so are countries overseas.

Selling

A successful salesman told me:
You sell yourself, then the company, then the product.
Let’s hit those in order.
Yourself. If the other guy doesn’t trust you, then stop right there. He won’t ever buy from you. The product is never that good, the deal never that attractive that I’d want to deal with someone who’s going to leave me in the ditch after the money changes hands.
Company: There has to be an entity standing behind you, just in case you get hit by a bus, I want to know that I’ll still be taken care of. There has to be validation behind the person I’m talking to.
Product: It must satisfy my expectations. Otherwise, it’s just another gizmo that takes up my time.
Sell in that order, otherwise, there’s no foundation for a transaction. Here are the additional benefits.
If you sell yourself first, the customer, even if he doesn’t like your company or your product, might still buy from you later on.
When you sell your company, even if the product won’t meet his expectations, he might buy from you later, when there is a product that matches his expectations.
If he likes the first two and likes your product, you probably have a closed sale. It only takes care and effort, and being able to shut-up and not lose the sale.

A few points on Networking

1. Have business cards
   Carry 25-40 of them
   Make them standard size
   Give them a unique look
   SPEND some money on them to get them professionally made. The perforated ones look and feel cheap.
   Get them made on strong paper stock
   I like raised ink
   Keep them accessible (right outside jacket pocket)
   NO CARD HOLDERS
   
2. Conversation
   Use short simple words in conversation
   Not jargon
   No one wants to hear the sound of your voice that much
   LISTEN
   
3. Firm handshake
   Clean hands
   No clammy hands
   Good grip
   2 pumps
   Don't forget to let go
   
4. Food
   Don't talk with your mouth full
   Don't juggle plates and drink
   Hide off in the corner, finish your food, then network
   Did you come to eat, or meet?
   Liberal use of napkins, keep hands/mouth clean
   
5. Know who you're talking to
   What can you do for them
   What you want out of this meeting
   hint: A business card
   How to pronounce their name
   What they do
   
6. Personal space
   Judge how much space they want to have
   Let them feel comfortable
   
7. Hand outs
   Business cards ONLY
   No b-plans
   No exec summaries
   I'm not kidding on this one.
8. Company description
   30 seconds or less
   5 words or less – benefits to customer
9. SMALL TALK
   Prove you're a human being
   Business can usually wait until a phone call
   
10. Enjoy
    
11. Have a Pen
    Ball point
    Make sure it doesn't leak
    Fast drying
    No fountain pens
    No pencils
    
12. Cell phones
    OFF
    Do you want to be interrupted once you finally start
    talking with the person you came to meet?
    
13. Dress
Well fitting clothes
You're going to make an impression
- Trying and failing looks worse
Mis-matched suit jacket with pants
Bad suit
Suit too small
Loud-ugly tie
Bad haircut
If all is hopeless, shave it off and start over

Wrong

I was at the MITEF for DC / Baltimore’s gala event tonight, and one of the speakers was Terry Hsiao. He gently reminded me that we had met before, back in 2001, when he was pitching Inphomatch, (now part of Mobile 365) for their first institutional round of investment. Guess which answer we gave him?

Fortunately he didn’t hold it against me, and from the looks of things, he’s at it again, as COO of waysystems.com Secure mobile payments.

This go around, I think he’s got funding all set.

It was good to hear his story, and how the company he started is still going strong, It will be interesting to see how his next venture succeeds, and where he goes from here.

The past will follow you, and crop up when you least expect it. Like your mom said, say please and thank you, and don’t forget to wash up

Continuing the thought

Joel had this interview in Salon.com One of his key points was planning before coding.

Good designers plan first, good coders plan first, you don’t break ground without knowing what you want out of the design.

So why do people insist on trying businesses without a plan? Making a product without knowing if anyone’s going to buy?

70% of companies don’t make it to year 3. Now not all of these go bankrupt, some get folded into other companies, others are sold. But most do not stick around. This is more because of bad planning than anything else.

The first thing I did on my own was a service industry business. I learned a lot about the business, and about what my competition was, and what service I was providing. I was providing entertainment and a distraction. My competition was movies, TV, video games, family picnics, anything that took time and money for a few hours on a weekend. I jumped in, and never really understood my market (too small) before I started. Fortunately, this was while I was still in school, and I could afford to make mistakes, without derailing my larger plans.

It was a good hobby, a great way to force myself to understand business. And something I never ever want to do again.

Plan ahead, especially when your future's on the line

Ask first, build later

To all the technologists and developers: Go against your instincts. Ask first. Make sure the market is big enough, the customers have a need, and they are willing to pay the costs in taking on your solution.

Many technologists want to build the product first “Get it JUST right” and then go to market with the ‘perfect’ answer. Why? Because this is what everyone was taught in school. Get the answer right, then hand in the homework, find the solution THEN pass in the test. Business is not school. You need feedback.

Because you will always be “wrong”. Unlike trying to do simple algebra problems, where only 1 solution of x exists. Consider this more like your high school science labs. Start with a theorem “Customers will buy this…” And then experiment. Ask the customers, look at the market, and get feedback. The faster/cheaper you get this, the more time you’ll have to actually work on the solution, and work on your business.

Odds are, you’re a very good technologist, you’ve been spending the past 2 decades understanding the code, the technology, etc. You CAN produce the final product in a few months without much difficulty. Doing market research, however, will take time. Talking to customers, will take time. Figuring out the solution, will take time. So why not do the hard tasks tasks first?

I understand these tasks are harder, because they are unfamiliar. They’re harder because you don’t have 20 years experience. But YOU must do them. And it must be YOU. Not one of the services that tell you what you want to hear. Not one of those research groups, and not just reading papers. The reason it has to be you, is that you will be laying the ground work for trust and sales in the future.

The reason you need to do this part first is that you know all the shortcuts in design/development/production. You have no shortcuts in market research. And you have no reasonable guide on how long it will take before you will know you’re on the right path. It could be 6 weeks, or it could be 6 months. And then you’ll still need to make the final product, but at least now, you’ll know it’s the product that’ll be bought.

No one will purchase the first time you show up. Every customer has the same attitude the first time you show up. “I don’t know who you are, I don’t know where you’re from, I don’t care what you do, I don’t want what you have. Now, what do you want?”

When you can’t address all these challenges, then you will get rejected. Getting most right isn’t enough. The only way you can get them all right is to ask. You won’t get it right the first time.

If you’re going to launch without knowing what your customers need, then realise you’ve got a hobby, not a business. Don’t confuse the two.

Obliquity

I was pointed to this article on obliquity. Through the Cyberlibris blog on Goodhart's Law (attempting to regulate financial assets renders them unreliable as indicators of economy). Or observing an economic system will influence its outcomes. Techies mislabel this as a Heisenberg's uncertainty principle example. Heinsenberg was only concerned with quantum physics. Goodhart can be applied to social sciences.

Enough of that. Obliquity (again if you haven't read it yet). He brings out the concept that the best way to get to point B from point A may not be a direct straight line. Especially when dealing with things that grow/evolve. He uses forests, and cities, and corporations as examples.

Investors use the sailing analogy of tacking against the wind. Or making mid-course adjustements in order to get to where you want. A lot of unknown variables WILL (not may) influence your course. Having too many course corrections will keep you in place, not having enough is a guaranteed way to get off track.

Take a peak and see where your goal is, and if you're making your way there.

Make yourself useless

Here's one piece of advice for the folks out there running companies. Make yourself expendable, then make yourself disappear.

The best, long lasting legacy you can have is something that outlives you, and your direct descendants. As much as we all like to have our ego stroked, being a key man in your company puts the organization at unnecessary risk. Being able to disseminate control, over a handful of people helps make the company more robust, and protects the shareholders from the unthinkable, the key man disappearing. A lot of businesses end up relying on the skills of one person, when that person leaves, the business folds as well.

Show a willingness to share power and responsibility, make sure that if something happens to you, your survivors, both familial and corporate, will continue to do well. When your net worth is tied to your business, are you doing your family any favors by putting everything at risk?

Then when the company's robust enough. Leave.
Don't interfere.
If you've done your job right, the business will be fine.
Let the new management make some small mistakes, learn lessons. Don't let them risk the company, but don't reign in their skills.

When they succeed, you'll be better off.

Personal History on the web

This article from Wired explains why blogs can get you into trouble.

Everything we do online can get recorded, even by ourselves. Elements will be saved and recorded. Ironically the bits we most want to erase seem to be the ones that fly afield the fastest.

Consider the Star Wars kid video

Or this Washington DC resident Washingtonienne who had her life change once Wonkette linked in.

There are two ways to handle this explosion of information.

Control it, or let it go.

"Information wants to be free!" was the cry we heard not to long ago. So yes, once you put it on the web, do not consider that you control the information any more.

If you want to keep it under wraps, do so. But security though obscurity is no longer a viable or reasonable approach.

Taking Stock

We’re entering the season of retrospective. People are going to come out with lists of what happened in the past year, lists of what they want to do in the next year. Reunions, family gatherings, etc.

Take the opportunity to go over what’s been successful with you, and more importantly, why. I encourage post-mortem analysis of events and stages. They can be difficult, and traumatizing. But it’s one way to learn.

Figure out what went right, what went wrong. Why they occurred, where you were lucky, and where planning and effort paid off. Be willing to relax and enjoy your success. You fought hard. However, recognize that it’s no guarantee that you’ll be celebrating next year. Enjoy the moment, you were good enough, lucky enough to do well. Re-energize and have fun.

Happy Holidays.

Loss of control

I installed Google's adsense on this blog a little while ago. And it hasn't taken long for me to question that decision.

Fortunately, no one really clicks on those things, we've trained ourselves or been trained to ignore most of them.

However, this one ad has me annoyed. It's from a bank that claims they can take you through IPO, raising 5-10 mil for you if you have 1 mil in revenues.

Maybe they can, maybe they can't. But it seems like they're hiding the critical aspect of how perception of reverse IPO's really stands. Doing a reverse does get you public, but usually on the pink sheets. Technically, you are a public company, and must comply with all the SEC rules. However, if you're not on the NYSE or NASDAQ, it really isn't worth going public. There's a lot of overhead for a feel good, ego propping scenario.

Just as some companies should never get VC investment money, because they'll never need it. Some companies should not go public, because they don't have to.