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Applying to Incubators Takes More Than a Great Idea

18 Apr

http://www.readwriteweb.com/start/2010/03/applying-to-incubators-takes-more-than-a-great-idea.php

As the month of March trudges on, we are getting closer each day to spring and eventually summer when numerous startup incubators hold their camps for early-stage companies. Many incubators are still taking submissions, including TechStars Boulder, but in case of Y Combinator, the deadline has since come and gone. Theoryville is a startup that has already been asked to interview for a spot with Y Combinator, so if you are still looking to apply for one of this summer’s incubators, you may want to heed its founder’s advice.

Trevor Burnham, co-founder of Theoryville, a startup looking to ease the process of sharing data and documents between professors and scientists, recently blogged about how his company managed to snag a highly-coveted in-person interview for Y Combinator. Burnham reveals that through the process of applying to several incubators, he and his partners realized some early mistakes they had made.

One important lesson they learned through their first set of interviews is that they hadn’t talked to anyone but themselves about the idea. After all, if you’re trying to create a service that will change the way scientists and college professors share information, shouldn’t you talk to them about what their needs are? Investors and organizations want to see more than a great idea; they want to know you’ve thought it out and have identified a specific audience that has needs. For Burnham and his team, after being shown the door a few times, they turned around and spoke with their “users,” even though they didn’t have a product to show.

“We started asking for input from every potential user we knew and sending cold e-​​mails by the dozen to [University of Michigan professors] to ask them to talk with us about their software needs,” writes Burnham on his blog. “Based on the feedback we were getting, our understanding of the market completely changed.”

If there is one thing startups can learn from the perilous launch of Google Buzz, its that getting feedback from users is a good thing to before launching; or in the case of Theoryville, before looking for funding or acceptance to an incubator. Burnham and his partners assumed that they needed a working demo before they could get any useful customer feedback, but in reality, there is much to be learned about your audience before you start building.

In fact, it makes a whole lot more sense to speak with the people you want to see using your product before you waste time, resources, and perhaps money on building an early prototype that they will snub their noses at. It’s a lot like making sure the plot of land you have chosen to build your house on is a solid and stable foundation. That is not to say, however, that building a demo does not lend itself to learning valuable lessons about your product.

“[Building a demo] led us to grapple with some design decisions that weren’t apparent when we were just using white boards and static mockups,” says Burnham. “That, in turn, gave us a more specific notion of what our product’s advantages are.”

So they checked the foundation before building, but when their house was done they realized that too many windows were facing west and catching the hot late-afternoon sun – a regrettable error and a lesson learned (especially for home builders where I’m from). Despite some changes that needed to be made, Burnahm says “it gave us some momentum, which we’re using to build a much-​​improved demo now.” So the best way to make early progress, it seems, would be to get that first rough draft out the door and begin iterating over and over on it; move some windows around until the latest version is a better, more mature version of your product.

It also seems like it helped that they had applied to earlier incubators before applying to Y Combinator. They also participated in TechStars For A Day in Boulder, where they not only learned a lot from the mentors but were able to network with potential users of their service in the area. Attending these events and applying to other incubators worked like spring training before a preliminary interview with Y Combinator via Skype, and it couldn’t have looked bad on their application either.

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Kevin Rose’s 10 Tips for Entrepreneurs

12 Mar

http://www.readwriteweb.com/start/2010/02/kevin-rose-10-tips-for-entrepreneurs.php

Kevin Rose, Digg’s founder, spoke this week at Webstock in Wellington, New Zealand and covered 10 amazing tips for entrepreneurs. They were truly insightful

– and obviously came straight from the heart and soul of someone who worked a day job and built his dream after hours. This is our take of what he had to say.

1: Just Build It: You don’t need anyone’s approval and in fact, you probably won’t get it, so don’t even try.

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2: Iterate: Build, release and iterate. Make a list of the features you want to create over the next six months and get going! For small companies, once a week; for larger companies, maybe twice a month.

3: Hire Your Boss: Make sure you hire people that you would want to work for, who challenge you and you can learn from.

4: Demand Excellence: Ensure staff are committed to and understand your vision. Passionate, committed staff have a tendency to rub off on people. There is nothing like a new junior developer who runs circles around everyone to get people hyped up and raise the bar! Stay involved in the hiring process as long as you possibly can.

5: Raising Money: The higher your evaluation is, the more equity you have to work with. Beg, borrow and steal. Be creative about finding ways to cut costs. For example, tell the bar you are having a “birthday party” instead of a corporate event (which they would charge you $5,000 for). Rent servers, don’t buy them. Don’t just take the cash, make sure your investors can add value. Stick with angel investment. Venture capital mean board meetings, which is a huge sap on time and resources.

6: Hack the Press: Hit up the lower-end bloggers at your favorite tech blog. They have just as much opportunity to write about your product as any other blogger on the team. Attend the after-event parties. The same crowd that attends the events also goes to the parties, but the parties are free.

7: Invest in Advisors: Give away a small amount of stock to advisors (which they can vest after a few years) who you can call on in a pickle or for general advice as issues arise. Set the ground rules so you and the advisor know how much time you have access to.

8: Connect With the Community: Hold a live town hall where you can collect feedback and get advice from your users.

9: Leverage Your User Base to Spread the Word: Facebook notifications is a great example of how to do this.

10: Analyze Your Traffic: Pay attention to how people are using your site, and then learn and evolve. Use Google Analytics to understand and track traffic sources and entrance and exit paths.

Entrepreneurialism: The Least Risky Path

12 Mar

http://www.inc.com/inc-business-owners-council/2010/02/entrepreneurialism_the_least_r.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed:+inc/headlines+(Inc.com+Headlines)

A recent report by the Center for Labor Market Studies of Boston’s Northeastern University comes to this sober conclusion: the highest paying jobs are also the most secure jobs.

This report, which studies how each income group in America is withstanding the recession/depression (based on fourth quarter 2009 data), concludes that household income and underemployment are inexorably linked. The lowest decile of households have the greatest underemployment (20.6% for households with incomes under $12,000) while the most employed households are at the highest decile (1.6% underemployment for households with incomes greater than $138,000).

Income Decile Incidence of Underemployment (%) Lowest 20.6 Second 17.2 Third 12.7 Fourth 8.3 Fifth 6.1 Sixth 5.4 Seventh 4.4 Eighth 3.6 Ninth 2.5 Tenth 1.6

For anyone who worries about people who have the least—the least money, the least access, the least opportunity—these are matters of grave concern. Step back, however, from the emotional and moral aspects of this decaying social picture and view it purely from an economic perspective. The analysis is quite simple: The more valuable you are (in purely capitalistic terms), the more job security you have.

In America, you’ll find those who own their own businesses hold the greatest accumulation of wealth and therefore are the most secure–both financially and professionally. In a survey I co-sponsored in 2006, households with greater than $1 million in net worth (456 households surveyed) felt they could maintain their current standard of living for 13.4 months without income while households with less than $1 million (2,388 households surveyed) predicted only 3.5 months of run room without income.

This makes sense. Most Americans can only draw down on credit cards or meager savings in a cash flow crunch. The wealthier you are the more pockets you can pull from, such as your home equity, your savings and you business and personal credit.

It’s interesting that most people believe entrepreneurialism to be the path of greatest risk when in fact it delivers quite a bit of job security. After all, if you had to cut back on staff, who would you fire last?

SOURCES: Labor Underutilization Problems of U.S. Workers Across Household Income Groups at the End of the Great Recession by Andrew Sum and Ishwar Khatiwada The Influence of Affluence by Lewis Schiff and Russ Alan Prince

Going Up! How to Ride An Elevator Pitch to New Heights

10 Mar

http://www.readwriteweb.com/start/2010/01/how-to-ride-elevator-pitch-new-heights.php

As a leader in the Pittsburgh investment scene, long-time entrepreneur Mel Pirchesky is now using his experience to coach startups on fundraising and business strategies. According to his company Eagle Ventures, Pirchesky has raised over $45 million in his 35 years of structuring deals. In a recent guest post on the site Pittsburgh Ventures, Pirchesky breaks the art of the elevator pitch – a tool every young entrepreneur needs to learn to use – into an exact science tailored for the best results.

What Makes an Entrepreneur? Four Letters: JFDI

10 Mar

http://www.bothsidesofthetable.com/2009/11/19/what-makes-an-entrepreneur-four-lettersjfdi/

This is part of my Startup Advice series.

nike_logoI had a picture in the office of my first company with the logo above and the capital letters JFDI.  (In case it’s not obvious it’s a play on the Nike slogan, “Just Do It.”)  I believe that being successful as an entrepreneur requires you to get lots of things done.  You are constantly faced with decisions and there is always incomplete information.  This paralyzes most people.  Not you.

Entrepreneurs make fast decisions and move forward knowing that at best 70% of their decisions are going to be right.  They move the ball forward every day.  They are quick to spot their mistakes and correct.  Good entrepreneurs can admit when their course of action was wrong and learn from it.  Good entrepreneurs are wrong often.  If you’re not then you’re not trying hard enough.  Good entrepreneurs have a penchant for doing vs. over-analyzing.  (obviously don’t read this as zero analysis)

I spent nearly a decade building software for large companies and then advising companies on the same.  I didn’t have to make many serious decisions.  So I was surprised at the sheer volumes of decisions that had to be made when I became a startup CEO.  Most of them are completely mundane such as choosing which:  bank,  office space, 1-year lease vs. 2-year lease, logo, URL, pricing structure or which VC.

The technology team disagrees on direction and wants resolutions.  Your head of sales thinks she should fire somebody.  You need to decide whether or not to launch at TechCrunch50.  Somebody asks whether you plan to set up 401k’s and do contribution matching.  I think this paralyzes many people.

air-jordan-logoI learned quickly that I needed to just do things.  Yet I initially had a team full of people that seemed to either over analyze things or more likely wait for a higher source within the company to make the tough decisions for them.  You’re sales person is getting blocked by the CTO who says she shouldn’t go above him but the CTO isn’t approving the deal.  Should she take a chance and potentially ruffle feathers?

Yes, I know it’s my job as the CEO to be the coach for people and that’s fine.  But if everybody is looking for me to make their decisions we’ll never get anything done.  I felt like I had done the hard bit and chosen people that I truly respected and I would rather empower them to make decisions and accept consequences.

Sometimes you need to break some eggs to get things done so if that’s what it takes I wanted my team to go for it and I wanted to symbolize that it was OK with me.  I would far rather have some messes to clean up than to never have them cross the line trying.

So I took on the motto JFDI to symbolize this.  And I think my team did a great job and rose to the occasion.  Maybe it helps that I love controversy and pushing the boundaries so people felt it was OK for them to do it as well.

Another side of JFDI is finding ways to get stuff done that seem impossible.  Entrepreneurs have a way of doing that. Getting suppliers to accept terms that they said they never normally agree, getting accepted to speak on a panel when the conference organizer initially said “no,” getting people to moonlight for you until you have the cash to bring them on board.

A couple of quick stories / examples:

1. Making Things Happen

There’s a guy in Los Angeles that I met at several tech networking events.  He was a really nice and personable guy who had deep domain knowledge in an industry that he’d worked in for 10 years that is in need of technological advancement.  He wanted to be the guy who did it.  So we discussed his ideas several times.  I usually try to avoid getting stuck reviewing people’s PowerPoint decks (I get this request too often and frankly I’m already behind on my own work!) but there are some people you just take an (extra) liking to and want to help.  This was such a guy.

So over several months I went through a few iterations on his idea.  He was stuck on capital raising.  He wanted to know how to get started and “Could I intro him to a couple of local angels?”  One night after a DealMaker Media event we got 20 minutes together after the event ended.  I was blunt (warning: that sometimes happens with me) and told him not to bother and that I wasn’t prepared to help with angels.

“Why?” he asked.  I told him he wasn’t a real entrepreneur.  He looked stunned.  I said that he had been talking about doing this for too long.  He still had no website and no prototypes.  But “he didn’t have the budget to hire a developer until he had raised money!”

I said that was my point. “A real entrepreneur would have done it anyway.  He would have found somebody technical and inspired that individual to work for equity or deferred payment.  Real entrepreneurs are contagious.  They are filled with ideas and they get those ideas onto paper.  That paper can be in the form of wireframes or in the form of a PowerPoint plan.  Or worst case your ideas can be conveyed verbally.  But they GET THINGS DONE.  You have the skills and knowledge to do that.”

I walked away kind of feeling bad.  I don’t like to intentionally crush people’s hopes.  But I always view my job as being honest so that people don’t waste time, money or both if their ideas aren’t good or the positive execution isn’t likely.  But then something awesome happened.  He took my comments as a challenge.  He went out and found a developer and built a product.  He refined his business plan and he got commitments for $150-200k but needed some lead angels to commit first.  When he re-approached me he had a much better plan and he had a prototype!  I introduced him to some angels and his round was OVER SUBSCRIBED!

That is a true story.  I don’t know whether the entrepreneur feels comfortable with my saying who he is so if he does and he reads this perhaps he’ll put his details in the comments section.  But I  bring up this story for a reason.

2. Analysis Paralysis

RodinI used to sit on the board of a company (for which I DID NOT invest) with a very smart and very likable CEO.  This person was educated at the best US schools and had worked for a top-tier strategy consulting firm – one of the big 3.  The CEO led every board meeting with vigor and the board members (sans me) were always wowed.  The CEO had 60-page Powerpoint presentations analyzing every micro detail of the business.  The company had less than $5 million in revenue yet we had a multi-tab spreadsheet doing activity-based costing on our customer service staff, operations and technology.

We had every chart every invented by man (or McKinsey) showing failure rates of our product, mean-times-to-repair, detailed sales forecast charts, etc.  Charts.  What lovely charts!  I know they would have been very useful in dissected the woes of General Motors.  I was the only unimpressed board member.  I was the one pointing out that we were behind on our sales targets and our “Elephant Deal” that had been promised was 6 months late.

After a few board meetings I finally spoke up.  I was a bull in a china shop.  I said (out loud), “I sure wish that some of the time that went into these PowerPoint slides would have gone into meetings with the COO, CFO or CMO of [Elephant Customer].” The CEO had never met with any of them.

With a CEO that likable, smart, educated and accomplished it made board members squirm that I was willing to call bullshit.

I’m sure you know what happens next.  We missed our sales target by more than 66% for the year but we had great slides explaining why.  The next year we set the sales budget equal to the previous year’s sales budget that we had missed.  We missed the next year by more than 33%.  Nobody seemed shocked.  The company has burned through serious cash.  I complained the whole way.  It was not fun.  No “independent” board members seemed to care (or even comprehend the lunacy of the whole situation).

To this day I’m sure they see the situation differently.  Beautiful slides by top-tier consultants have hoodwinked large companies for years and I can see why.  They are intoxicating, complex, insightful and tell a great story.  But in the end they’re usually just that – a story.  Sometimes a fantasy.

I still really like this CEO and have deep respect for this person outside of the role of being a CEO.  The “Peter Principle” says that “everybody rises to their level of incompetency.”  Read this as some people who are great at analyzing to not make great doers and therefore do not make great entrepreneurs.  I think many VCs have learned this the hard way when they step in to temporarily run companies as I have seen happen.

The problem with the company that I described above was that there was somebody willing to fund ongoing losses and the board continued to believe that good times were just around the corner.  Maybe they’ll be proved right some day.  I certainly hope so.  But in the UK we used to call this “promising jam tomorrow.”  I was tired of jam tomorrow.  I left the board.  The company never JFDI.

IMAGE COURTESY OF NIKE

As Always, our Goal is to WOW You – NPS Measures our Promoters

9 Mar

Customer satisfaction is one of our highest priorities. Clearly stated in our mission, “We want to WOW our customers with exceptional quality and speed.” A vital part of achieving this goal is the ability to measure how well we do this. That’s where the Net Promoter Score (NPS) comes into play and we’ve been using it since 2007.

What is the Net Promoter Score?
NPS is a simple way to measure how satisfied your customers are. It asks one question: “How likely is it that you would recommend our company to a friend or colleague?” Then the customers choose between 0 (very unlikely) and 10 (extremely likely). The responses are then split into three groups: promoters (9 or 10), passives (7 or 8) and detractors (0 to 6). NPS is then calculated by taking the percentage of promoters and subtracting the percentage of detractors. The score can range from 100% to -100%.

How likely is it that you would recommend Spreadshirt to a friend or colleague?

Why use the Net Promoter Score?
This concept is based on the assumption that very satisfied customers are much more likely to recommend us than neutral customers. This word-of-mouth rating is not only a great way for us to measure how we are performing, but is a great way to get recognized. Instead of pumping money into expensive advertising campaigns, we rather want to focus on improving our product for current and future customers.

Where does Spreadshirt stand?
We’re proud to say that we do pretty well! But, first a little perspective. Three quarters of all companies that measure customer satisfaction with NPS have a score below 35%. The top quarter is sprinkled with successful brands like Apple, Amazon and Harley Davidson. And Spreadshirt.

The NPS for the 4th quarter of 2009 ranged from 50.1% in October to 47.3% in December. Let’s take a closer look then at December’s NPS score (above graphic). We were very happy to get such a high NPS during the holiday season, especially with the high volume. We know from experience that longer delivery times have a direct negative effect on the NPS. These are the important pieces of information that we can use to improve our product and our customers’ satisfaction and get even more promoters.

Our Market Research team can play around with lots of different variables, like printing techniques, delivery country, age or gender, just to name a few. Keep an eye out for some of these interesting variables in our next quarterly NPS update.

Interested in how our NPS score looked throughout 2009? Well, here you are!

5 Myths That Can Kill a Startup

9 Mar

Enroll in an academic program, make friends with some of the other really smart students, drop out of school with them to create a company, work 80 hours a weekand one day, ka-ching! This is the startup formula to success that the media would have us believe — the new American dream, as it were. Granted there are some notable entrepreneurial dropouts who have made it big, among them Bill Gates, Larry Ellison, Steve Jobs and more recently, Mark Zuckerberg. But while many of us are familiar with the paths they’ve taken, such paths are simply not the ones most entrepreneurs walk down to ultimately find success.

We work with entrepreneurs everyday and as such, see the much less newsworthy but far more common success stories that dot the startup landscape. To that end, we wanted to share five myths that we’ve discovered lurking around the startup world and demystify them.

Myth #1: Hire Smart People and Let Them Do Their Magic

Truth: Hire Stars and Let Them Do Their Magic

Intelligence is important, but only insofar as it helps with performance and execution. As Malcolm Gladwell points out in “Outliers,” while some minimum level of intelligence might be necessary for superior performance, in many jobs it’s not in and of itself enough to ensure it. You need people willing and able to work as part of a team, and sometimes superior individual contributors can negatively affect team performance by creating affective or role-based conflict (for more on those, see Myth #3 below). As Reed Hastings puts it, you should eliminate all brilliant jerks from your team.

The fact that intelligence alone is not sufficient is especially true for leaders. Emotional and social intelligence, sometimes referred to collectively as EQ, are much more highly correlated to successful leadership and change than IQ. Consider reading Richard Boyatzis’ books “Primal Leadership” and “Resonant Leadership” to understand how critically important being “mindful” or socially and emotionally intelligent are. Interestingly, Thomas Stanley, a PhD who studies rich people, has identified the most highly correlated characteristic to wealth as integrity.

Myth #2: It’s About Your Great Idea

Truth: It’s About Your Customer

Many aspiring entrepreneurs are waiting to come up with the killer idea that will rocket them into fame and fortune. The reality is that ideas are a dime a dozen and even the best ones must be launched at the right time. Too early and there is no demand for your product, too late and you’ve missed the market. It’s much easier to fulfill an existing need with your product than it is to convince people they need it in the first place.

In other words, it’s about your customer. Start by A/B testing your products to get real user feedback on different features and designs. Adaptive experimentation, defined by the American Marketing Association as “continuous experimentation to establish empirically the market response functions,” has been shown (PDF) to be critical when it comes to successfully creating viral growth.

Myth #3: Conflict Is Bad

Truth: Affective Conflict Is Bad; Cognitive Conflict Is Good

Research shows us that some conflict is good and some conflict is bad. Cognitive, or good conflict, helps companies eliminate groupthink and open up strategic possibilities. That’s because cognitive conflict is characterized by healthy debates about “what” to do and “why” to do it; it thus generates multiple strategic choices and allows us to weigh options. It also helps us think more clearly and broadly about our competition. And from a biological standpoint, it stimulates the parasympathetic nervous system, creating a positive emotional state which in turn supercharges our brains. Indeed, cognitive conflict has been shown to increase firm performance and shareholder wealth.

Bad conflict is sometimes termed “affective conflict” and is usually role-based, as it consists of heated arguments about “how” to do something or “who” should be in control of doing it. Unlike good conflict, it’s been found to destroy morale and decrease firm performance. Not only does it stimulate your sympathetic nervous system, kicking off the “fight or flight” syndrome, the chemicals released by your body in the process limit your thought processes, so focus is put on the conflict rather than the opportunity.

Myth #4: It’s About Hard Work; Don’t Expect to Have a Life

Truth: It’s About Results and You Need a Life

Some companies have an unfortunate culture that mandates relentlessly hard work. When things get tough, people work harder. When things are good, people work harder still to try to keep the “good times rolling.” But this cycle of doom will ultimately fail as people burn out, get sick or simply quit.

As Reed Hastings outlines, and as we discussed in Myth #1 above, what’s more important is employee effectiveness. Certainly you want people who are intelligent enough to get the job done and who will work hard enough to accomplish the mission. But effectiveness, not hard work or intelligence, ultimately drives firm performance and shareholder value. This ability to start a company and have a life isn’t just for lifestyle businesses.

Myth #5: It’s an Uphill Battle Until One Day, When It All Comes Together

Truth: It’s a Rollercoaster Ride

Many aspiring entrepreneurs have been led to believe that the trajectory of a startup involves working really hard until they land one big customer or release one perfect product and after that, it’s easy street. The reality is that it’s a rollercoaster ride, with ups and downs that rarely let up. On Monday your company is sure to be worth $1 billion but by Wednesday you think you’ll run out of cash next quarter even though by Friday you’re positive your company’s next product idea will do nothing short of revolutionizing the industry. As Paul Graham notes, “In a startup, things seem great one moment and hopeless the next. And by next, I mean a couple hours later.”