The value of raising prices

Just spoke to an entrepreneur who took the unusual step of increasing monthly prices by 2.5 times approximately. They saw a slight 5% drop in conversion rate. My reaction? You didn't raise prices enough and I encouraged him to do A/B testing to try and get a sense of the demand curve for his service. It's the wonderful thing about web businesses -- you can actually draw out demand curves and really hone one of the hardest challenges in business: setting price!

Miscommunications in negotiations can be very dangerous

I have been negotiating a business contract with someone. I had my attorney write edits in a red lined version of the contract. The person I was negotiating with read that contract and believed that I was asking for about 2 times the money I thought I was actually asking for. We communicated back and forth via email while letting this miscommunication grow. He was thinking WTF. And I couldn't understand why he cared about the point. It never really became a major issue because we met for drinks last night and understood the miscommunication. That said, it reminded me of the danger of miscommunications while negotiating. Very hazardous. It's worthwhile to make sure that both parties are talking and understanding the same thing!

Business is a momentum game

One of the most powerful forces in business. It's important to one's career. And it's really important to a startup's success.  The important thing for a startup is to create some business momentum. That often comes in the form first of team and product and ultimately (hopefully) translates into revenue momentum.  

I think that companies that gain momentum make the most profit when they've got full momentum. Think about Apple. I think it was the ipod and the iphone that gave the company momentum -- but right now there's not much stopping them from making money.  When you lose momentum, it's hard to regain it -- just ask Microsoft. I love the company -- it's a critical northwest pillar, but they've lost some of their momentum. What's interesting is that, they had so much momentum 10 years ago, they're still making insane amounts of money today despite losing business momentum and mindshare. 

Now back to the world of small companies and entrepreneurship - -think about momentum and how you plan to generate it for your business. Once you get some, be sure to foster it!

Being Number 1

The recent hysteria about Lebron James and the potential payouts being offered to him have reminded me of the value of being #1.  It doesn't matter what game you're playing there's always a premium paid for being #1.  

I'm writing this in my blog as a reminder to all those entrepreneurs to focus on becoming #1 in whatever market it is that they're playing in.  

It's stupid obvious -- but sometimes stupid obvious requires a call out. 

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.  

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 :-) 

Emails from an Asshole is the funniest site I've been to in a long time...go now

This site came to me from my friend Adam Brotman. I actually went to this site yesterday afternoon. I don't think I've laughed this hard in some time. It's rare. And I think it's incredibly well done. It's basically a site where the author goes to craigslist and starts really funny email conversations with people. I've told about a dozen people about the site already....so I thought I'd share it with all of you. 

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. 

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

We had our second founder only meeting last night at Founder's Co-op.  You can see the video that was produced from the first meeting here. This meeting was even better. We had about 16 attendees. The agenda was the same as last meeting

  • Opening toast and optional shot of Maker's Mark
  • 1 word answer to how you are feeling right now
  • 3 minute update of business and personal high and low
  • open discussion

We really started to get into sharing around core issues of sales and marketing as well as partner dynamics (either hiring or firing).  At the end of the meeting, I asked what we could do better so attendees got even more value. People made the following observations:

  • Request for more regular meetings -- happy hour fridays so informal sharing and social building increases
  • Even though we share an office, actually sharing tactics and know how is hard. As people understand what each company does and what each founder knows, people are really excited to collaborate more!
  • Have focused meetings on specific topics like SEO, white labels, infographics, AWS, etc. 
  • Play more beer pong.  

The latest from our friendly landlord

Given the amount of feedback on the last email from my landlord re: the office barbeque. I thought you'd enjoy seeing this email which I received today.  We had about 1 week of no hvac and a very warm (despite Seattle's current weather) almost hot office. 

ANDY:

It turned out that the second problem with the HVAC system was the result of your people on site fooling around with the thermostat.  We had previously set them and locked them up and they were locked again by the tech after his first visit.  After the tech was there the first day some of your people took it upon themselves to unlock the system and reset it on their own, with the result that it did not work properly.  Some of the people on site admitted to the HVAC tech that they had gone online and researched the info on how to break through the lockout.  The result this was a second visit to the site for a cost of $328.50.  Please send a check in that amount payable to the ...... to my attention and instruct the workers on-site that they are not to do this again in the future.

Any suggestions on responses ?

Show me the money. Show me the cupcakes.

My friend John Scrofano of Nearlyweds and Rahul Pathak of LookStat encouraged me to inform you of the following:

I've been having a lot of meetings these past two weeks with TechStars and Founder's Co-op and RevenueLoan. In those meetings, people want me to show them the money and the love. You know what I love? 

  • Cupcakes - Trophy or Cupcake Royale
  • Chocolates from Theo's
  • Ice Cream from Molly Moon
  • Pizza from Serious Pie
  • Maker's Mark . 

 Make sure to show me the .... and the .... next time you come in. I'm just joking  -- but there's an important lesson to all those entrepreneurs out there.  Food goes a long way to winning people over!



Father's Day was great

I had a great father's day weekend with the family.  As a gift, I got 4 tickets to the American Idol concert in Seattle this summer. Yes....I hate to admit it, I'm a fan of American Idol and now I am going to have the unique pleasure of going with my kids to the show. Should be a trip. I haven't been to a concert in over 10 years!!

We spent the morning sorting my clothes and emptying my closet of clothes that on average were 8 years old. We went to Dim Sum for brunch then proceeded to Nordstrom's for the Father's Day sale.  I got a bunch of new clothes. Came home and watched the first half of Avatar. Really fun day. 

I know it's a Hallmark created day -- but it actually worked for me yesterday. Thanks family!

When RevenueLoan is important?

I'm personally on a mission to help entrepreneurs build their businesses and be successful.  For me that means a couple of important things:

  • Stage appropriate funding
  • Mentorship
  • GFA - Get fucking aggressive

Over the past 2 years that I've been investing as part of the superangel fund in Seattle Founder's Co-op, I have seen that there are lots of opportunities where our operational expertise and desire to build real businesses makes a ton of sense to invest as an early stage equity investor.  However, I'ves een lots of opportunities where good companies and good entrepreneurs are in situations where $250K  (we do deals up to 500K and in special circumstances might even consider more) makes a LOT of difference and these entrepreneurs have no real source for cash. RevenueLoan was created to address these situations. Situations like the following:

  • Working capital because growth is happening faster than projected
  • Marketing dollars to open a new market for an already successful product
  • A cash cushion that allows an entrepreneur to make operational decisions that are in the right long term interest of the business but might have adverse cash consequences in the short run: like changes to pricing
  • Capital into the business when the cap table is delicate or not at a point where making drastic changes to the cap table is advantageous to the entrepreneur
  • To purchase key assets necessary to or increase revenue (we've looked at funding small acquisitions)

Saying not selected to TechStars applicants is hard(er) than I thought

Yesterday, we sent out 375+ not selected notices.  It happened with the push of a button. I wasn't prepared for the amount of email from aspiring entrepreneurs who really want to attend the program. Emotionally it was harder than I expected. 

I wish that all the responses could have been more personal and customized. But sheer volume wouldn't allow it.  So for all of you who took the time to apply -- I encourage you to keep going.  Build your businesses -- and if applying again makes sense. Definitely apply to TechStars again. 

Entrepreneurship is about persevering and proving to others and oneself that you can build a profitable business -- so persevere.  The TechStars team strives to be helpful whenever we can -- our door is open. 

For those of you -- about 30 companies that were selected as finalists. Congratulations!  Now is the time to lift your game and prove that you belong in the final 10. We'll be making final selections between now and July 7 -- make sure you lift your game up, you've got a 1 in 3 shot of getting in. 

What it means to be a TechStars in Seattle finalist?

Since TechStars in Seattle applications were due June 1, we've been working diligently on reviewing and processing the over 400 applications. This is no small feat. I assure you.  We've strived to have 3 people review every application. Tomorrow, we're going to be notifying approximately 30 finalists. Being a finalist means you're in the top 10% of applications. It does not mean you are in the program. Over the next few weeks, we'll be meeting and interviewing the "finalists" and making a final list of approximately 10 companies that will comprise the TechStars in Seattle companies.  

For those companies not selected as a finalist, we're going to try to be as responsive as possible.  I encourage you to continue to pursue your dreams of building your own company. TechStars is a great catalyst for those companies lucky and good enough to get in ....but it is by no means the end all be all arbiter of success. The specific market you're in is the arbiter. There are lots of reasons that we chose not to select a company as a finalist. Some common issues that came up were :

  • Location and visa issues - we definately looked at international applicants but dealing with visa issues is HARD for the entrepreneur and the program
  • Team - we definately have a preference for 2 or 3 member teams that can participate in the whole program
  • Niche market - companies focused on specific niches are sometimes discounted as thinking too small
  • Commitment and perseverence -- those entrepreneurs that simply submitted applications and demonstrate a continued interest in standing out from the 400+ applications will have a harder time getting selected

The above list is not intended to be comprehensive. It's just intended to give people some visibility into the selection process and our thinking. 

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. 

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).