My advice: talk to 20 customers over the next 2 weeks

I had a conversation with a new start up yesterday that is innovating in the recruiting industry.  I asked them how many of the customers that will pay them money they had spoken to in developing their product. I can't remember whether the answer was one or none but I know it was not enough.  They then told me that the main motivator for buying decisions was cost reduction. There was no way they could know this -- it may have been right, but they couldn't know it because they hadn't spoken to enough customers. My advice was simple -- spend the next 2 weeks and talk to 20 customers. Leave your pre-conceived notions at home and focus on understanding their perspective on their job and suppliers. Listen. Take notes. At the end of the process -- thinkin again about the product and business you are building.

Entrepreneurs: nobody cares, be yourself

I've gotten a lot of comments about my 20th reunion photo both online and offline. The photo seems to resonate with people. Well, putting the photo up made me think. I recall when I started abuzz in 1996 with 2 partners. At that time, I didn't want anyone to know that I had worn a tie-die, gone to a Greatful Dead show, or any other activity that wouldn't be "business professional" accepted.
Over time, I've realized as a first time entrepreneur, I spent too much time trying to do what was expected or what was supposed to be "the right thing" that I missed the opportunity to lead by being myself and doing what I thought was the right thing.  Not accepting that I was a tie-die wearing entrepreneur -- was emlematic of my tendency to look outside of myself to others to tell me what I should be doing to lead my company. I've seen this trait in many first time entrepeneurs -- my advice: get over it, you have the answer and even if you don't, be yourself -- you'll have more fun.  

What's the deal with NDA's?

I've had three entrepreneurs ask me to sign NDA's recently. As an entrepreneur, everyone knows that NDAs really aren't worth the paper they're printed on.  I occasionally used them with big companies, as a means of communicating to the big company that I cared about the value of our intellectual property. But, they generally just slowed things down and became an item that future acquirers asked about why I was inconsistent in the use of them. So, I stopped using them. Now, as an investor, entrepreneurs should know that most knowledgeable investors won't sign NDAs. As an investor, I see lots of deals -- some of which are similar to others and I don't want to have an entrepreneur :

  1. Feel like they gave me an idea that is theirs and to have a piece of paper that leads to some legal letter. That's lots of unnecesary brain damage for me.
  2. Angst about their intellectual property so much that they won't talk about it without legal paperwork.
  3. Believe their intellectual property is so unique that they're afraid to talk about it. I think ideas are only good when feedback is provided and the whole NDA process seems to limit the entrepreneur's ability to get lots of feedback

What does "get fucking aggressive" mean?

I saw an entrepreneur that i had met a year ago for coffee this morning. My advice last year was to get "fucking aggressive" about customer acquisition.  He was a nice young guy fresh out of business school.  When I gave him the advice -- I recall he looked at me funny. Either because I swore or because I looked funny.
Well, I saw him this morning and he came up to me and said -- "now I know what you mean by "get fucking aggressive"". The tone of his comment revealed that he understood what I had said a year earlier. He's been working hard now for a year and "groks it". He understands that things don't happen just because you think they should. Inertia in the business world is very powerful and being an entrepreneur takes hard work....ferocity and sometimes being fucking aggressive (about customer acquisition-- one of my favorite focal points of advice).
I smiled and we laughed.

Headline: Reality slaps entrepreneur in face

That's what's going on right now. Entrepreneurs everywhere are being slapped in the face by economic realities.   Lower sales, lower margins, lower valuations, fewer investors. That's the plight that I'm hearing as I have coffee after coffee with entrepreneurs. It's harsh but true.
I've had two companies that I'm an adviser to decide to shut down operations. Both companies are run by reputable, experienced entrepreneurs.  The entrepreneurs realized that their dreams of making millions in the sale of their company or in an IPO are not going to happen and they've decided -- with no alternate financing options to shut down oeprations. I think this is just the start of the 2009 cold winter bringing the deep freeze to many entrepreneurs' dreams. It may be reality, but it isn't fun.

A cardinal mistake in negotiating that wasn't a mistake

I recently had a meeting with an entrepreneur who is pitching me on making an investment in his company. After the meeting, he sent me an email saying he had made a cardinal negotiating mistake in the meeting by revealing to me that his cash position was very, very low. I wrote back to him telling him that I thought his revealing his cash position wasn't a mistake at all. Rather, his sharing that information with me:

  1. Built trust that he was a straightforward, high integrity entrepreneur
  2. Gave me a sense of urgency about making a decision about the investment so as not to lead the entrepreneur on. 

Entrepreneurs organization is an excellent organization

If you are the owner of a business that generates more than 1MM in sales, I'd highly recommend you consider joining EO (Entrepreneurs Organization).  I joined EO when I was 28 -- at the time the organization was called YEO. I've been a member for 12 years now and have made some of my best friends and business acquaintances in the group. In addition, I've learned a lot from the people I've met. The organization is now international and has thousands of members. Check it out in your city -- it's definitely worth the cost (and the cost is not insignificant).

Go big or go home: Recognizing patterns in the evolution of early stage company's

I had a meeting with a small company in Seattle yesterday. The company is going to remain nameless (to protect the innocent). I've known the entrepreneurs for a couple years and the company is now approximately 2 to 3 years old. Here are the facts:

  1. They have just raised $1,000,000 and are a consumer ad supported web 2.0 company.
  2. The team consists of 1 technical and 1 business entrepreneurs in their mid 30's with plenty of relevant experience but no start up experience. They are great committed guys.
  3. They spend about 75K per month and thus have about 12 months of life before they run out of cash.
  4. They invited me over to talk about what metrics they'd need to hit to raise their series B. The entrepreneurs don't think they want to boot strap the company. They're committed to raising venture capital and to use their words, "go big or go home"

My thoughts at the meeting were as follows:

  • Today they have a good product and a good team. They do not yet have a good business.
  • I told them that if they only focus on raising an institutional round that may (will) lead them astray. It'll put their destiny into the hands of institutional funders who may or may not have a penchant for funding a niche ad supported web 2.0 company in Q4 2008. To be successful in raising this venture round, they'll need to hit the cover off the ball in terms of customer acquisition and retention. Today, I give them a 50-50 chance of scoring that venture round in Q4. If they don't "go big", then I think one of the founders will quit, the founding team will deflate, and they'll end up selling a very nice online niche opportunity to someone with fresh legs or settling for a shut down.  I told them that "going home' doesn't feel good.
  • An alternative might be to try to bootstrap the business. I asked them to question their assumptions about revenue generation and to see if there was someway to make money sooner. I also asked them to try to reveal the underlying personal motivations that were leading them to a get big or go home strategy. As entrepreneurs we all start out thinking we're going to strike it rich like the people we read about in the newspapers : Bill Gates, Jeff Bezos, etc. There's nothing wrong with taking a bit more time to get to a personal outcome that is just as good.

The good thing about these enterpreneurs was that they were having this conversation while they had money in the bank and 12 months of runway. And they seemed committed to staying aligned on an answer. This alignment is more critical than the strategy they choose. 
I could write more on this situation. I see this pattern a lot -- and it's fun for me to be able to see a company and to attempt to identify what life stage it's in and what's likely to happen to it and the people.

It only takes one to do a deal

I met a guy today who told me he met wtih 72 institutional investors over a 5 week period until he got 1 to agree to invest $2 million in his company. While I think this is the exception rather than the rule: i.e. the likelihood that after 71 "no"s the 72nd person will say yes is very low. The anecdote is instructive for two core lessons for the entrepreneur:

  1. Don't give up
  2. You can only sell your company once (i.e. it only takes one person to do a deal )

Too much focus on customer acquisition in my blog?

Someone recently gave me the feedback about my blog that I've been writing too much about customer acquisition. As I've gone back and looked at my blog, I'm not entirely sure Marcello is right, but his feedback got me thinking - Why am I so focussed on customer acquisition?

  • In a nutshell, I don't think this aspect (i.e. customer acquisition) of building a business is emphasized enough to entrepreneurs.  In all the advice out there, customer acquisition sometimes feels like a dirty word or a trivial concept and for that reason, I want to shine a light on the topic.  That said, I'm fully aware that customer acquisition does not a business make!  Once you've spent all that money acquiring a customer, you've got to monetize and retain that customer.

Competition makes us stronger

In the internet age, every business person wants an edge and they want that edge to last. Just today, I had coffee with someone starting an online media company. He asked me -- what should I do about the 3 other competitors in the same space. The answer is pretty simple:

  1. Deal with it
  2. Have a better SEO strategy
  3. Out-execute them

Executing on the answer is much harder than saying it.

Entrepreneurial advice of the day

I met with a former management consultant turned entrepreneur today. He has an interesting new business in the online word of mouth marketing space (which I can't talk about yet because he's in stealth mode).  My advice to him -- which seemed to resonate with him-- was fairly simple:

  1. Start selling now -- don't wait for the website.
  2. Get fucking aggressive on customer acquisition

He really liked that I told him to get fucking aggressive. He said that no one else had told him that and he appreciated the spirit with which I conjured the expletive.  I told him it comes from me having made the mistake of sitting back and thinking business is going to come to me. I told him to call me when he makes his first sale....I hope he does.   

Seattle Open Coffee is a success and here to stay

I started the Seattle Open Coffee on a trial basis almost a year ago (11 months ago). -- I thought Seattle needed more entrepreneurial culture and figured I'd give it a try.  You can read the opening post here  1 year later and I have to declare this event a success and have decided to make the event a formal part of my schedule for another year!

We have anywhere from 8 to 20 people show up each week. There are some regular faces and new faces each week. It's a completely informal coffee networking event for Seattle entrepreneurs.  Overall, I think the event is a good low key and fun way to start out your Tuesday. Come join us every Tuesday of the week (I'm at about 90% of them) from 8:30AM till 10AM at Louisa's on 2379 Eastlake Ave E.  You can read about it on upcoming here and here. 

Start ups are just a great game of monopoly

I was talking to Tom Staples, President of a Cooler Planet yesterday and he's in the process of raising a seed round of capital. I told him that running a start up company is a lot like playing real life monopoly. You've sometimes got to pass Go, collect $200, in order to keep on running and buying properties. He liked the idea of seeing his life as playing a game -- I think it reminded him not to take the whole thing too seriously.

Confusion about fund raising

I had breakfast with a venture capital friend of mine - Andy Dale of Buerk Dale Victor LLC. We were talking about the confusion amongst many entrepreneurs about raising capital.  It's easy for entrepreneurs to perceive raising a big round of venture capital as success.  There's a feeling (and I've had it) of raising 5 or 10 million dollars and feeling like you've arrived. It's an easy trap to fall into and one that successful entrepreneurs fight -- remember -- success in business comes with profitability or at least with cash flow positive.


Is there such a thing as part time entrepreneur?

This is a tricky question. I've often thought that working full time on a project is the only way to actually get a project to move and become a business. But, I've started to see evidence of people allayin gthe risk of quitting and working on projects part-time as a way of mitigating risk. This gives a project the time it needs to gestate and move forward so that an entrepreneur can quit their job with greater confidence. How can I argue with that staretgy? Still -- I think the quitting the job thing is a major milestone for a business and is revealing of the kind of commitment required to make a business really go.         

Opportunity costs for an entrepeneur

I had coffee today with another entrepreneur who recently had to wind down his business. We were comparing notes. He had raised 27 million and spent 7 years trying to grow his business and ultimately had to shut it down. I spent 3+ years working on Judy's Book. 
The time spent on a venture that is not picking up steam -- that lacks break out momentum -- has real opportunity cost. As an entrepreneur, there are so MANY ideas, and so little time. Time (and energy) are the limiting resources for an entrepreneur. Reminder to self -- pay attention to my investment of time as a real investment with a real cost.