by lilibalfour | | think
When you first set out to execute your brilliant idea, you may feel that you have all of the answers. You are able to make decisions quickly and move at lightning speed. However, you will learn that you will go further by collaborating with and building an A-Team.
The first step in building your A-Team is determining the skill sets that you will need. If you are building a technology-based company, it is ideal that you have two co-founders: a technical co-founder and a co-founder who understands sales, marketing, PR and branding. In this scenario, you have two co-founders who are equally responsible for executing the idea. Of course, no two people have all of the answers.
The next step to building your A-Team is determining where you can fill in any deficiencies. It is critical that you first brainstorm all of the key functions within your newly formed company, and then determine the best route to patch up deficiencies. Be brutally honest. This is a great time for you and your co-founder to do some soul searching.
Now that you understand your company’s deficiencies, you can do one of three things: bring in a third co-founder, recruit staff or develop an advisory board.
Co-Founder – When you recruit a co-founder, make sure he or she has a critical role. You’ll know you have too many co-founders when you break out your organizational chart and certain co-founders have few critical tasks.
The mistake I see most often in the early stages is recruiting a chief operating officer too soon. This might seem like a good idea at first, but a small company does not have various layers of operations. In fact, it is best that the two (or three) co-founders oversee operations at the early stages. They will want to observe, and adjust, the infrastructure as needed.
Staff – When you recruit staff as a startup, remember that each new hire will be a huge percentage of your company and will have a strong affect on your company’s culture. Recruit people you have worked with in the past or people that come strongly recommended to you. At the early stages of your company, a bad hire can be disastrous.
The mistake I see most often in startups is the inability to let go of a bad hire. If a hire is not adding to the company, they are subtracting from the company. Do not be afraid to let them go.
Advisory Board – When you bring on advisory board members, make sure they are filling a real need. Don’t add vanity names.
If these people are not truly involved with the growth of your company, you lose credibility.
In summary, your A-Team will consist of key players who are assigned critical tasks. As you recruit staff and advisory board members, make sure each new person enhances your company’s culture and growth.
by lilibalfour | | think
Why do some brands achieve astronomical success while comparable brands fade into oblivion? The answer lies in the consumers’ hearts and minds.
Winning brands focus on the consumer’s emotional and intellectual response.
The best way to capture the heart and mind of your target audience is to create an unforgettable experience. An experience so amazing that your target audience can’t stop talking about your product or service. An experience that makes your target audience feel that their lives have been deeply enriched. In other words, create an experience that turns your target audience into a pack of screaming teenage girls at a One Direction concert.
Let’s look at a few companies that have created cult followings. In the retail sector, Lululemon and Apple are top of their game.
Lululemon enjoys sales per square feet of over $2,000, while Apple’s sales per square feet is three times that of Lululemon, at $6,000. To put this in perspective, Gap achieves $400 per square foot.
What is it about these two companies that morph their target audience into fanatical buyers? It’s all in the way they make the consumer feel.
Design — Lululemon’s tailored designs complement a woman’s figure and make her look and feel great. Prior to their launch, athletic apparel was frumpy and masculine.
Experience — The store recruits ambassadors to showcase the latest offerings; which enhances the bond the company has with their community. The in-store shopping experience and off-site events, including wine tasting, further the bond consumers have with the brand. Of course, everyone knows the Lululemon’s manifesto. In fact, many brands have attempted to copy this branding technique.
Design — Apple products are designed through the Apple Industrial Design Group, which was launched by Steve Jobs in 1977 to separate Apple products from their peer group. Prior to Jobs’ creations, consumer electronics were bulky and unattractive.
Experience — Apple’s story is celebrated in the book, The Apple Experience: Secrets to Building Insanely Great Customer Loyalty. When Steve Jobs set out to build the Apple store, his focus was not on selling product, it was on enriching the end-user’s life. The store is equipped with a small, yet highly trained, army, which direct consumers to in-store classes that enable the user to extract more value from the product. The icing on the cake is the floor design; which entices users to shop and browse for hours.
Lululemon and Apple are successful because they deliver beautifully designed products that make the end user feel smarter, healthier, and happier.
Growing a winning brand requires selling, and selling relies upon design and user experience.
If you are building a company, spend some time in Apple and Lululemon for inspiration. Determine how you can bring the best design and experience to your target audience. Rumor has it that Steve Jobs spent time examining appliances at Macy’s to find inspiration for Apple products. Where do you find your inspiration? Leave a comment below.
by lilibalfour | | think
Have you ever left a pitch and wondered what investors really thought about you? I decided to roll up my sleeves and conduct a nationwide, sector and stage agnostic survey of investors. I insured that I included investors that represented all stages, sectors and geographies.
The survey includes input from seed investors in Georgetown, fashion technology investors in NYC, clean teach investors in San Francisco, enterprise software investors on Sand Hill Road, and investors who focus on European startups.
Without further ado, I offer you the top eight things that make investors cringe:
#8 Liars
Twenty percent of investors surveyed stated that entrepreneurs attempted to put their best foot forward when they boasted of (potential) customers and (impending) advisory board members. The problem? It was a lie.
Once investors realized that the entrepreneur had not actually signed the client and/or had only introductory meetings with the hot shot advisory board member he or she bragged about, they lost credibility.
Tip: Honesty is the best policy. It is best to brag about identifying key customers and making initial contact than embellishing and being found out.
#7 Monkey Brains
Twenty percent of investors surveyed stated that entrepreneurs being unorganized was a huge red flag. Entrepreneurs who showed up late for meetings, sent a message that the meeting was not important, or they couldn’t prioritize their time. Neither message is a good one. Another way that investors found entrepreneurs to be unorganized is when they did not take the time to research attendees in the meeting.
Sean Schickedanz, Partner at Clean Pacific and investor in OpenTable (NASDAQ: OPEN), ACA Financial, ProClarity (acquired by MSFT), CallTower and USBX (acquired by Imperial Capital) stated, “A company looking for funding can kick start a much more productive conversation by researching the fund they are pitching.”
Tip: Do your homework. Know your audience. Show up 20 minutes early, even if it means you are standing outside in the rain waiting to make your grand entrance.
#6 Drama Queens
Twenty percent of investors surveyed stated that they were turned off by entrepreneurs who came across as too emotional or “salesy.” The problem with this approach is that it rarely comes across as authentic. Nobody likes to feel like someone is selling him or her a used car.
Tip: Check the melodrama at the door and keep it real.
#5 Know-It-Alls
Thirty percent of investors surveyed stated that entrepreneurs who reacted defensively and were unwilling to accept feedback did not get called back for a second meeting.
Entrepreneurs should walk into a presentation with an open mind. You may not agree with the feedback you receive, but arguing and becoming defensive is a sure fire way to end the relationship.
Tip: Listen with an open mind and be willing to learn.
#4 Ramblers
Forty percent of investors surveyed stated that entrepreneurs who lacked the ability to communicate effectively lost their attention.
Joshua Siegel, Co-Chairman of Georgetown Angels explained, “Entrepreneurs need to stipulate their product or service in the first 20 seconds of a pitch. Back stories are immaterial if people are not paying attention.”
Entrepreneurs should focus on effectively connecting with investors and communicating their story.
Tip: Practice. Practice. Practice. Develop a crystal clear story and plan for tough questions so you don’t end up rambling, stumped, or speechless.
#3 Clueless
Fifty percent of investors surveyed stated that entrepreneurs who failed to research their competitors left a bad impression. One investor stated she was pulling up competitors on her computer screen while an entrepreneur was bragging that he had no competition. Other investors found that entrepreneurs who degraded and discounted their competition only made themselves look bad and were setting themselves up for failure.
Entrepreneurs should do their homework prior to speaking with investors, and acknowledge their competitors’ strengths.
Tip: Do a basic Google search to find competitors. Be honest and practice humility.
#2 Lone Rangers
Fifty percent of investors surveyed stated that entrepreneurs who failed to assess their skills properly were cause for concern.
Rachel Sheinbein, Venture Partner at CMEA Capital and board member of Arcadia Biosciences, Contour Energy Systems, (Observer) and Solaria Corporation, expanded “A good entrepreneur will bring in expertise when he or she doesn’t have all the answers.”
Entrepreneurs should know what they don’t know. Nobody expects you to know everything. Being vague or flat out denying weaknesses sends the wrong message.
Tip: Be clear about your strengths and weaknesses and be willing to resolve deficiencies.
#1 Financially Challenged
Over 70 percent of investors surveyed stated that entrepreneurs who could not answer basic questions about their business models, financials, or metrics lost their interest.
Shomit Ghose, a Partner at ONSET Ventures where he led investments in Adara, Gridstore, Netseer, Pancetera (acquired by Quantum), Sentilla and Truviso (acquired by Cisco), elaborated, “Silicon Valley is successful not because it’s better at creating disruptive technology than anywhere else, but because it’s better at creating disruptive business models.”
Entrepreneurs should focus on articulating their business model. If you want to win over investors, be prepared to speak about applicable metrics:
Average revenue per user (ARPU) — revenue generated per each user
Daily active users (DAU)/monthly active users (MAU) — percent of daily visitors
Conversion rate — percent of users who convert to paid
Churn rate — percent of users who cancel or unsubscribe
Retention rate — percent of users who are retained (inverse of churn)
Lifetime value — revenue generated during life of client (annualized is best)
Customer acquisition cost — cost to acquire each customer.
Tip: All entrepreneurs should focus on building a simple financial model to display revenues, expenses, cash levels, and key metrics.
Did I miss anything? Leave a comment and let me know what makes you cringe.
by lilibalfour | | think
I attended Venture 2013 this month. The closing session, End Game: Exits & Liquidity Options reminded me of one of my favorite sayings from my technology investment banking days in Silicon Valley, “Anyone can launch a company. The hard part is landing.”
Panelist ranged from Doug Chu, Head of New York Stock Exchange’s Silicon Valley office, to Norm Fogelsong of Institutional Venture Partners. Each had their opinion about the dangers of IPOs (increased scrutiny by public investors, risk of pricing too high, and the lock up of key members) but all agreed that the exit is not something management teams should enter into lightly.
So, how does one land a company? I’ve created a simple structure to allow entrepreneurs to evaluate various landing methodologies (read: exit strategies).
Below you will find exit strategies ranked by the size of the handcuffs and the level of liquidity they provide.
M&A
A merger of equals occurs when we have two companies, A and B, which are roughly the same size, maintain the same financial health, and have the same approximate enterprise value. Company A and Company B simply agree to join forces and create a new entity.
The handcuffs are large and the level of liquidity is typically low.
The two companies may divest or restructure for redundancies, but for the most party they are moving forward together, which creates large handcuffs. The liquidity tends to be low, as there is no real sale, unless partial liquidity is negotiated.
An acquisition occurs when one company acquires another. It is typically a larger company acquiring a smaller company.
The complexity of an acquisition occurs with the presence of an earn out and when stock, not cash, is issued as the main currency. Earn outs require staff from the acquired company to earn their future bonus pay. This creates large handcuffs.
The earn out is based on performance, as most acquirers want to hold on to key management for as long as they can after the sale.
If the company was acquired using stock, those shares are now anchored in the future success of the company.
The size of the handcuffs are increased based on the amount of stock used as currency and the level of liquidity is based on the presence of an earn out.
IPO
An initial public offering (IPO) takes place when the shares of the company are sold to the public.
Public stock is tracked by Wall Street Analysts who attempt to predict the performance of the stock. This constant scrutiny creates additional pressure to perform and can create a distraction. Naturally, members of the management team will have a hard time leaving their post.
There is also a lock up period which effects liquidity. The lock up period is a contractual restriction that prevents insiders who are holding a company’s stock from selling for a period usually lasting 90 to 180 days after the company goes public.
The size of the handcuffs are large and the level of liquidity is low for a fixed period of time.
As you begin to build your funding map, consider what type of exit you would like to achieve. Preparing your team for landing is critical.
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by lilibalfour | | think
A scalable startup has inherent qualities that promote infinite growth. The ability to serve one million users flows from the infrastructure that efficiently serves 10.
As an individual, you have a finite number of hours to create one output. You are constrained by the number of hours you have in the day (let’s say 10), divided by the number of hours it takes to complete each output (let’s say 1). You, the individual, can only produce 10 outputs per day. This infrastructure does not scale.
In an attempt to build a billion-dollar brand, you realize you can create several downloadable, digital outputs, display them for sale on a website and allow for an infinite number of units to be sold. Now you have a scalable business model.
To maximize scale you want to focus on three key elements:
Broad Appeal – Broad appeal is the ability to expand your target audience. AirBNB started small in a few cities. The company focused on understanding each geographical area before launching into uncharted territory. Yet they knew their service– rentals — had broad appeal. Their brand has scaled from Mountain View, Calif., to Dar es Salaam, Tanzania.
When you appeal to consumers in every corner of the world, you create a highly scalable offering.
Automation – Automation allows you to deliver your product at a quicker pace. Installation of software has evolved from shrink-wrapped products to downloads. It is no surprise that software receives the highest amount of venture-capital dollars of any industry. It is one of the most scalable industries.
Automating the delivery of your product or service increases the scalability of your business model.
Mass Creation – Mass creation is the ability to recreate your product or service seamlessly. Etsy and CustomMade feature designers who hand craft their products. On their own, the designers would have a hard time scaling. Yet, Etsy and CustomMade are able to scale as they can expand the number of designers they offer, allowing them to recreate the experience for the end user.
An individual is not scalable, yet a platform for individuals becomes scalable as more individuals are added to the platform.
If you don’t believe your product or service is capable of achieving broad appeal, automation or mass creation, you may not have a scalable business. You may, however, have an enjoyable hobby that can be expanded into a lifestyle job.
by lilibalfour | | think
Steve Blank covers the difference between a board of directors and an advisory board in “Don’t Give Away Your Board Seats.” I’d like to pick up where he left off. Now that you understand the importance of attracting advisers, how do you find them?
Take a look at a few successful companies you admire. Notice how the CEO has assembled a team of seasoned experts to guide the company’s growth? More than likely, your dream team is missing a few players. Your goal in building an advisory board is to understand which seasoned experts can provide guidance in deficient areas.
Determine which areas within your company you can proudly claim you do not know jack about. Once you are clear on your deficiencies, you can go to work attracting the skill sets you need.
Let’s look at a few key areas (most) startups will need to cover:
Marketing – A marketing strategy attracts your target audience to your product or service.
Branding – At a minimum you will need a logo, a website and social media presence.
Sales – It is important to have a sales strategy that outlines how you will get your target audience through the sales cycle.
PR – You will need a way to get your message in front of your target audience.
Finance – Finally, make sure you understand how money is flowing in and out of the company
You might look at the categories above and begin to cross out those that fall under DIY or outsource. Most startups can manage their PR, build a financial model and work with contractors to develop branding and marketing. The difficult part of building a company is sales. How do you scale the customer base you and your team have already begun to develop?
When you build your advisory board, select experts who can lessen your learning curve and make introductions to key customers and/or users.
In addition to those advisers who will help with your growth strategy, select experts within the field you are entering. For example, if you were building an educational technology company geared toward young children, it would be wise to reach out to experts in child development.
Nobody expects you to know everything. It is OK to admit that there are some areas you do not know jack about. A well-crafted advisory board can go a long way in mitigating the pain.
