This morning I was recapping with the TechStars founders about their first 2 weeks and preparing them for what to expect in the next 11 weeks and beyond. One question raised is how to deal with raising funding. In addition to some other advice I offered, I made a strange analogy: A key part of getting financing is managing your reputation: gaining traction and momentum in the technology and venture community is like....becoming the popular kid at school. In high school, I learned (the hard way) that if Jane tells Cindy that Tommy is "hot," it influences Cindy's view of Tommy and after this occurs a few times....guess what.... Tommy becomes the most popular (i.e. hottest) kid in the class. This high school process of "who is the hottest" is pretty similar to what occurs amongst investors with startup companies. In addition to developing a great product that customers want to use, having a business plan, and being able to pitch well etc., it is equally important to generate strong buzz about your company among the venture and technology community. Sometimes an off-handed remark at a cocktail party from one angel to another saying "have you seen what XYZ company has been up to? It looks cool (i.e. hot) to me" is all you need to get your company some traction with investors.
How to quit your job at a startup?
In the last month or so, I've had the good fortune of witnessing high level employees quit from 2 startup companies. In both cases, the employees were well meaning honest folk who did a poor job of communicating to the management of the start up.
if you find yourself in the position of management at a startup (or for that matter any company) and wanting to quit, I would encourage you to notify the management as soon as possible that you are thinking about leaving the company and some of the life factors that are making you consider leaving.
This early warning step is the one that people screw up most -- and often has the most negative effects on the entire process. It often makes employers feel burned when they don't have fair warning or opportunity to correct bad employment circumstances. Why is this so important? Two reasons: first, because startups need to be able to plan for effective transition and second, managers want to feel like they have an opportunity to communicate or respond to market dynamics with a counter offer. Without adequate warning, managers end up feeling burned and can take defensive or punitive actions in response. These only aggravate bad communication and bad feeling between employee and mangement left at the company.
When it comes to software products, nail it before you scale it
When building a software product, it's important to figure out the individual pieces in a small market microcosm and make sure that the product works for the desired market BEFORE you go about worrying about scaling. This is another way of saying -- avoid the build and they will come strategy. With software and mobile products, entrepreneurs often focus on scaling the product before they've really figured out the dynamics of consumer interaction and satisfaction with your product.
Nailing a product is hard work and takes time and a lot of attention to detail. Figuring out when and if you've nailed the product requires lots of feedback. Focus on refining the minimal feature set and the customer feedback to determine if you're being successful.
Top 5 entrepreneurial moving offices tips
Sorry for the slow week of posts last week. But I was engaged in moving to our new offices in South Lake Union. The office already has a nickname -- "the Easy"....it's a working name based on the fact that we have a speakeasy in the basement.
Like most start-ups....and unlike most big companies.... We moved ourselves. We rented a U-Haul and a couple hand strollers. We got lots of used furniture. We negotiated with internet providers which was a pain in the ass because Comcast doesn't service our neighborhood. We put the furniture on our backs and moved. My back is tweaked -- it's hard for old guys that sit in front of computers to move stuff.
The upside of all the moving and sweat is the new space we're in. We're setting up office this week. Trying to get things tidied up for the start of TechStars. Stay tuned for pictures, parties, and open houses.
Special thanks to Kayla and Danny for making the move happen. We couldn't have done it without you...or your siblings.
oh yea -- and now for my top 5 tips for those people considering an office move:
- Home Depot has tile board that makes for great whiteboards
- Used chairs can be acquired for $20
- Pizza plus $200 worked for payment for a full day of movers
- Make sure to start the internet gets signed up for before you sign a lease
- Negotiate an "out" to your lease -- having a buyout with 6 months notice is a good practice for any startup!
NWEN First Look Forum
NWEN is looking for innovative, growth-oriented, pre-funded companies who could use some expert coaching (and for a lucky 12, some great exposure) to get them to the next level. Because NWEN supports innovation across practically every industry (clean-tech to consumer products, web 2.0 to medical devices), some of the awesome companies could really benefit from this mentorship program. Full disclosure--Chris Devore -- my partner is one of the 20 coaches for First Look Forum.
I highly encourage you to apply-- it's a great forcing function to distill your business into one page, and no matter what the outcome, you'll get great support.
Earlybird applicants get a hosted reception with insider tips. Every applicant gets feedback on the exec summary, and a workshop on how to pitch to investors. The top 20 also get in-depth coaching from a pair of investors. The final 12 get all that and exposure to 20+ funding groups at our invite-only investor event on October 12.
Click here for more info and to apply! Earlybird applications close July 26. Please note-- if you don't have time to complete the application to meet the earlybird deadline, just register online to get your invite to the reception. You'll be all set as long as you get the exec summary in by August 18.
The story behind RevenueLoan...and why I'm excited about the company
I started RevenueLoan because I am on a mission. I have a passion for entrepreneurship. I've been starting and running technology companies for 15 years now. I love entrepreneurs and generally find myself spending all my time trying to help them with all aspects of their business.
Why do I do this? Well, two reasons. First, I received lots of help as a young entrepreneur. I wouldn't have been nearly as successful had it not been for the help and mentorship of lots of kind friendly people. Second, I believe MANY people aspire to be entrepreneurs and to build something that they and their employees believe in and can be proud of. To accomplish this goal, financing is a often a core impediment to realizing small business success and growth.
Two and half years ago My partner Chris DeVore and I started Founder's Co-op because we thought that the traditional venture capital model was broken. We thought success for a startup company was better facilitated by a super angel entity than by a traditional vc fund. We continue to believe this....and are in the process of proving it! I want to be clear -- this does NOT mean that I think venture capitalists suck or are useless. On the contrary, venture capitalists play a vital role in the startup process.
During the first year of operating Founder's Co-op, we perceived another opportunity to support a group of underserved entrepreneurs. These entrepreneurs had small businesses and big visions and were impeded because they didn't fit traditional bank debt or traditional venture capital or angel equity models. This market insight-- which was facilitated by Erik Benson and the partners at Voyager Capital -led to the creation of RevenueLoan, the company. We did the first two RevenueLoan investments under the Founder's Co-op umbrella (or flag) before determining that the opportunity required a separate investment vehicle. One of those deals has already proven to be very successful for the entrepreneur and for us!
Founder's Co-op is on a mission to innovate in the area of financing of early stage technology companies. RevenueLoan is a vital innovation. The reason I'm so excited about the company is because I think it's the best investment agreement I know of that truly aligns entrepreneur and investor incentives. RevenueLoan puts an extra focus on increasing top line revenue growth which for any entrepreneur is a critical success metric!
In conclusion -- and just to put a fine point on it -- I'm excited about RevenueLoan because I think it is going to help a large number of entrepreneurs grow their businesses.
Lookstat founders are growing up
Just had lunch with the LookStat founding team. They're a little annoyed that their numbers of users and revenue haven't taken off as much as they'd like. In response to this, the team spent some time this week asking themselves "why"? Well, they came up with some great answers. Turns out they've been selling features not benefits. Also, turns out they haven't explained to users "why" they should use their product at all. Lastly, turns out that users don't know what to do when they first come to the web site. These insights are spot on -- and relatively easy to start fixing and addressing. Lesson learned in business: every breakdown is an opportunity for a breakthrough. Go Rahul and Casey -- you guys have game. Business game that is ....not golf game :-)
The first big door dinner meeting is in the books
Just returned from a lovely dinner with Brad Feld at Foundry Group, Keith Smith and Jeff Malek of Big Door. The meeting had 2 bottles of wine, 7 plates of food, and 3 desserts. Good food and drink helped make the conversation flow.
The meeting was interesting to me for a lot of reasons. First, from a big door investor perspective, I think Keith and Jeff are really onto something. The response from the market in terms of interest in what Big Door has built is awesome. It's made Keith giddy and busy just trying to keep up with responding to the interest. Now, the trick for the company is to figure out what the conversion rate is going to be of leads to customers and customers to revenue. A year from now, we should be able to look back and see what an ideal customer is and what the average expected lifetime value of a customer is. We'll also be able to state what makes a bad customer fit. All of these facts are very important to learn and all impossible to know today. So the conversation at dinner was about how best to deal with this ambiguity and at what rate to respond to what appears to be real demand in one's product. Brad made an interesting point that when demand is real entrepreneurs often make the mistake and constrain growth because of capital (i.e. they don't lean into demand enough). He's also seen entrepreneurs make the opposite mistake in the 90's -- spend in the absence of real demand. So the trick here is to figure out how real the demand is....
Second, as a person running RevenueLoan, the conversation was totally relevant to me there too. I've been impressed (not quite giddy) with the amount of interest and demand in our company and I found the conversation about Big Door instructive with how I should think about aggressively pursuing demand.
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
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.
Opening the door to a more imaginative future: Big Door Media raises $5 million dollars from Foundry Group and Founder's Co-op
I'm happy to let you all know that one of Founder's Co-op portfolio has raised $5MM dollars in venture capital from the Foundry Group.
As I pulled my car into the parking lot this morning and was thinking about Big Door I imagined myself getting points for getting to work on time, or for parking in the worst spot in the parking lot, or for getting to work in less than 5 minutes when my average time is 5:30 seconds. You may think I'm a bit nuts, but working with BigDoor has me imagining the future differently (and admittedly I am a bit nuts). And the future I see is all about games.
Keith Smith, the CEO of Big Door, pointed out the opportunity to create a platform to help publishers enable game mechanics and virtual economies. Once he pointed it out -- I jumped on board and started to imagine life with points, points, and more points. And all I could think about was how FUN! This post may be a bit abstract ...but it's because I'm rushed. I'll try to fill you in more as the weeks go by...if you want to see a practical implementation of Big Door check out cheezeburgers new implementation of trophies...it's powered by Big Door Media.
This investment has been a blast. Nice job Keith, Jeff and the whole team. (Welcome back Roy)
I plan on writing a long post about the story of this company and this financing in the next week. But I am so swamped with work that I can barely make this post. I'm busy with my own announcement yesterday of RevenueLoan which is pioneering an innovative approach to financing early stage companies (i.e. companies of 1 to 5MM in revenue).
Top 10 reasons NOT to apply to TechStars
- You like your cubicle
- You think 12 month software release cycles are just fine
- You aspire to be a middle manager
- You'd rather sit in meetings all day than actually do stuff
- You don't believe the world could be a better place (change isn't something you believe in)
- you like pushing paper
- procrastination is a game you enjoy
- Your definition of risk is a board game
- The Nike commercial of Just do it didn't do it for you
- You're afraid, very afraid
Applications are due by June 1, 2010. Apply here
No BBQ allowed. Any thought on how I should respond are welcome?
I received this pleasant email today:
Hello:
I got a report from other tenants in the building that there was a BBQ in the parking lot with alcohol being consumed today. Alcohol or not, this is an office building and both of these activities are inappropriate for a professional setting. Other tenants have clients coming to the building and this is not something that should be going on. If people need to be involved in an activity like that there are parks nearby that can be used. The report that I got was that it was your office that was doing this. If this is true please contact the people on site and make sure this does not happen again.
Thanks,
Rich
There are a number of responses to this email that I can think of....but I'm not sure yet what the best one is yet. Any thoughts of how I should respond?
Entrepreneurial tip of the day: remove the hair from the sink, don't hide from the tough or gross stuff
Every entrepreneur faces numerous challenges. More often than not the hardest ones people attempt to ignore. Let me give you a few, for examples:
- revenue isn't scaling at the rate it should
- one of your VPs isn't a cultural fit and does a mediocre job
- traffic to your website comes from black hat techniques and you have white hat advertisers
I could give you LOTS more examples.
The point of this post is that given that there's lots of hard stuff to face, the sooner you acknowledge the issue, the sooner you can step up to fixing the issue. It's rare -- if ever -- these issues just resolve themselves without direct confrontation. One skill you need to develop is the ability to step up and bring these issues from the dark into the light and to deal with them effectively, cleanly, and generously.
It may be easy to hide -- but hiding only makes the problem linger.
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.
Feedback from last nights twiistup event: How to make a great entrepreneurial panel or event
I spoke at an entrepreneurial panel last night with Geoff Entress. After talking and answering questions for about 1 hour I asked the audience if they had any constructive feedback on how to make the panel better. We received the following feedback:
- Serve alcoholic drinks -- Neil Patel had already figured that out and had arranged for an open bar. I think panels are really just like weddings -- you need to hit the audience with alcohol and good snacks immediately after the ceremony. Neil understands this.
- Improve networking -- During the drink hour, figure out a way of structuring the networking so more people meet the right people. There are lots of ways to do accomplish this -- e.g. a bell or chime where you have to move on and introduce yourself to someone new...The important thing is understanding why the audience is there is less about the panel and more about networking.
- Improve one-on-one access to panelists -- The larger the audience the harder it to connect audience and panelist one-on-one. In fact, making one-on-one connections is hard to do with almost any size audience. However, the audience clearly has the desire to get individual advice and contact with the panel. NWEN has created a unique "eDate" event where they have a larger number of experts to meet for 3 minutes individually with entrepreneurs. I think this is a great idea and the event has been well received.
- Present case studies -- people like to hear detailed stories of financings.
- Role play -- Someone in the audience wanted to "watch" a real pitch and then have the panel critique the pitch.
What Seattle startup scene needs?
Seattle needs:
...more big exits from Seattle technology companies Picnik was nice. But zillow, redfin, cheezeburger and others. It'd be good if we could get some companies exiting with greater than $100 million exit club. ....more great entrepreneurial talent This may be the thing that creates the above exits. And this may be the thing that the city needs most and is having the hardest time developing. The UW is great - but Seattle can't compete with universities in Boston or San Francisco. This single bullet point is the thing that attracted me most to doing TechStars in Seattle. Recruiting great entrepreneurial talent. ....more great angel investors. Geoff Entress is the Ron Conway of Seattle. And the group of entrepreneurs we've pulled together at Founder's Co-op are active. But, Seattle needs more individuals willing to take the earliest stage risk associated with technology companies. More angels investing money means a more vibrant early stage technology scene. ....more awesome engineers That are not trained by local HUGE companies. Or engineers that are determined to play with code and keep playing until they figure out stuff that works for people. There can never be enough talented technical people playing with codes driven to build things of value for people. I'd particularly like to see Seattle capitalize on it's gaming roots and become a bigger player in the virtual economy space. The folks at Big Door Media are great -- but we need more cutting edge game companies.
The opportunity cost of thinking about opportunity cost -- is real
I spoke to an entrepreneur today who asked me about the opportunity cost of his startup. His company was 2.5 years old and doing about 30K per month. They weren't growing fast or getting rich and had enough money each month to pay the principals. He told me that he was starting to think about opportunity cost of his time.
I told him he was 1/3 of the way through a marathon and that I thought we (as entrepreneurs) were spoiled by the 1990's internet bubble. The days of quick exits and instant millions are gone. In my opinion, it takes at least 5 years to build value into a company -- sure there are exceptions and it's wise to look for them. But don't be deluded by the green pastures of an easy path to profits. Doing a start up is hard and the line between success and failure is all too thin. It's a CEO's job to quiet the conversations about greener pastures and opportunity cost in his mind -- and to focus on leading his company to a market where margins are good and money can be made. Getting to break-even so that you can play again another day is a major accomplishment. Don't under appreciate it.
When I told this to the entrepreneur, he looked at me as if I told him something he already knew. He was relieved (I think) and disappointed because it was still hard work ahead.
As I've been known to say -- "chop wood, carry water" and "be careful out there" .
Why Founder's Co-op made a seed investment in Untitled Startup?
There's a simple thesis at play in this investment. UntitledStartup is a great example of the following investment thesis:
i) People First
ii) Market Second
iii) Product Third
Oh and above all -- while you're doing all the above -- has a sense of lightness and fun. I've spent the last 60+ days co-officing, contributing and collaborating with Damon Cortesi and Aviel Ginzburg (the "gentlemen" and I use the term loosely depicted in the photo below) as they've figured out what their startup was going to do. The funny thing is -- I made the decision to invest and have invested and I still don't know exactly what it is they're going to do -- and neither do they. Now that may sound crazy -- stupid even. I don't think so.
Damon and Aviel currently embody the new way to build a startup. They are working hard to invite their early adopters into every aspect of the business -- in a kind of continuous collaborative innovation. When you go to their site -- be sure to go to the backstage tab. Why is this important? Well -- hopefully, it's going to accomplish the following:
i) Product Market Fit -- Getting feedback and dialogue from the marketplace in every aspect of the product development process increases the likelihood that what they build will serve people's needs
ii) Ensure early customer enthusiasm -- the first 10 and the first hundred customers of any product are always the hardest to attract and engage. The manner in which Untitled is conducting business, hopefully brings UntitledStartup these first early critical customers. Moreover,The customers of the US will view the product development as a process and thus will roll through the necessary bugs etc that inevitably occur in the release of a new product. Well that's the theory anyway.
iii) PR and Buzz -- rising above the noise of all the other startups out there is HARD. Having a story and an angle and a sense of fun make accomplishing buzz a little bit easier. It doesn't guarantee it -- but it certainly doesn't hurt.
I'm super excited to have made this investment and look forward to the unfolding story that all of you help write at UntitledStatup!
Focus is hard work
Just had a meeting with one of our portfolio companies. During the meeting, we decided again to stay focussed on the current market and improving all the foundations of the business. It's not sexy -- and at times -- not exciting but it's the hard work that's required to build a business that is worthwhile. After the meeting, I said to the CEO -- the problem with business is that once success and profits come, we'll forget days like today when success wasn't so clear and it was actually hard to decide to stay focussed.
What makes Seattle a great place to start companies?
I was interviewed by Fast Company on what made Seattle a great place to start a technology company. My answer is in this article
