Posted: November 19th, 2007 by Matt Boynton Category: Tips & Tricks

The Top Ten Lies of Entrepreneurs (by Guy Kawasaki)

(Since I've antagonized the venture capital community with last week's blog, I thought I would complete the picture and “out” entrepreneurs to begin this week. The hard part about writing this blog was narrowing down these lies to ten.)

I get pitched dozens of times every year, and every pitch contains at least three or four of these lies. I provide them not because I believe I can increase the level of honesty of entrepreneurs as much as to help entrepreneurs come up with new lies. At least new lies indicate a modicum of creativity!

1. “Our projections are conservative.” An entrepreneur's projections are never conservative. If they were, they would be $0. I have never seen an entrepreneur achieve even her most conservative projections. Generally, an entrepreneur has no idea what sales will be, so she guesses: “Too little will make my deal uninteresting; too big, and I'll look hallucinogenic.” The result is that everyone's projections are $50 million in year four. As a rule of thumb, when I see a projection, I add one year to delivery time and multiply by .1.
2. “(Big name research firm) says our market will be $50 billion in 2010.” Every entrepreneur has a few slides about how the market potential for his segment is tens of billions. It doesn't matter if the product is bar mitzah planning software or 802.11 chip sets. Venture capitalists don't believe this type of forecast because it's the fifth one of this magnitude that they've heard that day. Entrepreneurs would do themselves a favor by simply removing any reference to market size estimates from consulting firms.
3. “(Big name company) is going to sign our purchase order next week.” This is the “I heard I have to show traction at a conference” lie of entrepreneurs. The funny thing is that next week, the purchase order still isn't signed. Nor the week after. The decision maker gets laid off, the CEO gets fired, there's a natural disaster, whatever. The only way to play this card if AFTER the purchase order is signed because no investor whose money you'd want will fall for this one.
4. “Key employees are set to join us as soon as we get funded.” More often than not when a venture capitalist calls these key employees who are VPs are Microsoft, Oracle, and Sun, he gets the following response, “Who said that? I recall meeting him at a Churchill Club meeting, but I certainly didn't say I would leave my cush $250,000/year job at Adobe to join his startup.” If it's true that key employees are ready to rock and roll, have them call the venture capitalist after the meeting and testify to this effect.
5. “No one is doing what we're doing.” This is a bummer of a lie because there are only two logical conclusions. First, no one else is doing this because there is no market for it. Second, the entrepreneur is so clueless that he can't even use Google to figure out he has competition. Suffice it to say that the lack of a market and cluelessness is not conducive to securing an investment. As a rule of thumb, if you have a good idea, five companies are going the same thing. If you have a great idea, fifteen companies are doing the same thing.
6. “No one can do what we're doing.” If there's anything worse than the lack of a market and cluelessness, it's arrogance. No one else can do this until the first company does it, and ten others spring up in the next ninety days. Let's see, no one else ran a sub four-minute mile after Roger Bannister. (It took only a month before John Landy did). The world is a big place. There are lots of smart people in it. Entrepreneurs are kidding themselves if they think they have any kind of monopoly on knowledge. And, sure as I'm a Macintosh user, on the same day that an entrepreneur tells this lie, the venture capitalist will have met with another company that's doing the same thing.
7. “Hurry because several other venture capital firms are interested.” The good news: There are maybe one hundred entrepreneurs in the world who can make this claim. The bad news: The fact that you are reading a blog about venture capital means you're not one of them. As my mother used to say, “Never play Russian roulette with an Uzi.” For the absolute cream of the crop, there is competition for a deal, and an entrepreneur can scare other investors to make a decision. For the rest of us, don't think one can create a sense of scarcity when it's not true. Re-read the previous blog about the lies of venture capitalists, to learn how entrepreneurs are hearing “maybe” when venture capitalists are saying “no.”
8. “Oracle is too big/dumb/slow to be a threat.” Larry Ellison has his own jet. He can keep the San Jose Airport open for his late night landings. His boat is so big that it can barely get under the Golden Gate Bridge. Meanwhile, entrepreneurs are flying on Southwest out of Oakland and stealing the free peanuts. There's a reason why Larry is where he is, and entrepreneurs are where they are, and it's not that he's big, dumb, and slow. Competing with Oracle, Microsoft, and other large companies is a very difficult task. Entrepreneurs who utter this lie look at best naive. You think it's bravado, but venture capitalists think it's stupidity.
9. “We have a proven management team.” Says who? Because the founder worked at Morgan Stanley for a summer? Or McKinsey for two years? Or he made sure that John Sculley's Macintosh could power on? Truly “proven” in a venture capitalist's eyes is founder of a company that returned billions to its investors. But if the entrepreneur were that proven, that he (a) probably wouldn't have to ask for money; (b) wouldn't be claiming that he's proven. (Do you think Wayne Gretzky went around saying, “I am a good hockey player”?) A better strategy is for the entrepreneur to state that (a) she has relevant industry experience; (b) she is going to do whatever it takes to succeed; (c) she is going to surround herself with directors and advisors who are proven; and (d) she'll step aside whenever it becomes necessary. This is good enough for a venture capitalist that believes in what the entrepreneur is doing.
10. “Patents make our product defensible.” The optimal number of times to use the P word in a presentation is one. Just once, say, “We have filed patents for what we are doing.” Done. The second time you say it, venture capitalists begin to suspect that you are depending too much on patents for defensibility. The third time you say it, you are holding a sign above your head that says, “I am clueless.” Sure, you should patent what you're doing--if for no other reason than to say it once in your presentation. But at the end of the patents are mostly good for impressing your parents. You won't have the time or money to sue anyone with a pocket deep enough to be worth suing.
11. “All we have to do is get 1% of the market.” (Here's a bonus since I still have battery power.) This lie is the flip side of “the market will be $50 billion.” There are two problems with this lie. First, no venture capitalist is interested in a company that is looking to get 1% or so of a market. Frankly, we want our companies to face the wrath of the anti-trust division of the Department of Justice. Second, it's also not that easy to get 1% of any market, so you look silly pretending that it is. Generally, it's much better for entrepreneurs to show a realistic appreciation of the difficulty of building a successful company.

 This blog entry is an excerpt from Guy Kawasaki's blog, from January 8, 2006, which can be found here

Posted: November 06th, 2007 by Richard Banfield Category: Tips & Tricks

This post from Robert Glazer on NDAs is a good reminder that ideas are not nearly as important as execution. Ideas are useless unless someone does something actionable about them. Here's a snippet...

Let’s bring this concept back to small businesses for a second. In my career, I have probably read over 2000 business plans from entrepreneurs seeking their first round of investment capital. I tend to cringe (as do all venture investors) a little bit when folks ask me for an NDA simply to hear their idea. As a general rule, I believe the entrepreneurs who are taking this approach have been given bad advice and often tend to be putting too much focus on the idea itself. They are often hunkered down holding onto the belief that their idea is proprietary, when in reality, what will make them successful is their ability to execute on that idea. This has more to do with the team, key business relationships, intellectual property, etc. An NDA is really more appropriate if you are trying to protect specific information such as a trade secret, real financials (i.e. historical), etc. or to protect your core information as part of a formal relationship with a service provider. However, if you ask for an NDA just for someone to hear your pitch, you may creative a negative first impression. Very few repeat or serial entrepreneurs will ever ask for an NDA as a prerequisite to hearing their idea, mostly because they know that their competitive advantage lies in their execution capabilities.

Posted: November 01st, 2007 by Richard Banfield Category: Tips & Tricks

In a recent lecture at MIT’s Sloan Business school, Ricardo Semler, CEO of Semco,  gives us some new guidelines for what a successful company really  looks like. Here is an  excerpt from the lecture:

A 5 year plan is just an extrapolation added to wishful thinking. Have you ever seen a business plan that says, “I’m going to go up 5% and then down -14% and then -22% and then I’m going to recuperate a little bit and then it’s going to go to hell?”

‘Cuz that’s what happens. That’s how it looks in practice, but that’s not the way we design it. We’re willing to trick ourselves into thinking we have control as long as we do it with wishful thinking.

Posted: October 30th, 2007 by Richard Banfield Category: Tips & Tricks

We have a small office just outside Boston and the topic of doing our part to reduce our impact has come up more than once. Here's a list of ideas we have implemented to start the ball rolling. 

1. Office Space: The first step was to move out of the big building we shared with a bunch of other startups into our own smaller place. This may sound counter intuitive but large office buildings are the biggest carbon gas hogs in metro areas. Our smaller office uses less heat and A/C energy (we can tell by the utility bill) and it has the added advantage of having a lower monthly lease.

2.  Printing: We have decided to print nothing unnecessary. This includes brochures, business cards and letterheads. It's amazing how little you actually need those things when you build a business that lives on the web and generates new sign-ups by word-of-mouth. Printed material wastes money, takes up space and creates untold amounts of pollution (both actual and information pollution).

3. Commute: We allow our team to work from home whenever they want thus reducing the amount of driving they need to do. This reduces carbon emissions and makes our team happier.

4. Vendors: Choosing our vendors based on their commitment to environmental goals allows us to push the green agenda to a slightly broader audiences. This is a simple as asking where your vendors work, where they get their supplies from and what they do with their waste.

5. Recycle: It still amazes me how many companies we visit that have no recycling policy. Separate your recyclables and if you're in a small office you can even take your trash home. This allows you to add the recyclables to your home recycling pick-ups.  

If you have more ideas, please add a comment or email us.

Posted: October 19th, 2007 by Richard Banfield Category: Press

Killer Startups have given us a glowing review on their great website. Thanks Gonzalo. Vote for us if you have a few seconds!

Here's what they are saying about Startup Business School...

There is a lot of material you can read on starting your own business, but the best advice you can get is from people who have been in your shoes and have gone through all of these steps. StartupBusinessSchool.com helps you create a business plan for your startup and there are helpful lessons provided by experienced owners, that are dedicated for each step of the business plan.

Posted: October 19th, 2007 by Richard Banfield Category: Tips & Tricks

I really like the suggestions in this BusinessWeek article. Here's a taste...

1. Demonstrate enthusiasm.

2. Articulate a compelling course of action.

3. Sell the benefit.

4. Tell more stories.

5. Invite participation.

6. Reinforce an optimistic outlook.

7. Encourage potential.

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Posted: September 28th, 2007 by Richard Banfield Category: Tips & Tricks

Everybody wants to get more reward for the work they do. Unfortunately most working people get less than they deserve. If you're in that category then you probably think you have to work more to make more. We've been told from the earliest age that hard workers get the big rewards. That kind of logic makes sense, right? Not really. Working harder is actually not the best strategy to increasing your income. So what can you do to increase your overall wealth and actually reduce the amount of hours you work?

1. Reduce Your Hours at Work: This might seem harder than it really is but try it out as soon as you have a chance. Negotiate with your boss to work on a deliverable basis rather than an hourly basis. Ask if you can be rewarded on the goals you achieve rather than on the amount of hours you clock. This is harder for hourly wage earners but most bosses will actually support these types of work strategies.

2. Commute Less: One of the biggest drains on energy is commuting. It's dead time for most people unless you can afford a driver to do the dirty work while you make calls, catch up on reading or send email. For the rest of us commuting means sitting at the wheel with our minds just racing about all the things we could be doing. Find ways to work from home or reduce the amount of time in the car. Some of the tactics I have used include commuting during non rush-hour periods to avoid traffic; working from home 2 or 3 days a week; investing in a virtual meeting technology like GoToMeeting to reduce trips to the office for short meetings.

4. Reduce Email Flow: Email is clearly one of the worst hogs of time both in the office and out. With phones and BlackBerry's these days you feel like you're always one step away from getting a flurry of emails that require your attention. In Mark Hurst's book, Bit Literacy, he outlines several ways to reduce the amount of email 'weight' in your life. Some examples are, don't send as many emails (less outgoing email means less responses); only check email twice a day to avoid it interrupting your work flow; and setting out of office responses explaining that you will only be checking email twice a day to train your colleagues and clients how and when to reach you.

4. Kill Meetings: The other big time waster is meetings. Ask yourself, "if I miss this meeting what's the worst thing that could happen". Use your time to invest in the things that have a high return on investment. For example, using your new found time to start a business on the side would provide you with additional income.

5. Start Your Own Business: This may seem obvious to the readers of this blog but it's generally believed that a stable job with a big company offers the best opportunities. This thinking is outdated and as companies discover the advantages of outsourcing, off-shoring and downsizing, you can be sure a lot of people will reconsider their long held ideas about jobs.

Starting your own business is not necessarily easier than holding down a high paying job but the advantages are ten fold. Your own business allows you to increase your earnings relative to the effort and energy you put into it each day. Working longer hours at your job brings nothing but stress. Your own business also allows you to increase your non-taxable earnings by deducting the costs of living before you have to pay taxes. Items like your phone bill, gas, car maintenance and adding an office to your house can all be deducted in most states.

Posted: September 13th, 2007 by Richard Banfield Category: Tips & Tricks

At least once a week I'm asked what our secret to success has been at our web design business, Fresh Tilled Soil. I'm going to tell you what we tell everyone who asks the question, "growing a service business is a people job, if you don't like people, then try something else". If you are the founder or CEO of the company then working with people is your number one job. A founding member that is not willing to talk to people, both internally and externally, is bound to fail. For example, if you are an engineer that prefers to work with code and the idea of talking to strangers gives you nightmares then you might want to reconsider your role in your company. Don't put yourself in the CEO or COO role. In fact, if you are not good with people you may want to consider not managing others at all. 

If you are the founder of a small service company or web company that talks to customers everyday then make sure you have the ability to talk to others with confidence.

Posted: August 24th, 2007 by Richard Banfield Category: Tips & Tricks

If you've ever wondered why you need to create a very smart prototype and have to be very strict on project management consider any one of these wonderful pieces of info: 

• CHAOS Report: According to the Standish Group's 2003 CHAOS Report, an analysis of 13,522 IT projects shows that 15% “failed” and another 51% were considered “challenged.” While the overall failure rate is down significantly from a 1994 level of 31%, 82% of projects now experience significant schedule slippage and only 52% of required features and functions currently make it into the released product. Source: The Standish Group.

• Hackett Group: Thirty percent of all application projects lasting more than a year “failed to meet business requirements,” a Hackett Group survey found. “This failure rate would be untenable in virtually any other corporate function.” Source: The Hackett Group, “2003 Profile of World-Class IT."

• Kweku Ewusi-Mensah: A 1994 survey of 82 Fortune 500 companies by Kweku Ewusi-Mensah and Z.H. Przasnyski found that 44% of respondents had experienced “total abandonment” of an IT project and another 16% had experienced “substantial abandonment.” Source: Kweku Ewusi-Mensah, Software Development Failures.

• Gladwyne Software Surety: In a 2000 survey of 150 senior financial and technology executives, Gladwyne Software Surety found that “projects without proactive risk management are 67% more likely to be late or over-budget.” A subsequent survey of 208 members of Financial Executives International found that 84% of respondents reported at least one IT project that was delivered late, exceeded budget, or failed. Source: Gladwyne Software Surety, “Return on Investment and IT Risk Management.”

• Boston Consulting Group: “Most CRM efforts fail. Typical initiatives start in the IT department with high hopes and expensive software but very little in the way of clear business objectives. Once the projects are under way, they are delegated, dissected, and then neglected. It's not surprising that two-thirds of them crash.” Source: Boston Consulting Group, “The Antidote to Mismanaged CRM Initiatives,” 2002.

• KPMG: A 1995 KPMG study of 120 IT organizations in the U.K. found that 62% had encountered “runaway projects” that either failed to achieve their objectives or experienced cost overruns of 30% or more. Source: A. Cole, Software World (UK).

More here: http://asuret.com/research.html

Posted: August 22nd, 2007 by Richard Banfield Category: Tips & Tricks

...your competition moved a step ahead. While you were dreaming of better things another startup grew a little stronger. Your competition moved up in the search rankings because they don't sleep. They are passionate about their business because it's theirs and they don't work for someone else anymore.

Our friend Wil Schroter, founder of the Go BIG Network wrote a wonderfully inspiring piece last night (while I was sleeping). Here's a little taste of this eye-opening posting:

"Startup Founders don't sleep because the work of a startup is never done. Many years from now, when this startup idea turns into a big company with lots of managers and bureaucracy, then I can sleep. As it stands now, there's too much work to do."