A little advice… on getting advice

I’m all for getting advice about your startup idea and approach – before, during, and after you launch. But not all advice is created equal. Before you seek advice from a person, be sure to think about what they know, and don’t know. Here are a few types of experts you may want to consider getting advice from:

Functional experts. People with expertise in roles like sales, marketing, team building, product development, technology, law, manufacturing, etc. The more relevant their expertise the better. For example, if you are launching a training business that will sell to large corporations, get sales advice from someone who has sold similar types of services to similar types of companies. Advice from someone with expertise on selling consumer products to retailers may not be on target, and could even steer you in the wrong direction.

Industry experts. People with expertise in particular fields, like mass market retail, food and beverage manufacturing, or consumer e-commerce. Once again, the more specific, the better. And watch out for people who can’t see beyond outdated industry standards. For example, someone in publishing who doesn’t see how e-books, self-publishing, and other innovations threaten to change the rules of the publishing game.

Startup experts. Running a startup with limited resources is obviously very different than being an executive at a large corporation. If you haven’t started a business before, be sure to get the perspective of someone who has been there, done that.

mooooooooooooo

Got some fun business cards from moo.com. Inexpensive, great quality, fast, and easy to customize. Thought I’d share the designs for the backs of the cards:

 

Working through the numbers on ownership

One of my clients is raising a seed round of financing. Of course, she’s a smart cookie, and bootstrapped her way to some impressive results before raising the money. In case you go about something like this, I’ll show you how the ownership structure gets impacted.

First, she starts with some (arbitrary) number of shares – or units if it’s an LLC.

Then she issued some more units to key employees and advisors.

After that, she raised the round. The price per share is simply the pre-money valuation divided by number of shares before the round ($900,000 pre-money valuation / 10,640 shares = $85.59 per share). The investors put in $250,000, so the company issues an additional 2,956 units to them ($250,000/$85.59 = 2,956).

Everytime the company issues more shares, the previous owners are left with a smaller fraction of the total shares (barring anti-dilution provisions). They are effectively “diluted”. However, as long as the valuations keep rising, they’ll own a smaller piece of a bigger pie, so the value of their ownership will increase.

What goes on slide zero?

It may seem like your business plan pitch starts with your first slide (hopefully your team slide), but it doesn’t.

Before slide one comes slide zero. That’s everything you and your audience discuss from the moment you say hello until the first point on your first slide. What should you cover on slide zero?

Prove you weren’t born in a barn. Meaning, demonstrate your social skills. As you walk down the hall, wait for the rest of the team, or set up your slide show, ask an insightful question, with a follow-up to show you were listening.

Apply your super sleuthing skills. During the banter, try to ferret out a little information that could be helpful to your pitch. Maybe learn about the roles or relevant investment experiences of the various audience members. Or even find a mutual friend as a way to build their confidence in you.

Eeease your way into the pitch. As you get ready to start going through your slides, make a natural transition. Explain what you’ll be talking about (i.e. your elevator pitch), and explain the genesis of the project. Before you get your game face on, show them what makes you tick – what you were doing before, how you came up with this plan, and why you are so excited about it. A little insight into your motives and passion can go a long way, just as long as you follow it up with tight logic and a compelling story.

…And now, let’s turn to slide one…

Years shmears

I was just reading the promo materials from a professional services company, and ran smack into a pet peeve. “Our leadership team has over 100 years of combined experience in the business.” Ugh.

Tell me you have 100 happy clients willing to provide referrals.

Tell me 100% of your clients renew their contracts with you.

Tell me you’ve improved client performance by an average of 100%.

But 100 years of experience? First, that makes me think you are old. And in a time of rapid innovation, I want to feel like I’m betting on the future, not a bunch of old codgers. Second, it makes wonder. How many partners are there, anyway? 2 with 50 years of experience? 100 with 1 year of experience? It really doesn’t tell me anything. And third, it makes me skeptical – you’ve only got my attention for a minute. Don’t you something more compelling to say?

How to connect with former Wall Streeters?

From the Wall Street Journal today:  

“Nearly 25,000 jobs have been lost in New York City’s financial sector since August 2007, according to the New York State Department of Labor. The finance industry in New York is expected to lose 56,800 jobs from the end of 2007 to the beginning of 2012, according to projections from the Independent Budget Office, a publicly funded information agency.”

I’m guessing a decent percentage of these workers are not going to find traditional jobs in finance, and a good number of them will want to start their own businesses. Any idea how I can connect with them?  Happy to do some pro bono workshops…

Risky business (part 2): Reputation risk

In a recent post, I discussed the financial risks of starting your own company. Today, let’s look at how starting a company can put your reputation at risk.

If you lose money for an investor, you’ll probably impact your ability to raise money from them in the future. That can make life difficult in its own right, but it can also generate additional problems. Losing your ability to raise money from friends and family, or having a spouse put the kibosh on future personal investments can make it awfully tough to start another venture. It can also raise a red flag for prospective angels or venture capital investors, who are likely to want to see that you’ve tapped your own resources before reaching out for theirs. While it’s true that entrepreneurs can learn a lot from failures, let’s face it, investors would rather bet on people with winning track records. To make matters worse, some investor communities like angel networks and venture capital firms are very small and tight knit, so if you lose money for one, you may find other doors closed. While there’s no way to avoid reputation risk in the case of failure, being open, honest and direct with investors can only help. If investors perceive that you were a straight-shooter and that you executed well, you may live to win them over another day.

Pitch pointers

Once you’ve got your business plan pitch deck and your 1-pager together, it’s time to get out there and pitch. For some, that’s the fun part. For others, it’s high anxiety. Either way, here are a few tips to consider.

Cheat. If you’ve followed my advice, you won’t be reading from your slides when you pitch. Instead, you’ll use the slide to keep you on track, and to clarify the words you speak. That doesn’t mean you have to memorize everything you’ll say, though. Instead, print a copy of your deck, and write your name on your copy so you won’t accidentally pass it out. Try presenting the deck a few times out loud, alone, and when you find wording you like, write a few bulleted notes in the margins. I find those notes helpful on the first pitch or two. After that, I don’t need them. But it’s still nice to have a cheat sheet as a crutch in case you get nervous, or frazzled by tough audiences.

Practice. Before you pitch to an investor or advisor, practice on friends, and have them do their best to interrupt you, ask you challenging questions, and give you feedback. Develop a list of objections, and think through your answers. Look for ways to tweak your deck so you avoid walking into traps, and begin to build your backup slides.

Prep. Do your homework before you walk into a meeting. Think about what will constitute a “win”. Are you looking for a second meeting? An introduction? A verbal commitment? A check? If you don’t know what you want, you are less likely to get it. Also, know your audience. It’s easier than ever to do that given tools like Google, Facebook, LinkedIn and Twitter – not to mention good old fashioned networking. Find out about their industry experience, their education, even their hobbies. If they are professional investors, find out what they have invested in previously, how much they typically invest, what stage they invest at, their industry focus, and any other investment criteria. If possible, find people who have pitched to them before (or had them as investors), and get their advice.

Probe. Before and each meeting, there’s some time for chit chat – even if it’s in the hallway. Use that time to ask just a few open ended questions, and also show off a little of the homework you’ve done. You might glean some information that can help you shape your pitch, or learn more about what it will be like to have this particular investor as your long-term partner. Here are a few questions I’ve found helpful:

•  “I saw from your website that you’ve invested in ABC.com. How is that going?”
• “How do you typically get involved with companies you invest in?”
• “Do you tend to invest alone, or with others?”

Draw. One approach I find particularly effective is to stop at some point during your presentation, and draw a diagram of something on a whiteboard or just a piece of paper. This tends to ramp up the energy level in the meeting, and helps to drive a particular point home.

React. Tailor your presentation to your audience, and make adjustments as you go. Watch their eyes and body language. Are they sneaking peeks at their blackberries, flipping pages, or folding their arms? Pick up the pace. Did they seem to dwell on one of your points or ask an insightful question? Engage them in a dialogue. Provide more detail, and ask questions to find out what’s on their minds. In fact, try to listen as much as you speak.

Respond. When answering questions, get to the point quickly, and be clear and direct. You can add detail as you go, depending on whether you sense that the audience needs more. Be careful not to get defensive, or to move beyond your comfort zone. If you really don’t know the answer to something, you are usually better off saying you will look into it than taking the risk of flubbing your response.

Tag-team. If you’ve got a business partner, one of you should lead the pitch, and the other should provide backup coverage by reading the audience, adding any critical points you’ve missed, and taking notes on what seemed to go well or poorly so you can recap afterwards.

Ask. After your pitch and the ensuing Q&A, ask your audience what they think, and whether they are interested in whatever it is you want from them. If you get negative feedback, ask follow up questions to get to the root cause of their concerns. You may not win them over, but you could learn valuable lessons for your next pitch.

Startup valuation 102: Don’t sweat the valuation

If you are raising capital for your startup, read my post “Startup Valuation 101“. But don’t get obsessed with your valuation…

Many entrepreneurs and investors agonize over valuations. After all, valuations impact how much each party earns if the company gets acquired or goes public. But some take it too far. I recently read an insightful blog entry by Paul Graham, successful entrepreneur and founder of business incubator Y Combinator:

“There is no rational way to value an early stage startup. The valuation reflects nothing more than the strength of the company’s bargaining position…Ultimately it doesn’t matter much. When angels make a lot of money from a deal, it’s not because they invested at a valuation of $1.5 million instead of $3 million. It’s because the company was really successful. I can’t emphasize that too much. Don’t get hung up on mechanics or deal terms. What you should spend your time thinking about is whether the company is good. Similarly, founders also should not get hung up on deal terms, but should spend their time thinking about how to make the company good.[1]

 

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[1] http://www.paulgraham.com/angelinvesting.html#f1n

Bootstrapping is back, thanks to cheaper tech

Interesting article in the NY Times about bootstrapping. The article concentrated on whether venture capital needs to change its approach, but I think the more important point is that bootstrapping is getting easier thanks to decreasing tech costs.

NY Times May 14: “..Is venture capital becoming obsolete for Web start-ups? Yes, according to Robert Hendershott, a professor of private equity and entrepreneurship at the Leavey School of Business at Santa Clara University. He makes the case in a paper in the next issue of the International Review of Entrepreneurship, formerly known as the International Journal of Entrepreneurship Education.

As the cost of starting a Web company decreases, thanks to cloud computing services and technology that entrepreneurs can rent instead of buy, many founders can finance a new company without the help of venture capitalists, using their savings, money from family and friends and credit card debt, Mr. Hendershott writes. More often, they are choosing to sell small, immature companies instead of taking the longer, riskier path of developing a business that could one day go public. That makes venture capital less relevant, he concludes.