Nesheim Online

RECRUITING EXPENSES ARE REAL: Plan on spending the cash

Been up to my ears with A.C. finishing the due diligence responses to VCs. One thing come up that is a red flag: how much cash to plan on spending on recruiting people?

The VCs have been pushing back on the recruiting plan (A.C. wants to use the buddy system for the first 10 and then 100 percent recruited for a 25% annual wages fee). That is realistic. Hopeing for half to be found by employees is foolish. It is like whistling while walking through the graveyard. It denies what is most likely to happen: you need cash to pay for getting people.

The alternative is to turn employees into professional recruiters doing the scouting and cold calling. That is a waste of time to save pennies. It delays time to market of the first product and is not likely to produce better people to recruit.

BOTTOM LINE: Plan on spending real cash on real people for real recruiting. Do not deny reality. Skip internal cold calling. Go to professionals. Focus instead on what you do best: deliver the first product to market ASAP. Beat your competition with better people and quicker time to launch. Plan on it.

STARTUP VISION: Not what MBAs are taught

Startups vision is not what is taught to MBAs. The giant corporations need a vision to collect disparate chunks of a wide-spread business. Startups use vision as "the cool idea." It is the inspiration that gets the business started. Like the proverbial snowball that begins to grow as it rolls down the mountain slope, startup vision begins with an "Aha!" and expands from there.

Examples are in the current wave of articles written about the Web2.0 wave. A good article was in Business Week's cover story , Valley Boys, of August 14, 2006. It is about people with visions for cool new enterprises: Valley Boys - Business Week . As you read it, you can sense how there was typically an individual who had an unexpected insight to an opportunity and need. That person became the founder of the new enterprise and expanded from that first idea to build a business (very rapidly).

As you read about new enterprises, note how the founders' ideas are very focused on solving a specific problem. They are not ideas about generalities or vague concepts. There is something very practical about the entrepreneur's vision. Yes, it is big and filled with a dream aspect. But it is also very practical, backed up by immediate plans for how it will be delivered, very quickly. That is very different from how big companies think.

BOTTOM LINE: Give your first idea a test: does it qualify as a vision? Is it for solving a big problem? Is it practical? Is it focused? If yes, continue. If not, reconsider. A good vision becomes a cool idea and the foundation for going forward with your new business.

END USER EAGERNESS: More important than the technology

End Users is the theme of this week's blogs. Talking to an entrepreneur yesterday reminded me how easy it is to get side-tracked with technology. If you want to do something great, focus on the what, not the how. Spend time on how to improve your idea so it is compelling to the end user and after that figure out how to deliver it using technology.

Delivery of information for the so-called Web2.0 wave requires use of a technology, either old or new. That is important, but not nearly as important as how compelling your invention will be to end users. After all your hard work getting ready to deliver it, when it arrives, the dog has to be eager to eat the dog food. Your great idea must be compelling to end users. They will yawn if you try to tell them it is cool because of how your technology delivered the idea. They just want what they get to be exciting.

That is why it is so important that you survey potential end users. Talk to them about your idea. Find out how eager they will be to use it (and pay for it) before you go looking for money and employees. It is better to discover that you have a poor idea before you try to raise your money than to get booted out of investor's offices and learn the hard way.

BOTTOM LINE: Focus on how to move your idea into the zone of compelling appeal to end users. Put the technology below that, making it an after-thought, supporting how to deliver the cool thing to the beneficiary. Let the technology be the slave, rather than the end user. That is a powerful element for building an unfair advantage.

YOU NEED 4 NAMES: Start your business plan with names

Timet called tonight to chat about his trip tip to India and what he needed to do next to get a round of venture capital. With the first systems installed he is needing capital to grow. I told him I'd help by asking him to answer a series of questions. At the end he'll have constructed a very good unfair competitive advantage.

It begins by answering this question: "What are the four names for your company, the category you plan to dominate, your product family and your technology?" A category is like microprocessor (Intel) or router (Cisco). Your technology needs a proprietary name, not a generic one.

I typically find the CEO does not have all the names. Until you do, you are not able to construct an unfair advantage.

BOTTOM LINE: Try the exercise yourself. See how hard it is. When you get all four names you are on your way to constructing your unfair advantage. I wish you the best.