Getting support for a start up.

A startup veteran notes: "For the first few years, we were totally in a survival mode. We were very, very lean in terms of money and time. We didn't begin with clearly defined aspirations that in four years we'd achieve X and Y. It was more like, 'Let's do something and see what happens.' We went to the try-a-lot-of-stuff-and-see-what-works school. We had a business plan at the beginning but only because we needed one to get a line of credit. We didn't know much about running a business. We figured to learn what we needed as we went along. We went where the market took us.”

As Abraham Lincoln noted, “Things may come to those who wait, but only the things left by those who hustle.” Start-ups and turnarounds are very similar. You don't have much cash or much time. You have to make good decisions and make things happen quickly. Be prepared to skate fast over thin ice. Be prepared to move forward without the right answers. Concentrate on areas where you’re in control. Don’t worry about things that aren’t in your control. Work to develop an instinctive understanding of your target customers. Everyone in your organization needs to develop a proprietary, emotional relationship with the customer, continually striving to understand and respond to their needs.

To nurture start-ups toward maturity quickly, it helps if they belong to a group of interdependent yet nominally independent companies, all built around a core base of knowledge. Idealab strives to help its member companies, not by showering them with cash, but by leveraging shared creative and technical know-how. "We really don't think of ourselves as venture capital," says founder Bill Gross. "We're creative capital. The money we bring is incidental."

Idealab is a business incubator. Like a traditional VC firm, it provides seed money and takes a minority equity stake in the companies it adopts. Like a think tank, it brainstorms technology applications that could form the basis for new products. And like a parent company, it takes a substantial role in overseeing the operations of its subsidiaries. In a fast moving market, one or two months can be the difference between success or failure. The shared knowledge at Idealab enables a start-up to avoid many mistakes so that it can do in four-and-a-half months what would take another start-up nine months to do. Much of the time saved stems from the fact that Idealab companies don't have to build everything from scratch. Since they share office space and administrative services, startup teams are free to just concentrate on those factors that are uniquely related to their businesses.

Idealab is trying to harness both the power of a big company and the nimbleness of a small one. It aims to add value through shared knowledge and creativity and in that way build better companies. The CEOs of the individual businesses have complete freedom to shape their companies while determining which of Idealab’s suggestions seem most relevant and possible to their situations. Idealab uses its experience to systematize the generation of new business ideas. Among its learnings:

- You need to be incredibly highly focused to succeed.

- Even if you have a wonderful product, if you can't clearly communicate to the customers where the product's benefit is, it's not going to do you any good.

Venture Catalysts such as Artemis Ventures and Guy Kawasaki’s Garage Technology Ventures act as hybrid VC, headhunting and management consulting firms, helping startups in every way imaginable. Incubators can help by removing the need to pay attention to routine issues. "The first few months of a start-up are analogous to the first few nanoseconds in the birth of a star," says Steve Glenn, the founder of PeopleLink, which raised $35 million from GE, AT&T and Goldman Sachs and became a leading provider of online community software. "Whatever happens during that short period will determine your permanent trajectory. So if you're freed up from the administrative stuff, you can focus on aiming that trajectory as high as possible."

How to attract and keep customers.

Entrepreneurs survive by being enthusiastic about their ventures and by being committed to unceasing promotion of their their concepts. It seems unnatural for such people to equate "being silent" with actively promoting their venture. Yet, they’re not selling when they’re talking; rather, they’re selling when their targeted prospect is talking. Provide interesting information to your prospects and then listen to what they say. Let them "teach" you exactly what the hot-buttons are that can lead you to sales success. No one understands the targeted customer’s needs as intimately as the prospective customer does. If you listen closely enough, your customers will explain your business to you.

Selling is helping people make business decisions that are good for them. It’s finding a need and filling it. Learn how to offer solutions beyond price - because you know your customer’s business as well or better than they do. List the features of your product or service but sell the benefits.

Once you get a customer, keep selling to them. Customers are so difficult and so expensive to get, you don’t ever want to lose them. Sell them upgrades, maintenance, new products, new services. Aim to create a recurring revenue model. Continually refresh your memory of the reasons the customer did business with you in the first place.

The four main reasons why people buy are - Pride, Pleasure, Profit and Protection. What matters in sales is Continuity, Commitment and Content, and the last is the least important. All things being equal, the person with the best sales presence will get the order. To quote Aristotle, “People are convinced more by the depth of your conviction than by all the facts at your disposal.”

When you're selling, the ten most important "power words" that get the customer’s attention are:
- money
- save
- you
- new
- free
- proven
- guaranteed
- results
- health
- love

These words were identified by researchers in the Psychology Department at Yale University as having extraordinary persuasive power and are listed here in order of importance. Use these words early in your sales presentation and I guarantee that you'll get your client's attention.

Ten ways to attract new business.

1. Be a walking example/demonstration of how effective your product or service is. Being congruent (when people sense that you believe and live what you speak about) is the number one way to establish credibility.

2. Do your homework and discover what your "typical" customer's biggest problem is. Pretend it's your own problem. Now solve the problem. Take the solution to the customer, packaged around your own product/service. If you’re a solution provider, the barrier to entry is harder for a competitor than if you’re a product provider.

3. Polish your product knowledge and presentation techniques until they’re razor sharp. Your stories, examples, jokes, facts, comparisons and closes are your "tools of the trade." Spend a minimum of four hours a week polishing your tools.

4. Make a notebook of your best stories, best examples, most effective closes, funniest relevant jokes and the rebuttals to the biggest objections you face. Have the rest of the sales team do the same. Compare notes, then compile a "best of the best" file of the best stories, examples, closes, etc. Continually expand and add to your notebook each month.

5. Improve your communication skills so that people want to be around you. Learn rapport skills through Neuro Linguistic Programming (NLP) training, for example. Learn to identify different personality types and communications styles and know how to respond to each. Hone your listening and questioning skills. Polish your speaking and languaging skills until your presentations are very effective.

6. Add value to your current customers by making sure they're maximizing the use of the product/service. Show the customer how they’re saving money by using your product. Be willing to take as much time as necessary to educate and support them, especially after the sale.

7. Turn your customers into your company's R&D department. Get lots of feedback from them. Be so "in tune" with their needs and desires that you can anticipate what your customers will want even before they ask.

8. Ask your best customers for a letter of recommendation or a testimonial letter (on their letterhead). Three or four sincere testimonials can raise your average close ratio by 30-50%. An easy method is to interview your best customers over the phone, take notes (quotes), then email the notes to them. They can easily edit and print them out on their own letterhead, and mail the letter to you. Show the letters to all new prospects - this is more effective than the slickest brochure!

9. Strengthen your personal foundation/reserve levels so that you act like you don't need the money anymore. Then your motivation is based more on creating value, solving the customer's problems and genuinely helping them get what they want or need. This is a much more attractive sell.

10. Master the following six-step selling process until it’s second nature:

- Establish rapport.

- Ask questions to understand the customer and to find their real need.

- Based on the need, determine exactly where the real value is for the customer.

- Link their need to the value provided by your product/service using concise, persuasive communication (don't over-present).

- Assume the sale and conditionally close. If there’s a green light, then close the sale officially.

- If there are any objections, handle them by cycling back to previous steps (find the real need, link it to your product, etc).

The Hung Wu Vase, a poem by Robert Graves.

Robert Graves (July 1895 – December 1985) was an English poet, translator and novelist. He was educated at Charterhouse School and St. John's College, Oxford. He was awarded the James Tait Black Memorial Prize for both of his novels, I, Claudius and Claudius the God.
Graves fathered eight children with a variety of partners and had a fairly turbulent love life, as the following poem illustrates. Of course, love wasn't the only intensely-felt experience in his long life, but it was the one which helped him to make poetic sense of the rest. He once commented that, "Poetry cannot be separated from the state of being in love." He and his last love, Beryl Hodge, are buried in the small churchyard on the hill in Deia, on the northwest coast of Majorca, looking out over the sea.


The Hung Wu Vase by Robert Graves.

With women like Marie no holds are barred.
How do they get the gall? How can they do it?

She stormed out, slamming the hall door so hard
That a vase on a gilt shelf above - you knew it,
Loot from the Summer Palace at Pekin
And worth the entire contents of my flat -
Toppled and fell ...
I poured myself a straight gin,
Downing it at a gulp. 'So that was that!'

The bell once more ... Marie walked calmly in,
Observed broken red porcelain on the mat,
Looked up, looked down again with condescension,
Then, gliding past me to retrieve a glove
(Her poor excuse for this improper call),
Muttered: 'And one thing I forgot to mention:
Your Hung Wu vase was a phony, like your love!'

How can they do it? Where do they get the gall?


I'll be off next week, and back on December 29th.
My Christmas wish for all of you is:

May you always be blessed
With walls for the wind,
A roof for the rain,
A warm cup of tea by the fire
Laughter to cheer you,
Those you love near you,
And all that your heart might desire.

Five steps to great marketing.

Looking at marketing as an investment rather than an expense, Craig Palubiak offers five marketing guidelines to help you maintain your edge over the competition:

1. Think mission before commission.

It's critical to have a well-defined corporate mission, and to keep that mission in the minds of employees. Understand that your mission is a vital part of your company's culture that can lead your organization to prosper. It's also important to learn the missions of your customers, prospects and partners to see if they fit with yours.

2. Learn to read the need.

Develop mechanisms that allow you to stay in touch with the marketplace, so you stay a step ahead as the market changes. When asked what made him a great hockey player, Wayne Gretzky responded, “Most players go where the puck is. I go where it will be.” The same is true for businesses. Go where the market is going. A good customer survey can prove invaluable in this endeavor. A "good" survey means one that, in addition to measuring your performance with customers, also measures how important your performance is to them and what it costs you to deliver that performance. You'll have a better picture of where you're wasting time and resources on business that doesn't really matter to the customer, and where you're doing well.

3. Move from feature to teacher.

In the days before the new economy, companies could get by merely selling a product's features. Today, however, you have to be a knowledge source for your customers. Sixty-five percent of customers defect because of service indifference. And while 96% of unhappy customers never complain, they'll tell an average of nine other people about your poor service. Welcoming complaints, seeking them out, improves your odds of keeping good customers and gaining new ones. To avoid the complacency that leads to lost customers, find out what your customers' three primary needs are and what they'll be in the future.

4. Master "customerization."

Not all customers are the same. Some are good, and some are lousy. Great marketing consists of discriminating between the two. Get rid of the lousy ones, or find a way to turn them into good ones. When you look for good customers, pay attention to margin as well as volume. You might have low-volume, high-margin customers who are well worth pursuing. See where your true opportunity is, and make a decision about where you want to go with each customer. Short-term customers often are undervalued. While long-term customers may be your company's lifeblood, certain types of short-term customers can benefit your business. Treat them separately and differently, but make sure they don't interfere with your ability to service your long-term clients.

5. Pay attention to the competition.

Nothing pushes you to new levels of performance more than competition. Just make sure the competition pushes and doesn't guide. To harness that drive, you have to know where they are and what they're doing. Talk to your customers and suppliers, and develop some clear competitive intelligence. Get out of your office and visit them. Find out who the top three competitors are, why they’re successful, what you can learn from them, and what you need to do differently.

The main purpose of marketing is to identify the appropriate markets for your products and services and then open up a conversation with prospects in those markets. This involves both attraction and seduction. Attracting customers requires that you become relevant in their world and they feel relevant in yours. Seduction entices people to do business with you by demonstrating that you understand and care about their needs like no one else, and demonstrate this by making relevant offers and suggestions. Selling is the major component in marketing that makes a product wanted.

Marketing on the Web.

In the past, “viral marketing” meant relying on word of mouth to get your product known. But like so many other concepts, it’s been reinvented by the Internet. There are three levels of viral marketing on the Web.

The first is to embed your advertising message so deeply in your product or service that your customers hardly realize they’re passing it on. Hotmail, for example, was one of the first to provide free email. Each outgoing email message had the tagline, “Get Your Private, Free Email from MSN Hotmail at http://www.hotmail.com.” Today, Hotmail has more than 260 million users.

The second level involves making the content of your Web site so compelling that viewers want to share it with others. As comic strips, video clips and other attention grabbers are forwarded to friends, the marketing messages go along for the ride. The culinary site, Epicurious.com, allows visitors to email recipes from its database. The first few lines of the recipe provide a link to to the Epicorious site, describing the recipe database and offering information about ordering cooking supplier from one of its partners, Williams-Sonoma.com.

The third level offers viewers an incentive to hand over the email addresses of friends, family members and coworkers. Onvia.com, a B2B news and information site for entrepreneurs once offered a chance to win an Audi coupe just for sending in five email addresses. The benefits of viral marketing are increased recognition among a targeted audience for far less money than traditional marketing efforts. One of the pitfalls is that you lose control over the message and its distribution, but selectivity and proper targeting can minimize this.

For marketers, Web 2.0 offers a remarkable new opportunity to engage consumers. (See an excellent WSJ article by Parise, Guinan and Weinberg in The Journal Report, Monday, Dec 15th, 2008). Web 2.0 encompasses a set of tools that allow people to build social and business connections, share information and collaborate on projects online. That includes blogs, wikis, social-networking sites and other online communities, and virtual worlds. A growing number of marketers are using Web 2.0 tools to collaborate with consumers on product development, service enhancement and promotion.

For example, a leading greeting-card and gift company set up an online community - a site where it can talk to consumers and the consumers can talk to each other. The company solicits opinions on various aspects of greeting-card design and on ideas for gifts and their pricing. It also asks the consumers to talk about their lifestyles and to upload photos of themselves, so that it can better understand its market. A marketing manager at the company says that, as a way to obtain consumer feedback and ideas for product development, the online community is much faster and cheaper than the traditional focus groups and surveys used in the past. The conversations consumers have with each other result in many new and interesting insights, including gift ideas for specific occasions, such as a college graduation, and the prices consumers are willing to pay for different gifts.

Consumers have to have some incentive to share their thoughts, opinions and experiences. One way is to make sure they can use the online community to network among themselves on topics of their own choosing. That way, the site isn't all about the company, it's also about them. For instance, a toy company that created a community of hundreds of mothers to solicit their opinions and ideas on toys also enabled them to write their own blogs on the site, a feature that many used to discuss family issues.

Crafting marketing messages.

Marketing isn’t about today - it’s all about tomorrow. It's about getting to know your audience and planing your future. Start by putting out messages to industry analysts about where you want to go. Get their feedback and advice (and pick up great inside information as well). You want them to believe they’re creating an industry so they can then become the experts in that space. But you’ve got to pay them in the interim by buying their research because that’s how they make a living.

“Pull" marketing is based on giving the prospect something of value before you ask them to buy. It’s a way of establishing the basis for a relationship that takes place before you offer them the opportunity to become a customer. "Push" marketing is asking for an order without having established a relationship and is a totally non-selective process. Anyone who wants to buy can become your customer. If your business proposition is based on having a customer for a long time, “pull” is the only way to insure that both parties are interested in a long-term relationship. A “stay-in-touch” program is a low-cost way of building top-of-the-mind awareness with existing customers and with prospects who haven’t yet found compelling value in the sales message.

Many entrepreneurs are so technology and product driven that they never recognize that marketing is important. They don’t recognize that prospects and customers don’t care directly about the functionality of products. Prospects and customers care about benefits and, more specifically, the value of those benefits in their own lives. "What's In It For Me?" is the central question that any prospect or customer is dealing with (whether consciously or unconsciously) while receiving your company's marketing message. The entrepreneur must address this question while, at the same time, providing a marketing message that:

(1) helps inappropriate prospects take themselves out of consideration (because dealing with inappropriate prospects costs money and wastes valuable time).

(2) prepares true prospects to be receptive to the sales message they’ll eventually get from you.

(3) leads them directly into the selling cycle.

Product packaging is a great way to activate the consumer’s impulse to buy. It's the loudest possible advertising vehicle you have - it’s right in the store when customers are standing there with their money. Yet, go down the cereal or pasta isles in any supermarket and you’ll see that very few companies really try to market with their packaging. Frito Lay is an exception - it’s always updating its packaging.

How to market the product.

Marketing 101 says gain market share, build your brand and profits will follow. But you need to make sure there’s a real marketing opportunity in the first place. It’s critical that the market structure is compatible with the entry of a new, initially smaller competitor. There have to be "enough" total customers for a given company to gain a share which will be meaningful in its own right. It’s equally important that the company is in a market that’s growing. Markets that are locked up - for whatever reason - mean that young companies will have far greater difficulty reaching and signing up customers. So, check the existence of a sustainable market space and don’t bother with markets that are too small. If there’s only one company in a space, it’s not really a space. However, if your market is too big, competitors will be attracted and encouraged to join in.

You're always in competition with other unknown entrepreneurs. The relevant question never goes away: Do you ship now and enter the market before your competitors, thereby gaining early market share? Or do you wait, improve the product until it's the best available and then steal market share with a superior product?

If you think you have a good idea, implement it immediately and see what happens. If you chose not to ship, you can't ever get the opportunity back and your competitors may beat you to it. Sometimes, you have to be in the market early, even if it means losing money, if you’re to be in the market at all. But if you’re too early to market, you have to wait for the market to develop. In the meantime, competitors recognize that “this is a great market opportunity.” You won’t be alone for long.

Putting something out there and being able to make noise about it is actually a great way to develop software. The hardest thing is to just get the customers’ attention in the first place. Once you get their attention - if you haven’t already pissed them off - you can then do release after release, like Microsoft. By the time you get to release number three, you actually have a working product. Get innovation out into the light of the marketplace as early as possible rather than waiting to perfect it. Once it hits the light, no one can anticipate what it will lead to - or whether it will succeed or not. Trusting the search and sanctioning experiments whose results no one can know allows progress to be made. Progress depends on serendipity and spontaneity, on events that no one can predict or foresee. Don’t ask for answers in advance. Don’t try to create a life without surprises. Trust serendipity. In a high-risk society, pain and prosperity go together.

Professional entrepreneurs use today's cheap information technology to gain a dynamic sense of their customers and competitors. They can pull up their history, the way they pay their bills, what they're talking about - and get a real feeling for them. They can get $10 worth of value for every dollar they spend on information. Jeff Spillers, who was vice president of business development at WebThreads, a startup that produced software to followed users' paths (threads) as they moved through a Web site, describes how his company used the Web to find out about competitors. “We used every search mechanism with every combination of phrases imaginable to turn over every rock and dig out information about other Web tracking companies. Then we used this information to draw a matrix of what features our competitors had. This did two things: it told us who we were up against, and it told us what the marketplace was like. When we went to a competitor's Web site, we looked for indications that they were moving in a particular direction, indications that a big announcement was coming, heightened activity in particular sectors, such as hiring. We looked at what types of jobs they were hiring for, how many ads they had. Almost anything we wanted to know about a competitor, we could find out from tracking its Web site.”

In answer to your query, a poem by Naomi Lazard

Naomi Lazard is a poet and a playright. She was born in 1936 in Philadelphia and attended the City College of New York. Her poetry has been published in The New Yorker, Harper's, American Scholar, Harper's Bazaar, Hudson Review, The Nation, Saturday Review, Chicago Review, and other magazines. She has been Poet-in-Residence at Hamilton/Kirkland College and at the University of Montana. A past President of the Poetry Society of America, Lazard is a founder of the Hamptons International Film Festival.

This poem of hers seems appropriate today as we contemplate the fate of the American auto industry.

In answer to your query by Naomi Lazard

We are sorry to inform you
The item you ordered
is no longer being produced.
It has not gone out of style
Nor have people lost interest in it.
In fact, it has become
One of our most desired products.
Its popularity is still growing.
Orders for it come in
At an ever increasing rate.
However, a top-level decision
Has caused this product
To be discontinued forever.

Instead of the item you ordered
We are sending you something else.
It is not the same thing,
Nor is it a reasonable facsimile.
It is what we have in stock,
The very best we can offer.

If you are not happy
With this substitution
Let us know as soon as possible.
As you can imagine
We already have quite an accumulation
Of letters such as the one
You may or may not write.
To be totally fair
We respond to these complaints
As they come in.
Yours will be filed accordingly,
Answered in its turn.

How to deal with the press.

News stories providing third-party validation offer credibility for your company among investors, customers and partners. Positive stories can attract angel and venture funding and strategic alliances. Here are some tips and cautions:

1. Craft concise differentiation messages. Avoid hype. Be quotable.

2. Prepare to commit your time for interviews and educating reporters. Don't sell, be helpful. Attitude cements credibility.

3. Get to know how the media works and thinks. Read bylines, analyze stories, become a student of news.

4. Build relationships - expect to be a part of a bigger story, don't expect to be the story.

5. You can’t control the media. You can control how you present yourself and your message, and you can influence by offering other trusted contacts as sources.

6. Think trends. What's happening in the market that might be interesting to a particular reporter? What gossip could you share?

7. Be a little crazy. Don't be afraid to try something new and different if it will help define your business or product.

8. Don't sit on news. Timing is critical to an editor's decision to use a story.

9. Build viral public relations efforts. Coordinate with your strategic partner's public relations efforts and compound your opportunities.

10. Always remember:
- You're never off the record.
- You’ll never have the opportunity to read a reporter's story before it appears, so don't even ask.
- Don't get angry, you'll lose.
- Don't ever lie to a reporter.

Next week, I'll switch to marketing. But first, tune in for poetry Friday............

How bad PR can kill a startup.

Many new ventures are rich in ideas, engineering features and programming genius but still over 80% fail. After working with startup companies since 1994, Tom Gable of San Diego-based Gable PR, has identified nine ways public relations and marketing communications can help kill a start-up. Understanding and managing these nine areas can put a startup on the road to building a successful image and brand. These concepts can be applied to internet companies and to traditional companies moving into integrated on-line/off-line marketing communications and public relations programs.

Pandora's Positioning.
The business and marketing plans are crammed with every buzz word on earth, yet the new venture isn't clearly differentiated. Jargon alert: If you talk about being first to move with robust, turn-key, best-of-breed, next-generation, leading, scaleable, end-to-end solutions, journalists, customers and investors won't take the venture seriously.

Babel Branding.
The vast majority of new products or services fail because they try to be all things to all people. They don't demonstrate and communicate why the new brand is better than what currently exists. A new brand needs to cut through the clutter to reach a distinct market segment.

Budget 22.
This is the PR equivalent of Catch 22. The CEO wants major global coverage on a neighborhood budget. Results are driven by agency time and creativity in carrying out the program on a consistent, continuous basis. Match expectations to budgets.

Egomaniac Expectations.
Budget 22 usually leads to demanding Fortune 500-type coverage (WSJ, NYT, magazine covers) without looking at the reality of the company and its budget, products, services and size versus existing trends in the rest of the world. The breakthrough factor comes from being able to communicate and prove how you fit into the bigger picture and why you’re the harbinger of a new trend or development.

Creative Quagmires.
Kill creativity by involving the wrong people in writing, or participating in editing by committee. You don't ask lawyers to write software code or engineers to prepare legal briefs, so why involve them in the creative processes of brand positioning?

Missing Metrics.
The venture can't provide timely, relevant data to demonstrate progress against plan, the competition and the market, or its ability to scale. The media (and investors) demand ongoing proof of principle. It isn't good enough to just exist with a good idea. You have to be able to prove that it works as promised.

Hysteria Marketing.
Expecting short-term miracles and changing directions faster than a hummingbird at a flower show. The result: Diluting budget impact and creating internal confusion. Stick to an integrated, strategic program that ramps up in support of the business, marketing and capital investment plans.

Dullness.
Lack of energy, passion and personality. You have “stuff,” but so does everyone else. Become the messiah for your concept. "Flippers" (those looking to turn a quick buck rather than create something of lasting value) need not apply.

Old Economy Thinking.
Top-down, one-way marketing models and old economy thinking are just that -- old. Think interactive and environmental. Go deep into your database and mine data so you truly know your customers. Connect with them. Find new opportunities every day to show them you’re empathetic, sympathetic and intuitive about their needs and beliefs. Create two-way relationships and build wonderful environments for ongoing communications.

How to pick names and logos.

When picking a name for your business, a lot of the work has to do with what you want to tell the world about the brand. Agilent Technologies toiled for the first four months of its life as “Newco.” The word Agilent (agile-nt) was finally chosen to signify speed, focus, accountability, and agility (the -nt at the end just adds more weight to the word). The word "lego" is a combination of the Danish words "leg godt," which means "to play well." In Latin, lego means "I study," or "I put together." The best product names are short, catchy, positive, easy to remember and clearly communicate what the product is about. Since most startups have limited funds, a new product needs to virtually sell itself.

When choosing a logo, aim for an image that conveys clear meaning at a glance. The UPS logo, created by Paul Rand in 1961, is a good example. The logo is economical and succinct, simple yet distinctive, businesslike yet warm. It communicates the company's essential mission without needing a tag line to explain it -- a package with a bow, just enough detail to be jaunty but spare enough to be timeless. The name of the company is reinforced because it's integrated into the logo, and the classic shape -- a shield -- makes it look official. The emblem signifies trustworthiness and inspires customer confidence. And the colors brown and gold, not the standard blue and green that are usually found on corporate logos, make the company memorable to consumers. The overall effect is that people get the message without being barraged with excess information. Although the shipping business has changed considerably since Rand created that design almost 50 years ago, the UPS logo remains timeless and effective.

The name of your company should be the vessel through which all your marketing flows. It’s the one thing your competitors can’t take away from you. Your marketing has to send the message that you’re relevant: it has to give people reasons to buy. For example, the marketing and advertising for the new VW Beetle presents a reason to buy if you’re one of the select few who have an optimistic personality and you don’t take yourself too seriously. Your personality matches the personality of the car. This is your car. Your decision is not about price, it’s about what this product means to you, how it fits into your life. Now that’s a reason to buy.

Branding is everything on the Internet, where all but the largest branded websites find it increasingly difficult to attract visitors. Branding tactics that work in the real world don’t always work online because companies aren’t allowed to say or market anything online unless the customer wants to hear it. The fact that the customer is in charge is the central theme differentiating television from Internet marketing. On the Internet, the advertiser must “pay” the consumer to endure the brand message by performing some kind of service in return. At startup, Saturn’s site offered the usual dealer referrals and car specs. But it also provided a lease-price calculator, an interactive design shop for choosing options, and an online order form. As a result, in its early years, 80% of Saturn’s customer leads came via the Internet.

It pays to develop high visibility. Promotion is about getting your message out without spending a lot of money in the process. Think creatively and have a sales message on all your communication. That way, you get publicity without paying extra for it. If you can’t be #1 in a category, create a new category where you can be because no one remembers #2. And the customers’ perception is the only reality.

Startup advice from John Major.

John Major is the Founder and President of MTSG, an investment and strategic consulting partnership. Previously, he was the CEO of Novatel Wireless, Inc., a San Diego based provider of wireless broadband access solutions for the worldwide mobile communications market, where he led the company's successful IPO.

- Remember, a great idea often sounds dumb initially to smart people.

- Get the goals explicit and clear. When you don’t know where you’re going, all roads lead there and this slows you down.

- Keep the message simple. Remember the line from the movie Jerry McGuire; “You had me from hello!”

- Have operations review meetings once a week. Ask, “How can we all work together to make the success we want happen?”

- Get people used to asking themselves, “How do I have to change my behavior to make others more successful?”

- When people aren’t successful, they know it. So, help these people out the door and make sure to thank them for their contributions. In a small industry, you’ll probably end up working with them again, so don’t burn your bridges.

- People can be categorized along the following continuum:

Some are dumb - Some are smart

Some are high energy - Some are low energy

Make sure the dumb, high energy people are working for someone else, preferably for your competitors.

- Impose limits on your growth. Too many opportunities can kill you as easily as too few.

- Don’t look to maximize sales; look to maximize profits.

- Many growing companies fail because they don’t really understand their economic model. When they don’t stay aligned with their market, they don’t have enough money.

Suburban, a poem by John Ciardi.

John Ciardi was born at home in Boston's Little Italy in 1916. After the death of his father in 1919, he was raised by his Italian mother (who was illiterate in both English and Italian) and his three older sisters, all of whom scrimped and saved until they had enough money to send him to college, first to Bates College and then Tufts University where he graduated in 1938. The next year he took an M.A. and the prestigious Hopwood Award in poetry at the University of Michigan. He taught at Harvard and Rutgers, although he considered teaching to be "planned poverty." A longtime resident of Metuchen, New Jersey, he died on Easter Sunday, 1986, of a heart attack, but not before composing his own epitaph:

Here, time concurring (and it does);
Lies Ciardi. If no kingdom come,
A kingdom was. Such as it was
This one beside it is a slum.

Ciardi served as a highly popular poetry editor of the Saturday Review from 1956 to 1972. His occasional public television broadcasts were supplemented by his weekly National Public Radio series begun in 1980 as "A Word in Your Ear." Here's a typical example of his work:

Suburban by John Ciardi.

Yesterday Mrs. Friar phoned."Mr. Ciardi,
how do you do?" she said. "I am sorry to say
this isn't exactly a social call. The fact is
your dog has just deposited-forgive me-
a large repulsive object in my petunias."

I thought to ask, "Have you checked the rectal grooving
for a positive I.D.?" My dog, as it happened,
was in Vermont with my son, who had gone fishing-
if that's what one does with a girl, two cases of beer,
and a borrowed camper. I guessed I'd get no trout.

But why lose out on organic gold for a wise crack
"Yes, Mrs. Friar," l said, "I understand."
"Most kind of you," she said. "Not at all," I said.
I went with a spade. She pointed, looking away.
"I always have loved dogs," she said, "but really!"

I scooped it up and bowed. "The animal of it.
I hope this hasn't upset you, Mrs. Friar."
"Not really," she said, "but really!" I bore the turd
across the line to my own petunias
and buried it till the glorious resurrection

when even these suburbs shall give up their dead.

Four pillars of brand building.

The first question that an emerging business needs to ask is: "What makes our brand stand apart?" Examples of muddy car brand identities; how can you tell the difference between GM’s Oldsmobile and Buick? Ford has struggled for years with the question: "What’s a Mercury?" According to a recent study, Coca-Cola and Disney still maintain their differentiation, while Greyhound and Kodak do not. The winners have been adept at innovating what their products are about, identifying and attaching new attributes to their image.

To make your brand look multidimensional and your competitors look uni-dimensional, you need to know what it takes to be successful in your market space and the key product attributes that differentiate you from others. Once you know that, tell that story over and over again. Change the rules of the game over and over again. Act like the leader, but don’t try to do what larger companies do with less money or you’ll risk looking like a cheap also-ran.

The second pillar of building brand equity is establishing brand relevance. Customers are always subconsciously asking, "Does this brand speak to me?" This is the so-called personal appropriateness of the brand. People can be extremely aware of what a brand stands for without being personally interested in making the brand a part of their life. Think of Ferrari and Victoria's Secret as examples.

The third pillar is brand esteem, which is a measure of how highly consumers regard the brand. This is closely related to perceived feelings of popularity or highly perceived quality. Global brands with the highest esteem ratings due to their perceived quality include Hallmark and Lexus.

The fourth pillar, brand knowledge, is the consumer's understanding of the brand's inner workings. High brand knowledge suggests acute customer intimacy or proof that consumers are experienced with how your product or service works for them – for better and for worse. This is the culmination of any branding effort.

BankDirect, initially a creation of New Zealand’s ASB Bank, wanted to be first in the market with a “no branch” virtual bank concept (branchless banking using call centers and Internet technology) and so reap first mover advantage. Initial research had identified a key target consumer group who knew what direct banking was all about and would likely be early adopters. They were busy people who valued their time and had high account balances. They were computer confident and likely to meet the minimum computer system requirements. They knew that a branchless bank should have lower fees and mortgage rates and higher deposit rates (the cost of an Internet transaction is a few cents versus over a dollar for the average transaction cost with a bank teller).

So BankDirect was designed for these consumers, and not for business clients. BankDirect’s name was a key element in branding the new product because the company didn’t have to explain what the business did. Since its target customers understood the concept of a branchless bank, advertising didn’t have to spell out all its advantages. As a direct marketing operation, a high percentage of the budget was allocated to advertising, which was designed to appeal to the early adopters and make the phones ring. After six months in operation, BankDirect had enough of a database to begin to see trends (for example, most of their customers didn’t come from ASB but from outside the bank).

Developing the brand.

To develop a brand, you must have a marketing strategy. Once you have that, spend as much money as you can on establishing your brand. Give products away to get great customers to use them early on and build momentum. Build the biggest, boldest branding campaign you can and take all the new business you can get. Power through the hiccups and play catch-up with all the other elements of the business. Grow as fast as the market allows you. Have a gigantic vision - don’t wait until you’ve done it all to make bold claims or it’ll be too late. Branding establishes your identity depending on how loudly you scream about it. Make the claim and pay it back. Work to get your brand and reputation to exceed who you are because your brand has an enormous impact on your valuation.

The most successful businesses are those that tie their product to a single concept in the customer's mind, such as Volvo and safety; Federal Express and overnight delivery. The more specific the focus, the more everybody in the company can have that focus too. Brand recognition can help raise the barriers to entry for smaller, more obscure rivals that might compete on technology or on marketing, but can’t compete on both. Technologies frequently change, but a great brand goes on and on. A product or service can be copied or imitated, but a brand cannot.

When you develop a brand program, don’t forget your employees are a primary audience. They must understand what the brand promises so they can translate and interpret it. Branding serves both to focus people’s strategic thinking and to shape customer’s perceptions of the business’s unique value proposition. Successful brand marketing is effective even when the consumer isn’t thinking of buying your product. It plants a seed in the mind of a consumer not yet in the market. In businesses where products or services become obsolete quickly, a strong brand is one of the few things customers and employees have to hold on to, but a brand means little unless it’s accompanied by quality, consistency and flawless execution.

McDonald’s core brand attributes are being reliable, fast, wholesome, American and family-minded. If Mercedes made hamburgers or computers, it wouldn’t get much advantage from putting its logo on them. Consumers are smart enough to know what the boundaries of brands are, so new offerings must be complimentary to the company’s existing core products. Many successful new products are really extensions of existing products. The core attributes of the Coke brand are permanence (“Always Coca-Cola”), authenticity (“The Real Thing”), and feeling good. The Coca-Cola company conducts regular consumer surveys to determine how the beverage scores on more than a dozen value attributes which have included “young,” “modern,” “warm,” and “friendly.” More people buy Coke than any other cola and, most importantly, they enjoy the experience of buying and drinking Coca Cola. The fond memories of childhood and refreshment that people have when they drink Coke are often more important than a little bit better cola taste. It’s this emotional relationship with brands that make them so powerful.

Branding the product.

The idea of branding initially developed in medieval Europe. Plagues were a major ordeal at the time and people became ill from drinking brews infested with germs and vermin. The German purity law of 1516 was a very successful attempt to change that. As a result, beer brands sprang up to tell drinkers which of the available lagers were brewed in accordance with the regulations. From then on, brands were used to confer quality on products and consumers were prepared to pay more if they were assured of higher quality.

A brand isn't just a famous name. A brand is a set of differentiating promises that link a product or a service to its customers. Research shows that prospective buyers of business printers, for example, consider and compare the brand leader’s products and those of only one other company before making a purchase. If a corporate brand isn't on this short list, it generally won’t be purchased. Without a strong corporate brand to separate it from others, even superior new products will be overlooked by the majority of buyers. Brand equity is that aspect of corporate reputation (such as reassurance of product quality and trusted service) that leads an individual to buy a company’s products or services. Brand preference increases directly as awareness increases. Advertising builds brand equity and hence leverages the company’s marketing ability.

One of the first jobs of any branding endeavor is to break through the communications clutter and get products into the buyer’s consideration set. Sell your brand to multiple audiences but be sure to change the message for each different audience. Nowadays, brands are increasingly becoming icons of a particular life style and attitude. So, brand positioning must include attitude and personality - it’s an image, it’s a flavor. Your positioning is very, very important - it’s the spot you own in the business universe. What’s your positioning? What’s your differentiation? An example could be, “We make your Web site faster and we guarantee it.”

In consumer markets, brands are everything, They reassure bewildered consumers and help lift a company’s products out of the commodity marketplace so they can command both loyalty and premium prices. A brand is an emotional shortcut between the company and its customers. In some ways, you could say that a brand is a type of packaging, wrapping itself around the product, guaranteeing a certain quality and consistency. It creates a gravitational pull to your company. Intel spent billions of dollars on marketing, almost half as much as it spent on R&D. As a result, its branding of “Intel inside” became a “trustmark,” (that is, a trademark that consumers regularly put their trust in). That became as much a part of its dominance as its technical leadership.

Branding helps new companies survive long enough to secure a market foothold for their products and services. It helps them retain a loyal following and boosts their credibility when they announce plans to enter a new market or launch a new technology. As technology becomes more complex, it enables customers to short-circuit often baffling buying decisions. Remember the slogan, “No one ever got fired for buying IBM.”

Neil Senturia’s commandments.

Neil Senturia’s commandments for new ventures.

- Understand your customer’s pain and find a way to alleviate it.

- “If we can get just X% of this market” isn’t a very compelling story.

- Investors have short memories.

- “No” is a way station on the road to “Yes.”

- You have to have a working product, not just a good idea.

- Timing is more important than anything.

- You can’t go fast enough.

- Be aggressive but don’t take unnecessary chances.

- The golden rule is that the guy with the gold rules. Never, ever run out of money.

- Return all phone calls. Attend all meetings. Everything matters.

- Don’t be limited by reality.

- When you’re small, get big people to help you. Team up with strong partners.

- Answer all threats. Improve your position and pose a counter threat.

- Play for the initiative. If you have it, maintain it.

- Cut your losses but lose as little as possible.

- When you dance with the devil, dance quickly.

- Rely on your own powers. If you can’t see the power of your opponent’s move, there probably isn’t any.

- Out-hustle the other guy.

- Try to develop with threats, but don’t threaten pointlessly.

- When you can’t decide, accept.

- Choose a plan and stay with it.

- To gain time, you usually have to sacrifice.

- Remember Einstein - time slows down as speed increases.

- Build your company around great technology and great people.

- Don’t let brilliant, talented people leave.

- If you’re going broke, keep it to yourself.

- Either be really well liked or don’t be liked at all.

- Being on the edge of success is half an inch from disaster.

Senturia was a founder and CEO of Atcom/Info, mohomine, Soflinx, and currently heads up Blackbird Ventures with his wife and fellow investor, Barbara Bry.

The Difficulty that is Marriage, a poem by Paul Durcan.

Paul Durcan is one of the most completely original voices in Irish poetry. He was born in Dublin in 1944 and was educated at University College, Cork. He’s won the Patrick Kavanagh Award, the Irish American Cultural Institute Poetry Award, The Whitebread Prize, and the London Poetry Book Society choice for The Berlin Wall Café.
I was looking for a poem suitable for Thanksgiving, and since I give thanks each year for my family above all else, and especially for my sainted wife, this poem seemed to fit the bill very nicely.

The Difficulty that is Marriage by Paul Durcan.

We disagree to disagree, we divide, we differ;
Yet each night as I lie in bed beside you
And you are far away curled up in sleep
I array the moonlit ceiling with a mosaic of question-marks;
How was it I was so lucky to have ever met you?
I am no brave pagan proud of my mortality,
Yet gladly on this changeling earth I should live for ever
If it were with you, my sleeping friend.
I have my troubles and I shall always have them
But I should rather live with you for ever
Than exchange my troubles for a changeless kingdom.
But I do not put you on a pedestal or throne;
You must have your faults but I do not see them.
If it were with you, I should live for ever.

Getting the team organized.

Startup teams should come with a label that says “some assembly required.” Teams are a higher form of organism than groups of individuals who are sharing information and tasks. Real teamwork exists only after group members have made and demonstrated their commitment to shared goals, visions and values, and after they’ve articulated and reached consensus on their roles and responsibilities. If you start with an informal, unstated management philosophy, then there’s no formal process to fall back on when you grow to employ hundreds of people.

Team members should be clear about, “Here’s what I’m offering the group. You can count on me to lead when we're dealing with these issues.” This clarity should emerge from a discussion of what team members expect from each other. The usefulness of this discussion depends on the degree to which individuals understand each others’ jobs and responsibilities. Informed resolution of individual positions, requests, offers and counter-offers leads to an agreement about who will provide leadership for what. Each venture team member should have a formal accountability and performance agreement.

Never assume the obvious is apparent to others. If X equals the number of people in a group, then X squared minus X equals the number of possible misinterpretations of anything communicated. So, with two people there are two possible misinterpretations, with three people there are six, but with five people there are 20 possible misinterpretations.

Conflict promotes two common reactions. People either join political coalitions or seek isolation in their work (which is perceived either as a safe haven or a place where they get their greatest satisfaction). When people can’t deal with personality conflict, they tend to get busy on the task and hope everyone else is mature enough to go along. Smart people miss the mark when they’re insensitive to cultural issues. Economically oriented finance people and analytically oriented engineers often find the topic of norms and values too soft for their tastes. So they ignore culture - to their peril.

Terry Morse's rules for success: (Morse was a founder of Salient Software).

Rule #1: Make the decision that makes the most money.

No matter what their mission statements say, all for-profit businesses have one overriding purpose: making more money. Try convincing an investor that he should settle for a lower return on his money and you'll appreciate the importance of this rule. Making the world a better place is great, as long as it makes you and your investors lots of money.

Rule #2: Don't give your customer any excuse to say "no."

This simple rule covers every aspect of a product, including features, safety, support, and price. Consider your potential customer's decision making process, and make sure your product or service eliminates his doubts before he can formulate them. Talk to the people who don't buy your product to find out what’s keeping them from doing business with you.

Rule #3: If you're very smart and work very hard, you can do one thing well.

Business books will tell you to "focus on your core competence," or something similarly trendy. Simply restated, this means - work like crazy on the one thing your company does better than anyone else, and don't get distracted. Others may tell you to diversify your product line, or extend your business into new markets. Don't do it! A startup company has limited resources and limited market recognition. A diluted focus is a slow road to oblivion. To test if your company has a tight focus, see if you can describe your business and its products in one sentence.

Have a happy Thanksgiving. I'll be back on Friday with a poem.

How to hire a great startup team.

Hiring good people is like getting married - if you do it right, you don’t have to do it often. If you’re in a situation of excessive risk, hire somebody who has already learned to shave on someone else’s beard. Hire the management team you think you’ll need five years from now if everything works out. Hire people who share your vision and agree with your business principles, and make sure these are clear to the people you're recruiting. Have the best candidates spend time with the people they’re going to be working with. Hire backups for key people; the biggest weakness in smaller companies is a lack of bench strength. If you want an innovative organization, hire, work with, and promote people who make you uncomfortable. You need to understand your own preferences so that you can compliment your weaknesses and exploit your strengths. Never hire or promote in your own image. It’s foolish to replicate your strengths or your weaknesses. If you hire people with the same character traits as yourself, you’ll just end up fighting with them.

1. Look for exceptionally smart people. It's fundamental. When you get exceptionally smart people on your team, that's a big plus. In addition, look for a combination of experience, drive, commitment, and passion. You don't want all experience - but you don't want all drive, energy and passion either. Getting that mix right is the difference between ventures that achieve greatness and startups that don’t go anywhere.

2. Look for people who can take a concept from a standing start and make it live and breathe. Chris Whittle, the CEO and founder of Edison Schools says, “We've noticed there's no variable on success. Theory says you should have a bell curve of results, but it doesn't happen that way. If there are 20 units to be sold, we've found that a certain group of people will go out and sell all of them. Another group will sell nothing. There's not much in between. The variable in this is entrepreneurial skill. Either people have it or they don't, although they may have it in different ways.”

3. Look for venture team members who are likely to wear well over time. Ask yourself: "Are these the people I want to be in trouble with for the next five years of my life? Are they great at recruiting other talented people? Are they great at selling?” In a small startup company, everybody is selling all the time. People who will build a new company need to be innovative, challenging their industry's traditional rules and conventions. You need high-level people who are willing to roll up their sleeves and engage customers. The most senior managers in the company need to be the first ones out of the trenches.

4. Get to know the compelling interests of venture team members, Talk honestly about one another's aspirations, goals, philosophies and values. Outspoken and abrasive personalities get people irritated, make it difficult to attract new people, and can destroy the team’s development. Values stem from a person’s previous education and experience, sentiments, attitudes about themselves, the obligations they feel toward others, and their ideals and objectives. For each of us, reality is whatever our values allow us to recognize. We see only what we expect to see. When people see things only from their own point of view, the actions of others which are inconsistent with their values seem stupid or unexplainable to them.

5. Don’t put too much emphasis on credentials. Hire higher than you need at the moment. If you're planning on growing, you'll need all the help you can get. Look for characteristics rather than test scores when hiring people. Maybe youth, energy and creativity outweighs experience and learning. And make sure that the group members have a sense of humor. Fit is as important as function.

6. Build some slack into the team in case someone leaves. The venture team that companies start out with is often not the one they eventually end up with. Typically, at least one of the cofounders falls out before a new venture is successful. It helps if some members of the team can handle different responsibilities because when there are changes in personnel, the business can't just stand still. “Scaleable” should apply to employee skills as well as headcount. If the founders all come from the same profession, such as engineering, they're experts in their own world and, frequently, that world is all they know. The chief financial officer should be able to explain the company’s technology to a six-year-old. It’s no good having people who are great at what they do but who don’t understand what the company does.

The founding team are as critical to the business as its customers. Consider hiring prospective executives as consultants for a three-month trial period first to see how they'll work out. If you've made a mistake in hiring, correct it immediately. Sometimes the only way to change a person is to change a person. Put a steel band around your heart. If you don’t run them out of business, they'll run you out of business. See that no equity changes hands during the employee's first year as dealing with someone who owns a percentage of the company complicates the termination process.

Build a great team.

In today’s world, there's plenty of technology, plenty of entrepreneurs, plenty of money, plenty of venture capital ready to back good ideas. What's in short supply is great teams. Your biggest challenge will always be building a great team. All teams are incomplete all the time because you're always growing your team.

Most successful startups have a leader from whom everyone else takes their cues. VCs have a saying that, “If the light ain’t on at the top, it’s dark all the way down!” Great leaders are great communicators. They have unquestioned integrity and they're ruthlessly, absolutely intellectually honest. They’re great recruiters, always building their network of talented people. And they're great sales executives, always selling the value proposition of the enterprise. But it’s important to have excellence in the other functions as well. A great marketing company like Intuit had Scott Cook. At the heart of every great technology company is a technical genius. Apple had Steve Wozniak, Sun Microsystems had Andy Bechtolsheim and Bill Joy, Netscape had Marc Andreessen, @Home had Milo Medin.

Successful companies marry this kind of seasoned talent with people who have fresh perspectives. Many years of experience in an industry can sometimes turn out to be a detriment rather than an asset when looking for new ideas. Nanogen’s Chairman Howard Birndorf is an exception. He's Biotech’s Johnny Appleseed with nine startups under his belt (Nanogen, Hybritech, Glen-Probe, IDEC Pharmaceuticals, Ligand Pharmaceuticals, Nantronic, Neurocrine Biosciences, Gensia and Viagene). He says, “Look for people who are smarter than you, who both compliment and support your own skills. You need to find people who understand how to take risks, people who aren’t afraid of change, who can go from one day to the next with a big change in either direction without being blown away.” Kevin O’Connor, a cofounder of DoubleClick says, “The thing we most tended to look for in people was intelligence - and athleticism: people who loved to compete, who didn’t like to lose.”

Look for smart people who have a combination of experience, drive, commitment and passion. Getting that mix right is the difference between ventures that achieve greatness and startups that merely survive, or worse. The person’s priority has to be making the company successful, not getting a certain title or a private office or the like. In startups, it’s important to meet the spouse - they have to live with the 18-hour days, so they need to know the plan. Have your top people take assessment tests - then build the profile that’s worked for you and use it to hire new people - that way, you know what you’re looking for.

Creating a successful high tech company is as much about good people as good technology. Bill Gates says, “It’s important to have someone you totally trust, who is totally committed, who shares your vision, and yet who has a different set of skills and who can also act as a check on your ideas. Some of the ideas you run by him, you know he’s going to say, ‘Hey, wait a minute, have you thought about this and that?’ The benefit of sparking off somebody like that is that it not only makes a business more fun, but it leads to a lot of success.”

The road not taken, a poem by Robert Frost.

Robert Frost was born in San Francisco in 1874 and died in Boston in 1963. He was buried at the Old Bennington Cemetery in Bennington, Vermont, where his epitaph reads, "I had a lover's quarrel with the world." Although he never graduated college, Frost received honorary degrees from Bates College and Oxford and Cambridge universities, and he was the first to receive two honorary degrees from Dartmouth College. A popular and often-quoted poet, Frost was honored frequently during his lifetime, receiving four Pulitzer Prizes.

Many people can quote the first line or the last two lines from this wonderful poem. It's worth reading afresh all the way through however, if only to validate Paul Valery's observation that, "Poetry is to prose as dancing is to walking."

The Road Not Taken by Robert Frost

Two roads diverged in a yellow wood,
And sorry I could not travel both
And be one traveler, long I stood
And looked down one as far as I could
To where it bent in the undergrowth.

Then took the other, just as fair,
And having perhaps the better claim,
Because it was grassy and wanted wear;
Though as for that the passing there
Had worn them really about the same,

And both that morning equally lay
In leaves no step had trodden back.
Oh, I kept the first for another day !
Yet knowing how way leads on to way,
I doubted if I should ever come back.

I shall be telling this with a sigh
Somewhere ages and ages hence:
Two roads diverged in a wood, and I –
I took the one less traveled by,
And that has made all the difference.

Tips for dealing with VCs.

Here are some tips that may mean the difference between VCs showing you the money - or showing you the door!

“It's the market, stupid!”
Investors want expanding and profitable markets. VCs dream about market sizes that will ultimately produce in excess of $1 Billion in annual sales. Yet, many business plans either shoot way too low, or worse yet, don't provide believable market size estimates in their pitch

It's a team game.
The management team that will drive the company is key to many investors. However, many plans only identify the CEO and rarely do justice to other team members whose track records can often stand out as major selling points. Don't make that mistake. Also, specify key people or alliances whose involvement is contingent upon funding. Investors know that hiring good people is expensive and that having a solid team at the beginning is a big plus.

Focus.
Few startup companies can do one thing well and almost none can do more than one thing well. Don't arrive at a potential investor's office with three simultaneous product development schedules for three different markets. Show the discipline to pick the best one or you'll be dead in the water.

Have a great story.
Investors are looking for a reason to believe. Give it to them, fast, before they get bored. Most VCs, even if they like your plan, need to sell their other partners before they can make an investment. Provide a simple, compelling story they can use to sell you and your ideas.

Will the dogs eat the dog food?
Be sure to answer the fundamental marketing questions; “Who is the customer? What needs do you satisfy? What are customers willing to pay?” Do your homework. Always connect your product with the customer.

Referrals.
Unsolicited plans are rarely read and almost never funded. Use your friends, accountants, lawyers and bankers to open doors.

Time is money.
Most investors are very busy. Make it easy on them. Executive summaries should be two pages or less, business plans should be under 20 pages. Plans are never too short and almost always too long. Stick to these topics: - Size of market - Product / customer experience - Management team - Competition. Never say, "We have no competition." You are either naive or there's no market. Neither is attractive to investors. Find your competition and argue why you're better.

Realistic financial projections.
Very few companies have ever done $100 million in sales their first year, but many forecasts include overly optimistic projections. Build your financials from the ground up and compare them to other companies in the industry to ensure that they're reasonable.

Valuation.
Valuation is more an art than a science and will generally be established by the market. Many VCs talk to each other behind the scenes. As a result, you end up with a fairly narrow range of valuations, so you can rarely pit them against each other effectively. Focus more on finding a firm that can help you by bringing more to the table than money - industry knowledge, business expertise and contacts, and time to work with you as well as capital. And remember, you’re not likely to generate a lot of interest or get a lot of sophisticated advice at less than a $5M level of funding.

Exit strategy.
Many entrepreneurs focus on an initial public stock offering (IPO) as the only viable exit strategy. Most networking companies would rather sell to Cisco than do a public offering. Investors don't care, as long as the price is right, and neither should you.

Sales tool or operating plan?
Ultimately, a business plan ought to be a document you can use to run the business. Investors expect you to be prepared to turn your plan and projections into reality. Commit yourself to living your pitch. Otherwise, that problem will fall to your successors and you'll be looking for work!

Next week, I'll write about how to build a great startup team. But first, poetry tomorrow!

Start with the right management team.

Some Venture Capitalists (VCs) get involved in very early stage ventures, providing funding with only a concept. But in general, they’re reluctant to be the first investors in a deal. VCs are like penguins standing around the edge of the ice. If you get one to jump in, the others will be prepared to come in too. As someone told me recently, "They never say yes. They never say no. They just take a lot of notes." They’re not very interested in helping you build your business for the long term because they want a quick return on their money. With a VC on your board, you’re going to get help whether you want it or not. Founders often get fired if VCs decide they need a more experienced manager to move the business along faster.

VCs want validation that the company’s technology is OK before they invest, so strategic partnerships with established name companies can be helpful in this regard. Any validation you can get from a third party will speed up VC financing (based, for example, on the belief that a company like GE wouldn’t be involved in something unless it made good business sense). Young Angel-backed companies should explore the many options available under the strategic alliance umbrella, either in addition to or instead of next-stage VC funding, as many larger companies are seeking new ventures to fund. Microsoft invested hundreds of millions of dollars in new ventures in the past several years. Cisco has stimulated demand for state-of-the art network technologies by funding new ventures whose software and content create additional usage of network capacity. Investments in smaller companies can also provide an inside track to big businesses in new industries.

VCs are typically prepared to do more deals that Angels. Angels don’t have to invest their money with you. They can usually invest it in the public market and get a good return with considerably less risk. VCs, on the other hand, are under pressure to invest the money they raise. VC investors focus on different things when evaluating a business opportunity. In recent conversations, one VC pointed out that he wants to see a "control" manager in place, not a salesperson - but to start a business you need a salesperson! Another said the first page she looks at in a business plan is the management page. A third said his firm comes prepared to offer significant assistance with management having years of experience to help them so the management experience at startup isn’t that important. A fourth said he first evaluates the core risk of a business when looking at a business plan. Yet another reports he looks at the market opportunity first and then the management team.

However, in general, good management is a key to attracting VC investors. With technology investments, where time-to-market is crucial, VCs look for teams with proven track records - there just isn't time for long due diligence checks. Jim Breyer, a managing general partner of Accel Partners, has been an investor in over thirty consumer internet, media and technology companies that have completed public offerings or successful mergers. Breyer talks about the importance of the “entrepreneurial pitch” in getting to know the people involved in a business venture. Typically, everything starts with a business plan - more than 5,000 are submitted to Accel every year. Of these, Accel meets with about 250 teams and invests in 10 or 15.

Accel’s success depends less on its ability to read business plans than on being able to read the people who submit them. "The quality of the people is the single most important element in making an investment decision," says Breyer. “It's impossible to divorce business discussion from personal history.“ Breyer favors informal meetings where the business presentation is very interactive. Someone who is very structured (for example, someone who has to go through each slide when giving a presentation) will have trouble in this kind of meeting. Breyer believes they’ll probably have trouble as an entrepreneur as well. “Successful entrepreneurs may be short on experience but they’re tremendously flexible and want to make things happen quickly. If they can't get their message across in 60 minutes, then there’s something wrong.” Breyer says, “We come away from every meeting with a strong feeling about the team.”

I've found that people will put up money for a bad concept and a bad plan if the management team is right. But even good concepts and good plans won’t get funded if the management team is wrong.

What Angels look for in a deal.

Angel investors don’t usually flock together and most like to invest close to home. So, where do you find them?

- Local service providers know them. Talk with lawyers, accountants, financial advisers, bankers, and business consultants.

- Attend seminars and forums hosted by groups like UCSD CONNECT and the San Diego Software Industry Council (SDSIC).

- Contact organized investment groups, such as TechCoast Angels, which has 300 members throughout Southern California, from San Diego to Santa Barbara.

Here's what San Diego Angel investor Charlie Gaylord looks for in a deal:

- a defined market of at least $50M.
- a real business, not just a product (a product should probably be sold off to
someone else).
- a potentially rewarding exit - X10 return in three to five years (> 100% / year)
- a good business model (that's the idea you’re going to execute against to create a
profitable business).
- a team that can execute well.

When Gaylord invests, it’s usually in a field he knows something about and he does only two or three deals a year. He looks for something that’s big, necessary, and can be defended. He’s very interested in seeing potential sales growth validated, not with a “hockey stick” market projection, but with serious market research. He likes companies that are market driven, not technology driven, but says most of the plans he sees are product or technology driven.

If he hears that there’s no one in the market, he worries that there’s no market. If he hears that there are some serious players in the market, he worries that about being crushed. He’s drawn to products in emerging markets that are based on a fundamental improvement in something meaningful, such as a business process.

He says, “In summary, I’m looking for a business (not a product) which can grow to give me a financially rewarding exit (X10 return) in a reasonable time (3 to 5 years) that has a management team capable of leading it. I like to know the management team has thought enough about the business to be able to articulate it in a business plan.”

He suggests additional contributions a startup entrepreneur could look for from financial partners beyond just money might include:

- strategic relationships.
- business savvy.
- recruiting help.
- corporate governance.
- help preparing to go public.

Attracting Angel investors.

The word “Angel” originated on Broadway, to describe people who put up the money for theatrical shows. Historically, they seldom got their money back. In 2007, 400,000 Angels invested $25 billion in tens of thousands of startups according to the Center for Venture Research at the University of New Hampshire. These high net worth individuals typically put between $25,000 to $500,000 of their own money into early stage companies, an investment that’s often locked up for five or more years. Usually, Angels provide second-stage financing, after an entrepreneur has raised seed capital, but before the entry of professional venture groups who provide larger sums (preferably greater than $3 million) when the business is well established. Recent research tracking 1,200 Angel investors for ten years showed that 70% lost all or part of their money or got their money back with no return. However, some of the other 30% achieved spectacular returns and their success keeps everyone else in the game. To be a successful Angel investor, you may have to kiss a lot of frogs.

Angels invest primarily in people. Since there’s little or no business in the beginning, they focus first on the venture team, then on the idea. They look for a match in chemistry and interest. Their interest may be that they like the technology, or they may be a friend of the family. One of the benefits of working with Angels, apart from the money they bring, is the management assistance and board participation that’s available from experienced business people. Angels will often give a company a higher initial valuation than other investment groups. But remember that Angels may not be there for the next round when you need more money. Being overvalued at the start will likely result in a “down round” later on. When this happens, it looks bad and slows down the process of attracting more money. Investors want to see the company’s valuation in each financing round moving up. Once outside investors own a significant amount of equity in a company, the objective is not to keep other investors away but to find new ones who will pay a higher price than they did for equity in the company, thereby raising the value of their investment. So after the first round, talking to other investors, such as VCs, isn't just okay, it's encouraged. VCs hope to double or triple the startup's valuation from one round of financing to the next.

San Diego technology investor, Charlie Gaylord, likes to invest in market-driven rather than in technology-driven companies. He likes emerging markets that create new ways of delivering value to customers. He likes business models that disintermediate people who add more cost than value and eliminate the costs of inventory. He likes new models where you can build and create value in the brand very quickly. He hardly ever reads the details of the initial business plan’s financial projections. He’s more interested in the thinking behind it than in the details of the business plan.

What rewards are Angels looking for?
- they want financial returns (of course), but also
- the excitement / promotion of the business.
- they like the product, technology or team.
- they want bragging rights.
- they look for ways to leverage their experience / expertise in time, money and knowledge.

Gaylord says he'd rather have a company that dies quickly than one that limps along and never goes anywhere. In other words, he’d rather lose his money than lose his time.

How I write poems, by Abigail Drescher.

Albert Einstein once said it’s always unusual to find someone whose curiosity survives a formal education. It takes at least a couple of decades for people to realize that they were well taught. All true education is a delayed-action time-bomb assembled in the classroom for explosion at a later date. An educational fuse that's 50-years long isn't unusual. I believe that encouraging children to write and recite poetry at an early age helps to develop the intellectual curiosity that lights that fuse.

Elizabeth McKim and Judith Steinbergh, have been "poets in the schools" in Brookline, MA., since 1971. They're working poets bringing children the chance to learn about the art and craft of poetry.

"Poetry gives the children a place to put their thoughts," says Steinbergh, "but with a grace that comes from using literary techniques and choosing words, phrases, and images that will work for them. They learn how to become articulate in an economical way, like artists given paint, brushes, techniques. They can use all those things to transform their own thoughts and feelings into poetry. The intimate place with the child is the place where art is happening. You can see it in the child who is waiting for a word to rise up."

"We start with a lot of out-loud work," says McKim. "Poetry is voice and breath, but it is also how you put it on the page ... just getting thoughts down on paper doesn't mean it's poetry. That's where the craft part comes in. As McKim says, "The addition and subtraction after the first outpouring is the revision - the re-visioning of the poem, seeing it again." This is part of her strategy in having the student use unlined paper. "It helps them find their own form and find the voice of the poem."


How I Write Poems

I walk by a dandelion blowing in the breeze,
That gives me an idea for a poem,
my mind fills up to the top
with ideas and the ideas
even go down to my knees,
soon they will be down
to my feet, and I will be
so full I will pop.
I run to find a paper,
I hop to find a paper,
I jump to find a paper,
my mind is empty,
my knees are empty,
my feet are empty,
but my paper is full.

by Abigail Drescher, 4th grade

Finding investors in a recession.

Under normal circumstances, you’re likely to actually get money from less than 5% of the people you pitch to. Given the current state of the economy, that percentage is even smaller today. Barbara Bry, a very experienced San Diego startup veteran, told me earlier this week that 2008 is the worst market for raising startup money she's ever seen.

Don’t be dismayed by this - it’s a lot like selling your house. There’s usually a buyer out there somewhere. People turn you down because they have no need, or they have no money right now, or they’re in no hurry, or they don’t have confidence in the business proposition, or they don't understand your pitch.

Paul Graham from Y Combinator says, "VCs are mostly money guys, not people who make things. Angels are better at appreciating novel ideas, because once upon a time most of them were founders themselves. VCs reject practically everyone. The inefficient market you get because there are so few players is exacerbated by the fact that they act independently. The structure of their business means a partner at a VC firm usually makes a couple of new investments a year, no matter how many good opportunities they come across.”

To have confidence in a business proposition, investors need to see:
- a fundable concept
- in a growing industry
- with a good management team
- addressing a promising, profitable market
- with technology that works
- and a highly fundable CEO

The key issues for investors are:
- How will revenue be generated?
- Is the business idea going to generate a significant return on investment?
- Is the management team up to the challenge?

In the past, entrepreneurs started businesses. Today, many invent new business models. For example, Mark McDonald started Nations Air Express in 1992, flying from Pittsburgh to Philadelphia to Boston and back five times a day and charging $89 or less for a one way ticket. By hiring World Technology Systems of Atlanta to run its ticketless reservation system, Nations Air saved $1,500,000 in initial expenses alone. World Technology also provided accounting, advertising and promotion, while other airlines took care of baggage handling and assorted airport services. All of this enabled McDonald to keep his payroll under 160 people, which he estimated was 120 fewer than if the company had done everything itself. He constantly searched for ways to keep his organization as simple as possible because, he said, “the more complicated it gets, the more expensive it becomes.”

(The demise of scheduled service for Nations Air came in 1998 after a Valu-jet crash in the Florida everglades created a huge backlash against small startup carriers with the perception that they were unsafe from the standpoint of maintenance and training).

Try to get funded before you launch and get enough money so you can build momentum in the marketplace. Strategic investment from Fortune 1000 companies is often the best way to find the "cheapest money" you can get. In Southern California, more money has always come from this source than from VC firms. Many large technology companies are eager to make sizable investments in promising new startups. This brings with it valuable board members and new channels for sales and distribution. This method also often leads to a direct exit strategy.

There’s also a growing numbers of so-called “Angel” investors, wealthy individuals and technology-industry veterans (often one and the same) who relish the vicarious joy and respectable returns of providing early-stage funding for new companies.

We'll cover the Angels next. But first, Friday is poetry day!

Identify sources of funding.

The most common way to raise money is to have an individual investor or a venture capital firm give you money in exchange for an equity position. You don’t need to issue additional stock to each current owner to achieve this. Instead, agree on the valuation of the company with your investor and then issue additional shares based on the investor's dollar contribution. For example, if you agree that the pre-money valuation of your startup is $4M and you raise $1M from an investor, that investor just bought 20% of the company ($1M invested / $5M post money valuation). So the company needs to issue new shares to the investor so they now own 20% of the total shares outstanding.

Understand the ground rules for valuation and know the value of your company. Hire a qualified appraiser or investment banker to help you. Never enter a negotiation without knowing the value of what you’re negotiating for. Be able to backup any counter-offer with market data on similar companies. However, valuing the company is the job of the potential investors as well; they’re the ones who should make the initial offer. Only two things can happen if you attempt to give them a valuation first, and they’re both bad: (1) You give them a number that’s too high and mess up the deal or (2) You give them a number that’s too low and that's what you get! And don't just focus only on the valuation. Focus on which investor is going to most helpful to you and do your best to make that deal work. Interview CEOs from other startups that the investors have worked with and find out which were the most helpful in building the companies.

Today, the Web is making it easier than ever to locate sources of funding because it allows people to search outside their geographic boundaries for investors interested in companies like theirs. For example, Venture Capital Access Online (vcaonline.com) is a marketplace for the venture capital and private equity industry. It provides online services and tools to entrepreneurs, investors, advisors and service providers worldwide. Its flagship product, VCPro Database, has become the most popular venture capital directory of its kind available today. America's Business Funding Directory (www.BusinessFinance.com) allows you to search over 4,000 sources of business financing. But unless your venture is in the hottest industry of the moment, don't expect to get much ready money from VCs in the beginning.

Go beyond appealing to obvious targets, such as wealthy people you already know. Create a broader list of people who have money and who are also relatively sophisticated investors. Write to about 30 of them, letting them know that you have an investment opportunity, should they be interested. To those who ask for more information, send them a venture summary. Others are likely to want a formal written business plan.

It’s expensive and time consuming to raise money - factor in the costs of traveling to other cities, for example, to meet with potential investors. Or having various groups spend half-a-day visiting your company, distracting employees. Make sure to ask for enough money to absorb the costs of raising more.

According to Paul Graham, a partner in the investment firm, Y Combinator, “Getting rejected by investors can make you start to doubt yourself. After all, they're more experienced than you are. Perhaps they're right? Maybe yes, maybe no. If an investor gives you specific reasons for not investing, look at your startup and ask if they're right. If they identify real problems, fix them. Don't just take their word for it or simply ignore their rejection. It might mean something. But you shouldn't automatically get demoralized either.”

Raising money from investors is harder than finding customers because there are so few of them. However, don’t let fundraising wear you down. Startups live or die on morale. If you let the difficulty of raising money destroy your morale, it’ll become a self-fulfilling prophecy.

Funding a startup.

The typical funding sequence begins when you put up your own money first. Next, you look for “FFF money” (from Family, Friends and Fools). Then, if you still need more money, you try to attract private investor or Angel money. This is usually followed by additional rounds of funding provided by professional venture groups (VCs).

The funding sequence is typically made up of the following stages:

The Concept Stage – here there’s a business plan and maybe a demonstration product. Money comes from your personal savings, FFF and Angel investors. FFF invest primarily in you, rather than in your business. Angels invest in you and your business.

The Early Stage – here there’s a working product and some beta customers. Funding comes from Angels and some VCs.

The First Pro Round – here the product is being used by some reference customers. Funding comes from VCs and some Angels

Later Stage Rounds are possible after market validation. Here funding usually comes from VCs.

The single most important thing to remember in launching a business is to never, ever run out of money! The most common mistake entrepreneurs make in getting funding is not getting enough in the beginning. Always ask for more than you think you’re going to need. That way, you can focus your energy on building the business rather than spending all your time trying to raise more money.

Try to fund to a series of milestones. If you’re looking for a long-term payoff, you want long-term money. Never take someone’s last dollar. If they don’t have the money to invest in the next round, it may hurt your credibility with future investors. Be careful to avoid the appearance of being turned down by anyone as this usually makes lead investors nervous.

Since the first round is seldom the last round, it’s important not to give away too much equity in the beginning. The First Pro Round often takes 40 - 50% of the equity in the company. Remember, having financing is better than having control. Having half of a big venture is better than owning all of a small one. Raise the money, take the dilution and earn the equity money back some other way. Take the money when and where you can get it - don’t wait until you need it. You’ll never know what dilution means until you need more money and you have to raise it quickly. Avoid having a “down round,” when the price per share drops below that in the previous round of financing.

People who failed in their first business venture usually say they were undercapitalized and while it's true some of the time, more often than not it's because they didn't use their capital wisely. Perhaps they spent money to celebrate when they were told they’d get the order, they celebrated again when they actually got the order, and they celebrated one more time when they completed the order. Remember Sam Walton kept driving his beat-up old pickup truck long after he was wealthy - the truly successful entrepreneurs don't need false symbols of success. Bootstrapping is more than just a response to a financial predicament; it's a belief about how to run your business.

Jeff Bezos, the founder of Amazon.com, was working on Wall Street, studying the Net phenomenon and thinking long and hard about the best possible businesses to build on the Web. He had a big advantage in being systemic and early. So he was able to self-fund Amazon.com into a business with a little seed capital from family and friends. Bezos figured he could grow without VC money, but he’d like their help. This was less about capital than it was about experience and relationships. So he interviewed and auditioned potential venture backers like he was hiring a vice president. He carefully checked references. He talked to entrepreneurs from ventures they’d backed that were successful and also with some that failed. He eventually teamed up with Kleiner Perkins, because, in his words, they were a center of gravity at that time for Internet businesses.

Common problems with business plans.

The business plan is too long.

When writing a business plan, I suggest keeping it under 20-pages. In fact, the shorter the better. The Intel business plan was one page long! The Sun Microsystems business plan was three pages long! Really long business plans scare people off and often don't get read. When you present it to potential investors, your presentation should have no more than fifteen slides.

The concept is unclear.

Use plain language to describe your business. Don't get caught up in technical jargon. Most great businesses are based on simple concepts. Write the plan so a smart college student could understand it.

The plan doesn't include customer input.

Who are your target customers? Have you factored in their input? You can conduct phone or Web surveys to quiz prospects about your concept, then summarize the results in your business plan. This shows potential investors that you talked to real prospects and incorporated their feedback into your thinking.

The competition section is weak.

Many entrepreneurs simply state they have no relevant competition. This is rarely true. Frankly discuss the strengths and weaknesses of your competitors and make sure to spell out how your company will differentiate itself from them.

The team description is too brief.

Many people invest largely on the strength of the start-up team. Show investors what the founders have accomplished in the past and why they’re uniquely qualified to make this venture successful. Be sure to include advisers and consultants who will actively participate if the company gets funded. Potential investors want to know who they’re dealing with before they commit their money.


I’ve been told that fewer than six out of one-million business plans submitted to venture capital firms ever become public companies. So, make the effort and take the time to prepare the best business plan you possibly can so you'll end up as one of the six!

Woman work, a poem by Maya Angelou.

Maya Angelou (born Marguerite Ann Johnson in Saint Louis, Missouri on April 4, 1928) is an American poet, memoirist, actress and an important figure in the Civil Rights Movement. She’s probably best known for her series of six autobiographies, starting with I Know Why the Caged Bird Sings, (1969) which was nominated for a National Book Award. Her volume of poetry, Just Give Me a Cool Drink of Water 'Fore I Die (1971) was nominated for the Pulitzer Prize. Angelou recited her poem, "On the Pulse of Morning" at President Bill Clinton's inauguration in 1993. She‘s been highly honoured for her body of work, and has been awarded over 30 honorary degrees. Reflecting on her life at 80, she recently remarked, “When I try to describe myself to God I say, ‘Lord, remember me? Black? Female? Six-foot tall? The writer?’ And I almost always get God's attention.”

Woman Work by Maya Angelou.

I've got the children to tend
The clothes to mend
The floor to mop
The food to shop
Then the chicken to fry
The baby to dry
I got company to feed
The garden to weed
I've got shirts to press
The tots to dress
The can to be cut
I gotta clean up this hut
Then see about the sick
And the cotton to pick.

Shine on me, sunshine
Rain on me, rain
Fall softly, dewdrops
And cool my brow again.

Storm, blow me from here
With your fiercest wind
Let me float across the sky
'Til I can rest again.

Fall gently, snowflakes
Cover me with white
Cold icy kisses and
Let me rest tonight.

Sun, rain, curving sky
Mountain, oceans, leaf and stone
Star shine, moon glow
You're all that I can call my own.