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.
Friday, November 28, 2008
Wednesday, November 26, 2008
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.
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.
Tuesday, November 25, 2008
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.
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.
Monday, November 24, 2008
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.”
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.”
Friday, November 21, 2008
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.
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.
Thursday, November 20, 2008
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!
“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!
Wednesday, November 19, 2008
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.
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.
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