By APNWLNS payday loans
January 7, 2013
About the time this blog post goes live I’ll be breaking the hearts of a handful of entrepreneurs.
Sadistic as that sounds, my job is to insert reality into uncomfortable places. In my speech today I’ll be telling some tech innovators why no angel investor would ever give them a dime. Tears will be shed, anguished screams will be head, and I may get a new laptop if someone throws theirs at me.
Entrepreneurs here in Silicon Valley are more common than belfry bats. They exist on the hope of changing the world and getting hit by the money truck. These two aspects mean that they are commonly irrational and unreasonable about their products and prospects. Some of them succeed because they are unreasonable – nothing important has even been accomplished by a reasonable person.
Where they often fail is funding. Despite being digital demigods, they rarely put themselves in the investor’s Bornrichs. They fail to pretend that they have a pocket full of cash and have launched successful companies themselves. They do not act as if they had already heard hundreds of sloppy pitches and become instinctively aware of buncombe. Yet they believe their alleged miracle is worth someone else risking hundreds of thousands of dollars.
And they wonder why they don’t get funded.
Reality sucks, but it sucks less than starvation. To get funding requires making a solid business proposal, which means dealing with reality – real go-to-market plans, real segmentation, real target marketing, real whole product definitions, real financial projections. Entrepreneurs also need to sound like business people, presenting in a solid, linear, clear style and not like Madison Avenue pitchmen. Investors know the ropes and are willing to hang entrepreneurs with them.
The lesson is that if your idea has any merit and if you can get a handful of people actively and happily using your product, you can get funded. But you have to approach investors ready to cut a business deal as a business(wo)man. Failing to do your homework, to calculate realistically and present honestly will doom you.
October 18, 2011
Angels and VCs meet a lot of liars.
Not intentional liars, but overly optimistic and undereducated entrepreneurs who slap together business plans that are best filed under “fiction.” To egotistically quote from my own book on the art of propaganda “We accept a modicum of lying when the negative impact is limited.”
Throwing away a few millions dollars of other people’s money is not “limited impact.”
Hence, VCs and other investors have developed a large set of buncombe detectors. After all, they are in the risk business — risking money provided by other people on relatively long-shot bets in rapidly evolving markets. Investors have better odds in Vegas, but Sin City payoffs are not as big. Trying to cash-in on the next Google requires VCs to lose quite a few bets. But like the card shark who took you for your last nickel, they play the odds.
Many start-ups come to me seeking advice on business plans, believing that a good business plan is the end-all for obtaining investor lucre.Â It is important to have a good business plan, if nothing else for internal use. Indeed, one of the best rules I offer entrepreneurs is that if they would not invest the same amount of money sought from VCs into their own company — based on just their business plan — then they should expect less than nothing from Sandhill Road residents.Â A business plan has to reflect reality in order to pass the VC smell test.
There are a few hundred red flags that VCs watch for in pitches and business plans. The most common ones over which founders trip include:
Confusing potential markets with realistic ones: When I sit on pitch panels, the question I most often ask is “How will you sell to the two billion people in your market definition?” Entrepreneurs often mistake all potential buyers (the total market) with the buyers they can realistically reach (the addressable market). Worse yet, they have no idea how to define the latter from the former. Bragging to VCs about huge market potential marks you as an amateur.
No segmentation or growth plan: Most founders don’t understand the interplay between market segments, whole product definitions and positioning, and how this all drives defining their addressable markets. They also do not see how knowing these factors allow them to plan growing revenues through a well-constructed product development and segment assault plans (the “bowling alley” analogy). Thinking this through shows due diligence and improves the odds of landing funds.
No clue about how to sell: Even start-ups that have narrowed down their addressable market are utterly vague about how they will sell their products, using naked statements like “We will use social media to build awareness.” When I ask what their social media strategy and processes are, they often have no coherent answer. VCs need to know you have a product, a market and a valid plan for selling. The first two are meaningless without the third.
Yet a good business plan is still fiction.
People execute plans. VCs want to see a team that can turn a good product and a good plan into a ton of revenue. This is important not only for the practical reason of needing to execute, but also because no business plan is perfect. Teams will adjust plans to meet unexpected realities, and those appear daily in fast moving technology markets. Investors take faith in people with track-records who will turn investment into returns.
Get your business plan right before infesting investor offices.Â Realistic market definitions, properly segmented, with valid go-to-market action plans backed by a viable team are the primary requirements for investors to take your business plan and you seriously.
June 28, 2011
“Silicon Valley invented the technologies that will break apart Silicon Valley,” was the opinion of one Silicon Valley start-up founder in my cabal.
Scott McNealy, co-founder of Sun Micro and the longest running ad lib comedy act in high-tech recently started a fresh round of discussions about the perpetually pending demise of Silicon Valley. He is heading a stealth start-up in Colorado, far from Stanford, Sand Hill Road and giant blimp hangers. This caught the attention of over seasoned Silicon Valley veterans, and apparently McNealy received a number of inquiries concerning the locale for his new technology empire. In response he listed the “Top 10 Reasons it’s Better to do a Startup in Colorado than California.”
Jerry Brown is spinning in his grave (What? Not yet? You’re kidding? He looks older than Keith Richards’ grandfather!).
Many things make Silicon Valley the incubator for new and world changing technology, but none of those elements are indelible. There is a lot of tech-savvy venture capital here, but investors around the globe are banking on technology these days (oil and energy investors in Texas are becoming digital sugar daddies). A cluster of tech talent is tops, but in this century we can hire anyone from any point on the globe to cut code, map schematic diagrams and even digitally collaborate on chip manufacturing plant design. About the only other variable is the Silicon Valley culture that embraces failure, but few things aside from political lies move faster than cultural biases.
And if Silicon Valley’s masterminds are ready for Colorado ski slopes, then they take inertia and vibe with them.
An informal poll of a handful of founders shows me they have no particular desire to be or stay in Silicon Valley. Several local founders would leave tomorrow if their VC’s didn’t insist on keeping a close watch on their cash. Those not in Silicon Valley are actively looking for capital elsewhere to avoid relocation. Even a couple of VCs I know admit that if they had a way to keep tight reins on their portfolio companies, they could care less about the location of corporate headquarters.
In short, nobody is insisting that Silicon Valley remain the center of the technology universe … not even the people in Silicon Valley.
Yet numbers, being stubborn things, may tell a different story. Spot checking a few Silicon Valley cities (with Cupertino stats shown below) we see that since the dot-bomb era the population is slightly larger, income (adjusted for inflation) is higher, and the number of people with sheep skins is up significantly. A single decade snapshot is insufficient to define a trend, but it seems Silicon Valley is not exactly destined for diaspora.
|Population over 25
|Percent with bachelor degree or higher
|Management, professional and related occupation
|Median household income
This does not mean it won’t happen. After all, residential broadband is still a relatively new commodity and the world is working out novel patterns of employment. We may well see a hybrid whereby many or most of the sharpest startups land in Silicon Valley for the lucre, maintaining tiny executive headquarters while virtually managing a mass of employees scattered yon. Nothing guarantees Silicon Valley will be Silicon Valley in the future … the place has a habit of inventing the next new thing, which might be a new “center” of the technical universe.
January 5, 2010
BMW and Enzyte may have too much in common.
While reviewing course materials for the CEO Marketing Boot Camp, I got a case of giggles. In the class we mention how BMW does branding. BMW has a legendary brand that was anything but accidental. In fact most readers can recite the BMW slogan from memory and yet never question it. That is how good BMW is at defining and communicating their brand — they have us all educated and convinced.
The BMW slogan is interesting to marketing experts because it never mentions automobiles or technology (and BMWs are technology products). BMW claims to provide the “ultimate driving experience.” Ultimate means the best. Driving is a largely male oriented passion. Experiences are what we live for. So BMW offers a greatly enhanced male life, just like Enzyte claims.
I’m sure the people at BMW are not happy about this comparison because the rest of the jokes write themselves.
BMW’s branding is only part of their marketing success, which is matched by their automotive engineering success. BMW’s marketing and innovation are well paired. Peter Drucker, the father of modern management once said “Business has only two basic functions — marketing and innovation.” Everything else is administrative work. In Silicon Valley, we have more innovators per square inch than we have square inches to spare, and most innovators fail. They only have half of the success equation.
Having sat-in on too many funding pitches, the absence of marketing expertise among founders (the innovators) is often painfully obvious, and has been the reason for many funding rejections. This is an endemic aspect of start-ups — that visionaries lack go-to-market strategy skills. This is not in and of itself fatal if the founders can recruit good marketing people or otherwise find sage advice, and then follow it. However, visionaries are blinded by vision. Their initial observations about market opportunities keep them from examining the full scope of go-to-market issues or unpleasant market realities. Founders are often reluctant to release control over the marketing function yet do not possess enough marketing strategy savvy to guide their organization.
The end result is fairly predictable. These visionary-led start-ups find initial traction with early-adopters, who are also visionaries and risk takers. After that initial success, the start-up stalls. Revenues plateau or decline, the company burns through what little cash it has, and the visionary solution vanishes or is cloned by someone else. If the start-up is funded, investors will often insert members of their cabal into the organization and attempt to instill marketing strategy discipline from above. In desperate circumstances VC’s find ways to eject the founding visionary.
This “investor patch” is notoriously ineffective. Founders fail to follow advice or control because their vision is limited to the set of circumstances that lead them to invent. They cannot see the forest of marketing strategy because they are climbing the tree they originally discovered. It is a little like love. Try explaining to a child what being in love is like and you will create a bored or confused kid. But once they grow up and experience love, they understand the broader and more detailed aspects. Visionary founders are like these confused kids — they do not have enough perspective to comprehend what they need to do.
This is the visionary entrepreneur’s handicap. Successful founders either have significant (albeit high-level) grasp on the major functions of marketing strategy, or they have the guts to recruit and trust experts. Most founders don’t do either, and thus most start-ups fail. I find this state of Silicon Valley affairs to be perplexing. Technology innovators are not ignorant people. They have worked long and hard to achieve deep understanding of their technologies, yet rarely labor at understanding marketing strategy. They may read one of the Chasm books and proclaim themselves well prepared. This is akin to reading a book on the basic mechanics of a parachute and then lobbing yourself out of an airplane. The results are amazingly similar either way.
Peter Drucker was right — an organization must innovate and market. In a start-up, where early decisions define survivability, and where the money to hire full-time strategists simply does not exist, the marketing savvy of founders is critical. Venture capitalists know this, and VCs send portfolio CEOs to school to assure that daily marketing disciplines are being lead from the top. VC’s are happy when one-in-ten of their investments pays off — but they would be happier if ten-in-ten did. Hedging their bets by building better CEOs is the primary path to achieving better investment odds.
August 12, 2009
Agriculture is not a fad.
That is what I said to the CEO of a company who is applying high tech to crop yield management, and who just landed a healthy round of VC money to grow an already proven business model. Agriculture is not a fad and thus it is a market in which to invest if risk reduction is part of your planning.
VCs are much more risk adverse then they used to be. After the dot com bust many VC partners left the field and started working in the fields themselves (seriously, the number of former VCs who are now vintners is disturbing, and I suspect many are drinking their profits).
I scanned a dozen recently reported VC deals from the Sandhill.com web site. What I wanted to see was if VCs were chasing fads (as they did in the late 1990′s), were following trends (as they have leaned in the early 21st century) or if they were looking for start-ups rooted in the ongoing mechanics of the economy … or what is left of it.
8% of deals were betting on a fad
25% were following trends (mainly web video)
67% we anchored in traditional businesses and biz optimization
This is a rather staggering shift in the investment community, showing that risk is significantly less tolerated than a mere five years ago. It is no secret that lately VCs have waited for start-ups to prove their business model, management team and make some real sales. But after the dot-bomb shake out, they were still heavily investing in the unknown. Bets were placed on companies that demonstrated the three provisions (model, management, sales) but which had highly speculative futures.
Over time VCs added trends to the mix. If an investment partner felt there was a strong trend underlying the business (i.e., social networking, web videos, etc.), then funding was provided. However, VCs know that trends can be fickle – I’m still waiting for the market to ask why people waste time on Twitter.
The glacial shift in VC risk taking has now reached a state one step this side of paranoid. Capital is flowing, albeit more slowly, into technologies that are not fads or trends. We see funds flowing into document management, SAP implementation accelerators, recruiting management, advertising tracking, metro news online, content management, and policy/procedure/audit infrastructure. All established industries or optimization of industries.
Not a single fad in 67% of the deals.
What does this mean for start-ups? It means there are going to be very few speculative investments. If your products or service is breaking new ground, you better planning a bringing your own shovel. You will need to excavate and pour your own foundation before VCs are willing to finance your walls and roof.
On the opposite end, if your wares augment, enhance or redefine well established industries, then VCs will take notice. Take agriculture. Aside from making fire, there isn’t a more fundamental industry. People are fond of eating, and if they weren’t, we wouldn’t be having this conversation. The recent VC investments I noted – document management, local news, advertising – these industries are slightly less universal than food, but not by much.
Which means you’ll get great round-A funding if you can invent better fire.