Nesheim Online Blog

Startup Stage 5: Arrival

“Finally, we have arrived!” Employees give a sigh of relief. The wild ride is over. Good times are here to stay (at least for the foreseeable future). This completes the startup trail.

Your startup has achieved dominance of the market category that it is focused on – or is one of the survivors who now compete intensely in the new space (Lyft and Uber). Your product family name is branded as representing the category – the market segment – that you are now thriving in. Google is search. Facebook is social networking. All but one or two competitors have fallen far behind, they are no longer threats to your existence.

Cash is coming in faster than going out. The startup has turned “cash flow positive.” “Burn rate” is no longer burning up cash. There is no need to raise cash by selling shares to venture investors.

Now your startup is called a company. It’s no longer a startup or new enterprise.

Lots of people know the name of your company, what it sells, and what the product/service family brand stands for. You and co-founders are now known around the world and on Wikipedia. Bloggers want interviews of you.

Sales are still growing fast, though at less than the blistering pace achieved during the tornado stage.

All eyes are on the prize yet to be achieved: the gold medal, the initial public offering. It is now thinkable, even being planned for.

Most IPO-ready companies will be slightly profitable. Exceptions are notable however and come in the category known as unicorns, large and losing lots of money, burning cash every month as they adjust their businesses to steer closer to profitability. IPO investors will put their investment cash in both types. The huge institutional investors with IPO-ready cash have already spotted your company and have been monitoring its progress for several years.

People in your IPO-bound company are now working in jobs that have become very stable, altering little month to month. They remain enthusiastic, highly motivated to grow the company larger, every day. Managers have demonstrated competence and thus are respected. Managers are finding it much easier to recruit the ever-larger numbers of fresh employees required to keep the company growing. Early employees are highly revered by newcomers enthralled to listen to stories about the days of birthing the startup. Morale is high, it can be felt by people visiting your company.

Investors in such a remarkable company are counting the days until the big liquidity event: Either the company achieves an initial public offering, or is sold at a high value. Initial Public Offering remains the goal, the gold medal. Venture investors wait eagerly for the great day, counting lucrative valuations that will reward their early high-risk investing. Early employees realize they will become financially independent, could retire soon, become an angel investor – or start their own new enterprise.

Lots of company stakeholders celebrate.

I wish you The Best on your Adventure!

JOHN

THE SIGNALS ARE FLASHING – STARTUP VETERANS KNOW IT: THE NEW WAVE HAS BEGUN (The rest of the pack are seeing only doom and gloom)

“Getting tough to get startup money!”

“A rounds are drying up!”

“B rounds are going to be very tough to get done!”

“Better cut that burn rate and hope you survive!!”

Those remarks made by many made the news this week and last week and the weeks before.

Doom and gloom in glaring headlines.

Pronounced by the masses of venture land.

Noticeably absent in commenting: the old timers – scarred veterans of deals done, IPOs completed and the dead buried.

Why? Because they are – very quietly – already watching the arrival of the New New Wave. They know it’s started. They’ve been here before. They’ve switched focus from the existing to the not-here-yet new ventures. They’re eagerly looking for the next Uber-whatever-it-will-be. It’s how they became successful.

THE SIGNALS

What do they see that others don’t?

The answer lies in some excellent startup financing metrics presented by Tomasz Tunguz of Redpoint Ventures.

Try the following metrics: what is the picture you see painted?

• Venture community is blogging about the coming dark days.
• A rounds and all other rounds are declining in units and dollars.
• $ per deal of Seed round is falling.
• Number of Seed rounds is rising.

The venture community masses see a very dark, even depressing cloud getting darker every day. They have (wisely) prepared their existing startups for the unavoidable storm that has begun, hoping several companies survive with a few emerging healthy and thriving. The rest will be sold and forgotten. “Adjust burn rate to live on the cash you have – don’t count on getting the next round” is the mantra. They see the metrics telling that story. It’s reality. It’s what is happening. Startups or just their technology are looking for buyers 24X7. It has nothing to do with the economy, China or politics. It's the natural fallout of the startup Hype Cycle.

But the battle-scarred see a different picture. They see a fork in the road shaping up, an alternative path to pursue, one full of fresh opportunities to come. They are watching the formation of a new era, one that will reveal lucrative new startup opportunities, the new kids on the block that do the new new things.

What is the metric that signals the change?

• Here it is: Number of Seed rounds is rising + $ per deal of Seed round is falling.

That signals fresh, tiny startups are getting their first cash to begin work. Those are new enterprises with a lot to do before getting the big rounds of capital. Among them will be a flock of the next Uber-Whatevers. The veterans are focused on listening to founders with not-heard-of-before ideas. Thus the lack of interest in more huge rounds to unicorns fighting the competitive battle to the death.

            Wannabe founders who also recognize this will jump on that reality. They will form startup plans call for using a small amount of cash to get through Proof-of-Concept. Their startup ramp will be classical, meaning expanding to major milestone achievements with ever larger rounds of funding. And yes, there will be several who will enter markets with billions of dollars of potential and require huge amounts of capital (the New Unicorns – someone will dub them with a fresh handle).

BOTTOM LINE: It’s a great time to do a new startup. Veterans know that. You’ve got to be very new, very different. Your plan has to be focused on a market that does not yet exist, one open and free enough to give hope that you can become the gorilla that dominates it. Not all have to be gigantic, there’s a place for those with less ambitions. The venture community will always be filled with them. Your job is to figure out how to take advantage of the arrival of the new era. When you do, you’ll find you’ve gained a powerful element to build your unfair advantage.

I wish you The Best on your Adventure!

JOHN

DURING HARD TIMES STARTUP WINNERS FOCUS ON STAYING CUSTOMER CENTRIC: Tips from serial entrepreneurs

The messages for startup founders are flashing all around the Internet: “It’s time to alter your plans.”

So what should you do with your startup?

The number one quest – the hardest thing – for startup leaders to do is to remain customer centric through it all.

Everything else is a distraction.

If you can sustain customer centric focus, you greatly improve your chances of getting through the hard times, emerging stronger and growing.

WHAT TO DO

Here are some practical suggestions.

START HERE - FIND YOUR SITUATION. Rob Go’s recent blog lays out excellent guidance for startups in the early stage, as well as mid-stage and late stage. This will help you put your situation into focus.

• Early Stage: Look out three years and execute to get there. Today’s dark days will be over by time you need to start ramping up Sales.
• Mid-Stage: Extend your runway. That means layoffs. See my prior blog for tips on doing that successfully.
• Late Stage: Live with what you’ve built. Accept the consequences, even sale of the business.

THEN - FOCUS ON YOUR CUSTOMERS: Talk to them, learn from them, adjust your bplan accordingly. Listening to those people will give you the insight you need to figure out what you need to change in your plan.

• Focusing on the customers is what startups are all about. You win or lose depending on how well you sustain your focus on your customers.
• Distractions get you off the customer centric track, get you working on the wrong things.
• The legends of startups are passionate about remaining customer focused (Jobs, Gates, Zuckerberg, and more).
  • Sam Walton, founder of Walmart: “When you don’t know what to do, go to the store and ask the customers.”
• The goal is to find what is COMPELLING to your Ideal Customer. That is why they love your product and can't wait to Tweet it to all their friends immediately.
• So try doing these simple things:
  • Talk to your customers -- on the phone is best, emails only if you have to.
  • Call every day, with contact made by you and every one of your leaders for sure, and even your geeks (timid ones can listen in on calls). 
• Ask these simple questions:
  • Why did your customers . . .
    • Start using your product? What got them excited?
    • Stop using your product? What disappointed them?
  • What’s the profile of your Idea Customer?
    • What do they love so much that they are eager to purchase it?
    • And eagerly spread the word to friends?

That may sound to you as what obviously should be done, but I’ve experienced many who have not yet done that and others who finally got around to doing it -- but sadly were too late.

Your GOAL is simple: Figure out how to modify your product offering so a narrow slice of the larger market gets wildly excited about purchasing it. It does not require millions spent, it simply suggests you and your core team talk to customers, listen well, and adjust your plans.

BOTTOM LINE: We are entering a phase of the amazing startup world that is calling for cutbacks and the dreaded layoffs. Money is getting tighter. It’s now mandatory to alter your business plan so you can live on the cash you have for a lot longer. Pick the remaining staff so they can help you stay customer centric, finding out how to move your Sales up to what you need to get everyone excited – yes customers, but also bloggers, employees, suppliers, strategic partners and the people with investment money. Serial entrepreneurs know how to do that, it’s part of their unfair advantage. Make it yours.

I wish you The Best on your Adventure!

JOHN

CUT YOUR STARTUP BURN RATE NOW: Or face possibly terminating your new enterprise

“Here we go again! Time to cut the startup burn rate.”

One more voice added to the rising crescendo.

In today’s well-worded blog by Upfront’s Mark Suster, he adds credence to the softening trend in valuations, deals done and IPOs.

Summary from Crunchbase Daily 2016 February 9:

    It’s all part of the “resetting” of the venture industry.

    According to a survey of more than 150 VCs conducted by Upfront Ventures, 90% said they expected valuations to go down in 2016 and 77% expected the pace of fundraising to slow down this year as well. This isn’t a fire alarm, says Upfront’s Mark Suster, just a warning to founders to reevaluate capital planning and high burn rates.”

HOW SOON WILL IT END?

Keep in mind that Saudi Arabia is in a geopolitical global war with Iran, using oil as the weapon, and is committed to a fight to the death. China is slowing, its leadership getting more and more anxious. So money markets are increasingly nervous, and thus investors sit closer to the exits, including angels and venture capital partners. Your little startup is a cork on that tsunami wave.

BURN RATE CUTTING MEANS MAKING THE TOUGHEST DECISIONS: CUT PEOPLE

Every startup hits the wall sometime and has to cut its burn rate in order to survive. No new enterprise is immune.

This time it’s caused by the recent softening of venture investing noted above. Your startup may be doing fine by your metrics, but it’s not immune to the effects of the weakening trend. So cut you must – or face running your business into the ground, as in dead and buried.

This is not about finding cheaper rented space. Or ending free food. Or flying less.

It is about cutting the source of 80% of your spending: people. Yes, that means who are you going to layoff? Painful – but terminating the business is much worse.

There is a good way and a poor way to do a startup layoff.

HERE ARE SOME TIPS FROM VETERANS OF THE STARTUP BATTLEFIELD.

• You never cut headcount too early. You will always be late. Entrepreneurs are genetically overly optimistic. It is in the genes. They believe they will figure out a way to avoid the painful cuts of employees. So they are always late for the layoff.
• You never cut headcount too deeply. You will always cut not deeply enough. The cuts will seem to produce a company impossible to manage, unable to compete. So you think you have "saved the best of the best” and you end up with more than you should have.
• You will react to pressure from your board. Your investors will especially be quicker than you to demand that you get going with the cuts. They have seen this before. One reason they are on the board is to give you perspective and wisdom. Listen to them, even if you don't want to.
• You will end up with a different company to manage. It will seem strange to you. The surviving set of employees will behave differently, will be able to do less and will respond to you in different ways. Their psychology will be changed because of the layoff. It may be good ("At last we got rid of the deadwood!"). Or it may be bad ("We are so lean I can't see us surviving for much longer.").
• You will need twice as many months to turn the corner. Your expectations for a return to the good old days will be too optimistic. So use The Rule of Two: double the number of months you expect to need to get to the upward turning point. Plan on that and you'll not be as likely to be disappointed.
• Your process is as important as the act. You must proceed to tell all the stakeholders and do so in a concerted, planned process that is very professionally managed. How you treat those laid off will be as important as how you treat those that are not. You cannot avoid the pain but you can reduce it. Everyone needs to know everything about the layoff at the right time. Plan it quietly, quickly, in detail. Execute it with precision. An experienced HR professional (lots of battle scars) can be an invaluable asset in the dark days of a layoff.
• Your personal support group is important for success. It is lonely at the top. You are not excluded from the human race, believe it or not. You will feel depressed, disappointed and defeated during the process. To avoid dangerous compensation behavior (alcohol, drugs, sex rampages, co-dependency screaming sessions, rage outbursts at people you love, or other acts of foolishness), gather family and friends around you. It is a good time to check in with your religious leader. Tell all of them to assist you during the layoff process. They should meet with you, be brutally honest and available on short notice. You are not Superman or Wonder Woman, you do not walk on water, nor are you expected to.
• Your character will emerge during the process. The pain of a layoff will show you who you really are. The real you will show up, loud and clear. That will be who you are deep down inside. Your core values and beliefs will be what you reach for while you do the layoff. What you see may surprise you. Or even scare you. That is one reason for gathering your support group around you while you go through the layoff.
• Beware of dangerous people. The true character of employees will be triggered by the layoff. Some people go home, get guns and return to shoot CEOs. Others less violent will set out to get you into deep trouble. That includes sabotage of software and websites, theft of strategic plans and equipment, and much more. It has and can happen in any company. That is why you must wisely plan the security aspects of your layoff.
• Talk to CEOs who have done layoffs before. They are the best sources of the how-to part of this painful process. Listen, digest, plan and act, using their tips to do a better layoff. Their experiences are priceless. They got the grey hair in the school of hard knocks of doing real startups.
• You must be realistic. Your planned layoff may not succeed. You may end up having to shut down your startup. If you look at your burn rate modified company plan and think it will not work, then it may be time to skip the layoff. Just shut the business down, now. Avoid the pain of six more months of agony and the inevitable funeral.

MORE: I have additional burn rate cut tips for you at http://goo.gl/2yOkO6

BOTTOM LINE: All startups face sudden moments of rude confrontation that signal that a layoff will be needed, ASAP. It never comes at a good time. It is always very painful to a lot of people, including the CEO and core team of a new enterprise. It is deeply psychological, testing your character to its core. It can determine the life or death of your startup (and your position as its leader). Yes, your objective is to be so successful at planning and executing that plan that you'll never have to arrive at a moment of layoff. But you are not going to get there. Psychologists call that magical thinking. So get ready. Get the people you need to assist you lined up, ready to act. When you can do a great layoff, you'll have added a powerful element to your personal unfair competitive advantage.

I wish you The Best on your Adventure!

JOHN

Nesheimonline.com

“Tips and Tools for Entrepreneurs in a Hurry”

STARTUP UNICORNS ARE NOT OVERVALUED - THEY ARE JUST FOLLOWING THE "HYPE CYCLE"

"Investors overvalued these [unicorn] companies" begins the video interview about recent IPOs of unicorns in the Fortune magazine issue of February 1, 2016.

I think that is the wrong picture of what is going on. It's typical of the analysis done by reporters experienced with large public corporations and Wall Street. Startups are a different breed.

Startup veterans see the picture differently: they see unicorns following the Gartner Hype Cycle. When you understand that, it's simple to explain (1) what has happened to unicorns and (2) what will happen to them.

 

 

“UNICORNS OVERVALUED?”

1. Startups creating a new market category follow the “Gartner Hype Cycle”. For each new market a new name is created: e.g. Begin with early days for "ride sharing" and watch the first bunch of startups race up the Hype curve.
2. Each new market starts with the Oklahoma Land Rush. Many startups jump into the race and aggressively attempt to overtake the early starters, to seize and retain the initiative.
3. Vast struggles ensue among an ever growing number in the startup pack, each trying to figure out how to become the leader. The race is on for “First To Get It Right”.
4. Gradually a few new enterprises figure out how to consistently attract large numbers of eager customers. They become favorites of bloggers who spread the word quickly.
5. Typically three leaders emerge from the pack. Each is vying for Number 1. Each is lusting to become The Gorilla of the new space as Google, Netflix, et alia did.
6. All the rest have already begun to fall back, getting farther and farther behind. They have begun dropping into the dreaded “Trough of Disillusionment”.
7. A final battle for Number 1 is fought and one startup emerges victor, dubbed The Gorilla. It focuses on getting larger and picks its IPO date.
8. The two losers settle in, reluctantly conceding the war is over. They become the Chimpanzees. They focus on getting profitable and cash flow positive. IPO thoughts become secondary.
9. The dozen remaining companies slowly drop out of memory. They become the Starving Monkeys. The focus on how to survive with the remaining cash on hand.
10. A few naive engineers try to get new startups financed by claiming “But we can do better.” ("ER" words are death). Few get financed, ones that do inevitably join the starving monkeys.
11. Quietly Monkeys get sold for less than the cash investors put in.

The Fortune 500 analysts and others in the venture community make the typical error at this stage by declaring: “They were overvalued.” That’s the equivalent of saying in hindsight “I knew it all along, the others didn’t.” It exposes their lack of insight to how private rounds of venture capital are priced (lots of "down-rounds" year by year).

Primarily what they miss is first checking in on the Hype Cycle, asking “Where are we in the life cycle of this new market (category)?” If they had started there, they’d say something like “Several of the unicorn battles have progressed past the “Peak of Inflated Expectations” and the fallouts are beginning to slide down the “Trough of Disillusionment” as is typical of life with startups."

In other words, unicorn startups are behaving like startups, so nothing is new there. Each new category is settling down, with Gorillas emerging, Chimpanzees conceding, and the Starving Monkeys looking to sell to some buyer for some (low) price.

Is it the end of the new (unicorn) startup wave? No. There are many waves among the generalization of “unicorn” (such as fintech, virtual reality, ride sharing and so on). Each follows its own Hype Curve. It’s a mistake to put all into one basket and generalize on them at the same time.

VALUATION IS TOMORROW

As for “overvalued”, it depends on your view of tomorrow, years into the unknown and your level of willingness to take risks investing today.

Each startup is valued on the future financial results expected of it, years into the future, at least half a decade forward, and farther.

The New Game In Town began at the turn of this century by bold venture capitalists eager to put tons more money into a half dozen incredibly large startups. Their goal is to invest in startups that are “global game changers” (formerly, domestic “game changers” was the new new thing for VCs to invest in).

They are expected to start The Fourth Industrial Revolution.

The required metrics are simple.

The number of potential customers is global in size, vast, humongous, “lots of extra zeros."

The main characteristic is the unicorns are expected to be 10 to 100 times the potential size of domestic startups.

The larger the capital invested, the higher the risk and thus the larger the financial future must be. 

The longer the time to get to IPO and profitability, the higher the risk and thus the greater the reward must be.

Going IPO before profitability is needed because the venture capital pool is too small to continue fueling unicorn startups burning cash for the foreseeable future.

The “Post-VC” stage than takes on the shape of a fresh source of venture capital investing, using the "public money pool" (mostly institutional) that trades on stock markets.

That subjects the unicorn to extra (“hyper”) scrutiny about its future, with each quarterly release of financial statements analyzed in minute detail. 

Unicorn management now is absorbed with managing expectations of thousands of public people, instead of a five man board of private directors. Any failure to exceed expectations sends the recently IPO stock crashing ten, twenty, thirty percent.

Such valuation volatility actually commonly goes on in pre-IPO startups, but is carefully guarded, with “down rounds” strictly shielded from public knowledge (as much as possible).

Everyone has an opinion about the far distant date when the unicorn will attain profitability.

And for some battles (e.g. Ride Sharing in India or China), the struggle to become The Gorilla is still in play.

Risk has risen recently due to global economic slowdowns in China, commodities, and oil and gas. And geopolitical risk has risen with wars in the Middle East. Thus the future is worth less today. Ergo, down go valuations of all startups. Nothing new. Just more piling on to drop the value of new enterprises.

BOTTOM LINE: Thus I suggest sweeping generalizations about unicorns are off the mark, missing understanding of what is going on in each fresh market. It is confusing, especially when the timing of the arrival of the Trough of Disillusionment coincides with a general reduction in public stock market valuations due to rises in global risks. So expect more "overvaluation" articles to arrive daily. Meanwhile, watch the Hype Curve and place your bets.

I wish you The Best on your Adventure!

JOHN

 

STARTUP WINNERS CREATE NEW “CATEGORIES”: Startups lose badly attempting to enter established categories.

 “We have a great idea that so much better than [XYZ established market leader], why can’t we get money from venture investors?

That’s a frustration of first timers, a very irritating and difficult hurdle to overcome.

Let’s take a look at what tips we can get from serial entrepreneurs about what to do about it.

TIPS FOR YOU

• BETTER is a BAD WORD. Success comes from doing something very different, so different that it needs a name for the new thing it's all about. “Augmented reality” and “virtual reality” are examples of names given to new markets known as new categories.
• INVENT gets more attention than JOIN. Joining means competitors are already ahead of you and you’ll have to be superior to overtake the leader of the new category (that has by then been named). Venture investors will listen to such ideas, but with caution. They would rather hear you present an idea for a category lacking a name, so fresh that you have the opportunity to quickly take over the leadership position and be associated with the name (Google = search).
• GAME CHANGER gets attention, not GOOD IDEA. Uber is a game changer, ride sharing the category. Cheaper rides from non-professional drivers misses the point, does not get the money, and lags behind. Same with a service aimed at ride sharing for commuters and students crossing the country (how Lyft began).
• FLANKING wins, ATTACKING is death. Once a market leader is established in a category, it’s time to find another market segment, one that is not yet dominated by one or two competitors. Unfortunately most spectator sports strategies are focused on attacking a weakness in the competing team. That breeds people expecting to do the same with their startups. It results in blood all over the carpet, lots of startup body bags. Savvy serial entrepreneurs know instead they must flank into un-contested territory, a space open to them without encountering a giant in the way.
• HUGE is desired, BIG is not. Your idea should aim to play in a space so huge that many segments will be formed with enough room for giants to compete. That gets venture investors salivating. Words like big – or worse niche – are signals that your idea is too tiny to be worth the risk of investing in. Talented people will pass on your offer of employment. Bloggers will be bored and write about someone else.

BOTTOM LINE: Serial entrepreneurs can smell a new market category forming before it is formed. They eagerly follow the scent as they form a plan for a new enterprise in the new space. The exact name is not important, spotting the opportunity before giants emerge is. That’s your challenge. When you can do that, you’ll have gained a priceless skill. It’s central to building an unfair advantage. Others have done it, so can you.

I wish you The Best on your Adventure!

JOHN

STARTUPS: TAKE THE MONEY WHEN YOU CAN GET IT: Tips from serial entrepreneurs

First commandment of Startup Finance: "Thou shall not run out of money."

Second commandment of Startup Finance: "Take your money when you can get it."

The first is obvious. The second is a challenge to first time entrepreneurs.

So let's take a look at what serial entrepreneurs do with that commandment.

TIPS FROM SERIAL ENTREPRENEURS

• Aim for top tier angels and or venture capitalists. Yes, be brave, be bold. Be confident that your idea is worth the attention of the best. Start at the top.
• Getting turned down by an investor is not the end. Angels sit on only one or two boards of directors. VCs cannot be effective when on more than seven, they prefer only five. So the person you'd love to have invest and be on your board may simply not have enough time for you even though the person loves your idea.
• Be prepared to settle for second best. If your favorite top tier sources choose to not invest in your (wonderful) idea, get money from the next level investor. Often they are eager to pick up where the top tier passed on your startup. They look aggressively for deals the top tier pass on, often such startups prove to be big winners and help the investor rise in the ranks of the venture community. They will love helping you succeed.
• Plan on waves of financing. Pick six top tier venture investors and try to get your money from them. If no go, pick six more. It's difficult to manage more than six at a time. Keep going with waves until you have money in the bank.
• Screen investors carefully. Avoid wasting time with investors who have put funds into similar companies or even direct competitors. Find people who know your industry. Avoid educating others, don't waste your time.
  
• Beware of arrogance. Over confidence and excessive optimism can lead to no money raised. You cannot out-guess the timing of market crashes, when venture investors stop investing, when world stock markets crash and scare everyone away from startups that need money.
• Cash in the bank is wonderful. You need gas in the tank to get going, keep going. Regardless of who you got it from. Everyone in your company will love that news. 
  
• Take the money and then focus on building a great company that grows successfully. You will need more money. With a bit of success, top tier choices will be eager.

BOTTOM LINE: Serial investors accept money when they can get it. They've learned that they will need more. So they accept what is offered, put it in the bank, and start building the company. Sounds simple, and it is. It's one of those easy things to do that contribute to constructing an unfair competitive advantage (you get going, fueled with cash before competitors do). So get going, you also can do it!

I wish you The Best on your Adventure!

JOHN

STORYTELLERS GET STARTUP MONEY: What to say and why

“What do I need to get money for my startup idea?”

“Why am I not getting some of that unicorn money?”

“What presentation gets angels and VCs reaching for their checkbooks?”

Those are all good questions, asked often. 

My response may surprise you, it is very simple: You have to be a great storyteller to get your startup money.

Sure, you need a good idea to begin with. And a plan to make money. Plus an able team to launch the business.

But without a great story, your efforts will be in vain.

I know that telling a story sounds simple, too simple. Yet in reality, telling a story that captivates listeners is quite a challenge.

Serial entrepreneurs agree. I’ve worked with them for days, weeks and months crafting their stories. All with a singular goal: Get the money.

Investors also agree about the importance of storytelling. For instance, just the other day Mark Suster of Upfront Ventures blogged on this issue. His message: “I’m talking about making your company memorable by describing it with a narrative that people will later remember.”

ACTION FOR YOU

Here are tips for crafting your story, things serial entrepreneurs use with success.

• Present a story rather than a plan. Stories excite, plans are boring. Think of being a kid when your mom says "How about a fun, exciting story?"
• Use emotions to color your story. Facts are important, so are numbers. But for you geeks, be sure to add emotions. Put your soul into the presentation, let your passion energize your story.
• Focus your message on what is WOW! about your startup. What is exciting about your idea? What makes it a game changer? That is the thing investors are looking for in your story.
• Ask “What is going to be memorable about what I am saying?” Aim to leave an indelible impression on the viewer. The single standout that makes you remarkable. It's very crowded, you have to work creatively to stand out and be remembered.
• Engage the viewer to build rapport. Believe it or not, investors are human. Grab their attention and keep it, from the first moment of contact. Mini stories, episodes, about you as a person, your struggles in life, goof-ups, stumbles, all make you a human.
• Be creative and bold, wisely. Use your imagination, apply those good wits in your head as you craft your story. Avoid the ridiculous, present what is remarkable, believable. Be confident, be bold, like a great storyteller.
• Have fun! Enjoy your time with your viewer. That makes the difference between a business presentation and a remarkable story told.

BOTTOM LINE: Thinking like a storyteller will boost your chances of getting the money. People like stories. Great ones engage the viewer, bring listeners into a rapport with the teller. Focus on delivering what is amazing about your idea -- That WOW! about your idea that is remarkable and worth investing in. And aim for delivering a takeaway that leaves a unique, recallable impression in the mind of the viewer. Then you’ll stand out from the crowd. You’ll be well on your way to building an unfair advantage.

I wish you The Best on your Adventure!

JOHN

CAN YOUR STARTUP “PROVE IT can succeed”? To get your seed money learn how serial entrepreneurs demonstrate future success.

“Do I have to have customers to get seed financing?”

“How many users are required to get our first investor money?”

Great questions, often asked lately.

Let’s begin with what’s in the news these days. Blogs, tales told at lunch, angels and VC panels sound like “When you’ve got a million paying customers, send me an email.” That is pretty discouraging to first time entrepreneurs lacking million dollar savings.

Good news: Nothing could be farther from the truth.

Real life – as well as startup life -- is filled with a wide range of possibilities. So let’s examine several, then you will be able to decide for yourself what to do to get your first financing.

TIPS FROM SERIAL ENTREPRENEURS AND THEIR VENTURE INVESTORS

• Your track record: Who you are counts for a lot.Yes, people known to the investor have an advantage. They will be favored, even if they lost all the investors’ money in a prior startup, yet emerged respected, wiser, and ready for the next (better) startup.
• And people who are “startup famous” indeed have an advantage. Meaning they have lead or participated in the early stage of a startup that got headline news for a while – and crashed in a burst of world-wide publicity. You don’t have to be a founder of such a startup, simply being there early increases your attraction to investors.
• Prior startup experience counts, even if the enterprise was not famous, even if it died. Startup experience counts for a lot, even if you were there for a short time. It’s much better than just large corporate experience, even if it was at Google recently.
• Intrinsic knowledge of the space your startup is in adds value. This is tricky. Investors want something radically different, not something better. So knowing the taxi and limo business helps, but you’ll also need to have a game-changing bplan to get your seed money (Uber).
• Are you a first timer? How can you demonstrate that you have what it takes?
• As an encouragement, many of today’s startups that turned into giants were founded by people who “didn't know better” (Facebook, Pinterest). They just started and figured out how to get it right.
• Also, in your prior life you can point to projects and events you have started from zero that concluded well. In college years, in your personal life, there can be many to point to.
• Leading groups of people you recruited is powerful. Startup angels and VCs will look you in the eye as you talk to see how you might form and direct a group of the first employees.
• Proof of concept can be done without launching a service on the Internet. And it can be a demonstration that one key, critical aspect (e.g. the artificial intelligence coding works) of the technology.
• Working prototypes can be used to test a sample of end users and get their (hopefully enthusiastic) responses. Such “surveys” count for a lot when investors are looking for “evidence” that your idea is more than just an idea.
• Customer references can come in the form of early, carefully selected users of your service or product. Whether they are alpha or beta users is less important than what they’ll say to investors who call on them.

Finally, there is a vital soul central issue you need to understand:

• Intuition of venture investors is your ace card to play as a first timer. I’ve found the world-class angels, VCs and marketing winners make decisions based on how their intuition reacts to what you say and show during your meetings with them. They are the bold venturers who backed the startups that became great, many lead by first timers with little more than an idea in their head. Sure, you will be in a stronger position if your startup has advanced beyond simply an idea, yet do not be daunted just because you are a first timer with little more than an idea. These great investors got great by seeing what greatness might come out of a strange idea, often presented by people like you. How you prepare for and tell your story is critical to getting money from such investors. I've got lots of tips about doing that in my blogs.

BOTTOM LINE: First time entrepreneurs can boost their unfair advantage by doing some simple things before contacting venture investors. And while startup experience does help, some of the most amazing giants have grown from the seed idea of a first time entrepreneur. That might be you.

I wish you The Best on your Adventure!

JOHN

TIPS FROM SERIAL ENTREPRENEURS FOR FIRST TIME STARTUP FOUNDERS: Learn from others avoid their stumbles

Today I'll share with you some excellent questions I received recently from a very bright and budding entrepreneur.

 

They address issues central to the plans of first time entrepreneurs. My responses are based on the experiences of serial entrepreneurs and venture investors I've worked with.

 

The timing of he questions is just right, as I have just finished my annual checkin with angels and venture partners who focus on early stage financings of startups.

 

Read, ponder and act. Get started on the right foot.

 

FIRST TIMER:

Solo Founder

- Will this make getting VC funding much harder? I've read that this is a red flag for many VC's.

- How important are co-founders from a funding perspective?

- Is it practical to attract the 2nd, 3rd, 4th, etc person after seeded?

 VETERAN: Solo founders with experience usually get funded without a core team - yet most have formed the handful that constitute a fine group to start the new enterprise. First timers should take time to form a core team, avoid grabbing strangers to fill out the group. Spend the time to get to know people well before you need them. Yes, that will slow you down, but without it you'll be at a great disadvantage.

 

FIRST TIMER:

Seed Funding

- I'm under the impression that software based start-ups should have everything working before soliciting.

- Is a simple prototype sufficient? Or do you believe it's worth finishing most of the product? (It would take me much longer to do so.. especially without a co-founder)

 VETERAN: Experienced and respected serial entrepreneurs do not need a working product, though that will help negotiate more favorable terms for the founding core team. First timers should strive for at least proof of concept. But remember that if you have the next idea for an Uber-class startup, you may be funded without a working example -- if your potential venture investors think boldly enough.

 

FIRST TIMER:

Attracting a Co-Founder

- I'm always looking for people better than me... not worse.

- I don't mind having co-founders from the get go... I just want to make sure they're really good.

- I'm looking for a technical co-founder and it seems to me the best ones are happily employed and compensated and the not so great ones are the ones available.

- Do you have any recommendations on attracting the best? Know of any great folks that might be interested?

VETERAN: Avoid strangers. And relatives. Invest time to get to know others. Qualify them over lunch and talks discussing what great ideas need to be started. When you mutually agree on an idea, it will be a mutual one that all of you will shape and transform. There is no shortage of either great people or early stage money. But there is a shortage of great ideas worth investing your time or money in. Find people and investors at entrepreneurial events in your area. Alumni meetings are excellent as well. Every city has some organized events, as do schools in your area. And contact founders of existing startups. Visit, chat, find. It works.

 

FIRST TIMER:

Capital

- When the time is right, would you be able to refer me to some good venture investors in my city who specialize in seed stage funding?

VETERAN: First plan your campaign to raise capital. It is a campaign.That means lots of time and effort. Treat it as seriously and thoroughly as the launch of your first product. Research angels and investors, find people who know your market and industry. Look where they have invested. After that, then feel free to seek introductions from people you know.

 

BOTTOM LINE: Apply the wisdom of experienced entrepreneurs and you'll get ahead, start off on the right foot. Remember that it is not hard to get started, but it is very hard to succeed. Avoiding the painful lessons of prior founders will help you a lot. That will become part of your unfair advantage. That will attract angels and VCs to you.

 

I wish you The Best on your Adventure!

JOHN