DF:

Stewart Alsop in February 1997:

Let’s get this straight right away: Apple Computer did the wrong thing. On December 20, Apple announced that it would spend $400 million to purchase Steve Jobs’s company, Next Software. The company said it would adopt Next’s NextStep operating system for future versions of the Macintosh computer. Most of the commentary I’ve seen about this decision is off the mark, especially the talk about Jobs coming back to save Apple. That is sheer nonsense. He won’t be anywhere near the company.

Precious.

I had breakfast this morning with my friend Ben Lerer.  He, and his dad Ken Lerer, have recently put together a seed fund to make angel investments in early stage consumer companies.  He asked me a question, which two years ago, I would have been able to answer in a heartbeat, but today caused me a moment of pause.  He asked me what companies are on Twitteresque growth trajectories that would be worth investing in regardless of price.  The reason I paused was because working at a venture capital firm for a few years, you get to a point where your thinking is probably 6-12 months ahead of the curve.  But lacking thousands of data points on blazing markets and the companies within them, I have probably lost that 6-12 month advantage.  I still read a ton, and spend time with smart folks from the entrepreneurial and VC communities, but the fire hose of information isn’t quite as fat.

Part of the job of an Associate at a venture capital firm is to identify new and emerging spaces that are worth investing ahead of, and exposing those opportunities to the partnership.  Microblogging in 2007 was one of those spaces.  To this day, Joel Cutler (who happens to be absolutely brilliant) at General Catalyst will tell you he owes me “a good drink of wine” for passing when I insisted we should fight to bet on Twitter, despite what seemed like a hefty price tag in the first venture round that Union Square Ventures ended up leading (the round got done at a $20M valuation, and two years later Twitter was just valued at $1 Billion).

That’s sort of the nature of being a junior guy at a venture firm.  Because you have less responsibility with the existing portfolio, you are able to spend more time than the old guys taking in new data and expanding the firm’s thinking into untouched markets.  You develop theses around that data, and when you find something you truly believe in, you need to pound the table so that the Partners who have not spent the last 3 months learning this new space with you will listen and understand the opportunity.  Even still, there is a very good chance that nobody will be willing to use one of their bullets on your idea.  Each partner at a venture firm gets to make 3 or 4 bets a year (might vary a bit from firm to firm depending on size of fund and number of partners), and a firm probably looks at 2,000-5,000 deals a year.  Passing on winners is part of the business.  Bessemer actually has a great page on their site where they display the firm’s Antiportfolio.  The Antiportfolio is a list of all the massively successful companies they could have invested in, but didn’t.  A star studded list of billion dollar logos is accompanied by hubristic quotes from the “passing partners,” explaining why they would never invest in the likes of Ebay, Apple, Google, Intel, Paypal, etc…

So in the absence of an immediate answer to Ben’s question, I can perhaps supply a recipe for any early stage investor who is trying to get ahead of the curve.  This is my process for finding the next Twitter:

1) Read: Macro (i.e. Economist) and micro (vertical blogs) content ingestion (30%)

2) Try: Personally experience as many products and services as possible in markets of interest, identify game changers (15%)

3) Experts: Develop and test theses with thought leaders from industry and academia (15%)

4) Entrepreneurs: Speak/meet with every entrepreneur attacking a given market, identify current state of the market and who is best positioned to capitalize on sea changes and future direction (40%)

5) Repeat steps 1-3 over time and across markets

Oh, and if you’re the next Twitter, and investors haven’t found you…you can email me, I’ll try to put you in touch with the right folks…

Billerica, Massachusetts -based Nexx Systems, a maker of equipment used in the metallization and packaging of silicon wafers used in both electronics and photovoltaic (solar) applications, has raised $4 Million in a Series D equity round involving Enterprise Partners Venture Capital and Sigma Partners.

Nashua, New Hampshire’s Autovirt, a Data Migration and management company, adds $5 Million in a Series A add-on involving Kepha Partners and Sigma Partners.

Attleboro, Massachusetts based Sensata Technologies, a sensors and controls company with approximately $797 Million in revenues, is preparing a $500 Million IPO, to be underwritten by Morgan Stanley, Barclays Capital, and Goldman Sachs. The NYSE stock symbol for the company has not been disclosed as of yet.

Beyond the investment opportunity, venture capitalists evaluate the start-up company’s executive team when making their decision to invest in an early stage company.  This is the first thing they consider, once they determine the investment opportunity has merit.  It is often said that venture capitalists invest in “the team”, as they would rather have an ‘A-team’ and a ‘B-product’ than a ‘B-team’ and an A-product’.  Therefore, when developing an executive team for your start-up company, as an entrepreneur, you need to be very careful.  This is not a “friends-based” decision. It requires objective focus, as to get to where you need to be requires an executive team that has proven experience in the business area your start-up company is focusing on, has the ability to make prudent business decisions, and can execute at a high-level in both good times and in bad.  Also, in some instances, it requires the founder to make tough decisions and release certain individuals, as some executive team members may not work out in the long run. This article outlines some of the things that need to be addressed by entrepreneurs as you are building a first class executive team for your start-up company.

Executive Team – The Beginning

Start-up companies usually begin with an executive team that is composed of individuals that in their careers have worked together at one point in time or another.  More often than not, one individual comes up with an “idea” or “concept” and passes this by one of his friends, usually a business or technical colleague.  With this “idea”, these individuals decide to move forward and develop a start-up company.  Many times, neither of these same individuals have had any experience in starting a company, or for that matter running and managing a business.  But, they give themselves lofty titles, (CEO, CTO, and Vice President of Business Development) and are off to the races.   Often this same initial executive team consists of a technical person and a business or marketing person.  These two individuals, if they have the proper backgrounds, although not a complete team can take the start-up company quite far in developing an initial “idea” into a value added business proposition.  On the other hand, if these same individuals lack the proper background, experience and focus, they often just spin their wheels trying to decide how to move the company forward. Therefore, as an entrepreneur, if you are starting a company look objectively at what you are trying to accomplish and do not build your executive team with “friends”, but with first class individuals that have the necessary and proven experience and ability to move your start-up company forward to the next level, securing funding.  If you do not, investors usually pass on your company as they will not risk their money on executive teams with no or little experience.  Remember, investors are looking to secure a substantial return on their investment and cannot afford to risk their monies on unproven and inexperienced executive teams.

Executive Team – Must Consist of Members that Contribute

Start-up companies need to accomplish many things with very little resources. Often the only real things they have are a “good” business proposition and a talented executive team.  As such, from the beginning, all executive team members must step up and contribute at a high level.  As with all teams, the complementary backgrounds and skill sets of the individual team members are necessary to put together a compelling business plan and associated value proposition that will provide a sustainable competitive advantage in the market.  Anything less will not suffice.  Therefore, each executive team member must commit themselves and their time and effort to achieving their near term goal of securing venture funding. If individual executive team members do not have the time or the necessary commitment to achieve this objective, then they need to be let go and this often requires making tough decisions by the founder and/or CEO of the company.  Remember, securing venture capital is serious business and requires both commitment and significant contribution from all the members of your start-up company’s executive team. If you do not get rid of “slackers” your investors will once they make a decision to invest.  Also, it is better to make these tough decisions early, as non-contributors more often than not have an adverse affect on the whole team, and in some instances can derail the whole start-up company.  So, recognize this and build a strong, first class team, with individuals that have the willingness and desire to contribute in the effort and objective of securing funding.

Executive Team – Filling In the Holes

A start-up company’s executive team is almost always often incomplete.  That is, your start-up company may be missing several executive team members or just a have a couple key executive positions that need to be filled.  So, while you are building your start-up company, it is smart to keep your eyes open to new and talented executives that can fill in these holes in your executive staff, and at the same time help your start-up company to achieve both its business and technical objectives.  These individuals are often hard to find, but can make an immediate and substantial impact, and at the same time be a key to achieving some important near term corporate objectives.  Hence, by doing so, these same individuals can also heuristically move your start-up company forward in the venture funding process.  Finally, it should be remembered that venture capitalists do not necessarily require a full executive team to invest in your start-up company.  Consequently, these same venture capitalists would rather have a strong, incomplete and first class team that they can help develop with their contact base, than a complete team with questionable individual, executive team members. 

Building a strong, first class executive team often makes the difference between a start-up company securing and not securing venture funding. So, as an entrepreneur, you need to be aware that initially building your executive staff with “friends” is not necessarily a smart move.  Often it is smarter to wait and build an executive staff with key individuals that can have a substantial impact and at the same time help your start-up company to meet its goals and objectives.  If you do not take an objective and focused approach to building your team, you will often have to make tough decisions later on to get rid of these same executive team members, as non-contributors or sub-par talent will not allow your start-up company to grow to its potential. Finally, remember you do not have to have a complete executive staff to secure venture funding, so focus on developing the best first in class team you can find.  This will serve your start-up company well in the long run.

This information was taken from Robert’s new book: “Business Planning, Business Plans and Venture Funding – A Definitive Reference Guide for Start-up Companies”.  Available at www.amazon.com.  For more information on the book go to www.carlsbadpublishing.com.

Economist has interestingly pointed out why government sponsored entrepreneurship scheme succedeed in Israel while it failed in the other countries -”The government let foreigners decide what to invest in, and then stumped up a hefty share of the money required.”

http://www.economist.com/businessfinance/displaystory.cfm?story_id=14743944

In thinking about the name “Genius Deferred“, it was quite fitting that my location be “At the Intersection of HOPE and DESPAIR“.  After months of trying to make something of myself, and trying to CREATE A JOB as opposed to FIND A JOB with someone else, my back is now against the wall.  I have no more capital to put into my business, but more importantly, I have no more money to pay my bills and rent.  Essentially, in a few short weeks, I’ll be homeless and there isn’t much I can do to avoid this situation, and it won’t be for a lack of trying.

Some people have informed me of some social welfare programs that are out there, and I’m looking into them, but I don’t have a history of positive results from those agencies.  To this day, I’m still trying to figure out how people can live on government assistance and receive welfare for DECADES and I can’t even manage to get some assistance for 6 months?! But I digress.

I’m not sure how many people really know how frustrating it is to know exactly what you need to succeed, and know exactly what tools and plans you need to succeed, but to be unable to reach that point of success, because you can’t get access to those tools.

I can’t think of what I haven’t tried.  I’ve put several thousand of my own dollars into my current venture, and it’s been financed heavily through credit cards and my own personal funds.  I’m a few weeks away from reaching the “income-generating stage”, and I’ve talked with bankers, non-traditional lenders,  SBA Microlenders, venture capital firms, and friends and family, and none have yielded any POSITIVE results.  I’m convinced at this point, that this is a good business and great opportunity, it just hasn’t gotten the chance to be presented to the RIGHT person.  If I have to live on the streets (or more specifically out of my car), the chances of it being presented to that person are even less.

I don’t post this to whine about my seemingly impending doom, but more so to document the fact that I did try, and when I FINALLY “give up” it won’t be because I didn’t put EVERYTHING I had into trying to make myself successful.

I hear people talk about “not giving up”, but to be quite honest, I get sick of it!  Nobody can tell you how to live your life or how to get through it day-to-day if they can’t offer you a REAL SOLUTION on how to improve it.  People telling me “don’t give up” really does fall on deaf ears, because regardless of what I choose to do, I’ll ultimately end up in this all alone anyway.

Anywhoo, despite the bleakness and continued roadblocks, there’s still this glimmer of HOPE that I have.  HOPE that “my breakthrough is coming”.  HOPE that one of the HUNDREDS of letters and emails I’ve sent to people, looking for assistance will actually net ONE positive result that can help turn things around for the better. HOPE that perhaps, someone who normally wouldn’t, will get caught up in “the spirit of giving” this holiday season, and grant me a chance that to prove that I can do all the things I’ve set out to do and that I’m ready for the opportunity I’ve waited DECADES for.

I guess we’ll see what happens.  Right now, I’m not too hopeful about 2010.  As much as 2008 sucked, I couldn’t have imagined that 2009 would be worse, but it was.  What kills me more than anything is, I don’t have the power to change my own situation.  I’m a solution-oriented person, so if there was ANYTHING I could do to improve or change my situation, I would have done it!  Having to rely on other people is the death-knell to an otherwise ambitious and driven aspiring entrepreneur.

Where is my “fairy Godmother” when I need her?

Structuring Social Ventures:  Choice of Legal Structure

By:  B. Ray Dinning, JD, LLM (taxation)

November 29, 2009

Part I – Introduction

This is Part One of a Four Part Series on Choice of Legal Structure for Social Ventures

Social Ventures and social entrepreneurship are alive and well in the for-profit and non-profit communities, universities, foundations and with social investors worldwide.  With every major MBA Program educating future business leaders about the social benefits of ventures that make money and help others and with amazing examples of social entrepreneurship by Professor Yunus and the Grameen Bank, Social Ventures are the business wave of the future.  With roughly 2/3rds of the world’s population living with an income of $2 a day, the applicability of technology and products to this burgeoning world market is a new phenomenon.  Bill Gates, Richard Branson and others are finding new ways to market products and services to this market.  Innovation is a key component to this process as products must be re-engineered to be affordable to the world market.  For example, the wind up computer, cell phones and other technology are currently being marketed and sold to this demographic group.  In Africa, this challenge is even greater and the need more prolific.  One thing is certain:  social entrepreneurship is the wave of the future in world markets.

A social venture is an undertaking by a firm or organization established by a social entrepreneur that seeks to provide systemic solutions to achieve a sustainable, social objective. The distinguishing characteristic of the social venture versus the commercial venture is the primacy of their objective to solve social problems and provide social benefits to those in need. The social venture may generate profits, but that is not its focus. Rather profits are the mechanism to achieve sustainability in providing a social benefit. The problems addressed by social ventures cover the range of social issues, including poverty, inequality, education, the environment, and economic development.

The challenge in this fast-paced developing area is that guidance in how these beneficial ventures should be structured is amorphous and undefined. Some have estimated that – depending on how one defines social enterprise – this activity could account for as much as 4 trillion dollars in the global economy. Social Enterprise Alliance estimates in a recent poll, 71% of respondents reported that making a determination as to the proper and best legal structure for their social ventures was the greatest challenge they faced. The pool of respondents included not just people who were starting new ventures, but also investors seeking a social return on investment (SROI) in addition to financial returns.

Because so many legal disciplines are necessary to properly structure a venture which many include non-profit, for-profit and even community partners and where business principles must be modified, it is hard to find concrete guidance in how to set up and structure social ventures.  The legal areas implicated in a structuring social ventures include:  tax, non-profit, corporate, partnership, international, mergers & acquisitions, business entity formation and perhaps more.

Social ventures can be structured in several legal formations including, but not limited to: business for-profit corporations, nonprofit corporations, tax-exempt organizations, for-profit subsidiaries of nonprofit entities, limited liability companies, charities created by business corporations, joint ventures, and less formal structures created through financing, shareholder and licensing agreements.  New forms of business structures including the use of the L3C entity and the so-called “B Corporation” are also adding to the mix of potential business structures available to social entrepreneurs.

Perhaps because of our capitalistic roots and the emphasis in the United States on profit and wealth generation or simply because of the relative infancy of social enterprises and social ventures, our legal system in the United States does not provide a legal form that is designed to accommodate the particular needs of social ventures.  Obviously, public companies have, as their primary objective, the bests interests of the shareholders of the company which, to date, has allowed them to pursue “green” or eco-friendly ventures as an aside to their primary objective of producing a good or service which generates profits for the shareholders.  Non-profit organizations have social good and charitable purposes as their primary objective but many complex rules and onerous penalties exist for the organization and its directors should their profit making objectives be structured improperly, become too large or simply conflict with their tax-exempt social purposes.  Additionally, non-profits face potential donor confusion when they start to introduce the concept of “business” and “profit” to their donor base.  Thus, many pitfalls, regulatory landmines and business issues such as access to capital and modifying the traditional rules of business come into play when attempting to structure a social venture.

In structuring a social venture, the ideal legal structure for social enterprise would allow management to pursue the dual goals of profit and social benefit within a single venture. It would allow the venture to raise private capital and compensate investors for the use of their capital on competitive terms but also management to make business decisions that further the social mission of the venture, even at the risk of reducing profits.  This ideal legal structure would also allow donors to support the social purposes of the venture with tax-deductible contributions, provided the money they give is a gift and they do not receive anything in return. Such an enterprise could freely enter into joint ventures and other business relationships with charities or for-profit companies without jeopardizing the tax or corporate status of the participating entities or exposing management to complex regulation or potential liability. Under the right circumstances, the social enterprise itself could become exempt from paying tax on its net revenues.

Next, we will discuss Foundations of the social venture movement.

B. Ray Dinning, JD, LLM (taxation) is a United States based attorney specializing in nonprofit joint ventures, social ventures, domestic and international taxation and public private partnerships.   Mr. Dinning assisted Professor Michael Sanders with the research and drafting of the authoritative legal text in this area called “Partnerships and Joint Ventures Involving Tax Exempt Organizations by John Wiley & Sons in 1994 with later editions.  Mr. Dinning holds an Advanced Law Degree from Georgetown University Law Center in Taxation – an LL.M in Taxation.  Mr. Dinning has traveled around the world structuring social ventures from the grassroots to the Heads of State.  Mr. Dinning can be reached at (757) 232-2619.

Finally getting around to trying the new iPhone app. Pretty slick.

Anyone who has passed a management course is familiar with Peter Drucker and his books on this subject. He coined the term “knowledge worker” and later in his life considered knowledge work productivity to be the next frontier of management.

But his most important contribution was promoting decentralization and simplification. Drucker discounted the command and control model and asserted that companies work best when they are decentralized. According to Drucker, corporations tend to produce too many products, hire employees they don’t need, and expand into economic sectors that they should avoid.

He considered companies as human organization rather than just as source of economic data. But he also insisted that all human organizations need clear objectives and hard measurements to keep them efficient. Basically, everyone needs to be accountable! And if you go higher in the chain of commands, you are more accountable; because you have more authority. He was always against “super bosses”. That is why he liked to say that people used the word guru because the word charlatan was so hard to spell!

As I’m reading Adam Penenberg’s book Viral Loop: From Facebook to Twitter, How Today’s Smartest Businesses Grow Themselves, 2 main themes have caught my attention. Firstly, the power and consistency of creating a viral loop for your business. Secondly, though the item I’m blogging about first, is how differently businesses can be valued.

I’ve written regularly about valuing small businesses based on the mantra “it’s all about profits”, and yet have learned of dozen’s of businesses worth hundreds of millions to billions of dollars with little to no profits to back that up. Penenberg references HotorNot, Hotmail, Paypal, Ebay, Bebo (even though they didn’t use their venture capital money), Myspace, Facebook, BirthdayAlarm, Netscape, Ning, Twitter and others that almost universally had substantial losses each month when venture capitalists started investing millions or 10’s of millions of dollars into these businesses. A good friend of mine, and MBA student, had argued with me many times that business is all about getting customers. I always countered that you can have a million customers but if you lose $1/month on each one, that’s not a good business. It seems, however, that both of us weren’t looking at the entire scope of business.

So when we value businesses, there are basically 3 primary groupings to consider:

1. Small, closely-held businesses (which is what I most often write about)
2. Internet Businesses
3. Public Companies

In small, closely-held businesses, I am right. It’s all about profits and your business should be valued on that. If you’re buying one of theses businesses and it has a loss, you may just want to offer to take it off of the seller’s hands for them so they don’t continue to incur the losses. These are your every day “main-street” (pardon the cliche’) businesses that you find for sale on Bizbuysell.com and other websites. Theses businesses are generally your first step toward wealth creation.

Internet Businesses open up an entirely other ball of wax. These businesses rarely have any income and certainly no profits early on in their life-cycle, however manage to attract anywhere from hundreds of thousands to hundreds of millions of dollars in investment capital before turning a profit. Does that mean it’s not about profits for these businesses and that’s not their top goal? Of course not. That’s just crazy talk. The difference is simply this. These investors appreciate that their is profit potential when you’ve captured the daily attention of hundreds of thousands or millions of internet users. One particular story that caught my attention was the start of Hotmail. Initially Hotmail had no users, no website (didn’t even have the hotmail.com domain name) but they had an idea and managed to raise $300,000 for a 15% stake in a company with no customers or income or profits, in return for being the first company to come to market with webmail. About 2 years later, that initial $300,000 investment from the venture capital firm was turned into $60 million dollars as Hotmail was sold to Microsoft for $400 million dollars. Without going into the details, the power of a viral business model made this all possible. So our question is, how did the venture capital firm decide that a 15% stake in JavaSoft (which eventually became Hotmail) was worth $300,000? Negotiating. The only thing JavaSoft had was an idea. Through negotiating they decided the idea was worth $2 million and so 15% was worth $300,000. For the dozen’s of businesses I’ve mentioned above that have followed a similar trajectory, obviously there are hundreds that failed. Beyond that, Microsoft, has certainly profited far more than their original $400 million investment in Hotmail in the last 10 years so don’t ever lose site of the importance of profits.

Public Companies can potentially bring another set of rules. Firstly, you can’t buy a public company for less than it’s stock is worth. In other words, if a stock is trading for $10 and there are 100,000 outstanding shares, the business is worth $1 million dollars ($10 x 100,000) and you can’t pay less for it. In theory, the company’s stock price should be based on it’s profits (generally called earnings) however many public companies have price to earnings values ranging from 5:1 to 50:1 or higher. This simply means that the business is “worth” anywhere from 5 to 50 times more than its profits. If a business is currently losing money, it’s price to earnings ratio effectively doesn’t exist. So, for instance, if the business above had $100,000 in profits, it’s PE or Price to Earnings ratio would be $1,000,000 to $100,000 or 10:1. Make sense? So the natural question is, what determines a business’ stock price? And the answer to a great degree is the same as with an Internet Business. It’s based a lot on speculation. More specifically, if a bunch of people think a business is a great business, and so buy a lot of stock, the price of that stock will go up regardless of whether the business has profits or not. In theory, over the long-term the stock price will match the actual value of the company which is how guys like Warren Buffet have made billions investing in companies that are undervalued.

So what does this mean to us? If you have no profits but can convince a bunch of people you have a great business anyway, you can make a lot of money.

The reality is actually, if you can convince buyers, venture capitalists, or investors that your unprofitable business has the potential to return remarkable profits in the future, you may just be able to throw EBIDTA out the window and value your business on whatever feels right at the  moment. In other words, no matter where or what your business is, your business is worth whatever you can convince someone to pay for it.

To your success, Bryan

P.S. If you’re looking for a real-life argument between a small business “profit is king” entrepreneur and a “customers are king” large business builder, check out Perry Marshall’s blog.

Sure, Sabeer Bhatia came up with hotmail. He invented it, made it big, and then bigger, so that microsoft could not help but take notice. They noticed, then they decided they would have it for themselves, so they paid Sabeer close to 400 million. Sabeer gained, because his startup cost was about 300K dollars. Compute for yourself.

Then there were two other folks who decided to start up something resemblng a search engine. They found space for their venture in their garage and did not have a proper name, so they coined a yahoo name for. It clicked, grew by leaps and bounds, and played a major part in shaping the internet in the early days, almost everyone has or had at some time a cool yahoo id for their own.

Two guys again, thought they needed a way to show the amateur videos that they shot to the world. Be it anything, grainy shaking clips or professional movie shoots, they carry value only if someone gets to see those, right? So they found youtube, asking the people, you, to tube their videos through their channnel. The rest is history. In the highest buy of that time, Google, (incidentally another startup with similar roots), gobbled up youtube in a billion plus dollar sale.

The similarities are too many to avoid. Basic common feature is the same, humble beginnings with success potential written all over it. Growth follows inevitably, some bigshot comes along, gobbles up the diamond for some cool cash. Little fish gains and gains immensely.

How do they do it?

Entreprenuers with a view to change the world, some may argue. But is that all?

How DID they do it. Thats what I am asking. Not how they did it but how they actually put forth the plan. From scratch. From the moment it was nothing but just an idea inside the grey cells of those twentysomething guys. How they thought about it, how they drew their action plan, how they put forth the idea, whom did they approach it, where did they find the money for the initial setup, how did they plan to diversify, how did they THINK, how did they ACT?

Sources are endless. How to begin a startup, how to be an entreprenuer, how to find venture capital, how to give their best presentation, how to woo your employer, how to touch and change everything into gold. The instructions are dime a dozen.

BUT.

Is that what we really need? True, these instructions can and will help, when someone is stumped at a specific point, if they dip their heads and look for an answer. But those things are too specific, too miniscule when compared with the whole giganticity of the nature of the job. The idea ia mammoth, the plan is everything, the implementation of one step is just a peg in the big wheel. I admit the error of omitting a simple peg will cause some hiccup, but to lose valuable time learning the minor specifications, while you should be jumping in and getting the plan started is more important in my opinion. And take the problems as they come along. As the adage says, there is no good time to get into the ocean, the waves will never cease, you just gotta plunge into it headlong, and take one wave at a time.

So what do we really need? More instructibles? No. I would want to look at the actual track records of their performances. The things they wanted to get done, the fallacies they made, the pitfalls they got into, the glitches they overlooked which made them lose momentum, and finally, the pitch they used to lift their tiny idea into a rocket and fizz it into the stratosphere.

The search is on. And research follows the search, inevitably. To be followed by action. Research without action is..well, you complete it !!

One from the Archives (Circa 2000)

I think everyone at sometime has probably dreamed about running their own business. The freedom to do it better by doing it your way.

But beware your dream doesn’t become a nightmare. The price of freedom is high.

99% of all start-ups fail within 10 years.

So ask yourself this question: How can I survive the odds?

The self-employed professional tends to value freedom and independence. For these people industry respect and quality are equal, if not more important, drivers than money.

That’s why the successfully self-employed are always very busy people.

They think in terms: My expertise, My time, My money

They are constantly threatened by others: The weak let them down. The strong are unwelcome competition.

The value driver is to always be “Be Better”.

The problem is they do not have the resources to deliver on the promise in a truly commercial context. They always want to be “Be Better” and yet they simultaneously suffer from the flexibility and the limitation of the “power of one”.

The daily challenge they face is finding work, then delivering it on time and in fill and then find the time to make sure the clients pay. Depending on their cycle their business capability is either higher than their sales or they are swamped with work. This why business continuity is a real challenge for the self-employed. They sit at the bottom of the industry food chain.

These are highly intelligent people operating a very dumb business model. The power of one.

In contrast successful business people are busy building networks.

They think in terms of  where is my next job coming from and who is available to do the work?

They also recognise that all business is brokerage.

“It’s not what I can buy it for that counts, it’s what I can sell it for!” 

They think in terms of Other people’s expertise, Other people’s time, Other people’s money

They may not have all the skills to deliver on the promise but they know that what they don’t have they can find. All they are really interested in is getting paid and getting a referral out of the client.

They are constantly strengthened by others:

The weak present an opportunity to make a profit.
The strong are invited to strengthen the business.

As you can see successful business people think differently to the professional and the self-employed.  That’s why, in the end, one owns the business and the other just works for it.

Don’t worry there is nothing to be ashamed about if you think and act like a professional. After all that is how you have been conditioned to think. Not only at School and University but also in the workplace.  

However, if you are thinking about going into business and you think like a professional then take my advice: Don’t. Stay where you are. The time to leave and set up shop is when you are thinking like a business person. Until then enjoy the fruits of your career: )

If you enjoyed this then you may like to look at eBusiness? It is just Business Process Re-Engineering on steroids. This earlier post deals with the problems of managing new business growth by employing smart process and smart technology to offset the ongoing market shortage in smart people.

Each and every Startup must conduct the Due Diligence phase before meeting VCs  for Venture Funding.  This stage primarily evaluates the viability of the business concept for the investor or an entrepreneur. This largely overlooked, or at the very least underrated task is of utmost importance in the lifecycle of a deal. Before we go investing often-scarce resources on a venture, we must make sure that it can achieve a sustainable competitive advantage in the marketplace. Most entrepreneurs would like to get to market before the competition and so in their haste make a tactical mistake of sacrificing due diligence. It’s that run fast or die mentality again. The reality is that one must not only get to market as expeditiously as possible but also allocate sufficient time to researching the business issues.  Otherwise failure is eminent. That having been said, the process of due diligence, which involves a great deal of probing and the asking of thought provoking questions, comprises of the following nine steps:

1. Concept validation by Subject Matter Experts (SME)

More often than not, would-be entrepreneurs come up with their ideas because they have observed inefficiencies in business operations or are visionaries in their field of expertise, being able to hypothesize the natural evolution of technology and business processes. Simply put, ideas are entrepreneur’s response to finding a solution to a perceived problem.  Whether you are ill or are trying to start a new company, getting a second opinion always helps.  It is an unbiased view on a given situation. That is the essence of concept validation by SME.   One must seek out an independent SME to review the content of the business concept and then have them opine on its viability.  SME’s have the advantage of having deep skills in their area of expertise and can postulate whether the idea can indeed be converted into reality.  Some of the possible outcomes of such validations are:  

• Excellent idea – can be implemented into a successful business.
• Current technology is unable to support the idea.
• Market is already saturated with similar ideas.
• Idea has been tried before and failed.
• Great idea but needs improvement.

 Entrepreneurs tend to get obsessed with their pet projects and loose their objectivity.  Hence, a second opinion is needed.  Have true industry experts who know every facet of the game, test the concept out. Has it been tried in the past, and to what end? Will it work? These expert opinions are key. Listen to them.

 2. Market analysis.

Rather self-explanatory: This task involves deep analysis of not only the environment in which we wish to thrive, but also the competition. After all, in times of a recession, it may not be wise to try and sell luxury goods. First, thoroughly define the target market to be served using recent market data and analysts’ estimates of current and projected size and growth rates (again, don’t be afraid to ask for help from those you trust).  Keep in mind exactly what percent of the market the company plans to capture and envision who will buy the product and why, in light of hypothetical or actual competition. Take note of the distribution/selling strategies used in the industry, and carefully choose which one(s) you plan to use to penetrate the market. The Business Plan chapters will further elaborate upon this topic.

 3. Organizational structure.

Ask yourself tough questions about the organization: what do we want to look like? Of course we want the best for our business. Can we do true justice to our idea? But we need to be careful in choosing the most appropriate people for the job, and not necessarily the “best”. So, who do you want in management? What do you want your creative teams to look like? This is where you want to be very self-critical. You must identify your strengths, weaknesses, and needs; then, you must address them realistically. Also, you will want to start giving thought to your board of directors, and whom you would like to see as your CEO (Chief Executive Officer) and CFO (Chief Financial Officer). You may want a couple of insiders whom you trust in order to make sure that your interests are served.  On the other hand, you may also want some powerful industry-types who know others in the industry: people who can provide extremely valuable input and contacts. And don’t forget: additional subject matter experts and legal contacts can be just as valuable!  Above all you will need to define and build an organization that believes in your vision and will do whatever it takes in making it a success.

When your management team is underutilized in a start-up company, office politics will take over the whole operations. Like kids; they should be busy with good activities that couldn’t find time to think about bad stuff.

In a small company everyone should be utilized 110%; your VP of engineering is on the road with field engineers and your CEO is moving the furniture in the office and going to Staples to buy stationary to save some money. If your higher management sits in the office and you have directors who communicate with other employees, you have executive assistance for a 50 people company something is wrong. When people are not busy with real operations, they feel vulnerable and start justifies their presence by artificial activities. At this stage, the whole intent is to perceive employees, board and other investors just to drag the operations for couple of more months and receive the paychecks as far as you can. Do you watch Office; they don’t have anything to do!

On November 5th, almost exactly 3 weeks ago, 253 people read my first blog post.  On November 25, 2 days ago, 4,730 people showed up.  While I am excited by the growth, I am still searching for better ways to harness the collective knowledge within this new community.    Despite more than 5,000 people reading the last post, only 8 decided to comment and continue the line of thinking.  Less than 2/10 of a percent participation is not very good.

Today, I want to experiment with a new concept.  I’d like to take a page from the open source software movement, and apply that spirit to the creation of a VP of Marketing Job Spec.  For those not familiar, the theory behind open source software development is that much of the coding effort required to carry out development of a project overlaps with the effort required to build other similar (or not so similar) products.  By openly sharing a body of code with everyone in a given community, all members within it are able to leverage what has already been accomplished/created, instead of reinventing the wheel from scratch.  So if I’m building an e-commerce site and I want to include a shopping cart function, I could spend hours developing my own from scratch, or I could just plug in an open source module that another developer wrote, knowing that his code will do the trick.  With the time I saved, maybe I will figure out how to build a feature on top of his code that reduces drop off, and then, if I’m cool, I’ll publish the code behind my enhancement back to the community (open source developers, if I butchered this, please chime in).

So now that I have all of you smart people reading this blog, I figured we could draw on some of your collective knowledge in an effort to create the ideal Job Spec.  Whatever we create here, will hopefully be the result of years of experience and lessons learned by those who have hired well (and not so well).  My hope is that the document we create will enhance our hiring at JumpPost, but also that it will serve as a template from which any startup recruiting a VP of Marketing can build.

I will start with a brief description of what JumpPost is, and then work into what I think we need:

JumpPost is somewhere between an online classifieds site and a low cost online real estate broker.  So, if Craigslist and Redfin had a baby, it might look something like JumpPost.  From a customer acquisition perspective, we are focused on general population consumers who are psyched about saving/making money during a change of residence.  We’re not interested in reaching home owners (at least for now), and folks who live in cities are more exciting than suburbanites and rural dwellers.  It’s a pretty wide net we can cast, and some of our value propositions are unique (read: won’t be competitive to acquire certain types of users), while others are highly competitive.  In a VP of Marketing, we are looking for someone who has a play book for building a liquid online community through a series of paid and non-paid customer acquisition strategies.

I’d like to collect contributions to three lenses through which we can identify a star VP of Marketing:

1) General Personality traits: What type of person makes a great online/consumer marketer? ideas that might be right or wrong include:

- data driven thinker

- addiction to analytics

- detail oriented

- quantitative bent

- understanding of relationship between product development and marketing efforts

- what else?  What personality traits do the best marketers you know exhibit?  Any surprising ones? Any huge red flags that your bad marketing hires displayed?

2) Specific marketing skills and experience requirements:

A) What unique skills should this person possess? ideas include:

- fluency in Google Analytics

- proficiency with SEM keyword tools/models (i.e. Clickable)

- what else? (I actually don’t know what are best in class skills here)

B) What experiences and backgrounds best prepare someone for this type of gig? Ideas include:

- comes from an analogous market acquiring similar demo of user (in our case: online travel, online classifieds, online real estate, online jobs, marketplaces, etc…)

- managed SEM campaign of $XX million budget with XX level of success (what are the metrics to judge success here? What’s a good baseline to measure outperformance vs. underperformance?)

- designed and executed successful referral program alla Gilt.com, Jetsetter.com, etc…(again, what’s a good baseline for measuring outperformance vs. underperformance?)

-  fluency acquiring customers from within larger platforms like Facebook, Twitter, etc…

- took an online consumer facing site from xx users to yy users in xx months (what’s best in class here, and how do we separate out the candidate’s contribution to that growth from all other efforts that played a hand?)

3) General traits and skills necessary for an early stage startup team member: What are the must haves and red flags when determining if a hire for any early role will be able to hack it in the beginning stages of  a company’s development? Ideas include:

- previous experience growing a company from alpha product to exit

- effusive and clear communicator

- “roll up your sleeves” attitude, no job is too small (not going to try to hire service providers to do all the work)

- comfort with a lack of structure and ability to create and execute own initiatives

- what else?  what are the best predictors that an early hire will be a star team member?

So, my suggestions are in no way exhaustive.  Please, those who have successfully and unsuccessfully hired an online VP of Marketing, rip this apart and share your experience in the comments of this post.  Where am I right on? What is way off?  Let’s try to fill these three buckets and I’ll publish a composite spec for all to build off of going forward.

Leostream, a Waltham, MA-based provider of application-management software for virtual desktop infrastructures, has raised $2 million in an equity financing, according to an SEC filing. VentureWire reports that Meakem-Becker Venture Capital, of Sedwickley, PA, provided Leostream with the $2 million capital infusion, which the company hopes will be enough to support its operations until it becomes profitable. Leostream raised $3 million in its Series A round of venture capital in 2008, also led by Meakem Becker Venture Capital.

The MIT Venture Capital & Private Equity Club presents the 12th annual MIT Venture Capital Conference. From the conference website: “Against the background of a quickly changing economic environment, the 2009 conference will illuminate the critical trends and opportunities available in this ‘Brave New World.’ How have dramatic shifts in the political and financial worlds changed the venture capital and entrepreneurial landscape? If this is the time to start or fund a venture, where are the best opportunities in healthcare, energy, digital media, internet and mobile? How are venture capital funds adapting given the challenges in exit markets and LP relationships? Can the VC model work in emerging and social markets?” Keynote speakers include Twitter co-founder Biz Stone and Greycroft managing director Alan Patricof. Full agenda and registration information here.

One from the Archives (Circa 1990)

This piece was originally entitled the Ying Yang of Design and it was distributed as lecture notes to a Design class. It deals with the urban myth of Western Innovation vs Eastern Imitation and how the two very different approaches to innovation do in fact compliment each other. So much so that any organisation that can embrace both styles of innovation will inevitably become a market leader in any industry. I have updated it to include collaborative innovation as per the recent piece on The Discipline of Innovation Teams.

As I have said before companies can either innovate, imitate or acquire the future.

Here in the West we view imitation as the innovation free approach to business. You simply try to secure market leadership by providing more features than the current market leader. It is what we call the “Be Better” Strategy. You just follow the market success stories with better quality clones.

Innovation is more than brilliant ideas. It is also about your ability to execute brilliantly.

To succeed with this strategy you not only need to be able to execute brilliantly you also need to invest heavily in your brand. You need to project innovation even if you are not particularly innovative. For example, if you manufacture Mobile Phone Handsets you should be investing in Industrial Design and Brand Advertising to differentiate yourself from the competition.

Asia has long been labeled in the West as the great imitators. There is a general belief, an urban myth if you like, that Asians are not very good at coming up with original ideas. What Asians excel at is following processes and that means they are very good at taking somebody else’s ideas and executing that idea brilliantly.

Not that brilliant execution is a bad thing. A brilliantly executed bad idea will beat a poorly executed good idea every time.

So is this an accurate description of Asia’s ability to innovate?

Most people don’t realise that China’s first known printed book was published around 600 years before Gutenberg built his printing  press. The Chinese also invented the paper that fed Gutenberg’s press. Both the origins of zero and algebraic mathematics can be traced to ancient Indian mathematics. They were imported to the West via Islam. So historically Asia was an innovation heartland and it was Europe who was living in the “Dark Ages”. So what about today?

Well today we have examples of Japanese innovation all around us. Brands like Nikon, Sony, Panasonic, Mazda, Nissan and Toyota are recognised as world leaders in their respective industries.

Toyota, for example, didn’t invent cars but today they are one of the world’s largest auto manufacturers. So did Toyota simply become market leader by building a better car through re-engineering the competition’s products? or, did they achieve market dominance by applying Eastern innovation methods?

What Toyota did was combine the efficiencies of the Ford Assembly Line with the agility of the Retail Self Serve Dispenser to create the innovative manufacturing model called the Toyota Production System (TPS). 

They took two preexisting, but mutual exclusive, American ideas and joined them together to create a brand new approach to manufacturing cars. The result, thanks to improved quality control and reduced costs (through the elimination of waste in production), is the market dominance we see today. The key to their success has been their ability to execute brilliantly.

This essentially is the difference between Eastern and Western approaches to innovation. One looks to solve problems with existing answers the other looks to solve problems by generating new answers.

Both rely on the same innovation equation 1 +1 = 3. It’s just they approach the problem from different cultural perspectives.

As I said in an earlier post (Don’t confuse Business Intelligence with Innovation) in the West the problem always comes first. The ongoing efforts of the competition or the needs of the customer, are after all, just another problem to be solved.

It is only when the problem is encountered that the need for intelligence, information, investment, ideas and innovation is invoked.

In the West we value the ability to “Cut through the crap”. To reach the heart of the matter quickly. Intelligent people are seen as those who are quick to respond to the challenge with the right answers.

If I had a dollar for every time that I have heard the phrase “Don’t bring me problems. What we need are solutions” I’d be a rich man.

It is what I have come to call over the years the “Designer as Hero” syndrome.

In the East a creative, intelligent person is somebody who has the ability listen and then ask the right questions. This idea is at the heart of Japanese manufacturing techniques like TQM. It is the simple idea that solutions are all around us. All we need is the intelligence and the insight to apply one or more of these solutions to the problem. The skill is in discovering all the pieces in the jig-saw puzzle and putting them in the right place. Innovation in Japan is a process of continuous improvement. Small steps if you like as opposed to the “quantum leap” in imagination we so readily promote here in the West.

I believe a good designer can, and should, apply both approaches to any new design challenge.

The Ying Yang of Innovation

Today we see a third way emerging. Something that I call Collaborative Intelligence. Collaborative intelligence is all about embracing innovation networks.

The true innovation network becomes a reality once you stop thinking in terms of cause and effect, problem and answer and start to see the world as an ever changing landscape of if-what-if chains. These interlinking chains create ad-hoc patterns and networks. Knowledge maps emerge, merge and cross-pollinate to generate new ideas, insights and information. As I have said before, we are now awash with “Moments When Our Universe Changes”.

The power of these collaborative intelligence networks is determined by the number of nodes and active links within the network. It is as much about the wisdom of crowds, as it is about the ability to discover patterns and links across the network, as it is about the ability to ask the right questions, as it is about the ability to influence and or reshape the network as and when you need it. It’s about thinking like you have never thought before.

See also The Seven Solution Strategies

zyakaira notess: Early mid year estimates had indicated $100 million for Zynga of “Farmville”, Texas Hold’em and Mafia Wars across facebook and myspace. Now this is likely to be revised up by a few percentage points for zynga alone…Now you know why Tweetmeme and Twitterfeed are so conjoined with  Twitter. Let’s hope this pans out ’socially’. Other animation/gaming players like Rock you and Zynga and Playdom all have $100m each in funding and by current engagement rates are likely to fare equally well for the PE involved in each case…long time to go before natural selection burns a few holes..

Even if the Virtual world envisaged with Dubai World comes to a nought, facebook and twitter are not doing so badly after all. Tweetmeme and Twitterfeed to name a few would have an even more significant overlap with the base ‘platform’ of twitter than the seemingly conjoined but really technology independent gaming networks and they are also on spinal tap.

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Facebook Games Maker Zynga To Make $100 Million This YearNicholas Carlson|May. 1, 2009, 3:12 PM |

Mark Pincuss social gaming startup Zynga, which makes multiplayer games like the popular Texas Holdem for social networks Facebook and MySpace, is growing faster than you think.We reported in January that it closed $50 million in sales during 2008. Now BusinessWeeks Sarah Lacy says the startup has “annual sales of about $100 million, according to several people close to the company.”Most of that money comes from “the 2% to 10% of users who pay $1 an hour to play premium games or buy virtual goods.”Sarah says the other hot startup in social gaming is Playdom, which generates about $50 million a year in sales.

via Facebook Games Maker Zynga To Make $100 Million This Year.

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