My Advice to Aspiring Entrepreneurs? Build Something!

I’ve been connected or introduced to a handful of aspiring entrepreneurs recently, folks that have lots of work experience, but no experience starting a company from scratch.  And the first question is always the same, “I don’t know how to get started”.

Ten years ago my advice might have been different, likely starting with the creation of a well thought out business plan that you use to raise money around based on the concept and research alone.  But today the costs of starting a business continue to plummet, particularly the costs to actually build a Minimum Viable Product or at least a prototype.  Simplified programming languages, open source code and dramatically reduced cloud-based hosting, processing and storage costs through services like Amazon EC2 and S3 have not only reduced the costs to build, but more important have enabled thousands of entrepreneurs to start businesses without the need for an outside cash infusion.    And there is no better way to share your vision and get others excited about your idea than to physically demonstrate it with a powerful product experience.  Gone are the days of million dollar investments required to get a demonstrable product, complete with features and functionality.

So the answer to the question is simple – Build something that you can use to:

  • Get others to actually use and thus prove value and traction,
  • Share with investors to get them excited about your product vision, and
  • Reduce the “cost of money” if and when you actually do raise capital

But what if you as the entrepreneur don’t have the skills to code a prototype or build a product yourself?  Easy, get immediately integrated into your local tech community events or get networked and find a technical co-founder.  Notice I didn’t say go find a engineer and convince them to build you something on the cheap or even free in exchange for “some shares”.  Rather, do your homework on the market opportunity, tell a compelling story and share your vision in a way that gets them excited and committed, even if part-time, to the success of the product which will inevitably require lots of iterations to get “right”.  Why should they be a co-founder?  Because engineers are the world’s scarce startup resource and, in my opinion, often the most underestimated from a strategic standpoint given the importance of technology in company building.

It’s really a subject of a future post and I digress, just go get a technical co-founder and thank me later.

BlackLocus Wins “Best in Show” at Under the Radar

We’ve had a great two days at the Under the Radar Conference in Mountain View, CA.  It’s a commerce-focused event, featuring roughly 30 emerging companies in 5 categories that pitch in competition format to an audience and a panel of judges.  Today I had the opportunity to pitch BlackLocus under the “Measurement” theme to a panel of 3 judges including Liz Gannes, Senior Editor with All Things Digital, Will Lowry, VP AT&T Platform Partners and Mark Silva, SVP Emerging Platforms Anthem Worldwide.  The session was moderated by Rafe Needleman, Editor at Large for CNET News.  To see the 15 minute pitch and Q&A session, click here and go to 3:45 in the video if you want to skip the panel intros.

The good news?  We won the Audience Choice Best in Show award among the 30 companies and the Judges Award for our category!  We also met some leaders in companies that would be extremely valuable partners and most important, we connected with some large, Fortune 200 retailers that are prospective customers.  All in all, a great use of our time and money to participate.

The other good news (disguised as bad news)?  Along with positive exposure and press comes an onslaught of demands that stress the team to deliver on.  It’s a constant battle at this stage, how to prioritize activity and only that activity which has the highest return when there are dozens of things we know need to be done.  And priorities are not always obvious, these decisions require some stakes in the ground but more important, they require measurement, learning and adjustment to turn on a dime as information becomes available from customers and partners.

I’m returning to Austin today and looking forward to debriefing with the team and getting everyone energized about the path ahead of us.  Strap in, its going to get nutty!

Texas Venture Labs / Austin Technology Incubator

My new company, Blacklocus, is an Austin Technology Incubator (ATI) company and we presented yesterday at the Texas Venture Labs Expo in Austin.  I stopped by to hear the pitches of 5 graduating companies, including ours.  I was deeply impressed by the presenting companies, at least 3 of them are truly innovating massive industries including online commerce (us!), nuclear power and combustion engines.  These programs are examples of increasing efforts by the University of Texas to integrate with the local business community to develop entrepreneurs, facilitate investment and commercialize research generated through the University.

Now that we are fully relocated to Austin, I’m really energized to get more involved.  There are several objectives I have for “getting involved” with the local entrepreneurial technology community:

  • Build the BlackLocus brand locally through thought leadership, mentoring and recruiting outreach.  The more we promote our vision and progress, the more attractive we will become to partners, customers and employee candidates.
  • Do my part to further entrepreneurship and development of high growth companies in Austin.  This community has so much to offer for entrepreneurs, venture investment, existing companies looking to relocate and I’d like to become involved in initiatives that promote and actualize those attributes.  Capital Factory and Startup America are examples of successful and far reaching programs to promote our city and develop successful new companies.  There is a real talent shortage here, as in many high tech hubs across the country, and it really is a zero sum game that we need to solve.
  • Actively invest in promising high-growth startups.  As I’ve written about previously, I’m active but picky in my search for investments in new companies where I have something to offer in addition to capital.

Yesterday was a great introduction to a few programs dedicated for furthering local entrepreneurship and I look forward to becoming far more integrated over the coming months.

My 10 Favorite Startup and Tech Blogs

I subscribe via RSS to way too many blog feeds, most of them in the tech/startup/VC world.  Some of the authors contribute daily, others may write once per week but provide unique and well thought out content.  I’m focusing here mostly on non-news blogs (Techcrunch, Mashable, etc. not on this list) and instead on individuals with deep experience as entrepreneurs.  For a broader perspective on popular blogs by category, check out TechStartHub.  If you run a startup, are seeking funding, beginning a company and seeking advice or simply want to stay apprised of opinions and discussion happening in the tech startup ecosystem, then here are my recommended 10 must-read blog subscription feeds, in no particular order (click on the links to subscribe to RSS feeds):

Feld Thoughts.  Daily blog by VC Brad Feld, he mixes both personal and professional insights into his writing.  Brad has been an immensely successful VC, particularly over the past few years.  Naturally, he’s enjoying life and it comes through in his writing.

Startup Lawyer.  There is a wealth of archived content by lawyer Ryan Roberts that talks about how to structure your company, approach valuation, taking in money from Angels and VCs, etc.  He’s a pretty infrequent poster, but the archived content is valuable.

A VC.  Daily blog by legendary VC Fred Wilson.  Fred is usually on the bleeding edge of technology and has a point of view on just about everything technology, particularly trends in the use of technology and startups that are emerging in line with his thesis.

Both Sides of the Table.  Daily blog by another nationally recognized VC Mark Suster.  Mark is probably the most actively engaged and networked in the tech startup community outside of Robert Scoble and spends a lot of time and energy on his blog writing.  No short posting here, usually his writing is very comprehensive and with a strong point of view on his subject matter.

Ask the VC.  Separate blog curated by Brad Feld, he scours all of the VC blogs and re-posts what he believes is the most useful information that day.  Tremendous archived content here as well.

Digital Quarters.  A pretty infrequently posted blog by Ben Elowitz, founder of Blue Nile, but although infrequent, his writing is insightful and comprehensive around whatever topic he is addressing.

Steve Blank.  A serial entrepreneur and founder of E.piphany and eight or nine other companies, Steve Blank (now a professor) has a large following and impeccable reputation in the startup community.

Blog Maverick.  Always a contrarian view on many subjects by this now famous owner of the Dallas Mavericks, Mark Cuban.  He’s a pretty infrequent poster, but his comments are usually pretty insightful whether you agree with him or not.

On Startups.  Blog dedicated to the entrepreneur and written by Dharmesh Shah, founder of HubSpot and several other companies.

SplatF.  Combination news and blog site by technology writer Dan Frommer, he usually posts multiple times per day on whats going on in tech.  What distinguishes him from other writers is he injects his own point of view into news and current events.

Honorable Mention.  Robert Scoble.  Probably the most prolific and connected tech writer on the planet, so much so that its impossible for me to keep up with him and his posts.  He gets an honorable mention because he writes TOO much, but he typically is on the front lines of reporting.

Where’s Your Operating Plan?

Every business needs a 12-month operating plan, even startups at the earliest stages.  The only major difference between a startup Operating Plan (OpPlan) and a mature OpPlan is that the startup OpPlan will inevitably be wrong.  Then why do it?  Because it represents a stake in the ground, your living metrics, targets and milestones so that when targets are either missed or exceeded, it forces an internal review of “why” and then “how” to make adjustments to keep the business performance on track.  I’m going to focus here on the importance of OpPlans for early stage businesses.

First, what is an OpPlan for an early stage or emerging business?  Probably the most common mistake I see is equating the OpPlan to the 3-5 year financial projections spreadsheet that every startup creates to raise money.  While these projections are incredibly useful and contain many of the assumptions that go into the OpPlan, the OpPlan requires an extraction of key assumptions in written form that is easily communicated to everyone in the organization and certain external stakeholders (investors, Board).  Specifically, the 12-month OpPlan contains the following – think of it as an outline for a powerpoint presentation to share with employees:

  1. Statement of Vision, Mission and Strategy.  At the highest level, these should be really clear and posted on a few walls in the office.  How can you know what to do today if you don’t know where you are going and why?
  2. Core 12-month Objectives.  This should be 5 or fewer major objectives for the business that, if achieved, will define success over the next 12 months, at least based on what you know now.  They ought to be completely consistent with point #1 above.  These are not activities or tasks but rather major objectives (ie, “Achieve 5% market share in our category”).  They don’t describe the “how”, just the “what” and since there’s only 5, key stakeholders (Board, investors) should view the achievement of these objectives as a highly successful month/quarter/year.
  3. Key Initiatives and Priorities.  For the current quarter and in order to meet the Objectives, what are the key Priorities and Initiatives that the team will focus on?  We are now breaking down the Objectives in #2 into a manageable set of Initiatives, answering the “how”.  This list becomes the ultimate arbiter when resource conflicts arise (and they will).  Completion of these Initiatives should absolutely result in performance against the Key Metrics (discussed below).  These corporate Key Initiatives then drive more detailed plans within each functional area – Sales and Product priorities drive the product roadmap, which in turn helps to prioritize the Technology, Analytics, Support and Marketing/PR initiatives.
  4. Key Metrics, Target Values and Accountability.  For each Objective in #2, what must be measured (Metric) and what are the Target Values for each Metric that ensure the Objectives are met?  And who is responsible for achieving each Target Value?  Important to track Metrics monthly, understand why there are variances and, most important, take decisive action to address under-performance.  Examples of corporate metrics might be # customers, average revenue per customer, visitor conversion to sale %, hire 10 people, etc.  Ultimately, each functional area (sales, tech, marketing, support) will have their own set of Metrics and Targets that roll up into achieving the overall corporate Targets.
  5. Financial Projections / Budget.  To include Revenue and Expense targets and assumptions.  There are really two methods for determining Revenue projections – “Top Down” and “Bottoms Up” – and I think its important to have a view into both because they often tell different stories.  Top Down approaches begin with understanding the potential market size, assuming some penetration or market share to determine Revenue growth.  Bottoms Up, on the other hand, starts with understanding the sales cycle, product development complexity and available capital to determine a more “reasonable” picture of Revenue scale.   Another way to think about it – Top Down shows “what’s possible” in a world of few constraints and Bottoms Up is more in line with “what’s achievable” being more realistic about resource constraints.  But having a view into both allows for some analysis to answer the question “What additional resources would it require (money, people, technology) to scale the business faster?”

Finally, I highly recommend creating a “One Sheet OpPlan”, a 2-sided but one page document that has Key Initiatives and Priorities for the current period (quarterly) on the front and Key Metrics and Target Values on the back.  This document gets distributed to ALL employees so everyone is fully informed and aligned on what drives success and, more importantly, how individual efforts tie directly or indirectly to certain Objectives that drive that success.

This important process and document really forms the basis for instilling a Performance Based Culture within the organization by tying individual performance and compensation to company Objectives.

Detractors may say that this is all too much structure and process for a startup where you are simply trying to get the product right and achieve some customer traction.  I would agree that putting too much effort into planning when you are a team of 2 or 3 is probably not the highest and best use of time.  However, while the need for this level of thought into the business may vary, certainly by the time you are taking external capital into the business its important that everyone is aligned on where the business is going and what defines success in the near term, even if success is defined by “get 2 paying customers”.  Even an objective this simple requires sales, a product, technology reliability and scale, support, design, analytics, etc. such that each department has a list a mile long of things they can’t get accomplished due to resource constraints.  A well constructed OpPlan helps to coordinate priorities across departments and keeps everyone’s eyes on the prize.

Investing Through the Startup Noise

As someone who is both seeking my next professional role in an early stage business and (newly) looking for Angel investment opportunities in startups, it is incredibly difficult to determine the high quality businesses given the sheer volume of startups in the marketplace right now.  While there is unprecedented access and information on startups through sites like AngelList, the consequence of this transparency is a ton of noise – anyone can put their business idea out there regardless of its business viability AND its cheaper than ever to start a technology company as infrastructure, hosting and storage costs have never been cheaper.  Gone are the days of VC proprietary access to deal flow, but also gone are the vetting and screening of startups prior to them becoming discoverable.

I wrote previously on some tips for first time angel investors as communicated by Brad Feld and David Cohen.  But the biggest challenge – how to gain access to high quality startups – was left largely unaddressed.

Take AngelList, a site that launched only 1.5 years ago and claims to have facilitated over 8,000 introductions between founders and investors with 400 companies funded through those introductions.  Nearly 10,000 startups and 2,300 investors are listed and have profiles on the site.  Fantastic for access and transparency, but wow, that’s a lot of noise.

So as a job seeker and potential investor, how do I maximize my probability of gaining access to only the highest quality ideas without having to do an inconceivable amount of research?  Well, its different for job seeking v. investing.  I detailed my process for job seeking in a previous post.  Here, I’ll talk about how, as a new entrant to Angel investing, I’m going about gaining access to quality startups and cutting through the noise.

Letting other active Angels know I’m investing.  There’s a handful of folks in my network that are actively investing in startups and quite frankly, have better access and are better connected into the ecosystem than I am.  Sharing with them my intent to invest, including how much per investment and the kinds of companies I’m most interested in is a way to shortcut access to quality deals.  These people include former colleagues, VC’s who invest personally, seed-stage fund investors and others I’ve met along the way.

Building and managing my online brand.  This involves utilizing and being active on social media networks such as Twitter, Facebook, LinkedIn, Google+ and particularly AngelList and ensuring my profiles are up to date, comprehensive and consistent across platforms.  “Investor” shows up in bios and short descriptions.  Diligence is not a one-way street, the smartest founders and entrepreneurs research their potential investors so I want to be easily discoverable but in a way that I direct and control.

Leveraging the incubator programs.  These programs in some sense do a lot of due diligence for you first by accepting an idea/founder into their program and second by coaching and mentoring their early progress.  Nearly all of the reputable programs, but particularly 500Startups and TechStars, enable broad access to Demo Day presentations through live streams or blogging and then you can access and enter the investment discussion either directly with the founders or through AngelList.

Yesterday I attended Demo Day for the graduating class of 500Startups, an incubator/investment engine that boasts 175 portfolio companies and founded by prolific investor Dave McClure.  It’s a program similar to TechStars and YCombinator with the added dimension that they will make pure seed investments without the requirement of going through their incubator program.

I was actually really impressed by many of the newly formed ventures coming out of the program (and now seeking investment in the $300-500K range).  There were 31 presenting companies and over 1,000 participating audience members (via personal attendance and live stream video).  1,000 potential investors for 31 companies?  That tells you the dynamics of this market and why valuations are bloated right now, with many of these graduating “ideas” garnering pre-money valuations of up to $5M.  But there were 2 companies that were extremely interesting to me, so I reached out to them on AngelList and within a few hours, had access to their investment materials.  This would have been impossible for me just two years ago.

Did I mention AngelList?  Because I’m not “in the club” of elite investors that have automatic access to all the hot startups without the need to do any outreach, I need a way to 1) broadly market or announce my interest in investing and 2) access startups that I’m interested in.  AngelList is the best and only place for a new investor to do both of these things effectively given the critical mass they have achieved.

Make an investment.  While I’ve reviewed a half dozen companies, including meeting with founders, I have yet to find the right opportunity and I’m not going to part with my hard earned cash just because there is a startup gold rush happening right now.  That said, there are a few opportunities with founders I already know well that I anticipate will close in the next few months.  The point here is that building a track record as an investor is, or certainly should be, important for founders to accept your money.  This is particularly true in the current market where entrepreneurs have a choice of investors.  Why not choose money that comes from people who have demonstrated picking winners and who can add value through advising or introductions to their superior networks?

This process has worked pretty well for me, I’m curious to hear how other new investors are getting into the market and accessing high quality startups?

Looking for Funding? Try AngelList

I recently attended a talk on Angel investing given by Brad Feld and David Cohen at the Boulder TechStars Bunker.  One of the challenges I’ve been unable to get my head around as a prospective startup investor is how do I get access to the most promising startups?  All of the “high profile” startups that are started by the most accomplished entrepreneurs are almost impossible to get access to.  There’s a small community of well known Angels and entrepreneurs that circle these startups and get first dibs at seed level funding.  Makes sense.  If I’m starting a company, I want “smart” money in my deal.  Not just cash, but cash from accomplished business builders and investors who have a track record of helping companies be successful and generating a return on their investment.

So the question is, as an unknown investor with some success starting and building companies, how do I get access to the better deals?

Enter AngelList, an online marketplace for startup entrepreneurs and prospective investors to connect started by serial entrepreneur Naval Ravikant.  Here’s how it works:  Startups can register and create a listings page that contains their product, screenshots, video, team and advisors.  What really makes it interesting is that you can see which prospective investors are “following” the company and which are “endorsing” the company.  Investors must also register and be “qualified”.  To be qualified, an investor will be evaluated one of two ways, either by how many current community investors are Twitter followers or by having a certain number of current investors “endorse” you as someone they would trust and co-invest with.  This qualification process I believe gives the community credibility and its working based on the list of over 2,000 incredibly accomplished investors and entrepreneurs listed on the site.  The latest, unverified stat I heard was that AngelList was adding 20-40 startups per day.

Now, does AngelList by itself give me access to the most high profile deals?  No, but it sure does begin to provide transparency and level the playing field.  Gone are the days when prominent VC’s had proprietary access to deal flow.  Now everyone – entrepreneurs, Angels and VC’s – has to be scrappy and compete.

This level of market transparency is also great for startup entrepreneurs.  They now have access to a broad range of investors and in this era of AngelList and social media, you can get to almost anyone if you can efficiently articulate your pitch and cut through the volume of social media noise.  But access is no longer the issue.

The final implication to consider from this increasingly transparent and open investment environment is on valuations.  I’ve said before that we are not in a “bubble” similar to high-flying times of 1999, but pre-money valuations right now are pretty darn high I think due to numerous factors but certainly at least two:  1) huge success stories like Facebook, the LinkedIn IPO, Zynga, Groupon, etc. have investors over-exuberant about finding the “next big stock” and 2) an increasingly transparent market (via AngelList, Second Market, Sharespost and social media in general) is allowing anyone to invest in startups, creating more demand and driving prices up.

It will be interesting to see if the market becomes more transparent and open, if valuations will continue to rise, stabilize or fall and what effect a fall in valuations might have on the supply/demand equation for startup financing.

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