Building a startup is like conducting a large scale experiment. There are many unknowns and lots of variables. Every step of a new venture has to be figured out and conquered as it comes. It is for this very reason that so many early stage companies perish soon after they are started.
However, after building my own company and being involved in countless others, I am pretty certain that there are frameworks that can be applied to most startups that will help reduce some of the inherent risk.
If you take the experiment analogy I used above, you can start to think of a startup as an exercise in mastering the unknown. Instead of focusing on what you think you know, which is how most entrepreneurs approach their business, concentrate on what you don’t know. Find the key issues that you need to understand and scrap out all of the variables around them. Then test your hypothesis with as few resources as possible. If you are diligent you will be able to eliminate a lot of the inherent risk of a startup and make better decisions.
Let me give you a theoretical example that I think will illuminate the point I am trying to make. Suppose you were trying to introduce a revolutionary new consumer oriented venture. Instead of taking a wild guess as to which marketing mediums will be most effective, you could set-up limited trial runs with the most promising options. Perhaps you would dedicate one thousand dollars to Adwords, postcards, flyers, and tradeshow exhibits each, and track the results diligently. In little time and with few resources spent you would have a pretty good idea of what works and what doesn’t, only then does a large scale expenditure make sense.This might sound obvious and intuitive, but you would be surprised as to how many times I have seen entrepreneurs (myself included) make quick intuitive assumptions and pour tremendous resources behind those hunches. Another quick example is the building of a website, most entrepreneurs get fixated on getting their site perfect before they launch and spend tens of thousands of dollars doing so. Instead, I propose that they get a quick and dirty site up that lets them get real customer feedback as to their idea. Once they have an idea of what their customers really want and do, they can more wisely spend their resources building out the perfect site.
Spend as few resources as possible proving out as much as you can, because your resources are much more valuable when applied in the right places.
On June 17 we’re going to be hosting our first “????????Entrepreneur Only” event. We are launching this concept for a few reasons: first, because we believe that Southern California continues to be way behind in terms of the informal mentoring network for early stage and start up entrepreneurs; second, while there are some great “public” events and membership organizations in Southern California, they don’t afford much quality one-on-one time between experienced investors and entrepreneurs and people looking to launch a first venture.
So… we have designed this to be a fun event in an upscale, “hip” environment. And, most important, we are asking guests to pre-register so that we can set up a small ratio of entrepreneurs to mentors / advisers. We’ll have our partners at the event and typically we’ll add a few other guests such as a successful entrepreneur, venture capitalist, deal attorney, etc. There will be no program - just a casual event w/ cocktails and chat. We hope it works!
If you are interested in joining us, please follow the link above for information or contact: katie@mvmpartners.com.
I sat on a panel today, “Business Pitches that Hook Investors”. It seems all of the panelists took the position that you should skip the long process of writing a business plan (at least as a fundraising tool). Several people in the audience asked for a copy of my presentation, you can find it in a previous blog post: Why You Shouldn’t Write a Business Plan.
As a side note, I will be giving a longer version of this presentation along with some new material at the Tech Coast Venture Network meeting this Thursday, May 22nd. Details of the event are at www.tcvn.com.
I’m moderating a panel at this Friday’s UCLA Anderson School Entrepreneur’s conference (www.uclamba.com/eac/2008) titled, Idea Validation: How do entrepreneurs validate an idea before investing time and capital. I thought I’d jot down a few preliminary thoughts on the subject here and then see which direction the panelists decide to take it. Continue Reading »
For many years, I’ve been frustrated by the banking community’s reaction to financing SaaS (Software as a Service) opportunities. In my view, long term contractual commitments from credit worthy customers should be an asset that can be evaluated and funded. HOWEVER, from an GAAP perspective, the contracts aren’t considered a “receivable” as the service hasn’t yet been delivered. So, banks don’t tend to be very creative! I’ve run into SaaS Capital a few times and I think their model has a lot of merit. The linked white paper below, provided by Saas Capital, walks through SaaS financing issues and options.
I recently got a note from Jack Bicer, a friend who heads up TechBizConnection (Orange County networking group) as well as Septium (a custom software development firm). He passed along the following tips on managing a software development process. I think the list is right on target and has the advantage of being both powerful and concise. Continue Reading »
One of the first questions that investors will ask you about your company is “what is stopping others from copying your ideas or technology and beating you at your own game?” I’ve found that the “barriers to entry” question is one of the most difficult to answer when raising institutional money. If you answer too boldly the investor might feel that you are naive about the nature of competition. Conversely, if you answer that you simply have a head start, you may not be making a strong enough claim. Neither answer will build a sufficient level of confidence. Following are a few thoughts that may help: Continue Reading »
I was on a great panel last weekend at the CalTech/MIT Enterprise Forum on the CalTech Campus (www.entforum.caltech.edu). The topic was “Social Networks and the Entrepreneurial Reality: Fertile Platform or Investment Nutworks?” The panel was kicked off with a keynote from Jason Feffer, CEO and Founder of the social networking site Sodahead (www.sodahead.com), and also included Mark Jeffery, CTO of social search site Mahalo (www.mahalo.com), Joe Jason from SK Telecom, Tony Karrer founding CTO of eHarmony (www.eharmony.com) and Andrew Shandlin, Executive Director of the Caltech Alumni Association.
While panelists seemed to agree that while there are plenty of nutty social networking ideas out there, the social networking space in general continued to be a fertile area for smart entrepreneurs and well placed venture investments. After the discussion, I had the opportunity to speak with dozens of social networking entrepreneurs who were looking for some “rules of thumb” to help launch or expand their ventures. Much of the advice I gave was echoed by the earlier panel discussion. I’ll attempt to summarize the main points here: Continue Reading »
Take a step back 20 years, and pretend you’re the owner of a neighborhood bookstore. Being there everyday, you can count how many people came into the store day, how many picked up a book and looked through it, and most importantly, how many people actually bought a book. You can easily determine the demographics of shoppers and observe which books they peruse and which they neglect, how much you spent on advertising to pull each customer into the store, and analyze the data to increase your bottom line.
Fast forward 10 years to the days of the dot-com bubble. Companies were raising tens of millions and spent obscene amounts of money on acquiring eyeballs (bringing customers into the store aka customer acquisition). Cookies and user tracking were in their infancy. More importantly, tools which informed webmasters of who was coming to their site and what they were doing were very basic. Continue Reading »
I was playing around on GoDaddy the other day w/ my hosting account and ran across the “16 Rules” by GoDaddy’s enigmatic founder and CEO. I think they are pretty interesting:
1. Get and stay out of your comfort zone.
I believe that not much happens of any significance when we’re in our comfort zone. I hear people say, “But I’m concerned about security.” My response to that is simple: “Security is for cadavers.” Continue Reading »
