What to do when your first entrepreneurial venture fails or goes sideways?

I recently had coffee with an entrepreneur whose first company did not succeed. He was a bit down in the dumps...understandably.  My advice to him was as follows:

  • Pick yourself up, dust yourself off, and move on.  And do it relatively quickly. 
  • Decide what you're going to do. 
  • If you need a job, determine that fact and start looking.  If you want to try another startup, you're probalby more likely to succeed. Step up and start taking the steps to building a company. 
  • Navel gazing does not move you forward. 
  • Depression does not move you forwad. 
  • Be sure to exercise regularly .
  • Get a consulting gig : it buys you time, pays you and gives you current market knowledge (of some market).  

What are the top 3 goals for a CEO of a startup?

I've been having having breakfast with Aaron Bird, CEO of Bizible pretty regularly since TechStars.  His company raised 1.7MM in capital in November 2012.  The company has historically been focused on he calls, "closed loop marketing" for the SMB marketplace.  Closed loop marketing connects leads from different sources of marketing to sales so you have much more effective marketing spend than you would otherwise.  At breakfast today, he stated that his goal was to get cash flow break even on the money he raised.  I think it's possible that Aaron and team might be able to achieve this goal. However, after listening to him for a while, I suggested to him that his focus as founding CEO should not be on getting to break even -- rather he should focus on the following in this order:

  1. Nailing product market fit in a big fast moving market  
  2. Nailing the unit economics of his business 
  3. Getting to cash flow break even

It's important to note that these goals are not mutually exclusive. Rather, solving one often leads to the second and third. But, ranking these priorities in this way has the founding CEO focused on the thing that requires the most psychic attention and testing. 

WTF? RevenueLoan changed its name to...

A couple weeks ago, I wrote about how naming a company is a real pain ....but never mentioned the results of our naming efforts. Well, in this post, I'm happy to share with all of you that RevenueLoan is now LIGHTER CAPITAL.

Why Lighter Capital, you ask?

- We’re about more than RevenueLoans

- We're a lighter financial institution, as in fun and lighthearted

- And we plan on making raising capital lighter, as in easier and faster funding for small businesses

We’re about more than RevenueLoans

As we worked with small businesses over the past year, we realized there’s a lot more opportunity to disrupt the small business growth capital and lending incumbents.  We intend to be the team that causes that disruption. What’s screwed up about small business capital now? That really merits its own post, but…let's just say there's lots that's screwed up and if you're an entrepreneur with a business that is growing getting access to capital to grow your business is way too hard and the process success.  Getting money takes too much time, hassle, and work and the investors ask for too much (equity, control, interest rates, etc.) Lighter Capital changes all that -- and we do so with a deep understanding of what it takes to be an entrepreneur.

Lighter, as in fun and lighthearted

We aren’t your father’s local 3-6-3 bankers.  We don’t wear suits. Our offices don’t smell of rich mahogany. We know building a business takes hard work - getting funding shouldn’t make your life harder. So we wanted our name to represent our focus on keeping business upbeat and lighter. And even it we don't fund your business, we want to do so with respect and a smile and leave you feeling like you haven't wasted your time or had to dress up to be someone your not. We like quirkiness and appreciate weirdness and generally want to have fun building this company as you should have fun building yours.

Lighter, as in lightweight funding

I’ve been in both the entreprenuer’s shoes and the financier’s shoes for long enough to have seen where taking outside funding can get painful. Under the right circumstances, taking bank debt or VC funding can make sense, but we’ve seen a lot of companies where those sources of capital start to weigh-down a company instead of lifting it up. RevenueLoans give companies more flexibility without demanding your first-born-child. And we’re working to make it faster and simpler to get our money, so entrepreneurs can focus on what they do best – building exciting new businesses.

Expect to see some of these changes in our company and loan process in the coming months. I’m psyched out of my mind about some of the work our team is doing, and this name change is an exciting step in the direction we’re taking.

In the interest of being open and light – check out this video of our team debating the name change:

Why naming your company sucks

I've known for about 6 months that RevenueLoan was not a good company name. I determined that it is a product and not a company and so I started a process of creating a new company name about 2 months ago.  I thought that naming was important but didn't want to waste a lot of time, money and resources on getting a good name. In the past, I've seen companies get totally derailed by company naming and be totally unproductive while in the process of naming. I was determined not to let that happen here.  At the time, I thought it would take 2 weeks. I was wrong. It turns out naming your company is harder and sucks worse than I thought. I thought I knew how to name a company!

Well, I stand before you today a humbled man.  I’m going to share a bit about the process we went through and some tips for naming your company more efficiently than I just did. This blog has 4 parts and should help shed light on why naming your company sucks:

  1. It's your baby
  2. Domain squatters hate you
  3. All the good names are taken
  4. The team needs to be on board

It's your baby

Your company becomes a huge part of who you are. "Hi, I'm Johnny from Crummy Co." becomes the new way people know you. So the naming decision is hugely important - way more important than making sure you don't have mustard stains on your shirt or your fly isn’t down. Those things last at most a day. Your company name stays with you for a long time.

We had a lot of things that we wanted to convey with our name, so coming up with a name that fit all of those at once was more than a pain.  In fact, we had too many objectives and too many people to satisfy with our new name.  Naming a company with 6 people is like naming a child with input from both sets of grandparents -- it's a nightmare.

Domain squatters hate you

I was shocked how hard it was to find a domain. We couldn't find anything. It's amazing how domain squatters seem to think of every possible word ever. It also becomes an addicting game - is this one available? Nope. How about that one? Nope. I got totally sucked into the domain name availability game. You can try adjusting the spelling or add a word to the domain, but the further away you get from an actual word, the harder it becomes for people to find you.

All the good names are taken

About 3 weeks into the process, we had a name. It was good. We hi-fived each other and drank whiskey. As a final step, I emailed our attorney to file a trademark for the name. Bad news - the name was taken. To quote one guy on our team "Pretty sure none of us are excited about going back to the drawing board…" There's no trademark on children's names i.e. there can be lots of Andy Sacks in the world ....but in any given industry, you only get one company name, and trademarks are specifically designed to reduce confusion in any one market.

NOTE: While this was painful, I STRONGLY recommend doing trademark searches before you go too far down the road as a company with the risk that you don't own the trademark.  i.e. it's much costlier in the future to change a company name than now!

The team needs to be on board

If you've already hired a few employees, you need to be sure the team buys into the new company name. This isn't the worst thing in the world, but it adds another level of complexity to the naming process. Too many cooks in the kitchen, kind of thing. If you hired an employee with the name "Earth Friendlies" and suddenly change your name to "Cow Eaters" you risk putting your employees in a position where they aren't with you on your mission. Nobody on our team got too upset about any of the names we came up with, it just makes it drag on longer.

Ultimately, I'm happy to be done with the process. Look for another post about some of the ways we went about choosing a name and what we've finally decided on.

The Big Door financing history: an insiders view of Keith Smith's comeback

Founder’s Co-op has been an investor in BigDoor since shortly after its inception in2009.  The CEO and co-founder of BigDoor is Keith Smith, and Keith and I have been friends for going on seven years now.  It is a friendship forged in the board room, sales pit and the business trenches – yet cemented over drinks and political debate.  I think there is a good lesson to be learned from Keith’s story over the past couple of years, so I thought I’d tell it.

The economic tsunami of 2008 left Keith and his company in rubble. The company that once had annual revenues north of $78MM and significant monthly profits that placed its worth well over $100 MM in market value was sold in April 2009 for for pennies on the dollar.  In an attempt to save his company, Keith mortgaged his home and poured every last dollar he had into the company.  Despite those investments, all of the proceeds of the sale went to the company’s lenders and Keith’s personal fortune went the way of his company, south….way south. 

Shortly after the company he had spent a decade building and running Keith was offered the job of CEO of an Internet company located in the Midwest doing double-digit millions per year in revenue.  He then began debating whether to take this job (and go work for someone) or begin again and start his own company.  When he sought my advice, I told him that he should do what’s right for him – that he’s captain of his own ship and needs to make the call about what direction to take his career.  I told him there’s no shame in working as a hired gun for someone else. 

Keith took a trip to Cancun with the plan that he would spend a week on the beach to make a decision about what would come next. Rumor has it that he drank a fair amount of tequila and partied hard on the beaches for a week. When he returned to Seattle, he declared he wants to start a company.   He had a vague notion of starting a company focused on offers; kind of like Offerpal but aimed at non game sites. 

I told him I’d like Founder’s Co-op to lead the financing.  My rationale was simple: I wanted to bet on Keith. I think he’s one of the best CEOs I’ve met and personally he is one of those people that knows how to make money.  He’s also someone that I’d never want to bet against. My assessment had much more to do with the attributes of Keith than with his new business. I just know he’s smart enough to figure it all out – and now he has a chip on his shoulder to prove to everyone that he can do it again. 

We decide to go to Las Vegas for the weekend and try to pencil out a deal while drinking by the pool.   The negotiation was none too hard. We both put our key limitations on the proverbial table – there’s a lot of trust between us and neither of us tried to over optimize the deal.  We left Las Vegas with the following deal: 

Founder’s co-op leads a 500K investment in Big Door

  • 250K at a low valuation
  • 250K in a convertible note that will be done in Nov 2010

In November 2009, Keith & Jeff and I returned to Vegas for the annual sojourn to pubcon .  On the plane, I looked back to see Keith and Jeff in a deep conversation. Jeff twisted around in his seat talking intently to Keith in the seat behind him – who is furiously taking notes.  Upon landing in Vegas, Keith & Jeff tell me they’ve decided to alter the direction of the company. I asked them lots of questions and their thought process made sense. I encouraged them in their new direction but I told them to get a customer.  Customers will validate whether their change makes sense. 

Also in November 2009, Brad Feld (Foundry Group) and Keith met for the first time at the TechStars in Seattle event.   I facilitated an introduction over a beer and a burger. 

In January 2010, Keith closed his first customer on the revised strategy: BuddyTV.  The sale of this customer is a milestone for the company. Around this time, my confidence in Keith and the plan he was pursuing  began to increase significantly. I began to see the wisdom of the change in direction that Keith and Jeff had made.  I began making introductions for Keith to a bunch of local and non-local venture capitalists.  Keith and I both knew that the company is going to need additional capital.  Fortunately, a number of the venture capitalists got interested in the company. 

In February 2010, Brad Feld started to engage more with Keith.  They began to develop their own relationship.  . Keith closed his second customer: the Cheezburger Network.  Around this time a few other venture capitalists started to request 2nd meetings with Keith and are began to express serious interest in the company –but the chemistry and momentum and fit was nothing when compared to Foundry Group. 

In April 2010, Brad and his partner Seth came to Seattle . We had breakfast and then Brad, Seth and Keith had a 2 hour meeting with Keith.  A few days later, Keith calls me from the SFO airport and tells me he ran into brad at the airport and Brad informed him that he will not be investing.  Brad really liked the company but for a few reasons couldn’t get himself off the fence to actually invest.

Keith was a bit surprised and disappointed. Frankly, so was  I.  Up to that point, the chemistry and momentum between Brad and Keith kept pointing to a likely term sheet. I kept thinking that Brad would put a termsheet down but the valuation would be too low for Keith.  I told Keith not to give up and to reach out immediately to Brad to tell him he made the wrong decision and I told him to get on a plane and get to Colorado.  Keith reached out to Brad and Brad was receptive, so they setup a meeting for later that week in Colorado.

They meet at the Foundry offices for a few hours and by the end of the meeting, Brad had tentatively agreed to change his mind. BUT, Brad wanted to discuss the investment with his partners. I encouraged Keith to keep the heat on and to email Brad’s partners and tell them how much he wants to do the deal with Foundry as opposed to other investors. 

I also told Keith he needs to work on a backup plan. Two weeks later Brad agreed to invest.   The deal closed 21 days later (i.e. last week). 

The big lesson to learn here is; never give up.  Whether you have a company that fails, or a deal that falls apart – don’t get discouraged, don’t give up, keep going. 

Notes from Founder's only meeting at Founder's Co-op

Last night we had most of the founder's come to the Founder's Co-op office for our second "founder's only" event. We now hold these meetings every other month.  I'd say the event was a win. We met for 2.5 hours and then had dinner.  The meeting started with everyone doing a shot of Maker's Mark whiskey.  I blogged last time how we were going to have an symbolic drink at each Founder's Only meeting -- last time, we didn't have Maker's so we had Patron tequila.  The Maker's Mark set the right tone for the meeting. The agenda was as follows:

  • Everyone go around and give a 1 word assessment of how they're feeling
  • Go around and get high's and lows report from each company. Followed by -- what item would you like to talk about in small groups? or more succinctly, what issue would you like input on from other entrepreneurs?
  • We then broke out into 2 smaller groups: one group was the sales and marketing group, the second group was the strategic prioritization group. 

I met with the strategic prioritization group.  The question we talked about was given the wide range of options of tasks to undertake at a small group, how do you prioritize?  The following tactical steps came out of the meeting:

  • Schedule in your calendar a day a month for the founder's to leave the office and talk about strategy and priorities
  • Every day come in and write down on a piece of paper the highest priority thing to accomplish that day. Get it down before lunch. 
  • If you're making revenue traction, be satisfied with where you're at and what you're doing. It's too easy to get distracted by the company that just sold for 1 Billion dollars and wishing it was your company. It's ok if you're not Groupon or Zynga.
  • It's your job to know where you're headed. 
  • When in doubt, focus narrower rather than expand. 
  • Get dominance before expanding. To do this, you need to define very clearly and quantitatively what dominance means. 
  • Business is hard -- don't expect it to be easy.  Growth is hard. 

Learning to walk: Spend time on deals with high likelihood to close

As an entrepreneur -- and now as an investor, I've been reminded lately about filtering one's deals with a heavy emphasis on likelihood to close.  Why?  We all have big deals that might move our company and fund(s) into the neon lights of prime time -- but I've learned that sometimes taking a bunch of baby steps helps build momentum to actually being able to walk toward the big deals. If you start out to walk right away, the likelihood that you'll fall or take longer to learn to walk is higher. In other words, focusing on likelihood to close as an important screening mechanism prevents you from wasting time and ensures that you're moving forward even if it's not as fast you'd like (it never is - is it? )