More bad ads

Google serves up ads based upon the content of this page. When I wrote this, the ads were for bplan writing companies. Go ahead and click on the (I'll appreciate the results) but don't bother buying those services. Having someone else write up your business plan makes no sense to me. The plan should represent your thinking, and your planning. Getting someone else to plan/think for you will do you no good when something unexpected comes up.

There's so much abundant information on the web, spending your money/time/resources with these folks is unlikely to provide you with much value for your resources.
Do your own homework. If you can't figure out who to ask or where to go, that might be a sign that this isn't the opportunity best suited for someone with your background.
In funding, a business plan does nothing more than get you a phone call. The exact steps are different, but most of the time, funding goes as follows:
Find target investor -> send bplan -> meeting -> meeting ..... (due diligence) ->meeting (negotiation).... -> final terms
Then the hard stuff happens: Work to make company successful

Bankers and fundraising

Part of the gruntwork at an investment group is filtering out the business plans that get sent in. Most analysts/associates have to go through this task. It gives them experience in understanding how bplans are written, what elements to look out for, and how to prioritize when hundreds of people are asking for money, and one of them might be the next big thing. It also immerses them in a bunch of ideas and forces them to make judgments on companies. The interesting ones filter through. The others, they monitor to see how things develop.
But when I get the SAME business plan through two different channels, I wonder why that happened. Sometimes, it’s because valued friends/contacts have seen the same thing and sent them my way. But usually, it’s someone who’s tried to contact me directly, and then hired a banker to try and help them raise money. The banker then contacts me, trying to insert himself as the key man between me and the company. I find this very tiring.
If he wasn’t able to source the company, and be a source of good new companies what value does he present to me?
As an entrepreneur, understand what value the banker/capital group brings to you. If they KNOW (personally, as in have lunch with/dinner with) the investor, this is valuable. If they know OF the investment group, then that’s something a little less. When the banker lists the names of funding he can get you in touch with, ask some more questions, and don’t accept broad/general answers. Ask how much money they raised for a SINGLE company, not industry, not area, also WHO they got money from, get round numbers from them, Get an understanding of who takes the banker’s word at face value. How the banker works, and what they do afterwards, and why they deserve your money. A good banker is valuable. Otherwise, they'll burn up your time.

You’re nuts!

OK. The companies that think they’re worth $50 mil before they’ve even identified their first customer, please raise your hands.

Why is it, that if you’re going to be doing $300,000 in sales (not profits, just sales) in the first year, you’ll be able to do $18,000,000 in year 2?

How do you justify being worth $50 mil, if you haven’t even built the prototype yet? Don’t tell me that * REALLY BIG COMPANY * was at your stage in a similar time during it’s growth. There’s a huge survivor bias when you point to the top of the Fortune 100 as a comparable on value. They ALREADY made it. You MIGHT make it.

The dot-com era bubble is over with. This doesn’t mean that there won’t be another bubble, or that you can’t get caught up in it, or that I won’t believe in it. But right now, as I write this, I do not believe that we are in a situation like this. So please explain to me, why/how you’re worth $50 mil with only a business plan, 3 guys who are STILL working at another job, and no customers/contracts/etc to speak of?

Note, you can be worth $50 mil. Even without an office/plant/etc. but there has to be a really good story behind that number.

Practice and be perfect

In the early days of typewriters, people would accept the occasional misspelling, correction, and whiteout. These were understandable errors made by people, and the documents didn’t suffer from these mistakes. Today, with word processors, we expect documents to come out clean, no spelling errors, no whiteout, and the only time something is left in with a strike through it’s intentional.

The same is now expected from our presentations. Movies and TV stars are allowed multiple cuts and takes. When, they make a mistake, it ends up on the cutting room floor. The people who go live, on stage, know they need to practice. Rehearsals, walkthroughs, over and over again, until they get it right.

While you’re on stage, giving a presentation, is NOT the time to come up with answers to questions. Especially questions you know will be asked. Practice, until you can rattle off the basic answer. Then think about which facts would augment your answer to respond to the concern behind the question.

Practice beforehand, people want you to give a good presentation, but they also want to be entertained.

Labels matter

If you are going to submit slides or a bplan, recognize that once it’s out of your hands, it’s out of your hands. The document must be clear enough to stand by itself. Therefore graphs/charts should be labeled with the knowledge they want to provide. A chart with a diagonal line labeled “revenues”, is pretty meaningless. The same chart with the label “20% yearly growth” says something else, and the label “Break Even in 30 months” conveys more information. Note that the numbers are all the same, the graph is the same, but the knowledge conveyed is different in each case. It is true the investor can do the work and come up with the same result. Problably the investor won’t do that unless you’re in that special group of folks who has already made the investor tons of money. If you’re in that group, you don’t need me to tell you how those guys think.

From someone who's done it before

Guy Kawasaki saves you money.

Here’s what Guy has said about starting a company.

He’s done more, made more, and said more than I have, so I’ll be quiet now.

Branding

The washington post had this article on Branding

Although, this seems to directly go against what I said earlier about being straight forward in your marketing, and your name. Recognize that these brand demands are for established companies. Larger ones compared to the startups I address. The entire valuation of your startup is a rounding error to some of these multinationals.
Don't worry about these issues until you're that size. The bigger problem you must address is getting to that size.

More "Life Advice"

Paul Graham wrote this bit on what you should have known in High School.
Problem is, even after high school, some folks haven’t picked up on the key points.
And here’s something from NBC’s Today show on the book: The Success Principles

They both say the same thing to me. When you’re the best, everything is your fault.

Take responsibility for your choices, your successes and your failures. But actively make the choice yourself, and try enough things to be comfortable with responsibility. The same runs true for your companies. You're the one running the company. Go out there, make mistakes, learn and move on.
Don't be perfect, but don't be stupid either.

Then again, "stupid" ideas are the ones that create the biggest successes.

Avoid Earnouts

If you do accept an earnout, know what you're getting yourself into. If it's not on paper, promises mean nothing. Understand that you are selling your company, and giving up most if not all control over some very basic elements. Budget, hiring, partnerships, customer relations. These all change once you become part of another company. With so much out of your control, how can you expect to be responsible to hit the projections?

The best way to protect yourself, is getting a guarantee, in writing, that no one will interfere with the running of your group. Something will always come up, either a customer you have who is now a competitor, or you're interfering with the operations of another group. You will get a call from someone else in your parent organization. Don't argue, just ask for a letter to explain to the customer what's going on.

Once you have proof that you weren't able to run your division the way you wanted, go back to the original negotiators and request for the earnout in full. They won't give it to you, but you'll get something. Usually more than what you would if you didn't ask for it. Plus you'll get time, time to relax, and plan for the next company you'll start.

Myths and Fairytales

To techies, the “magic” of sales and marketing are supposed to solve themselves.

If you build it, they will come.

“Think Different”.

The world will beat a path to your door.

Marketing can “create a need I didn’t realize I needed.”

We buy into these myths because they fit comfortably with our view of the world.

Aren’t you too old to believe in such fairytales?

Most of the techies who read this blog can make the technology WORK. I’m not doubting your ability on the technology front. I focus on the other parts of business, because your foundation is robust. The stuff techies presume will fall into place, once the core technology is solved, is the other part of business.

Neither side is more important, because both are needed. However, given my background, and my familiarity with technology; I know solving the problem is rarely part of the equation. It might take some time and effort, but it’ll get done. The sales, however, may never get done. No matter how much time/effort/money is put in, no one might buy your product.

Now this also holds the presumption you won't do something too crazy. You won’t try to break the laws of thermodynamics (no perpetual motion machines). You’re not going to try and get a zero-point energy device. You know enough of the technology to recognize what’s doable, what’s achieveable, and what you can accomplish.

Don't take the short-cut of using writers/screenplays to determine your business strategy, especially not your marketing plan. Do the research, find the need and then come up with the solution.

Buzzwords in Marketing

This article from CNN complains about the buzzwords used in today's language.

I’m guilty of this as well.

Buzzwords, slogans, etc. These all miss the point: TELL ME WHAT YOU DO. Don Jones, the guy who started me in this industry, would complain that companies hide their business behind a meaningless name. If you read some marketing materials, it sometimes it felt like the classic comedy sketch where two politicians debate, saying the same thing, only repeating each other’s statements with synonyms.

Marketing is supposed to INCREASE SALES

Otherwise why do it?

A good friend of mine went into sales before she furthered her career in marketing. This is a pretty good approach. Being on the front lines gave her the appreciation for the type of support that’s needed from marketing.

The activities of marketing should support the sales force.

Another Deal

With investing, there’s always another deal coming in later. If the deal you have in front of you doesn’t look like the best thing to hit your desk now, or in the foreseeable future, then pass. With a strong network, good deals will eventually filter their way though to you.

• Terms are bad

  • Walk away

• Management team is a problem

  • Walk away

• Technology doesn’t work

  • Walk away

• Market too small

  • Walk away

• Never going to be profitable

  • Walk away

• Don’t know who the customer is

  • Walk away

• Just doesn’t feel right

  • Walk away

When you can't walk away, then consider investing.
One more thing. There are many times when someone else is willing to walk away from a deal that you can do. These are the times when opportunity knocks. If you know more about the industry, the environment, the business than other folks, you can make money where they had to walk.

No fear Due Diligence

Many entrepreneurs fear the due diligence phase of an investment group. It’s invasive, disruptive, and pokes and probes every area of the company.
All Due diligence is an attempt to find out and understand “everything” about the company, the people, the market and the opportunity. There is nothing you can do about the past, the actions you took, the mistakes made, or the people you worked with. Nothing that can alter history. So don’t worry too much about it, the opportunities you had for those encounters are over.
The investors wants peace of mind in understanding what they’re buying. Trying to hide skeletons in the closet will make things worse once the money is invested.

Keep your hands clean

Odds are, you are going to outlive your company. Putting the company first, ahead of ethics, morals, laws will not pay off. Investors, partners, employees will remember what you've done. Suppliers and customers will take note as well. If you've done things to the letter of the agreement, then it's unlikely they'll want to do business with you again. However, if you earn their trust, then they'll be more likely to work with you in the future.

Unfortunately, many times during the difficult birth of a company, management will be tempted to do some sketchy activities to keep the company afloat. If it succeeds, it becomes part of the lore behind the company. If it fails, the company was doomed anyways, so might as well try that long shot.

At the end of the day, people make the decisions in business. People trust others, and people will remember how they’ve been treated.

Take a lesson from marketing/PR. A good story gets repeated 3 times, a bad one gets repeated 10.

Learn to listen

There are 2 ways to appear to listen.

Step 1. Be quiet.

Step 2. Repeat step 1.

The 2^nd way is more polite, profitable, useful.

Step 1. Be quiet

Step 2. Pay attention.

Instead of using pauses in conversation to interject and hear the sound of your own voice. Pay attention to what the other party wants to say, and what they want to achieve.

I’ve talked about controlling the conversation to areas where you want it to go. The most effective way I’ve found of doing this is not by using words, but with silence. In most meetings, people will say what they want to say, followed by what they need to say, followed by what’s important. Let them speak.

Do the hard work and listen.

Differentiate yourself

When running a business, the last thing you want to do is get lost in the crowd. Find a way to let people know who you are, what you do, and how to get in touch with you. Separate yourself from the pack. Otherwise you're going to end up with them in the middle of the heap.

In communicating, I've found that a well handwritten note gets more attention than a quick email. If you can't write properly, then learn. The key behind a handwritten note is the time it represents. A simple thank you letter is rare in today's era. Using one definitely gets you noticed.

Liquidation Preferences

Here’s some more from Feld

The point I see is, when the company does Amazing (Google/Yahoo/etc.) No one really cares about a liquidation preference, since the difference between getting 125x your money back and 122, seems rather small.

However, when things go poorly, and the company is forced to liquidate or needs to merge in a shot-gun wedding, then these terms come into play. This does protect the investor by providing some positive return when possible. But Entrepreneurs may end up with less than they feel they deserve.

This may not seem fair, or right. But I have seen scenarios where the management team ended up selling the company for less than was in the bank, because they wanted a job next year. People got fired, equipment was “lost” and the investors, who could have gotten $.50 on the dollar if they just liquidated the bank accounts, got $.25 on the dollar, in someone else’s non-public stock. AND it was common shares, instead of preferred shares, AND the purchasing company ended up going bankrupt anyways.

Lots of things will happen in investments and companies. All these terms are there to protect one party or the other. Because when things go wrong, the last thing anyone wants to do is negotiate, or hold up their end of the bargain. Thus, make sure you are comfortable with the terms, before they need to be enforced.

Content out of your hands

The question of HD DVD vs. Blu-Ray brought out another thread. How fans, and others end up repurposing your own content. One of the advantages claimed by Blu-Ray is the additional amount of information you can put on the disk. And Porn shops have said that being able to choose your own camera shots is one of the things you can do with the additional info.

We will end up with 2 classes of disks/media (all playable on the same box). One will be the film the way the original director intended it to be. Or at least, the way it got packaged the first time. The 2^nd way will be end-user directed films. We’ve seen a version of StarWars Episode One, cut and edited to remove a certain character from the film. Video clips on the web end up being dubbed, edited, etc. over and over again. Blu-Ray will allow anyone to set up shots and dialog to create their own movie.

Allowing “everyone” to be a director is OK, but only a few people will have the talent and ability to create a new story from the cuts/edits/outtakes. The Porn industry, again, will take the lead. Putting all the footage they have onto the disk, and allowing their users to edit/cut the scenes to create a new story will be over hyped. Then become another form of fan fiction.

Will the major players ever follow suit? Eventually.

This is not a difficult prediction to make. Fan written novels have become a mainstay in some genres. Fan based web-logs/news sites end up with more accurate information than the main outlets of press releases. Indie music is where the new sounds tend to come from. Fan based video content will be another form to take off.

A secondary studio, trying to create buzz, will be the frist to use this idea. If none step up to the plate, then we will begin seeing a lot of fan based material of cult classics, or nostalgia shows. Rabid fans may not wait for permission, when given enough content.

I have no idea what kind of company to fund to exploit this. A mix of a blogger/livejournal/typepad site and flika to provide content?

Either way, I’ll be able to look back at this post and think “I was wrong.” Either I guessed right and did nothing about it, or I’m so off base that it won't matter.

Stay in Touch

While you may not get funded the first time you approach a fund. Stay in touch. Events will happen that will change the company. What may not have been a good investment 16 months ago, may become interesting to investors, after a new customer, a new development, or heightened interest in the space you’re in.

Funds don’t invest in companies that come over the transom. But if you’re good, and grow, then they’ll take a closer look at you. And it’s not like they haven’t seen you before.

My pick : Blu-Ray vs. HD DVD

You wanted a guess? Here’s mine. HD DVD will come out of the starting gates first. It will have more titles, have more movies/shows/content. Blu-Ray will make a come back afterwards – it’ll have the support of the big boys. But in the end, we’re going to have something similar to the VHS/DVD players we do today. One box that can handle both technologies. The cost will be high in 2006, but by 2007, everyone will be able to afford a $40 player from Wal-Mart.

Why does HD DVD succeed first? Porn. (Zdnet, Redherring, Reuters)

The dirty little secret of technology. If not for this industry, most of the technological improvements “enjoyed” over the years would not exist. Streaming video, high quality graphics, wireless, etc. come down to a geek’s insatiable appetite for pornography anywhere and everywhere.

Some people say the battle between Beta and VHS was fought over technology (Beta was better on that front). Others say price, or time per tape (6 hours max VHS, 4 hours max Beta). Others say content, I agree with them. Sony would not release control on Beta, so a ton of content (porn) was put onto VHS and not Beta.

Market forces were not looking at some features (clarity/sound) as much as others (content/price). Unless Blu-Ray finds a way to make itself more affordable to the largest content producing group in the industry, this race will be over.

Porn is a big part of tech’s history, and its future. Like it or not, going to the Adult Entertainment Expo may give you better insight into high-tech’s future than going to the CES.

All pieces have to fit

Or rather, they all need to be acceptable.

In a deal, we want everything to be “perfect”. Granted, the investor’s idea of perfect is going to be slightly different from the entrepreneur’s. Thus the negotiation starts, and each side determines what is nonnegotiable and what is flexible. If all parties are satisfied, then the deal will get done.

Otherwise it won’t. It’s OK to walk away from a bad deal. I know entrepreneurs and companies who have been offered bad deals. Some took them, others walked. The ones who walked away tend to be happier.

We all should have the BATNA (Best Alternative to Negotiated Agreement) determined before we start the negotiation. It makes walking away easier.

One more bit. When someone is being unreasonable, don’t reason with them. Walk.

Why work so hard for a Phyrric victory? Save the resources: time/money/effort, and do something that will be successful.

Only the winners ever remember a Phyrric victory, and even then, only with regret.

Apologies

Apologies for the long, rambling posts. I haven't found the time to
write shorter ones.

Science vs. Business

In science there is one overriding rule. You don’t have to be popular or loved, if you’re right. When you have established an axiomatic theory, one that stands up to the test of time, one that is able to withstand challenge after challenge without modification to the theory itself, then you’re considered “right”.

Scientists use their truth as a shield against all attacks. We have 100 years of Einstien, and this NY Times article on what scientists will take with faith beyond proof.

But this dedication doesn’t go very well in the business world. Being “Right” is still a tremendous shield against attacks, but the Market decides who is right. And the Market may not be rational, but it is always RIGHT. We can't use math to reduce the market to a pure number, like alpha. The Market is harder to figure out.

We saw this battle fought and decided with the QWERTY keyboard, the VCR/Beta fight, and many battles during the dot-com era. Market forces determined who would win, not the best “technology”. Mostly because technology was not the key decision factor in picking the winner.

Many scientists I know focus on the technology. They spent many years of their lives, dedicated to being able to determine which technology is better. It’s easier for them, and something they feel very comfortable doing. The market takes this input, mixes it in with all the other demands (time/cash/effort/etc) and then evolves to a solution.

Darwin never said “Only the strong survive.” That was an easy way to focus all the decision making onto one criterion: strength. What Darwin said was, “Survival of the fittest.” The organisms best fit for the environment at the time would survive. He recognized that if you changed the environment, the organisms best fit to survive under certain conditions may no longer be best fit.

Not dead yet, is how I keep looking at businesses and markets. Those companies that can adjust to changing conditions, the procedures that are important for transactions, they survive. Only until conditions no longer allow them to exist. Thus, Osborne, Wang, and a whole bunch of other companies whose names are only remembred on faded T-shirts failed to survive until today. www.fuckedcompany.com might give you another list of companies that died off. The ones we have left today? Just because they’re around doesn’t indicate that they will be successful, or that they are fit for the current economic environment.

The techniques (writing papers, getting grants, getting high grades, defending dissertations) that help you succeed in academia will not translate into business. The skills honed in academia (how to think, communicate, converse, sell) will translate well. The challenge is not using familiar techniques in an unfamiliar environment.

Joel's College Advice

Here's Joel's College Advice
And here's Slashdot's response

I agree with Joel on finding something you love to do and doing it. I completely agree with his stance on learning to write english. Unfortunately, he forgot the other forms of communication. Speaking is important, presentation is important. Learn how to speak in public, learn which fork to use at the dinner table, know how to make small talk and how to steer the conversation to what's important.

He steers the student to doing the things Joel enjoyed. Coding and programming. Things that are important if you are going to be a computer programmer. If you're going to be a Computer Scientist, coding is one expression, understanding the higher mathematics is important as well. Understanding ring theory, field theory may not make your code run faster. But it could help you design more efficient code.

The comments from Slashdot are intersting as well. Several of them emphasize the need for a college degree, others focus on the immediate short-term skills that will gain employment. Few take the long term view, and show the need for a well rounded education, more than coding, more than books.

If you're going to be an entrepreneur, you will have interactions with all types of people, and need to be able to communicate with them. The more topics you have in common, the faster you can achieve small talk. Not everyone wants to talk business all the time, and small talk is the socially acceptable way to build trust. The same holds true for an investor.

Oh, and wear sunscreen

Really don’t want to pay to fix a mistake.

All things being equal, I’d rather invest in a company that didn’t have problems. Reality being what it is, every company has problems.

However, some problems are manageable, fixable, predictable and acceptable. Others only open the path to new problems.

Here's one: Companies that are spread out over multiple geographic locations. Usually this is done to accommodate the founders, who don’t want to move their families/homes. This is a difficult hurdle to overcome, and one that can cause more problems when “solved”.

Meetings/phone calls/email/Instant Messenger they’re all ways to keep in touch. But most knowledge and information is transferred in the hallways, during coffee breaks, or while grabbing a bite to eat. No one ever has all the information at their fingertips, it’s always a bit of searching or remembering. Having only one opportunity to communicate limits the kneading of information that’s required for someone to pick up the full impact of the knowledge.

Investing in a company that has 5 members of the team spread out in the corners of the nation, and one guy in middle America starts off with a communication problem, tacit knowledge is difficult to transfer under the best conditions, and impossible to transfer over email.

What about getting the investor to pay to move everyone together, into the same office, and going forward from there? Probably not going to happen. If the founders don’t believe in the business enough to get together on a daily basis, then why should an investor put his money in first? Why is the team allowed to play it safe, when the investor is forced to take the risk?

And then the nightmare scenario; IF the investor puts up the money to bring everyone together into the same building, the team then realizes that they really don’t like each other, or can’t work together in confined spaces. This kills small companies, and yet, every early stage investor KNOWS that the team who walks into their office the first time, will NOT be the team that takes the company to exit. Something always happens to someone.

In a 5 man team, lose one person, and the organization is effected. If nothing else 20% of the company has just walked out the door.

How to avoid this? As an investor, don’t invest.

Special thanks

Overmatter.com

userdriven.com

http://madeleines.typepad.com

http://mgoldberg.typepad.com/occams_razor

These are guys who have a link to this blog. I figure somewhere, a cut and paste error slipped my link onto their sites, and no one’s decided to eliminate it.

Lucky?

Overmatter pointed this article from Bo Peabody on Inc.
I have never met Bo, however, I see Village ventures in some of the deals I look into in the North East. It’s refreshing to hear someone say, after the party’s over, he really didn’t predict everything that was happening. I wonder if his investment companies are learning that lesson?
Being asked on how to make money for the company by the board. They probably were serious, it was hard to actually gain currency in those days. Bo understood it, even as he was playing the internet CEO. But here’s what we didn’t hear, he never figured it out. I never figured it out. A lot of people never figured it out, and some are still in the process of not figuring it out. There may be no answer to this riddle. But at least, here was one person saying, “I don’t know, but I quit while I was ahead.”
The halcyon days are over. We’re all going back to work. Some who managed to cash out during the good days have a longer runway than others. It would be a mistake to follow in their footsteps today. Their path to success may be replicated by someone, but it’s unlikely, and probably not by anyone reading this blog. Ignorance can be a wonderful advantage in doing something that is fundamentally unwise.

No customers = No company

I did a google search on this phrase, and got these results.

I read a few, and agree with most, but found one thing quite confusing.

No one ever defined customer.

It was presumed that a customer was someone who paid money for your services.

I would refine that further.

Customer is the one who SIGNS the CHECK, makes the purchase decision. This is sometimes, but not always the USER, beneficiary, etc.

Also, there are GOOD customers and BAD customers.

Good customers have reasonable expecations that you can meet, and are willing (able) to purchase your service at a price that creates economic rents for both you and them.

BAD customers – are a nightmare. The amount of money they provide you does not cover the costs it takes to keep them as a customer, the overhead, the effort, the expense, not to mention the abuse, grief, headaches, time.

Too many companies I see chase bad customers. Try and do everything to please them, because they are big/important/etc. But while you’re doing that, they’re leaching resources away from your business.

You may not be ready/able to sustain them as customers, not yet. So walk away. Say no to the deal. Recognize why you’re doing it, and when will be the right time. If you’re a successful business, you’ll be around until then.

Taking the hard road.

If you can make it there, you can make it anywhere.

Why?

Is it ego or prudence to try and find the most difficult condition to succeed? Or are you working to give yourself an excuse if you fail? Provide a ready scapegoat, thereby making a success that much more wonderful, or a failure that much more forgivable.

We see examples of this in many places. From amihotornot, people put up an unflattering picture of themselves, if they get highly rated, they think, I’m able to be highly rated even with giving myself a handicap. If they are not rated well, they can blame it on a poor photograph.

No style points for failure.

Success in business is measured by being around, and being profitable, either through the business operations, or during the sale.

None of that happens if you go bankrupt.

Try sticking around and succeeding, it's more fun and profitable.