Ted Rheingold at Dogster has a great post up titled 10 Tips for Building a Profitable Business. My favorite is #4: Spend at least 50% of your time selling.
Many technology companies assume if they built great product it will sell itself yet that almost never happens. Usually we’ve found that incorrect assumption is a rationalization of people who love building product, but secretly loathe the business side of running a business. Such a strategy is a great way to lose a lot of money. So constantly ask yourself, are we spending 50% of our time selling? I bet you’ll always realize you’re focusing too much on the product and not enough on finding customers that want it. (Of course the inverse is true. If you love selling you need to make sure you spend at least 50% of your time building product or your sales effort will be for naught.)
In most companies, too few people sell too little of the time. If you are a member of the senior executive team of a company that is trying to become profitable, are you spending 50% of your time selling and generating revenue? If not, why not? And, if you have a board of directors, are your board members selling also?
I’ve made a large number of mistakes in my life. My goal when I make a mistake is to understand what I did wrong, learn from it, pick myself up, and move forward. When I’ve made the same mistake for the third time, I usually finally figure out what I’m doing wrong.
While I’ve also had plenty of success, I never get confused about where most of my lessons come from. In case this is ever ambiguous from my writing, I learn the vast majority of my lessons from my failures. I also have learned what I don’t know, and have figured out that I shouldn’t venture into areas where I’m clueless unless I am willing to spend a lot of time up front researching them – at least to the point where I’m no longer completely clueless.
Matt McCall points us to a great essay by James Montier from Societe General titled Mind Matters: An admission of ignorance; a humble approach to investing. I thought it was right on and was nicely reinforced by Matt’s very personal post titled Ignorance and Humility.
I had dinner tonight at the Defrag pre-conference "Future of Email" gathering. It was a great crowd that included a bunch of smart people working on interesting email / communication / collaboration stuff.
Around dessert, I got into a deeper conversation about features. We were talking about one of the greatest challenges of any software company – how to decide what features to leave out of the next release of your product. We immediately went deeper than the typical "do what your users say they want" paradigm as anyone that has sold software knows that there is a huge difference between "what your users say they want" and "what your users will pay you for". This is especially challenging if you have a free, or freemium, model.
We concluded that there are two dimensions. The first axis has appearance at one end and substance at the other. The other axis has "what your users say they want" at one end and "what your users will pay you for" at the other. Using this two by two matrix can help you prioritize features more clearly, while recognizing that you often can’t really determine what users will pay you for in advance.
As I reflect on this, it occurs to me that certain types of users are more interested in appearance while others are more interested in substance. This will influence where your priorities will go as you have to understand what actually drives your users’ adoption behavior in the first place.
Ok – this now feels likes it trending toward being too theoretical all of a sudden, but the challenge of priorities is increasing in importance as companies operate in a more cash constrained world.
VentureBeat had a Downturn RoundTable yesterday consisting of a panel of VCs and an panel of entrepreneurs giving their advice on what to do to whether to current economic crisis. I found the TechCrunch commentary to be a very good summary:
Since VentureBeat actually put on the event, it seems appropriate to link to their content also.
By far the best five minutes are John Doerr of KPCB reciting his 10 tips (which are written here).
Direct, clear, and actionable. While a lot of this is common sense that should be done all the time in any entrepreneurial business, if you are an entrepreneur you are going to hear this over and over again in the next "chunk of time." And – if you work for a startup, recognize that these are the things going through the head of the leadership team right now; help them accomplish them.
Today’s special guest post is from Sarah Reed of Lowenstein Sandler PC. Sarah is a good friend and collaborator with my partner Jason on the NVCA Model Legal Document task force. She also has a wicked sense of humor. After sitting through ten days of meetings hearing a variety of VC-lingo tossed around as though it was LA-trendy-speak (seriously dude), I was amused to get the following unsolicited email from Sarah with a guest post attached.
While Sarah’s post is on the gloomy side of the optimism / pessimism coin, Sarah’s vocabulary builder covers a bunch of words and phrases that are once again becoming trendy. Ignore them – and their implications – at your own peril. And don’t forget – make sure you keep your sense of humor and always carry a towel with you wherever you go.
As Brad has noted, the blogosphere is abuzz with lectures from VCs to their portfolio companies – ranging the gamut from scolding to spirit-boosting. Clearly, they are on to this much: we are in the midst of what our children’s elementary school teachers have trained us to recognize as a “teachable moment.” I’m a business lawyer, so I’m all about Brad’s message “let’s get practical.” Here then let me pile on with some vocabulary you should probably learn, if you don’t know it already – and, being a lawyer, I can’t resist the urge to equivocate a bit: while the words themselves are a bit of a buzz-kill, you can hum the lesson – “fun!” (everyone knows the ABC tune).
So come and hum along with me:
A is for “ABC” or Assignment for the Benefit of Creditors: a state law statutory remedy in which a company is liquidated by an appointed independent trustee. It is cheaper and faster than a bankruptcy court proceeding, but affords similar protections in that it insulates officers and directors from creditor claims of unfair treatment.
B is for Bankruptcy Proceedings: both kinds: chapter 7, where the company is liquidating, and chapter 11, where the company “reorganizes” in order to continue as a going concern, or position itself for a sale of the company as a whole by getting out from under burdensome contractual responsibilities.
C is for Cartage Costs: additional payments by VCs to dispose of the corpse of a company, in extreme cases, as when the company has unpaid wages for which the directors may be personally liable.
D is for Down Round: expect this to simply be a synonym for “follow-on financing” for some period of time. Oh, did you miss the metatags in the Sequoia slides? “Reset your expectations, entrepreneurs.”
E is for Escrow (of Shut-Down Costs): wages, accrued PTO, tax liabilities – if you have enough money to cover ‘em, and failure is an option, set the funds aside now. Otherwise, see “Cartage Costs.”
F is for Furlough: send the employees home for an unpaid “break” — see “Quality Time.” Find out what your state law permits
G is for Going Chapter: advice to VC directors – don’t even think about it. The bankruptcy trustee’s job is to look for assets: the company’s best asset may be its D&O policy, and so the trustee may be highly motivated to find a cause of action against the directors and officers.
H is for Hail Mary Pass: the company has 75 days of cash, no suitors, and weary inside investors. But you’ve already hired the banker, and you have not completely exhausted your rolodex of other VCs who might be willing to take a look. Are you at legal risk if you do anything other than just calling it quits now? Probably not – even a small (but legitimate) chance of an outcome that preserves some value in the company is probably worth the try.
I is for Independent Director: oh, now you wish you’d found one earlier. If you are lucky enough to have one or more, let them form an independent committee to vote on the Down Round (see above), so that the transaction, if ever questioned, will not be evaluated under the higher “entire fairness” standard of judicial review.
J is for Jerk: ok, now stop beating up on yourself. You knew when you went into this that not only is failure an option, it is a significant part of the business model of backing start-ups.
K is for Key Engineers: if your exit plan is to sell technology/IP, recognize that it may be worthless without the people who know how to deploy it, and hence you may want to provide them with some type of retention bonus.
L is for The Letter: the one that Ron Conway repurposed from 2000; Ron, let’s just hope none (editors note from Brad: I’d change this to “all” – this will happen again, and again) of us live long enough for you to have to send it a third time.
M is for Management Bonus Plan: it’s what the VCs put in place when the entire management team threatens to mutiny, upon realizing that their current stake in the company is worthless.
N is for No: brace yourself for that response if you are looking for money – from LPs, from VCs, from customers, from venture debt lenders. Start thinking of creative ways of explaining why are different (cloud computing, on-demand services, disciplined deployment of capital, blah blah blah).
O is for Oh Sh** Why Me?: When a Delaware company files for dissolution, it needs to name one director who will continue to serve for a year. Let it not be you.
P is for Peace with Honor: it’s what you get when you sell the company for just enough so that all creditors are paid and the VCs get back some fraction of their money. Declare victory, go home.
Q is for Quality Time: the silver lining in all this! Go mentor those employees you have been too busy to pay attention to these past years, take off at 4 on a weekday to see your kid’s soccer game, stop complaining and go to the gym for god’s sake!
R is for Roll-Up: tuna fish, light mayo – it’s what you will be bringing in your bag lunch for the next twelve months, and it’s what will happen to your company if it has either 1) cash and no product or purpose or 2) a product and a market, but no cash. Put the two together, and, voila, live another day.
S is for Severance: if you were a well-advised VC, you made sure the agreements with your PC CEO’s provided that it was not payable if the CEO’s employment was terminated as the result of the company ceasing to do business. While it is OK to pay (limited – e.g., two weeks) severance to employees, be aware that in a wind-down creditors may question large severance payments (and it makes directors look bad, too).
T is for Terminate: the health, 401K and any other benefit plans; the phones, the bank accounts….. make a checklist so you don’t overlook anything.
U is for Underperformer: time to identify them and ruthlessly cull them.
V is for Voting: when you vote as a stockholder, it’s OK to be selfish and mean-spirited; when you vote as a director, remember those pesky fiduciary duties. See “Down Round.”
W is for WARN Act: does the company have 100 or more employees (or, in CA, 75 or more employees at any time within the preceding 12 months)? If yes, be for
eWARNED: this Federal law will subject you to non-trivial advance notice (aka disguised severance) obligations in the case of a shut-down or large lay-off.
X is for X-it Strategy: If you never had one in the first place, it’s too late now – see “Underperformer.”
Y is for Yes: you should get off of the Board when it’s pretty clear it is no longer a good use of your time – unless you fear that the other Board members will try to pin bad stuff on you, in which case you’d better stick around to review the minutes.
Z is for Zone of Insolvency: it’s like pornography – undefinable, but you’re supposed to recognize it when it’s in your face. The case law out there on this is sufficiently complex and confusing that all I can say on this one is that, if you are really in a sweat about it, time to consult a lawyer. My direct line is 617-399-5999 and now that I’m done writing this I’m turning to updating my web bio to show my workout experience.
Ok, by now you’ve read 3,127 blog posts either talking about the coming current downturn credit crisis recession coming reconfiguration of all things as we’ve known them. You’ve studied Sequoia’s Get Real or Go Home presentation. You’ve read Alan Patricof’s Chill Out memo, Ron Conway’s Get Ready For It To Suck email, Benchmark’s Adapt and Live Lean memo and John Borthwick’s Don’t Panic – Profit memo. For some balance, you’ve read Dave McClure’s brilliant rant Fear is the Mind Killer of the Silicon Valley Entrepreneur (we must be Muad’Dib, not Clark Kent) and Ted Rheingold’s VC Gloom Means Entrepreneur and Angel Boon. And you are carefully monitoring Fred Wilson’s blog to get a good synthesis of what he and others are thinking.
It’s Monday morning of another week. Central banks all over the world are coordinating their activities to try to make things "get better." Morgan Stanley got their deal done with Mitsubishi so it doesn’t look like they are going to go bankrupt, at least not this month. The Dow is up almost 500 points so far today. Paul Krugman won the Nobel Prize for Economics. And you realized that slide 53 is by far the most valuable one in the Sequoia deck.
But what the fuck should you do now?
Having lived through an aggressive downturn when the Internet bubble burst, I’m going to spend the next "chunk of blog posts" trying to give you – the entrepreneur, CEO, or executive of a startup – some practical suggestions about how to implement some of the advice (much of it conflicting) that you are getting from all of the experts out there.
If you’ve been a long time reader of this blog, you know that I don’t care much about the macro stuff, nor do I believe anyone can accurately predict anything. All I think you can do is (a) deal with your current reality while (b) envisioning what you think you want your future reality to be while (c) recognizing that your view of future reality will change on a regular basis.
Hopefully I’ll be able to give you some useful tools and suggestions that have worked for me in the past that you can actually implement. My first suggestion – take a deep breath and don’t panic. More later.
Fred has a fantastic blog up titled Capital Efficiency Finds It’s Moment. It – combined with his posts My Thoughts On "Startup Depression" – are full of suggestions that entrepreneurs should be thinking about and taking action on right now. They are both completely consistent with my post Ok Entrepreneurs, Time to Step Up.
I’m not into Gloom and Doom. I love the Warren Buffett quote that goes something like "We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful." Part of the brilliance of this is to be harshly rational and evaluate the current situation through a realistic lens at all times.
Fred’s post help us focus on this. He’s not shouting out gloom and doom. Rather, he’s suggesting that the thing VCs and entrepreneurs have been talking about since the dawn of our good friend Web 2.0 – namely capital efficiency – should now be front and center in every startup company. That doesn’t mean you should freak out, stop doing anything, and go hide under your desk. Rather, it means that you should sit down with your management team, look carefully at your business, and decide if you are running at your optimal level and spending / investing every nickel wisely.
This is good advice in any market context. Sometimes it takes the rough and tumble "market downtown" and a rapid approach of a "highly uncertain future" to bring this into focus and make it a priority – for all of us.
I just got off the phone with a bank that I work with on a number of companies we have an investment in. They are in the category of banks that aren’t really impacted (at least not yet) by the current incarnation of the credit crisis because of where in the banking layer they play.
One of the things that came up was how I feel the macroeconomic issues impact things with certain companies. I told them I have no real clue and am paying attention to sales trends, but that I’m not getting worked up about it. As I saw the Q3 performance numbers roll in for our portfolio companies they looked how I generally expected them to; some of our companies blew away their numbers on the upside (hard to do in Q3 since it’s later in the yearly budget cycle), some missed, and some came in around where we expected them to. There weren’t any huge surprises either direction since we are deeply involved in our companies and tend to have significant granularity on how they are doing.
In our call, I told the folks I was talking to that I think they are generally, along with several of their peers, in a great position in the current environment. When they asked me what I thought they should do differently, or what they should be careful not to do, I strongly suggested that they behave in the way they always have to their clients and VC partners – stay steady, transparent, clear, and direct.
I have a deep philosophy that the time to build trust is during turbulent, confusing, and uncertain times (aka "now"). If the bank stays steady and rational, they’ll earn a lot of trust and goodwill from me, their clients, and others that will pay dividends for a long time. If they start doing erratic things, like jacking companies around with harsh credit terms just because of fear on everyone’s part (and greed on theirs) they will trample good relationships and destroy long term goodwill.
I lived through this during the dotcom bubble. There are some VCs and bankers that I’ll never work with again due to their totally irrational behavior when the chips were down. Consistency of behavior and clarity of thought and purpose matters a lot all the time, but especially when things are confusing.
As we got off the phone, we all hypothesized that the root driver of all the noise (not the root cause of the problem, but the amplification of everything) is tightly coupled to the current US election cycle. I’ve heard this hypothesis from others and wonder how much truth there is to it. I’m not a political historian so I don’t have a long term view on this, but I sure do remember the "It’s the economy, stupid" for Bush vs. Clinton. Hmmm.
Of all the macro events happening in the world, there are two occurring in the US right now that seem to be dominating most people’s thinking: (1) the US election and (2) the credit crisis (or whatever it’s being called today).
While I don’t watch TV news (and therefore get to miss out on all the talking heads on CNBC and CNN) I do read extensively online, especially about startups, software / Internet technology, and venture capital. Most of my general business news is either via headlines (once a day in the morning when I scan several newspapers), alerts (whatever WSJ, CNN, and NYT alerts send out during the day or tidbits my friends put on twitter), and business magazines (Forbes, Fortune, BusinessWeek). The business magazines are usually already two weeks old by the time I get to them (in the bathroom) and they lag the actual events by another week or two.
So – I get a nice mix of current sentiment (via headlines and alerts), two to four week old stories (via magazines), useful industry information, and a small mix of random stuff, without getting sucked into the day by day, play by play endless noise, chatter, and punditry. While this isn’t a pure or organized stream of information, I’ve found the tempo enables me to stay "informed enough" without being distracted.
Since I returned from my Q3 vacation two weeks ago, each day seems to bring more bad news and overall negative sentiment. In the last week I’ve started to notice a bunch of doom and gloom among entrepreneurs, especially high profile ones. In most cases, these aren’t cautious warnings, or suggestions of behavior modification, or real analysis of what’s going on. Rather, it’s an emotional response which is starting to creep into the zeitgeist of an otherwise typically optimistic set of people.
If you remember that Fear Is The Mindkiller you’ll quickly realize the correlation between the general commentary (the sky is falling, the world financial markets are collapsing, all your money will disappear, things will never be the same) and the notion of "killing your mind."
My recommendation to all of you entrepreneurs out there is to get off the negative sentiment treadmill, step up, and lead. The people working for your company are likely confused, concerned, and overwhelmed with all the noise in the system. In the near term, building your business will likely be more challenging on a number of dimensions. So what – that’s the normal cycle of business. You don’t need to be a blind optimist and spout happy talk, but you do need to have a clear sense of purpose and goals for your company. Leadership 101.
When I look back at the dotcom apocalypse that was 2000 – 2002, I realize some of the best companies I’ve ever been involved in were created during that time. In the midst of this, I remember the endless stream of "the Internet is over" and "the information technology business in now a mature business and there will never be innovation again." Yeah – whatever.
Get some exercise, take a shower, eat a good breakfast, and get out there and build a great business.