Nesheim Online

TIP OF THE WEEK: Before you speak to an investor, be prepared!

"Hey John! Give me a couple of names of VCs.  I need a seed round and want to contact them right away, I'm running out of my savings!"

That's a common call I get from enthusiastic entrepreneurs.

Nothing wrong with it except for one thing: that first call will be your last unless you are prepared.

What does it mean to be prepared for a call to an investor to talk about your startup?

Try this dialogue to see if you can get what I mean:

SITUATION (dialing the phone for the tenth time after a dozen emails, the founder has finally gotten the great venture capitalist to answer the phone).

FOUNDER: "Hello Mr. INVESTOR. Thank you for taking my call."

INVESTOR: "Glad to, you had a fine introduction from Brad. What can I do for you?"

FOUNDER: "I have this great idea for a startup. I need a seed round. Here is what it is all about . . ."

INVESTOR: (Interrupting) "How much are you seeking?"

FOUNDER: "Well I haven't a specific amount in mind. What do you think is about right?"

INVESTOR: (Ignores answering) "What is this idea of yours?"

FOUNDER: "I was thinking that if somebody did XYZ . . .: (He talks rapidly, stumbling around, for about two minutes, mostly speaking in general terms about the idea, then stops after realizing the investor has been silent). "So what do you think about my idea?"

INVESTOR: (Again ignores answering) "Who else is working on this with you?"

FOUNDER: "It's me and a couple of techie friends so far. I worked for Google for a couple of years after school and quit last year to work in this. I thought you could help me find the people Ineed."

INVESTOR: (Again ignores answering) "Which of you has run a business before?" (He repeats the same question about marketing, business development and engineering leadership).

FOUNDER: (Responds with answers that reveal the startup has people with no managerial experience, have not managed profit centers or been leads in their field of expertise. In fact, most are solo contributors or students with modest working challenges).

INVESTOR: "Send me something in an email." (By now he is looking at his emails online, preparing to end the phone call.)

FOUNDER: "What do you have in mind?"

INVESTOR: "Send me a deck [he means PowerPoint slides] about your idea. I have to go now, thanks for the call. I wish you the best." (Click, the phone call is ended.)

That is how an unprepared founder gets treated by busy, sharp investors. In this case, the investor is being polite to Brad who did the introduction. The founder does not know that over the past four months the investor already has seen a dozen related ideas in the same general area. Two of those have impressed him enough to lead him to dive into research about the related market and competitors, especially potential startup competitors. The result is that our FOUNDER is supplying information and not knowing it, and is not very likely to be contacted again. The INVESTOR did not find outstanding management or idea or market or technology in the idea of the FOUNDER.

How could our FOUNDER have been prepared? Simple: by spending the time (ouch!) and effort (groan!) to write a solid business plan before making the first call to an investor. The result will include an Executive Summary of two to four pages. That is what should be sent to the INVESTOR, not a PowerPoint deck (which lacks the comprehensive words needed to enrich the idea and stir emotions of the reader). After that hard work the FOUNDER will be prepared with solid answers to any question asked by the INVESTOR about management, people, market size, ideal customer, competitors, strategy, unfair advantage, cash needed, when.

BOTTOM LINE: It sounds so easy to take a good idea to an investor, get some money, pay for yourself and some people to figure out what to do next and then build a great success. But my experience shows me the great startups are well thought out before anyone dials for dollars. That is how serial entrepreneurs do it. It is how they become successful, startup after startup. It is part of their unfair advantage. You can do that as well. I highly recommend it.

Think like the Boy Scout motto: "Be prepared." Then you'll have a much greater chance of success when you make your first call to an investor. When you do, you'll be like serial entrepreneurs. You'll have an edge over other startups looking for money.  It will be your unfair advantage.

I wish you The Best on your Adventure!

BLOWS TO STARTUPS TRIGGER WINNERS: Bad surpises (3rd in a series)

Today I decided to begin a series on what impacts new enterprises so hard that such events strikes blows to people like you who are leading startups.

My decision to discuss the series was triggered by an event I attended this past weekend. Ina conference center among the coastal redwood mountains near my home, I listened to a group of men share how they had coped with adversity in their lives. Each had a very personal story that we listened to. We benefited from the adverse experiences of other men. This was part of a weekend retreat sponsored by the church I belong to. We focused on testing how we had applied the advice of Jesus to troubling events in our lives. Then we told what had happened.

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Today let's examine surprises, the bad ones. You know what to do with the good surprise: huge order, hired great person, got the money.

When you understand the inner nature of your gut reaction to bad surprises, you'll be able to react quicker and wiser when they inevitably arrive.

• Bad surprises cannot be predicted. The day and time, which one, none of that will be able to be forecast. Not even by serial entrepreneurs. So don't try to.
  
• Bad surprises can be anticipated. You can expect to lose a key employee (without notice, without sensing something going on with him). You can expect to have a crash in the thing you built (or service you are delivering). You can expect to suddenly find the board of directors strong man pushing back on your strategy (after months of cheering for you). And so on. Serial entrepreneurs have done it all before. Surprises are a way of life in startups. Bad surprises happen with children every day. The same is true with startups. So get used to it.
  
• You can prepare for common bad surprises:
  
  
  • Expect that stealth startups will jump out of the bushes. This is a biggie! It happens. You are not alone, there is always something moving in the bushes out there, in the dark. No idea is unique. A dozen others are working on the same thing, right now. So get prepared:
    
  • SUGGESTION: Draft a press release about a mock stealth startup to use when you are surprised. This will also improve your strategic and tactical thinking. It helps you gather your core management team around your company focus.
  
  
  • Think often of how you will respond emotionally when the shock hits you that another startup is ahead of you, better than yours. This is the beginning of the emotional process that will be triggered by a body blow to your psychological makeup. It is called facing reality: Yes,this bad thing is really happening to me. Once you agree, your emotions will release you to work quickly on a solution. It is more than day dreaming. It is emotional simulation and training.
    
    
    • SUGGESTION: Discuss with your core team how they will feel if such bad news happens (e.g. stealth startup launches before you do). This will begin the emotional training needed. It is simple and effective.
  
  Now repeat this exercise for other bad surprises. For a list, go to Monday's blog, the first in this series. Pick a couple of surprises on the list to openly discuss with your staff. That will help you forge a bond with them, prepare them for thinking and responding, and give you credit for openly talking about things that worry them. A sigh of relief will occur. All of you will add to your skills as outstanding startup leaders.

BOTTOM LINE: Bad surprises are body blows that kill through the emotions. Like the venom from a poisonous snake that attacks the cardiovascular system, bad surprises can paralyze and kill. A startup team can reduce the shock effect by openly discussing what could happen and how they will emotionally respond. That will lead to practical solutions (such as drafting a press release). Central to this is how deep your personal skills are in coping with adversity. When you master that, you'll add a strong element to your arsenal of what it takes to build an unfair competitive advantage.

I wish you The Best on your Adventure!

BLOWS TO STARTUPS TRIGGER WINNERS: Adversity (2nd in a series)

Monday I decided to begin a series on what impacts new enterprises so hard that such events strikes blows to people like you who are leading startups.

My decision to discuss the series was triggered by an event I attended this past weekend. Ina conference center among the coastal redwood mountains near my home, I listened to a group of men share how they had coped with adversity in their lives. Each had a very personal story that we listened to. We benefited from the adverse experiences of other men. This was part of a weekend retreat sponsored by the church I belong to. We focused on testing how we had applied the advice of Jesus to troubling events in our lives. Then we told what had happened.

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Today let's talk about people blows. The kind of thing that happens because of the people working on your startup.

• Main technical leader cannot deliver the great thing. It may shock you, but now it has become clear to you. After nearly a year of "Just one more month . . . " you realize the lead technologist is not able to deliver the great thing everyone in the company has been dreaming of, working so hard on.
  
  ACTION = Terminate that person from those responsibilities. Do not prolong the agony. Get it over with. End it. Now. Be tough minded (not tough nosed). Deliver a solution (replace the person immediately). The tech leader may be a co-founder and -- if possible -- you'll be wise to keep him in the company. He will continue to keep the spirit of the startup burning brightly. This is a tough call, but you have to make it, right now.
• Business development leader brings more promises than deals. And another report from the head of biz dev says "We did not close the deal with XYZ Corp." You feel like you've been punched in the gut, you are writhing on the floor in agony. Sales have to happen. Deals have to be done. Startups cannot wait. Neither can you.
  
  ACTION: Terminate the person, replace him immediately. Rally any other biz dev people. Keep selling and deal making alive. Do it yourself for a while. It's the life blood of the startup.
• Media continue to ignore your startup, favor others. Your person in charge of marketing communications brings you yet another report: nothing significant written or spoken about your startup during yet another week. You are reading more on Techcrunch about others than your startup. Bloggers can't find you and don't care. Reporters interview and promise stories, but they don't happen as promised or at all. Spreading the word ("PR") is vital to a new enterprise.
  
  ACTION = Your Marketing leader does not have the skills to position (psychologically) your startup in the minds of the media people. Is this your problem (you are a naive, stubborn old bull) or the marketing leadership's headache (who chose poor messaging)? Get help from outside (neutral) experts. Figure out why your startup is not newsworthy. This is very serious. It could kill your startup. Wrong positioning is poison that works very fast to destroy weak new enterprises. You may end up changing your marketing message, or PR firm, but serial entrepreneurs are more likely to end up terminating existing marketing people and replacing them.
• Next round of financing fails. You hear on the phone the lead investor say "We'll pass on this round." You hang up. It is over. The last in a long list of investors contacted over the year has said no. Your lead VC says everyone on the board says "No more cash from us." End of rope. Cash is gone, in fact you are bridging with existing investors for the third month. You feel everyone in the startup has let you down, from the board of directors to the nightly maintenance crew.
  
  ACTION = Reality arrives at last: no one wants to invest further in your enterprise. Now you have no other alternative left for funding growth. The assets have to be sold (by the investors on the board of directors, not you.). Too late to sell the company with its fine employees and existing (few) customers. Oh the pain! But serial entrepreneurs know that such times come, even to the finest, most experienced. Now is the time for you to show how your character behaves during the darkest of days: shutting down a new enterprise. And while it is happening, keep notes in your daily journal "What I'll Do (Differently) With My Next Startup". Welcome to the club!

How will you cope with such people blows? Are you prepared and able (psychologically) to sustain the blows, to manage through the pain and depressed days? Take a look at my blog yesterday on adversity for a few tips on how to do that. In a nutshell, you'll need a bit of training to prepare (in the school of hard knocks = rotten things happened to you), and you'll need help to keep your spirit up through it all (family, friends, mentor, counselor, religious leader). That's why veteran VCs want to hear -- from you -- all your war stories, the times when all went dark and how you coped, got through it all, learned lessons of life. Such days are always going to happen to startups and their people.

BOTTOM LINE: People get startups into trouble. People have to get the new enterprise out of the messes they have to cope with. Your job is to keep the right ones in key positions of leading employees out of the swamp filled with alligators. It will be a hard test of your character and guts and determination, as well as a challenge to your realism. When you have such skills, you will be top on the list of people the great venture capitalists want to finance, and on the list of people employees want to work for in their next startup. It will be part of your unfair advantage.

I wish you The Best on your great Adventure!

BLOWS TO STARTUPS TRIGGER WINNERS: Adversity (1st in a series)

Today I decided to begin a series on what impacts new enterprises so hard that such events strikes blows to people like you who are leading startups.

My decision to discuss the series was triggered by an event I attended this past weekend. Ina conference center among the coastal redwood mountains near my home, I listened to a group of men share how they had coped with adversity in their lives. Each had a very personal story that we listened to. We benefited from the adverse experiences of other men. This was part of a weekend retreat sponsored by the church I belong to. We focused on testing how we had applied the advice of Jesus to troubling events in our lives. Then we told what had happened.

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I will begin today with adversity.

Adversity is one blow to leaders of startups. To some it breaks the will of the person and erodes their character, leading to a personal crash and -- most likely -- failure of the new enterprise. To others it awakens adrenaline and starts them off to respond with energized will and ends in strengthened character and a new enterprise that continues on its quest for enduring success.

"Adversity causes some men to break, others to break records." William A. Ward, writer. 

That was my Twitter of today.

There are blows that hit people in startups. They happen inevitably. They always come. They are always a surprise, are never planned. Here are a list of just a few I have encountered in the lives of people in real startups:

• VP got a heart attack.
• VP hooked on heroin.
• Founder lost girlfriend ("Either me or the startup").
• Lost wife ("I can't take it any more!")
• Three year old child got brain stem tumor.
• Went through window of rental car in crash in London.
• Wife nearly died from first pregnancy -- lost the baby.
• Investors fired me/founder/CEO.
• Investors changed their minds, no more cash.
• Customers changed their minds, went with lying competitor.
• CTO could not deliver, was incompetent.
• CTO sued the startup.
• CTO won a bungled lawsuit.
• CTO that won hired away key engineer.
• Kids say they hate startups.
• Wife agrees.
• Miss second wedding anniversary weekend celebration.
• Miss all birthdays in family the past year.
• Husband says he is having an affair.
• Engineer starts company in Asia by stealing our technology.
• 42 venture capital partners decline to invest.
• Surprise launch of stealth startup for same product as ours occurs nine months before we are ready.

And the list could go on much farther.

Let me ask you a question: "How would you respond to such adversity?"

Your response will determine a great deal of your success (attracting investors, hiring key employees, getting first customers to commit, signing strategic partner deals, and so on).

Why? Because adversity is a constant companion to startup leaders.

Last night I listened to a super-techie say "It's time to pack it in. The technical staff does not have what it takes. Better to cut the losses and live to fight a different battle." That was his response to adversity.

To encourage you, I can tall you that in each of the above examples of adversity, the startup leader got through it with personal victory and the startups kept going. Some had already strong character formed by events that kill people (wars). Others had grown because they found strength and encouragement from a spiritual source and religion. Many sought professional advice (self-help books, in-person coaches and therapists). Family and friends were most often the first line of supportive help. And (it  may surprise some of you) so too were people on the board of directors, as well as other employees.

BOTTOM LINE: Before you go further with your startup idea, think about how well you handle adversity. It is going to come to you and your startup. When you can respond well to adversity, you can inspire your entire startup to do the same. Your entire company culture will be strengthened, it will become a powerful element of your unfair competitive advantage.

STARTUP BOARD OF DIRECTORS: How the power works

"What can I expect from my board of directors? That is a question I am often asked by first time entrepreneurs.

This week I'll comment on that topic and give you help anticipating and managing your board.

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When you understand how the power works on your board of directors, you can operate with more realism and effectiveness.

Here is how power works in real startup boards of directors:

• Investors expect to dominate. They have more startup and managerial success than the founder (usually). That is how they became successful venture investors. They are on your board for one purpose: to make the value of the new enterprise rise as fast as possible to as large a number as possible. They are very eager to do that with your company. If you hinder that, you will feel the heat of their wrath.
• Serial entrepreneurs overcome with results. Veterans of startup boards of directors know the CEO will thrive as long as results are delivered. That is the ace power card the CEO has to use with the board. Results bring power to the CEO. Explanations of why things did not come out well lead to the exit door for the CEO.
• Investors do not want to run your startup. Time is the enemy of VCs. They cannot buy it or make it. Managing a startup is a huge use of their time. They want the CEO to run the business. Yes, they may get critical and they may step over the line (start to micromanage), but they do not want to get sucked into the black hole and get the reins turned over to them to manage the startup.
• Your ability to think more creatively overcomes strong suggestions. Better ideas win in power struggles. VC icons like Don Valentine founder of Sequoia Capital, tell each CEO they fund to expect a lot of ideas from the Valentine -- and that he expects the CEO to produce better ones. This pressure is part of the creative process of managing a startup and is expected at every meeting.
• You win power struggles as long as the employees are supporting you. Great morale in your workers -- especially your core management team -- is a powerful asset to use in power struggles. As long as the employees believe you can lead them to success, you have a very strong card to play when needed. They do not want to watch the board get rid of you and hire a stranger. So it takes a lot of bad decisions and rotten behavior on your part to get them to start to wish you were not there. That's one reason serial entrepreneurs are alert to the morale of their employees.
• Work outside the board meetings is how big decisions are made. The old joke is that board meetings are supposed to be boring. Why? Because everyone expects to arrive knowing how the official decisions are going to be made at the meeting. During the weeks between monthly board meetings the CEO will be discussing one on one with board members the sensitive, the important decisions that came up in the last board meeting. The choices are reviewed and the CEO works to get unanimous agreement on each before the next board meeting.
• Independent board members are expected to keep the peace. These people are the go-between person chosen to handle sensitive issues between the CEO and the board of directors. In addition to their startup and domain expertise, the independent person is typically skilled at working out practical solutions to tough people problems. This may call for spending time with the CEO and the techie founder to iron out a working relationship. Or it may be necessary to talk to one of the board members who is out of line with his criticism of the CEO. Such independents are special to startups and important to how well the board operates.
• Boards do not vote on decisions. Everyone is unanimous on every decision. No investor insists on voting his number of shares. Such thoughts are in the heads of naive people. Instead, all key decisions are made during the weeks before each board meeting. Yes, the lead investor has a lot of influence on the decisions, but still he will not vote shares at any meeting.
• Always able to raise cash is key to balancing power. CEOs learn "the man with the gold sets the rules." Without cash the company dies. If you only have board investors, you lose your balancing power. So serial entrepreneurs are always looking for viable alternative investors to the current ones. That gives the CEO confidence he can choose to accept or not accept any strong advice or command given by an existing investor. It is one reason serial entrepreneurs say that "competition (to invest in my company) is the entrepreneur's best friend."

BOTTOM LINE: As you may have realized from the above, your job calls for managing the board of directors. It does not happen for you. It is not done by investors or the independent on your board. You are the one to do it. So study your sources of power and weakness. Think about how you can do well when managing your board members. It will be one of the key elements of building your unfair competitive advantage. It is what serial entrepreneurs have learned to do so well.

I wish you The Best on your Adventure!

STARTUP BOARD OF DIRECTORS: What you can expect

"What can I expect from my board of directors? That is a question I am often asked by first time entrepreneurs.

This week I'll comment on that topic and give you help anticipating and managing your board.

• The board is your new boss. Even if you own over half the shares, you will still have to debate with the board of director members what you are going to do, how well you have been doing and your compensation and all the troubles the startup is running into. That's legal. It is in your incorporation bylaws. You cannot get around it. As soon as you have formed a board of directors for your corporation, you get a new boss.
• The board represents the investors, not you. This may sound difficult, but that is the way corporations work. The board is responsible for making decisions in the best interests of the shareholders. You are considered one of the shareholders, so that is in your best interests. But if you start messing up managing the company, then you are exposed and can be terminated. The investors expect good, positive results. Either you deliver or they will find someone else to do so.
• The board votes using special privileges. Preferred shares are what investors get when they invest cash in your startup. That gives them control of the voting of the important decisions of the startup. Voting on your job is one decision, your compensation is another and the big decisions about what the startup is to do next is another. All the rest of the people in the company get common shares, the less expensive shares used for stock options and founders' shares.
• There are no surprises. All the powers of the investors are spelled out in the terms of the deal with them that you signed. The details are in the "term sheet" you got when they offered to invest in your startup. Hopefully you read the documents, discussed the consequences with your lawyer and are now living with the results. There is no excuse for you to be surprised if you did your homework.
• You are not CEO forever. As soon as you have one investor, you are exposed to termination for lack of results (or other sins). No longer is it "your company". No one on the board expects you to be fired, nor do they plan on it. But you should start planning on your successor the day you have your first board meeting. That is most likely to happen.

If you do not like what you have just read, if you insist on being CEO indefinitely, then do not seek outside investors. It is that simple. The startup will be yours as long as you wish.

But if you accept cash from an investor, the game changes. Now you have to execute and deliver. You are in the spotlight, on the hot seat, expected to do amazing things with this startup. If you doubt that, ask the investor.

BOTTOM LINE: Knowing what you get with a board of directors can help you decide on when and who you choose to form a board. That will give you realism and wisdom. Boards are not all bad (I'll discuss their good side tomorrow). A great board can help you convert your idea into a great, enduring startup. In fact, it can help you build an unfair competitive advantage.

I wish you The Best on your Adventure!

STARTUP TIP OF THE WEEK: You have to give your people hope

Hope is a must for startup employees. They have to have hope to motivate them to continue their creative hard work. When they lose hope, you will lose them.

I had a recent discussion with a serial entrepreneur about what to do when employees sense a startup is drifting sideways. She had past experience with good people leaving when that happened.

Over the past two years I have had similar discussions with very smart CEOs of startups. So she is not alone, nor are you if you are facing this situation.

My experience is that when this happens, the CEO is then confronted by the company culture with a decision: to continue on as is, or decide to work together in a fresh way to find something that moves the startup from a destiny as a small, dull, private business into a growing, exciting startup that can go IPO within five years.

That inflection point may not be obvious to the CEO, especially not to the enthusiastic founder.

But it is an inflection point that demands a decision. Employees agree. So do investors.</p><p>It is also an opportunity for you to think out of the box, to consider your alternatives.

It is also a time for you to be bold in your thinking.

It may save your company. Without the good employees, you are going to find it harder and harder to lift the business out of its dull sideways movement.

So let me give you some things to dwell on, to discuss with your leaders, your core team, perhaps at an off site location where you will have a fresh perspective on the business:

• Sift your market: Can you think of fresh markets to apply your idea/service/product/technology to? These would be rising, large markets that are open for you to enter in which you can pick a segment to dominate. This would most likely be a related market, but could be a radically different one. Example: the late arriving Japanese facsimile manufacturers moved from police and defense contractors (small but fat profits, dominated by American companies) to consumers (sending hand drawn directions to get people from one place to another in confusing Japanese roads and cities).
• Change business model: Are you offering a product? Consider offering a service instead. Example: Software.com set the example for moving from selling software to renting it and morphed into creation of a new category, software as a service, SaaS.
• Jump on a solution for a big problem in a hot rising wave: Can you solve a big problem for social networking? Or how about video content delivered over the Internet? How about smart energy grid solutions? Those are a few of the tsunamis we are experiencing. You can ride the energy of one of them and not have to push so hard to get your current market started. Example: My Space leapfrogged pioneer Friendster and then Facebook leapfrogged My Space. Each of the leapfrogging companies won huge market share of huge, different market segments.

Gather your key employees and listen to them. It is not a time to talk or lead. Make notes. Do not interrupt. Use a facilitator, a neutral person. Get the people involved with the idea generation and you will start to grow their hope for a better tomorrow. I bet you will be amazed at how much you hear in fresh ideas.

The hard part for you will be to make a decision that moves your startup in a radically different direction. That is why it is so important for you to have objective friends and mentors and advisors who can be frank with you about what you are thinking and how you are behaving. They can give you perspective and wisdom that may sting and hurt a bit, but it can give you what you need to make a critical decision when you find your employees losing hope.

BOTTOM LINE: All your employees need hope in the outcome of your startup. So do your investors. It is more than hanging on and surviving. It is about how to make a critical decision to alter the business so it can move from dull to exciting, from moving sideways to growth. That is what CEOs are hired to do, even if you are the founder CEO. Letting go can be very frightening. But dropping the dream and moving on realistically can save not only the business and your job, but also can give your people hope once again. That is key to building your unfair competitive advantage.

I wish you a great weekend and The Best on your Adventure!

GREAT PUBLICITY, BUZZ, BRANDING START WITH MAKING "GREAT STUFF": Serial entrepreneurs know it, that's how they built amazing startups

Monday evening I used a new startups's video discovery service, Rippol, to explore for videos on marketing advice for entrepreneurs.

I found and watched a very simple presentation about the secret to getting that buzz I blogged about Monday. It was so clear and so "on the money" that I wanted to share it with you.

The presenter's advice is: "make great stuff".

In other words, don't try to use buzz to make up for bad stuff you create. That does not work. Nor can you advertise your way around end users bored with your stuff. You have to focus on a great idea for selling great stuff.

So here is your homework for today: watch the 2 minute video and think about your marketing communications plan priorities and its focus.

BOTTOM LINE: Great companies are made from great ideas. Poor ideas plus a lot of time, money and effort do not compensate for poor ideas. Build great stuff and it will generate buzz.  Then you just have to fuel it for a while, and like kindling wood used to start a campfire, soon the blaze is roaring, without any other help from you. Great ideas for great stuff is central to building an unfair advantage. You can do it if you focus on the great stuff rather than great buzz.

I wish you The Best on your Adventure!

SMART GRID MEANS STARTUPS: They are already surfing the fresh wave

Do you know what the "smart grid" is all about?

If not, you should. Someone is going to get rich doing smart grid startups.

The smart grid is a fresh wave already rising around the world. It will have lasting repercussions on how we live and work, how we make money, and a lot more. You can read further at Wiser wires, a short, comprehensive report on who is doing what about the smart grid. I liked this report because it was quick to read and included both new and established enterprises. 

What stood out to me was this: this new wave is already maturing! Learning what condition a new thing is in can save you a lot of agony, and open the door to opportunity. Here is what I mean:

For instance, startups are already actively working on products and services that solve several of the key problems to building the smart grid and reaping the benefits of its huge potential. Here is a short list of some of the startups mentioned:

• Trilliant Networks and Silver Spring Networks are focused on solving problems of the IT network that connects the smart points of the power grid.
• eMeter helps utilities manage the usage data and combine it with other information to set rates upon demand.
• Control4 and iControl offer "home area network" (HAN) devices that allow consumers to control almost everything in a house that runs on electricity.
• Tendril and GridPoint offer related web based services.

Then I read of the existing players and saw they ranged from recent IPOs to established giants, powerhouses to be greatly respected. Here are some of them:

• EnerNOC went IPO in 2007 in the demand response business, a new market category.
• Oracle offers software similar to eMeter.
• IBM helps utilities connect their disparate systems.
• Cisco is expected to enter the IT networks grid market, HAN solutions, and more. Siemens has its eyes on several of the market segments.
• Microsoft and Google offer products for consumers to track their power usage.

When you read of a pattern like this, where startups in a new field are being mentioned in mass media reports, and where giants are publicly declaring their intentions about it, then you know a new wave has arrived and is well on its way to growth and expansion.

Foundation Capital partners chose to focus on investing in smart grid startups. Other VCs have invested in related startups (simply Google "smart grid venture capital" and watch what you get.)

• GridPoint and Silver Spring Networks have raised $220m and $170m respectively.
• iControl recently raised $23m.
  

BOTTOM LINE: The trick is to realize that a new wave in this condition is already maturing rapidly, from the point of view of startups and venture capitalists. It is also nearly too late to be one of the startups that will lead one of the new market segments that are created as the early market grows and splinters. Instead you will have to spot a fresh splinter forming before one startup takes the lead (in becoming the dominant gorilla of a fresh market segment/category). When you can do that, you can time the launch of your startup and catch a ride of a lifetime! Such skill is part of the unfair advantage of the winning startups.

I wish you The Best on your Adventure!

TIP OF THE WEEK: Get buzz to rise, get hype to die

Are you seeking buzz or hype? The difference can kill you. Or make you rise to startup success.

Buzz happens when a lot of people get excited about your startup and begin to pass the word around. Tweeting, blogging, on Facebook messages, texting and over lunch with friends. It grows and grows, spreads around the world, gathers speed and momentum. It takes time.

Hype happens when suddenly a lot of people, especially writers, take notice and publish something about your startup. Following this is a quick rush of reporters who missed the first wave of publicity. Then the mass media spreads the word to the public who then become excited about the news and rush to see what the startup is all about. It reaches a crescendo, peaks, but instead of enduring, it disappears, like a roman candle fireworks. It happens very quickly.

Examples of buzz include Amazon selling one million book titles on-line. And the growth of use of Google's more effective search engine.

Examples of hype include Second Life, the virtual world created by Linden Labs in San Francisco (take a look at in a good article written Sunday in Silicon Valley by Chris O'Brien). Remember the Segway, the two wheel vehicle that would replace the car? Next Computer Inc. (Steve Jobs)? They all don't die, but they all do fade into the background to be forgotten.

Some wonder about the enormous economic value of the hyped YouTube and now Twitter. Was Facebook about buzz or hype? Or both? They claim to now be converting business models to money makers.

Buzz wins because end users "get it" and find it "way cool." People get excited about something special in your product/service offering. They use it and "Wow!" happens and they can't wait to text about it to a friend. I saw a grade school girl in a mall with her father today, walking with a pink iPhone clutched in both hands, staring at the screen with a beaming face. You can bet all her friends will know about her new phone in less than an hour. Remember the people who slept overnight outside the stores to buy the first iPod?

Buzz works like an avalanche. First there is a real user experience that triggers the first movement of a few snowflakes (other users and a few observers). They impact more and then more, and soon a large chunk of snow moves an entire slab (bloggers) that starts an entire mountainside of white flakes (mass media, mass public) crashing down to the valley below, enormous in its power and momentum.

Like an avalanche, buzz can be influenced and initiated and even guided at first. But after it starts you can only join it or get out of the way and watch. Buzz on a roll cannot be stopped.

BOTTOM LINE: That is where you want your startup to be: offering something to end users that is so cool it gets them buzzing. You can influence that with your marketing messaging (marcom positioning message). You can alert bloggers and help enthusiasts spread the good word (e.g. social networking group). And there is a lot more in this technique we label as public relations. When you can do buzz, you have a powerful element to add to your competitive advantage. You competition will complain it is unfair.

I wish you The Best on your Adventure.