Why I don’t sign NDAs. . .
January 30, 2009
For those of you who have great ideas and want to share them with me I am happy to provide my advice, but please quit asking me to sign an NDA. Its one thing if I contact you and ask that you share confidential information with me, it is another thing if you call me asking for free advice. Literally, some people want me to enter into a contract with them without consideration, creating a potential liability for myself and my company. So, no I won’t sign an NDA, period.
Let me give you an example of the sort of crap I have to deal with. Back in October a woman named Ellen Badinelli contacted me via email:
“We have licensed 3G Vision’s Symbian client, and about to license a Windows mobile client from them but wanted to see if there was any comparable reader out there before purchasing. Is the barcode reader IP your own, or do you license from 3G Vision or another entity? If another, could you state which? Separately, our service fully complements yours and we are scheduled to debut on Nokia’s web page/handsets by first quarter ’09, A T & T wants us on “15-20” handsets, various platforms, by the same time, and we plan to begin development on the Andriod platform, and did I mention we are a solely-owned two and a half man [one part-timer] shop? Any interest in exploring our compatibility? A prompt reply to these questions is greatly appreciated; we are in the midst of Angel investor negotiations.”
The next day Ellen Badinelli gave me a call asking if we would license our barcode reading technology so that she could launch her application. She never revealed the nature of her application indicating that I would need to sign an NDA before she could explain what she was doing. She expressed an interest in partnering/hiring us to develop her application. I explained that we were too busy, but that the barcode technology had been released using an open source license - she could use it for free! I suggested she work with another company I had talked to a few weeks earlier called CamClic, but she told me she had already been working with them. The call ended cordially and I received an email from her shortly after the call:
“Thanks for your time this a.m. I have been operating in this space way before the other entities you mentioned, and while I would like to explore what I think is a symbiotic relationship between our companies, I risk being an unpaid consultant to retailers and to developers, like Cam Click and a few others, who I have provided my materials and held discussions with. As you are currently engaged with them, this would not be appropriate without an NDA. I hope you can appreciate my position. Should that be of interest to you, please do not hesitate to contact me. Again, many thanks for the barcode reader referral and the advice on NeoMedia/Qode or whatever they call themselves these days, EB.”
It was strange how Ellen Badinelli sent the email detailing her version of our call minutes after we hung up. If I were a suspicious person I would have began to realize she was building a case (even if it is a lousy one). I didn’t hear from Ellen again until January 27th (a couple of days ago). She reiterated her desire to work with us to develop her application. She again asked me to sign an NDA and I repeated the fact that we were too busy to start something new. She revealed that her idea revolved around health and safety information. I explained we had another partner who already provides allergy, ingredient and heath information for our users. She asked how we were able to afford the data and I explained that we received it for free. I offered to refer her to our partner so that she could negotiate the same sort of agreement. My appointment arrived and I cut our call short, but offered to speak with her later if she wished.
This evening I received a threatening letter from David Joyal an associate at Greenberg Taurig indicating that ShopSavvy is ‘markedly similar’ to Ellen Badinelli’s technologies. He suggests that Ellen Badinelli disclosed her technology to CamClic and that they must have revealed that information to our company. He concludes that Ellen Badinelli is:
“willing to consider licensing the invention disclosed and currently claimed in Scanavert’s above-referenced patent application; and remains interested in any of a variety of other partnership opportunties as between Scanavert and Big in Japan”
You get it? She emailed me, called me and despite the fact that I refused on two occasions to enter into an NDA she had her lawyer threaten me with litigation over a technology she never disclosed. Her goal was to have me sign the NDA, provide confidential information and then threaten me. Imagine if I had taken the bait? Instead of the court requiring that Ellen Badinelli prove that I have done something wrong, I would have had to prove that I didn’t do something wrong. The NDA would have shifted the burden to me. Anyway, this will end up costing me at least $5,000 in legal fees and all I did was try to help someone excute on their idea. People like Ellen Badinelli make it hard for all entrepreneurs.
The biggest challenge for entrepreneurs. . .
Wikipedia defines an entrepreneur as ‘a person who has possession of an enterprise, or venture, and assumes significant accountability for the inherent risks and the outcome. The term is a loanword from French and was first defined by the Irish economist Richard Cantillon. Entrepreneur in English is a term applied to the type of personality who is willing to take upon herself or himself a new venture or enterprise and accepts full responsibility for the outcome.’
The kind of person who is willing accept all of the personal, professional and financial risk to pursue their business idea is often the kind of person who likes to be in control. ‘Rugged Individualism’ is a cultural imprint; the essence of Americanism (opposed to the European notion of public-spiritedness) and lies at the heart of most entrepreneurs I have met. Most of us wear blinders as we ignore those who try to tell us what we are trying to do is impossible. Hopefully, at some point, entrepreneurs reach a point where others quit maligning their ideas and offer to help maximize the opportunities we have created.
Entrepreneurs are elated when investors are interested enough in their business to invest capital - it is the ultimate compliment. Ultimately entrepreneurs accept investments and assume they can continue running their company in the same way they have in the past. This makes sense, the investors liked him enough to invest in his business - why would they want him to change? This inflection point is often the beginning of the end for most entrepreneurs (see my post explaining that 50% of founders are fired within the first year).
How can you ensure you are part of the 50% who don’t get fired? First, if you are an unashamed ‘rugged individual’ admit that to yourself and the investors and structure your deal in such a way that you get paid enough so that even if you get fired you are happy. Second, if you are determined to be the next exception (Gates, Jobs or Dell) you need to stop acting like ‘the owner’ and more like ‘a steward’.
Wikipedia defines a steward as someone who takes ‘personal responsibility for taking care of another person’s property or financial affairs.’ Your business is no longer about you, instead it is all about the shareholders (hopefully you are one too). If you can make the transition from ‘owner’ or ‘entrepreneur’ to steward there is a good chance you will make it.
This begs the question, “Who wants to be a steward anyway?” Hell, I don’t. There are thousands of people who have years and years of experience taking care of other people’s property or financial affairs - why not let them take over? Entrepreneurs are supposed to be about risk and creation - as soon as you stop taking risk and stop creating you aren’t really an entrepreneur anymore, are you?
Only in Texas: Revolution Ropes
Ever since NTAN (the North Texas Angel Network) began officing in our coworking space at the INFOMART we have met some very interesting entrepreneurs. Earlier today we were visited by Sandy Stephens the president of Revolution Ropes. Evidently there are scores of competitive ropers (i.e. using a rope to lasso cows and stuff) around the country. Sandy invented what he calls the ‘xcelerator’ which allows cowboys to decrease ‘misses’ by increasing tip follow through, more distance, less bounce and better tip visibility. He estimates the total market size of ropes at around $60MM in the U.S. Who knew. Anyway, it isn’t everyday we see a real live cowboy even here in Texas. Sandy with the Hulk and his rope:
Endangered Species: Startup Founders!
January 29, 2009
You might be surprised to learn that 50% of venture backed startups fire their ceo/founder within the first year. Of course, if you happen to be a ceo/founder of a venture backed startup you won’t be surprised.
When I received my first term sheet (from Austin Ventures) the signature block included the title, “Interim CEO”. The good news? They were upfront, I was out the door as soon as they could find a worthy replacement. I kept looking until I found a venture capital firm that would back ME and not my 50 page business plan.
Peter Ireland has an interesting post title, “The Dreaded Lunch Invite from Your Venture Capitalist” about this topic. Peter quotes Barnaby Federer of the Wall Street Journal:
“If you ask a VC what value they add, and you get them after a few drinks, they’ll say, ‘We replace the CEO’ “, he said. And that, he indicated, does not vary with the economic climate.
He goes on to explain how the process (of firing the CEO) starts:
t usually occurs in this manner. The venture capitalist invites the founder out for a friendly lunch. During the meal the venture capitalist brings up a new person who would benefit the company greatly through his connections or industry experience. The venture capitalist explains that although this person is not available to serve on the management team, he could probably find the time to serve as a director. Yes, it would mean making the board larger than originally agreed to by everyone but this guy is a “star”. The founder wishing to please his venture capitalist reluctantly agrees to the change in board size. The new face turns out to be the extra vote the venture capitalist needed to make wholesale management changes. Within a week the board has fired the founding team and replaced them with friends of the venture capitalist. Oftentimes the new board member assumes the CEO role.
His advice is to stick to your guns. Hopefully your lawyers helped you negotiate a deal whereby you had a balanced board ~ fight tooth and nail to keep that balance. NEVER GIVE IN! Peter offers this advice:
The best tactic to employ when faced with this offer is tell the venture capitalist that you 1) can’t recommend someone for a board seat until you are satisfied that they can make an actual contribution, and 2) that since the board is working well it would be preferable to compensate this person–once they have made a tangible contribution–with consulting fees instead of a board position. Finally, if you sense a strong negative reaction from the venture capitalist you can be assured that there’s trouble brewing in River City and it’s spelled with a capital “T”. He will always have a Plan B for pink-slipping you and it won’t be pleasant. Call your lawyer immediately, and I mean your lawyer not the company’s.
Finally, it might make some sense to think about your title. Does your business card say Chairman, CEO, President and Founder? Why not add ‘master of your domain’ while you are at it. Really? Ask your self, do I need all of those titles? I really doubt it, especially if you are involved in a startup. Here at Big in Japan we decided to allow employees to pick their own title (i.e. as long as it wasn’t traditional). For example, my title is Social Ninja and our lead developer is Bento Boxer. The point was, in a startup (especially early on) titles can get in the way of the fact that everyone needs to be able and willing to do anything. Just because you have a C or V in your title doesn’t mean you don’t have to take the trash out or haul boxes.
Titles can be an even trickier subject when you are trying to raise money. Rick Segal reminded me of the secret language/code venture capital folks use in his post titled, “VC Hot Questions“. Rick is running the Blackberry Partners Fund and as a result he and his partner VCs are hearing more than their share of pitches from entrepreneurs. Rick shared a few of the ‘third rail’ questions his partners have been asking entrepreneurs and I thought it might be helpful to post them here:
“Help me understand how the current management team gets the company to 50MM a year in revenue?”
“Do you think you and your team are strong enough to get it over the finish line?”
“What’s the track record of your management team with respect to successful exits?”
Do you know what the REAL question that was asked? Venture capital folks ask it in a hundred different ways, but there is only one answer they are looking for. The question is, less subtly, “are you willing to step down as CEO at some point?” Ricks suggest avoiding the problem by simply using the title “founder” and if you are asked “who is the CEO” to simply say, “Look, I’m the founder and we’re running a million miles an hour towards being successful as you can see here… The objective is to find a financial partner and a solid board to help me, as the founder, grow the management team and knock this baby out of the park.” I advise, as does Rick, only to say this if you believe the statement. The truth is even Bill Gates, Steve Jobs and Michael Dell were replaced as CEO… (of course you never know, Jobs and Dell got their jobs back - maybe you will too).
Double Jelly Next Week!
If you are looking for a place to work next week think about joining us for our regular ‘First Friday Jelly’. We are also putting on an impromp-tu Jelly on Monday (I will be in Europe AGAIN on Friday so I decided to see if I could convince some of you to come on the only day I will be in town next week). So if you are a die-hard please think about joining us:
- Monday - Jelly 9AM-5PM (at the INFOMART suite 2019)
- Monday - Startup Happy Hour 5PM-8PM (at the INFOMART High Tech Bar)
- Friday - First Friday Jelly 9AM-5PM (at the INFOMART suite 2019)
If you have questions or need directions just ping me at amuse@biggu.com. For those of you who don’t know what a Jelly is: http://www.workatjelly.com/
SMU Business Plan Competition
Last year I was fortunate enough to be asked to judge the SMU Business Plan Competition and it was lots of fun. If you have the time I would suggest you take a couple of hours out of your day to check watch the competition. The Business Plan Competition will take place in the E&Y Gallery located in the Fincher Building on the SMU campus (the same place where it was held last year). It will begin February 13th (Friday) at 1pm and end at approximately 4pm. A reception will follow the end of the competition.
Here is a SMU campus map for your reference:
http://smu.edu/maps/campus.asp
Fincher Building is #42 on the map
Visitor parking ($5) is available in the nearby Binkley (#53) and Moody (#94) garages
If you are interested in attending just RSVP to Darren Grahsl - dgrahsl@smu.edu
Wanted: 20 Dallas Startups to Apply for TechStars
My SpringStage business partner, David Cohen, runs TechStars, an early stage summer incubator located in Boulder. Last year 393 companies from around the US applied, few of which were from North Texas. David and his team only accept ten companies each summer, providing $18,000 in seed funding (enough to money for three founders to survive over the summer) plus free server hosting, a nice place to work, free legal services. The real value of the program is access to the mentors, angel investors and venture capitalists (more than 150 venture capital firms flock to Boulder to check out the crop of TechStars startups). Out of the 20 companies that have gone through the program, sixteen of them have received funding and/or become profitable after TechStars ended (this is the real value).
What TechStars is looking for:
- opportunities that leverage the internet
- a team of 2+ (3 is ideal, single man teams won’t make the cut)
- have a prototype (come on, this isn’t as hard as you think)
- completed application or video application by February 15th (the deadline is March 21st, but don’t wait)
You will need to spend 51% of your time over the summer in Boulder (I suggest more, as the value will be the connections you make there). David and his team will help you find very affordable housing. Dallas-based startups accepted into the TechStars program can keep offices in our coworking facility in the INFOMART for the days you can’t make it to Boulder.
So here is my offer: Prepare your application, but before you sumbit it I will review it, providing advice that will give you a fighting chance. ONLY 10 companies make it into the program each year - most of them (16 out of 20) get funded. I suspect that if we can get at least 20 applications in, at least 2 startups from Dallas will make the cut. You have 15 days to get me your application!
Are you the ’startup guy’ in your city?
January 28, 2009
We are looking for ’startup guys’ (guys is gender nuetral) to join SpringStage as local catalysts. First, it might help if I explained what SpringStage is:
SpringStage is a network of community catalysts who are in tune with their local entrepreneurship and startup scenes. The network will formally launch in early 2009 as a blog network. This is the first step in ensuring that there is a visible resource in every community for early stage entrepreneurs.
Today, if you’re new to a city and you want to be involved in the startup scene there, there is no clear cut way to get involved. Springstage hopes to fix that by identifying and promoting credible catalysts in each community. We are providing the infrastructure for those catalysts to begin promoting their location entrepreneurship scene immediately.
David Cohen and Alexander Muse are the founders of SpringStage. Both have been blogging for years and both are natural catalysts in their respective communities (Boulder, CO and Dallas, TX). Their blogs are read by thousands in their community and are considered go to resources on entrepreneurial events and news in their area. Both are experienced angel investors and entrepreneurs.
Springstage was formed to take what we’ve learned and apply it nationwide to foster entrepreneurship. Every local community that hopes to improve the startup activity in their community can learn from those who have been successful doing so in the past. They can follow in our footsteps. 20 other bloggers are already doing so, and we’re just getting started.
Our vision for Springstage is to be a beacon for entrepreneurial activities in local communities across the country. When someone enters a community and wants to get involved with the local startup scene, we want them to think about the local Springstage catalyst as the perfect starting point.
Hopefully that makes some sense. Here is what we are looking for:
SpringStage is recruiting local catalysts, local contributors and national contributors. Our goal is to have a SpringStage Catalyst in every major city in the United States by the end of 2009. Over the next three years our network of catalysts will work together to help promote entrepreneurship through by working to create startup communities in their areas.
Catalysts are assigned a specific territory, usually covering a specific city or state. Next a SpringStage resource will setup a blog where the catalyst should begin to write about their local startup scene. One or two posts each week are required and it is recommended that a catalyst write one or more posts per day. The catalyst should be available for a conference call every other Friday to share experiences, coordinate activities and contribute ideas. Stage two includes hosting offline events such as happy hours, startup mixers, demos and other ad hoc type social events for startups.
Local contributors are usually writers or bloggers who cover startups and entrepreneurs, but who do not have the time to commit to becoming a catalyst. The local contributor simply continues to write or blog wherever did previously, but tags appropriate content with the ‘springstage’ tag and that content is reblogged on the SpringStage startup blog in his or her area. The local contributor owns the content, but gives SpringStage a non-exclusive license to use the content. Local contributors are given a byline and a link back to their blog.
National contributors are similar to local contributors, but do so on a national basis. Their contributions consist primarily of blog posts covering startups and entrepreneurship on a general basis, not necessarily associated with a particular area. Again, the national contributor simply continues to write or blog wherever did previously, but tags appropriate content with the ‘springstage’ tag and that content is reblogged across the entire SpringStage startup network. The national contributor owns the content, but gives SpringStage a non-exclusive license to use the content. National contributors are given a byline and a link back to their blog.
Would you make a good catalyst?
Anyone can make a great catalyst. It simply takes a) five to ten hours a month, b) a desire to connect with local entrepreneurs, c) the ability to write a few blog posts a week, and d) the dedication to stick with the effort for at least a year. Each SpringStage community will look different depending on the catalyst; there is no right answer. Great fits could include:
- Angel Investors
- Venture Capitalists
- Entrepreneurs
- Would-be Entrepreneurs
- Writers
- Academics
Interested? Apply Here: http://www.springstage.com/join-us/
What I am up to…
I have always used this blog to ‘time-shift’ conversations, so it makes some sense to give those of you with an interest, an update on what I am working on these days:
Last summer we reinvented Big in Japan and turned it into a publisher of mobile applications. Our first application, developed in house, was called ShopSavvy. The application, built originally for the Google’s Android platform (available on T-Mobile) allows a user to scan the barcode of any product to find competitive prices from online and local retailers. With hundreds of thousands of users in the US, the application is the second most popular in Google’s Android market. I have been doing quite a bit of traveling for our European launch (Amsterdam a couple of weeks ago, Hamburg, Germany last week, France next week and Barcelona, Spain the following week). Of course this has really eaten into my blogging (sorry about that). You can following the action at Big in Japan on our blog here.
Around the same time we were reinventing Big in Japan I teamed up with David Cohen of TechStars fame, to launch SpringStage. Our goal with SpringStage is to build a network of individuals like ourselves around the world interested in helping promote entrepreneurship. Today we have ‘catalysts’ in more than 20 cities and hope to cover more than 100 cities by the end of the year. Check out our 2009 schedule for Dallas. The best way to follow what we are doing at SpringStage is to check out our homepage and of course the startup blog in your area (I cover the Dallas area).
More than a year ago we teamed up with my old YEO friend, Brad Merritt, to launch WhiteBox. WhiteBox provides insurance premium finance and collection services to the automotive industry. Using a fairly cool platform we are able to fund vehicle service contracts on behalf of car buyers and collect the premiums via ACH. This business really got started when we decided to take our agile development experience and apply it to a real world problem. Focusing on a very specific niche has turned out to be a great opportunity.
Towards the end of 2008 we had the opportunity to augment our IT services business, Architel, with the assets of another public IT business. Formerly known as AtlasTG, we renamed the business SevenLayer and incorporated its offering within Architel. Scott Ryan, my business partner who runs Architel, has been a real sport providing the cashflow to support our various efforts (including Big in Japan, SpringStage and WhiteBox).
Finally, we received a term sheet to fund our contractor referral business called ServiceGuy. Last week I met with the strategic investor and suggested that it might make sense to sell it to them instead of accepting an investment. They agreed and I am hopeful ServiceGuy will have a new owner who will be able to turn my little idea, into a real business. More to come on this soon.
I almost got myself in a pickle when I offered to buy JPG Magazine, but fortunately for my schedule they spurned my offer. This year I am going to hire a business development person to help me manage my time and activities. If you know someone please have them contact me. Anyway, you are now up to speed.
Challenge the known and embrace the unknown!
I had an interesting call from an executive from a major grocery chain last night about our mobile price comparison application: ShopSavvy. He couldn’t imagine a world where grocery stores would publish inventory and pricing information. He explained that grocery stores rely on loss leaders (i.e. items prices especially low) to get shoppers into their stores in order to buy other items at relatively high prices. If shoppers were able to find the loss leaders and avoid the items offered at higher than market prices he was concerned that grocery stores would suffer fatal price compression. For example, if you walk into Ralph’s to get a turkey priced well below cost and then walked down to Kroger to get the rest of your grocery list, both stores would be negatively impacted. Is this a bad thing?
Information arbitrage has been a tried and true business model throughout the history of man. If I know something that you don’t there is a good chance I can use my knowledge to create an economic advantage for myself. The internet has been slowing killing businesses based on information arbitrage. Sitting on your home PC you can replace the daily newspaper with the information you want when you want it - no need to soil your fingers with newsprint reading what a local editor decided you might want to read. You can trade stock directly from you laptop without using a broker. The examples are endless. The internet has been very disruptive.
The explosion of mobile applications on the iPhone and Android are quickly changing the game again. The internet has information on every possible subject. Google made it all easily accessible on your desktop. Internet connected mobile devices (we used to call them mobile phones) allow users to access the internet anywhere they happen to be. Mobile applications like ShopSavvy organize this data for the mobile platform, allowing users to have the most perfect information on a particular subject that is available. Of course, ShopSavvy is a pebble dropped into the sea of retail, but it represents a sea change that is coming for retailers. Relying on ‘bait and switch’ tactics won’t work. Marking up products to reduce their price won’t work. Retailers who depend heavily on loss leaders will see that strategy become less and less effective.
The executive suggested that grocery stores may have to prevent users from using their mobile phones to scan items or compare prices. They might install cell jammers. This line of thinking is simply shortsighted. If your business relies on consumers being uninformed you are in big trouble. Consumer will often know more about you, your product and your competitors than you do - embrace this fact, don’t stick your head in the sand and ignore it. I am reminded of a speech that Guy Kawasaki gave to high school students a few years ago. The topical part was when he suggested the students, “Challenge the known and embrace the unknown.”
One of the biggest mistakes you can make in life is to accept the known and resist the unknown. You should, in fact, do exactly the opposite: challenge the known and embrace the unknown.
Let me tell you a short story about ice. In the late 1800s there was a thriving ice industry in the Northeast. Companies would cut blocks of ice from frozen lakes and ponds and sell them around the world. The largest single shipment was 200 tons that was shipped to India. 100 tons got there unmelted, but this was enough to make a profit.
These ice harvesters, however, were put out of business by companies that invented mechanical ice makers. It was no longer necessary to cut and ship ice because companies could make it in any city during any season.
These ice makers, however, were put out of business by refrigerator companies. If it was convenient to make ice at a manufacturing plant, imagine how much better it was to make ice and create cold storage in everyone’s home.
You would think that the ice harvesters would see the advantages of ice making and adopt this technology. However, all they could think about was the known: better saws, better storage, better transportation.
Then you would think that the ice makers would see the advantages of refrigerators and adopt this technology. The truth is that the ice harvesters couldn’t embrace the unknown and jump their curve to the next curve.
Challenge the known and embrace the unknown, or you’ll be like the ice harvester and ice makers.
Downsizing sparks entrepreneurial endevours!
Mark Cannice made an interesting observation about the current economic turmoil: “If there is a silver lining, the large-scale downsizing from major companies will release a lot of new entrepreneurial talent and ideas — scientists, engineers, business folks now looking to do other things,” he said. “There will be a lot of forced entrepreneurship that will lead to innovations.”
Getting past NO!
It is important to set a timetable when raising money. Depending on your situation four weeks might be a reasonable amount of time to spend raising money, while in other cases six months might be just as reasonable. The truth is that most startups never get to yes. Marc Andreessen has an interesting perspective, ‘One “no” doesn’t mean anything — the VC could just be having a bad day, or she had a bad experience with another company in your category, or she had a bad experience with another company with a similar name, or she had a bad experience with another founder who kind of looks like you, or her Mercedes SLR McLaren’s engine could have blown up on the freeway that morning — it could be anything. Go meet with more VCs.’
Marc’s advice:
- Lay the groundwork to go back in later (i.e. don’t burn that bridge, usually ‘no’ means not right now)
- Consider the environment (i.e. no in 1999 means your plan was really bad, no in 2002 means the market was running scared)
- Retool your plan (Marc compares the process to peeling an onion, you have to be willing to ‘peel layers of risk’ off of your deal to get to yes)
Of course there are hundreds of reasons VCs say no including: founder risk, market risk, competition risk, timing risk, financing risk, marketing risk, distribution risk, technology risk, product risk, hiring risk, location risk and so on.
Where do you find ‘A’ players?
January 27, 2009
Last year I asked, “Did you know, ‘A’ people join startups, ‘B’ people join big companies?”
According to Auren Hoffman “…big high tech companies are losing the talent war.” He suggests,
Big companies are losing their “A” players and they’re struggling to attract “B” players. In an industry where everything is about people, large tech companies are in trouble because they are losing the talent war. And keep in mind, an “A” player in an organization can usually produce the same results as three “B” players.
Auren goes on to explain that it is “irrational” for “A” players to join big companies such as Yahoo, Microsoft, eBay or Cisco. Instead “A” players are joining small companies where they can “have fun, pursue their dreams and actual get things done.”
His thesis is true for me personally (not saying I am an “A” player), but perhaps not for all “A” players. He goes on to explain that you will earn 10-20% less at the startup ~ if you work for me think 30% less (but of course there are the stock options). He suggests that if you
“…want to work less (or eat free gourmet food). If you are content with working 35-40 hours a week and are not interested in growing your career at this point in your life, then working for a large company is a good short-term decision.”
Interesting article from Auren (he is CEO of Rapleaf). What do you think?
Roll your own investor referrals!
You have prepared your elevator pitch and your ‘deck’ so you are ready to set appointments with VCs, but no one will return your call. First, DO NOT SEND your business plan. Why not? David Cowan of Bessemer Venture Partners explains, “Nothing slows down a VC as much as a comprehensive business plan.”
Oh and DO NOT ASK a VC to sign an NDA. Ryan explains, “Asking a VC to sign a NDA is tantamount to splitting 10’s at the blackjack table. You just don’t do it. In the least, it will show that you do not understand the mechanics of how VCs operate. At worst, the VC will burn your NDA and dump your submission in the trash.”
My Advice? Make your own VC Referrals!
You need a referral to get most VCs to return your call. If you are trying to raise capital from VCs you will need to talk to them over the phone to a) gauge their interest in your business, b) see if your business philosophies mesh and c) to schedule the ever important face-to-face meeting. When I was in money raising mode in the late nineties there were over 1,000 venture capital firms across the United States. I must have talked to more than 100 of them, scheduling meetings with perhaps 50 different firms over a six month period. Less than 10% of venture partners I called would return my call without a referral. With a referral I got a return call around 80% of the time.
Today, lots of people call me and ask, “do you know such-and-such at such-and-such venture firm, I need a referral.” In some cases where I know both the entrepreneur and the venture partner I will make a call to grease the wheels. In other cases I may just say, “you can use my name and explain that I recommended you call.” It all depends on how well I know the entrepreneur or the VC. Bottom line, in my experience, without a referral you aren’t very likely to receive a return call. With a referral your success rate will be 50/50 based on the quality and type of referral.
For those of you who don’t know me and need a referral to a specific VC I recommend a simple way to “Make Your Own VC Referral.”
- Step One: Determine which firms you want to talk to. Based this decision on which firms have previously funded deals in your space.
- Step Two: Figure out which partner at your target firms you want to work with. Based this decision on which partners managed the deals you used to decide which firm to call.
- Step Three: Contact the CEOs of the companies the VC partner funded. Let the CEO know that you are considering working with one of their VCs and suggest that you plan to talk to the partner they work with. See if he will answer a few questions about his experience with them. Usually a CEO will return your call very quickly. Ask him real questions that might help you determine if, in fact, you really want to work with the firm and partner you found on the Internet. Hint: not every VC is fun to work with.
- Step Four: Contact the VC partner (i.e. leave him a message) and explain that you had a chance to talk to such-and-such CEO of his portfolio company. Tell him that based on that conversation he sounds like just the sort of investor you are interested in working with. Ask him if he would be interested in getting together for coffee to discuss your business. More often than not you will get a return call.
Get it? By following these simple steps you can create your own referral. Of course, don’t be deceptive, the VC will soon realize that you don’t really know his CEO and that is fine. You are obviously the sort of business person that does his homework. You are just as concerned about him as he should be in you and your business.
One side note, if you ever see that “submit a plan” button on a VCs website run away. NEVER, EVER submit your business plan blindly to a VC. You don’t want to be ‘that guy.’ Always send your plan to a real person, someone you have actually talked to. It would be like putting a “Submit Termsheet” button on your website. If you actually got one from someone who obviously knows nothing about you would you take it seriously (assuming you can make payroll next month). Good Luck!
Ten Rules for Startups
Evan Williams, the guy behind twitter, had a great post a couple of years ago titled, “ten rules for web startups” that every entrepreneur should read so I will reprint here:
#1: Be Narrow
Focus on the smallest possible problem you could solve that would potentially be useful. Most companies start out trying to do too many things, which makes life difficult and turns you into a me-too. Focusing on a small niche has so many advantages: With much less work, you can be the best at what you do. Small things, like a microscopic world, almost always turn out to be bigger than you think when you zoom in. You can much more easily position and market yourself when more focused. And when it comes to partnering, or being acquired, there’s less chance for conflict. This is all so logical and, yet, there’s a resistance to focusing. I think it comes from a fear of being trivial. Just remember: If you get to be #1 in your category, but your category is too small, then you can broaden your scope—and you can do so with leverage.#2: Be Different
Ideas are in the air. There are lots of people thinking about—and probably working on—the same thing you are. And one of them is Google. Deal with it. How? First of all, realize that no sufficiently interesting space will be limited to one player. In a sense, competition actually is good—especially to legitimize new markets. Second, see #1—the specialist will almost always kick the generalist’s ass. Third, consider doing something that’s not so cutting edge. Many highly successful companies—the aforementioned big G being one—have thrived by taking on areas that everyone thought were done and redoing them right. Also? Get a good, non-generic name. Easier said than done, granted. But the most common mistake in naming is trying to be too descriptive, which leads to lots of hard-to-distinguish names. How many blogging companies have “blog” in their name, RSS companies “feed,” or podcasting companies “pod” or “cast”? Rarely are they the ones that stand out.#3: Be Casual
We’re moving into what I call the era of the “Casual Web” (and casual content creation). This is much bigger than the hobbyist web or the professional web. Why? Because people have lives. And now, people with lives also have broadband. If you want to hit the really big home runs, create services that fit in with—and, indeed, help—people’s everyday lives without requiring lots of commitment or identity change. Flickr enables personal publishing among millions of folks who would never consider themselves personal publishers—they’re just sharing pictures with friends and family, a casual activity. Casual games are huge. Skype enables casual conversations.#4: Be Picky
Another perennial business rule, and it applies to everything you do: features, employees, investors, partners, press opportunities. Startups are often too eager to accept people or ideas into their world. You can almost always afford to wait if something doesn’t feel just right, and false negatives are usually better than false positives. One of Google’s biggest strengths—and sources of frustration for outsiders—was their willingness to say no to opportunities, easy money, potential employees, and deals.#5: Be User-Centric
User experience is everything. It always has been, but it’s still undervalued and under-invested in. If you don’t know user-centered design, study it. Hire people who know it. Obsess over it. Live and breathe it. Get your whole company on board. Better to iterate a hundred times to get the right feature right than to add a hundred more. The point of Ajax is that it can make a site more responsive, not that it’s sexy. Tags can make things easier to find and classify, but maybe not in your application. The point of an API is so developers can add value for users, not to impress the geeks. Don’t get sidetracked by technologies or the blog-worthiness of your next feature. Always focus on the user and all will be well.#6: Be Self-Centered
Great products almost always come from someone scratching their own itch. Create something you want to exist in the world. Be a user of your own product. Hire people who are users of your product. Make it better based on your own desires. (But don’t trick yourself into thinking you are your user, when it comes to usability.) Another aspect of this is to not get seduced into doing deals with big companies at the expense or your users or at the expense of making your product better. When you’re small and they’re big, it’s hard to say no, but see #4.#7: Be Greedy
It’s always good to have options. One of the best ways to do that is to have income. While it’s true that traffic is now again actually worth something, the give-everything-away-and-make-it-up-on-volume strategy stamps an expiration date on your company’s ass. In other words, design something to charge for into your product and start taking money within 6 months (and do it with PayPal). Done right, charging money can actually accelerate growth, not impede it, because then you have something to fuel marketing costs with. More importantly, having money coming in the door puts you in a much more powerful position when it comes to your next round of funding or acquisition talks. In fact, consider whether you need to have a free version at all. The TypePad approach—taking the high-end position in the market—makes for a great business model in the right market. Less support. Less scalability concerns. Less abuse. And much higher margins.#8: Be Tiny
It’s standard web startup wisdom by now that with the substantially lower costs to starting something on the web, the difficulty of IPOs, and the willingness of the big guys to shell out for small teams doing innovative stuff, the most likely end game if you’re successful is acquisition. Acquisitions are much easier if they’re small. And small acquisitions are possible if valuations are kept low from the get go. And keeping valuations low is possible because it doesn’t cost much to start something anymore (especially if you keep the scope narrow). Besides the obvious techniques, one way to do this is to use turnkey services to lower your overhead—Administaff, ServerBeach, web apps, maybe even Elance.#9: Be Agile
You know that old saw about a plane flying from California to Hawaii being off course 99% of the time—but constantly correcting? The same is true of successful startups—except they may start out heading toward Alaska. Many dot-com bubble companies that died could have eventually been successful had they been able to adjust and change their plans instead of running as fast as they could until they burned out, based on their initial assumptions. Pyra was started to build a project-management app, not Blogger. Flickr’s company was building a game. Ebay was going to sell auction software. Initial assumptions are almost always wrong. That’s why the waterfall approach to building software is obsolete in favor agile techniques. The same philosophy should be applied to building a company.#10: Be Balanced
What is a startup without bleary-eyed, junk-food-fueled, balls-to-the-wall days and sleepless, caffeine-fueled, relationship-stressing nights? Answer?: A lot more enjoyable place to work. Yes, high levels of commitment are crucial. And yes, crunch times come and sometimes require an inordinate, painful, apologies-to-the-SO amount of work. But it can’t be all the time. Nature requires balance for health—as do the bodies and minds who work for you and, without which, your company will be worthless. There is no better way to maintain balance and lower your stress that I’ve found than David Allen’s GTD process. Learn it. Live it. Make it a part of your company, and you’ll have a secret weapon.#11 (bonus!): Be Wary
Overgeneralized lists of business “rules” are not to be taken too literally. There are exceptions to everything.
