Nesheim Online

TIP OF THE WEEK: If a gorilla is sitting in your space, find a different place to start your startup

Are you thinking about doing a better social networking service, or improved search, or an e-book offering more for authors?

That is a common starting point for an entrepreneur: better, improved, more are the operative words.

But those ideas are aimed at a seat occupied by a very large gorilla: Facebook, Google and Amazon. If you try to join them in the space they dominate, they will merely move their hulk a millimeter and crush you. In fact, they don't have to move at all. They are more likely to ignore you and enjoy watching you starve to death.

When a gorilla has arrived, that means the battle is over. End of war. From here on, attackers don't stand a chance. Head-on attacks with faster-quicker-better-cheaper end in carnage, blood all over the street.

Serial entrepreneurs avoid attacking gorillas. Instead, they move around them, into an uncontested space. That is a flanking competitive maneuver. It wins them a chance to become the gorilla of a new space that does not yet have a gorilla seated in it. Wow! That is exciting!

BOTTOM LINE: Avoid gorillas. Do not provoke them. Find a new space not yet occupied by a gorilla. Plan to become the new gorilla in the new space. That opportunity will be very attractive to investors, employees and bloggers. Using the flanking strategy is what serial entrepreneurs do to win, again, big time. When you understand that, you'll be well on your way to creating a great unfair advantage.

TIP OF THE WEEK: Ask for more money, not less, for your seed round

How much money should you ask for in your seed round? Does it matter to venture capitalists, angels or other investors such as friends, family and fools?

The response from serial entrepreneurs may surprise you: "Take more money than you think you need."

Here is the reasoning for that provocative response:

• The percent ownership is the same for more or less money. Experienced entrepreneurs find $1 million costs as much as $300 thousand. I know it is weird, but that is how it works. If investors get too greedy (their cost of capital is extremely high), there will not be enough of the startup left to motivate employees and not enough to attract follow-on rounds of financing.
• Less money is less attractive to venture capitalists. Professional VCs generate wealth by putting as much cash as possible into winning startups (like yours). Ten times $1 million is better than ten times $300 thousand.
• Optimism calls for more money. Get enough money to fuel your company well past the first major milestone  (e.g. proof of concept, running prototype, etc.). Entrepreneurs are always overly optimistic. Investors know that. They want you to raise the next round after, not before, completing the major milestone. it is very painful to try to find the next round of investors when your company is half pregnant.
• Less seed round money does not increase your chances of getting funded. You get money because of a great bplan, with great people, that have a great unfair competitive advantage. Begging for crumbs while holding out a tin cup and a cardboard sign is not how to get your seed round financed. Go for the gold, with confidence and boldness.

BOTTOM LINE: Experience tells the first time entrepreneur to find more, not less money. That increases your chances of success. It is a powerful addtional element to add to your unfair advantage.  If you doubt it, ask a successful entrepreneur.

STARTUP LESSONS FROM FISHING: 4 in a series

I just returned from a week of fly fishing on one of California's prime trout rivers, the McCloud. Along side the blue green running water I camped with my best friend. During our long ride up and back in my Jeep we had time to catch up and share a lot of what was going on in our lives. After each day of great fishing, I cooked a delicious camp dinner and we talked further, until we were ready to climb into our sleeping bags and quickly sink into a deep, restful sleep.

Today I thought I'd share with you more of the lessons for startups that you'll find in fishing.

1. Be quick and agile. I fish a stream by starting on one section of water, choosing a fly patter and casting to see what fish will respond. Often nothing happens after alteration of technique and fly patterns. So I then move on. I don't spend a lot of time pounding the fishing hole with a thousand casts. Instead, I spend ten to fifteen minutes there and if nothing exciting happens, I then move to the next section of water. Startups that are quick and agile behave the same way. They test the market with what they have to offer, target a demographic segment of customers and start selling. If the response is mild, then the startup alters the offering for a short time to see what else might work and what does not. If only a mild response continues, then the startup moves to another market segment. This continues until the sweet spot is found and sales start to jump.
   
   A good example of this agility was reported in The Risk Takers, a special segment in Business Week of June 22, 2008. Here is a real startup that is quick and agile:
   
   "JustAnswer is a San Franciso company that lets customers ask questions of experts in almost any field for a small fee. It had been chugging along for five years when the recession hit. As the housing market crashed and homeowners slowed their purchase of appliances, CEO Andy Kurtzig anticipated a demand for repair services. He devoted an increasing portion of his marketing budget to appliance repair advertising. Much went to buying key words on Google and other search engines. It worked: JustAnswer has seen a 57% increase in questions about repairs over the past year. Refrigerator and computer repair quieries have risen 409% and 780%, respectively."
   
   The reporter, Brian Burnsed, commented further that "The common thread among successful entrepreneurs is that they're daring to be aggressive rather than defensive amid the weak economy."

BOTTOM LINE: Startups that are quick and agile thrive in challenging times. But hello, when are times not challenging for startups? The lesson is simple: the CEOs who use startup agility are the ones who not only survive, they thrive in these times. It is part of their unfair advantage.

STARTUP LESSONS FROM FISHING: 3 in a series

I just returned from a week of fly fishing on one of California's prime trout rivers, the McCloud. Along side the blue green running water I camped with my best friend. During our long ride up and back in my Jeep we had time to catch up and share a lot of what was going on in our lives. After each day of great fishing, I cooked a delicious camp dinner and we talked further, until we were ready to climb into our sleeping bags and quickly sink into a deep, restful sleep.

Today I thought I'd share with you more of the lessons for startups that you'll find in fishing.

1. Be secretive. Fishers never reveal their secret fishing spot. They keep secret the fly or lure that is attracting the big fish. Startups also keep secrets. Serial entrepreneurs are clever at knowing what to reveal to attract people and what to keep silent about. Stealth startups are elusive until the last minute when the big news such as product launch is announced.
2. Be stealthy. Fishers sneak up on wary trout and hide behind bushes and tall grass. They carefully consider obstacles and distance before casting to a large fish. They move quietly. Startups benefit from stealthy moves. They consider consequences before acting, make their moves deliberate, keep hidden until the time comes to move out to grab the attention of ideal customers and bloggers.
3. Be clever. Fishers use cunning and tricks to outwit fish and wild critters (snakes, bears, spiders and intruding fishers). The fisher's strategy and tactics are carefully chosen to fit the conditions and time of day. Startup leaders are clever at inventing ways to out-maneuver competitors. They create tactical moves that keep the opposition off guard.
4. Be wary. Fishers are constantly on the alert, wary of what might happen to upset the next cast, the next approach to the fish. They know from experience that the unexpected will happen, without advance notice. Startups expect the unexpected. So they make each step with the cautionary attitude that keeps their sensors sharp, alert to sudden changes. That wary mindset is often what keeps the startup out of serious danger.

BOTTOM LINE: Secrecy and its cousins are what fishers and startup leaders use to gain the upper hand in their respective competitions. It is a trait of the serial entrepreneur. Add it to your collection of elements for building your unfair competitive advantage.

Tip of the WeeK: Follow your intuition

I'm enjoying watching a second-timer entrepreneur follow his intuition as he starts his new enterprise. His first business attempt is no more. It was finally put out of its misery. I find it fascinating to see how he is applying (and sometimes avoiding) the many lessons he learned in his first attempt. As I have been reflecting on what I see, it is now clear that he is leading with his intuition. He is much happier and more fun to be around. I thought you would enjoy reading about some of the good things to learn from such an enthusiastic application of intuition.

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Here is the Merriam-Webster definition of "intuition":

in·tu·i·tion 

Pronunciation:

\ˌin-tü-ˈi-shən, -tyü-\

Function:

noun

Etymology:

Middle English intuycyon, from Late Latin intuition-, intuitio act of contemplating, from Latin intuēri to look at, contemplate, from in- + tuēri to look at

Date:

15th century

1: quick and ready insight 2 a: immediate apprehension or cognition b: knowledge or conviction gained by intuition c: the power or faculty of attaining to direct knowledge or cognition without evident rational thought and inference.
=======

I find serial entrepreneurs are outstanding at and applying learning, very quickly. That adds up to a knowledge bank rich in experience. They are quick to apply what they learned, so quick in fact,  that they act without consciously thinking.

Some call this "gut feel" while others describe it as strong talent or gift. I find it in people everywhere, but most don't think about it.

"Quick and ready insight" calls for speedy thinking, calls  on a reserve of appliable knowledge and application that gives the entrepreneur visibility and clarity in the midst of the fog of startup war. That means you must take time to learn, deliberately (note the word "contemplating" in the definition) and with a meditative level of time to dwell on and work on what you have experienced.

I recommend to the first-timers I coach to start a daily journal. Write down one thing you learned each day. Go back and read some of them. Mediate on them. That builds your bank of know-how to call on when you need quick and ready insight.

BOTTOM LINE: Intuition comes from experiences that are learned and stored. They are called on in times of need, e.g. to make tough decisions on-the-fly. It is more than a gift. It comes from hard work and conscious acknowlegement of good and poor decisions made in the past. Serial entrepreneurs are great at that. It's part of what gives them an unfair competitive advantage.

STARTUP LESSONS FROM FISHING: 1 in a series

I just returned from a week of fly fishing on one of California's prime trout rivers, the McCloud. Along side the blue green running water I camped with my best friend. During our long ride up and back in my Jeep we had time to catch up and share a lot of what was going on in our lives. After each day of great fishing, I cooked a delicious camp dinner and we talked further, until we were ready to climb into our sleeping bags and quickly sink into a deep, restful sleep.

Today I thought I'd share with you some of the lessons for startups that you'll find in fishing.

1. Make it an adventure. You can plan it to the finest detail, you can prepare in the deepest depth, but as soon as you start up the Jeep, as soon as your lure hits the water, anything can happen.
2. Plan it. Yes, a plan is important. It helps you remember to bring your sleeping bag, bug spray and my special marinate for the evening scrumptious dinner. It helps startups remember to figure out how to make money, how much cash it will take, what the most likely strategy will be, and who you have to hire.
3. Adapt. I have had to change campsites, even change rivers, all without notice. Startups will have to shift strategies and alter tactics week after week, all without notice.
4. Change. If the fish will not bite on the flies I select, I change them, quickly, until I find what the are eager to eat. Startups have to find what lures the ideal customer to part with their money, as quickly as possible.
5. Move. If the fish are not biting in one section of the water, I move to another until I find the fish. Startups need to keep searching and trying and searching, until they find the customers eager to consume what is offered.
6. Be patient. I have to keep on trying, even of all of the above tactics and methods are not working. I have confidence the fish are there, I just have to find out what gets them excited. Founders need to be confident and patient as they search for eager customers. Great entrepreneurs have a lot of patience.

BOTTOM LINE: You can learn a lot from fishing and apply it to doing your startup. That is part of gaining perspective and is what serial entrepreneurs do well. It is part of their unfair advantage and how they became serial suceesses.

STARTUP LESSONS FROM FISHING: 2 in a series

I just returned from a week of fly fishing on one of California's prime trout rivers, the McCloud. Along side the blue green running water I camped with my best friend. During our long ride up and back in my Jeep we had time to catch up and share a lot of what was going on in our lives. After each day of great fishing, I cooked a delicious camp dinner and we talked further, until we were ready to climb into our sleeping bags and quickly sink into a deep, restful sleep.

Today I thought I'd share with you more of the lessons for startups that you'll find in fishing.

1. Use guides. Fishing guides are professionals who know the waters well. They keep you out of danger (you can drown, get bitten by a poisonous snake, attacked by a bear). They know where the fish hang out. They know what flies and lures attract the fish. They add fun to fishing. First time founders benefit similarly from experienced people. Mentors add wisdom and a personal insight. Advisors bring  domain expertise. Serial entrepreneurs offer tips from the school of hard knocks. Smart first time entrepreneurs use all of them.
2. Learn from experienced people. Fishing is learned on the water by fishing next to experienced fishers. Startup leaders do the same. They get to work and find others in startups nearby to talk to and learn from. That leads to friendships that are very valuable when the dark days arrive.
3. Make your own decisions. It is up to the fisher to make the cast, fish the fly and land the fish. You can't fish with someone fishing for you. You have to make the decisions by yourself. Fishing is not a committee sport. Neither is doing a startup. As CEO, you will have to make the final decisions by yourself. It is up to you to decide and execute.
4. Trust yourself. When I cast, I do it best when I trust my cast to be successful. When I have confidence in the fly I choose, it catches the most fish. Startup leaders need to trust their choices. The unknowns are large but the reward will come from acting with trust in your decisions.

BOTTOM LINE: Startups are a people business. Helpers are valuable, so find and use them. Then make up your mind, decide, and act with trust in your decisions. When you do that, you'll add a powerful element to building your unfair advantage.

Tip of the WeeK: Avoid Twitters Trip-up

Here is the headline in the Wall Street Journal, May 26, 2009: "Twitter Trips on Its Rapid Growth".

The story is about a common problem that hits startups run by first-time entrepreneurs: The startup suddenly takes off but the needed management (vice presidents and directors and managers) are missing.

Success arrives without warning. Boom! Customers rush to use or buy. Up shoots demand for services or products. Shock hits the startup staff. Everyone rushes to keep the web site from crashing, to avoid customers turning angry, to keep the media amazed, anything to keep the roaring rocket continuing to accellerate.

The organization becomes a wild collection of people rushing about with little time to think. They just do what needs to be done to survive each day. There is little time to do anything else.

So what are the CEO and core management team doing? The same thing: anything to keep the roaring rocket continuing to accellerate. They barely have time for five hours of sleep a night.

So  what is wrong with this situation? After all, success has arrived!

Here is what is wrong: There is noone with the time to work out the strategy for the company's next years of growth, to work out the branding messaging, to find and negotiate with strategic customers, to plan and build the architecture for the next level of telecommunications needed to support doubling the number of customers each year, to plan raising the next round of venture capital, and so on.

In other words, the core team has run out of skills and time to do what is necessary to build a company that can sustain a huge rate of growth, can scale ten times its present size and attain profitability and positive cash flow. The vice presidents with business experience are missing. The special skills needed to build a great company are absent. And everyone on the board of directors knows it.

The trouble is, the management running the company has neither the time nor the experience needed to find and recruit the missing management.

This can kill a startup. Either the wheels come off and it crashes. Or the tiny, inexperienced management team burns out and gets replaced (probably kicked out).

How do you avoid this portend of disaster? That's easy: plan on day one who is missing, when you will hire them, how you will recruit them, and when you will replace yourself.

I find that takes more wisdom and courage than most people have. But serial entrepreneurs do. That's how they have become successful. I recommend you do the same.

BOTTOM LINE: Plan your hiring of your middle management on day one. Name the jobs, give dates for their hire and the recruiting cash expenses into your budget. Then you will be ready to act when success jumps up to surprise you. That will keep your rocket accellerating. When you can do that, you'll have added a powerful element to your unfair advantage.

Tip of the WeeK: Spot the New Wave and Plan to Ride it

In this kind of economic situation, you need all the resources you can get to get all the capital you need.

One resource is spotting a new wave so you can ride its economic energy instead of paddling hard using more of your startup's scarce energy.

For instance, a new wave is forming that is all about organizing a web user's social information into a portable collection that can be easily moved between social networking sites and between proprietary clouds.

And example of paddling on your own is building an improved search engine.

The portable social information wave is just starting, is potentially huge and has room for lots of innovation and competitors. So start here.

The search engine improvement is competitively like shooting a bullet against a tank. Google has won. The battle is over. So move on.

Asian startups in the latest wave have shown solid signs of innovation that is creating new waves. Learn more by studying Netease and Shanda, and their competitors.

Here is another tip: Is your idea about doing something not done before? If so, you'll be able to ride a new wave.

BOTTOM LINE: Think about your idea. Is it going to benefit from the rising energy of the new wave? Or is it an improvement of a wave that has already arrived at the beach? When you know which to pursue, you'll have a powerful element to use to build your unfair competitive advantage.

SOCIAL ENTREPRENEURSHIP: Some comments and links

I am getting an increasing number of inquiries about "social entrepreneurship" so here are some good links and a few comments:

Start with a look at Ashoka and you'll learn a lot. They have been around since 1981 and have the experience to back up their programs.

Then read in The Economist May 23rd 2009 issue a story about a more recent, innovative social venture organization. It is Acumen Fund and is run by Jacqueline Novogratz, a market-minded development expert.

I've seen a growing  number of these groups forming during the last fifteen years. I think they are on the right track. We are in for a sea change of development funding from governments as part of the recent crash in global financial markets.

You may find more personal fulfillment working for a non-government agency such as the ones above. Give them a look before you sell your soul as a wage slave.

Or if you are an unemployed college or MBA graduate, how about doing something for a while with as a social entrepreneur?

 BOTTOM LINE: Social entrepreneurs have a lot of fun doing something different that blends development with entrepreneurship. Some experience there may change your life for the better. The experience will boost your unfair advantage.