OTBC blogs

Are you spending too much time networking?

Steve Morris — Thu, 13 Jun 2013 16:04:54 +0000

The first topic of the OTBC summer camp 2013 will be a check list of things to do when you start a company. One of the items on the list will be effective networking.

More than once, I've heard start-up mentors encourage new entrepreneurs to get out and network a lot. The idea is that you should meet as many entrepreneurs and investors as you can when you're first starting out. You need to get fully engaged in the "start-up ecosystem". That has to be good advice, right? Well, maybe not. I've come to believe two things about networking for startups.

1. Networking that is goal-driven is extremely valuable, even essential.

2. For the early-stage entrepreneur, too much networking can be worse than a waste
of time - it's time that would have been much better spent working on your
business. That can be a huge opportunity cost.

For an early-stage entrepreneur, I would argue that the single most important way to spend your time is to validate that you have a viable business model. What that means is that to start, you need to talk to customers to verify that what you think is an unmet need, actually is something that customers believe is an unmet need. And not just an unmet need, but a compelling unmet need. In fact, customers need to believe that what you're describing is such a compelling need, that they'd be willing to buy a solution from a start-up company that's so new that it's a complete unknown.

It is very likely that investors, other entrepreneurs, and mentors are not your target customers, and they probably haven't researched the customers/problem/solution combination that you are targeting. So at the very early stages, why would you want to get input about your business from other entrepreneurs, investors, and mentors?

In the early stages of a start up, you are much better off spending your time talking with your customers, validating that the unmet need is real and compelling, and validating that the solution you have in mind does meet that need, rather than spending a lot of time networking. If you're not sure how to validate a market, then talking to a mentor or taking advantage of entrepreneur workshops and boot camps (like our Summer Camp or the Startup Weekend NEXT program) can help fill in those skills.

Once you've validated the opportunity, that's a good time to start doing some networking to build a core team to create that solution, if you don't already have a core team in place. Then build your minimum viable product and find out whether customers actually use and like it. Then you might want to think about networking with investors.

So the next time you go to a networking event, be sure you have a clear goal in mind!

Click here for more information on the OTBC summer camp (goal: entrepreneur education - with some networking on the side...)

Question: How do I compensate contractors with stock?

Steve Morris — Tue, 28 May 2013 17:17:28 +0000

An entrepreneur asked me this week for some advice on how a startup should compensate contractors with stock. Here's what I suggested.

Stock options (NSO or non-qualified options; the kind of options can be given to anyone) are a common way to compensate contractors. Instead of vesting over time, you can have the vesting be based on deliverables. If they have several years to exercise the options, then they should not have an up-front tax impact or a need to make any up-front cash payment. When the stock becomes worth something, they can opt to exercise the option.

Granting stock is a possibility too, but in that case they would either purchase the stock at "fair market value", or it would be taxable income. In either case, the amount is probably relatively small, but it still requires some out-of-pocket expense.

One thing to be careful about is to not claim (in the negotiations) any particular value for the options. For example, what you don't want to say something like "given what we think our valuation is, these options are worth $10,000, so these options should be worth $10,000 of work". That applies a value to the options which makes the granting of the options a taxable event for the contractor.

There's more on stock options (and NSOs) at: https://pinboard.in/search/u:stevemorris?query=stock_options

blog_tags:

contractors startup stock-options

Summer Camp Survey Results

Steve Morris — Fri, 10 May 2013 19:18:05 +0000

Thank you everyone who responded to the Summer Camp survey. The goal was to get input to help us select the topics for the 2013 Summer Camp. We'll present the selected topics at workshops at OTBC - and stream them live online. Want to stay informed of Summer Camp details? Get on our list.

We had 42 people respond, and the 16 most popular requests were:

Customer Development - if you build it, will they buy it?
How to Size and Segment a Market
How to Build a Realistic Funding Plan
How to make sure your Company Owns its Intellectual Property
The Top 20 Mistakes Entrepreneurs Make (and how to avoid them)
How to Develop a Go to Market Plan
How to get started: a checklist of things to consider and do
How to Validate the Assumptions on your One Page Canvas
Board of Advisors and Board of Directors: what they are, how they work
Cofounder compensation - how it works
An HR Checklist for Startups
Capture your Critical Business Model Assumptions on a One Page Canvas
Disruptive Innovation - what Startups Need to Know
Startup Valuation - How it Works
Finding/recruiting Cofounders
Managing a Startup Team

We have room for 8 topics, so our focus in July (and again in August) will be topics 1-8. We'll also cover topic 12 (Capture your assumptions) as a part of 8 (Validate the assumptions). In the top 16, that would leave:

- Several team/HR/Board issues
- Disruptive Innovation
- Startup Valuation

For next Fall, we'll work on putting together a "Team" workshop to tackle all those team issues, and also schedule seminars on Disruptive Innovation and Startup Valuation. So by next Fall, we'll have covered all of the most popular topics.

If your curious - here is the ranking of all the topics listed, and the additional topics suggested by survey respondents:

Topic	Percent Vote
Customer Development - If you build it, they will buy it?	74%
How to Size and Segment a Market	71%
Build a Realistic Funding Plan	69%
How to make sure your company owns its intellectual property	69%
The Top 20 Mistakes Entrepreneurs Make	66%
How to Develop a Go to Market Plan	60%
How to get started: a checklist of things to consider and do	60%
How to Validate the Assumptions on your One Page Canvas	57%
Board of Advisors, Board of Directors	57%
Cofounder compensation - how it works (and why stock should vest)	54%
An HR Checklist for Startups	51%
Capture your Critical Biz Model Assumptions on a One Page Canvas	51%
Disruptive Innovation - what startups need to know	49%
Startup Valuation - how it works	49%
Finding/recruiting cofounders	46%
Managing a startup team	46%
How to Create a Compelling Elevator pitch	46%
Create a "clickable prototype", without writing code	43%
How (and Why and When) to Write a Business Plan	43%
How to be a "Lean Startup" (and what that means)	43%
Crowdfunding - how it works	40%
How to create a compelling investor pitch	40%
How to Develop Financial Projections	40%
Grants for Startups: SBIR	40%
What Investors Want: How to Get Investor Ready	37%
Exit strategy - what is it is; how to develop	34%
How to close an angel funding round	34%
Funding paperwork: Term sheets and legal Documents	29%
Trademarks	26%
Patents	20%
Trade secrets	20%
Copyrights	20%
Venture Capital - what is is; how it works	20%

Sonivate Named Willamette Angel Conference Finalist

Steve Morris — Thu, 02 May 2013 15:38:08 +0000

Congratulations to the Sonivate Medical team for being named a finalist for the Willamette Angel Conferece.

Vote for Summer Camp Workshop Topics

Steve Morris — Thu, 02 May 2013 15:22:19 +0000

What topics would you like to see OTBC cover in Summer Camp in July and August? We have a long list of possible topics - and you can help us pick the workshops we provide by voting.

Voting just takes a minute at: VOTE NOW

blog_tags:

workshops summer-camp entrepreneur

9 Tips for Convincing Cofounders to Make the Jump

Steve Morris — Fri, 19 Apr 2013 20:05:29 +0000

Whether you're looking for a programmer or a CEO, if you want to find - and motivate - the right person to join your startup as a cofounder, you'll need to put together a very compelling story. After all, joining a startup is risky - like jumping into a very big void. It's especially risky if you're asking someone to work for stock compensation for a few months. Here are 9 tips for developing a strong story:

1. Validate your idea by talking to customers

You start with an idea - but lots of people have ideas to pitch. The idea becomes much more compelling (and you learn a lot) when you spend time with target customers validating that customers agree that

The need is real
The need is compelling
What you think is a solution does indeed solve the problem

If you interview 10 prospective customers, you'll learn a lot, and your pitch to prospective cofounders will be much more compelling - because you'll have real customer examples and real customer passion.

2. Prototype the solution

Just because you're not a programmer, that doesn't mean you can't prototype a solution. There are plenty of tools non-programmers can use (examples: inVisionApp.com and Keynotopia.com). A real-looking "clickable" prototype will help you with your market validation (it gives you something much more concrete to show prospective customers) but it also conveys a very clear notion of what you want to build to a developer. And with a clickable prototype, you'll make it clear to prospective cofounders that you're serious about this - you've done your homework. You've created a prototype. You're way beyond the hand-waving stage. What needs to be built is very clear. (And, again, you'll learn a lot in the process.)

3. Deliver the solution without coding - and charge for it

Consider doing a test implementation of your solution without coding - by using prototype tools and substituting your own time for some of the web intelligence you want to provide. Ask yourself: how can I "manually" implement my idea to see if it delivers customer value - and to see if people will pay for it? Then deliver the service - and charge for it. There's no better proof that your solution is compelling than having customers pay for it. A proven business model is much more compelling than a hand-waving argument that "it's going to be great"! That significantly reduces risk from a prospective cofounders point of view!

4. Go beyond the idea - be clear about why what you are doing is important

Why would a prospective cofounder be interested in your idea? What's the bigger vision? Why is this an important problem? What kind of people will be motivated by your cause? If your idea has to do with K-12 education, you might want to look for people who care about education - perhaps because they have young kids. If your idea helps people reduce energy use, then you might want to find people that are passionate about energy solutions - or about saving the planet. Be clear on why this is important, because you don't want to pitch an idea; you want to pitch a cause and a purpose - something that's important.

5. Be clear on the outcome you need

If you're not a programmer, you may not know the exact technical skills you need. Should you look for a PHP programmer or a Ruby programmer? A user experience designer or a front-end developer? But what you can be clear about is the outcome. If you need someone to select a development platform, and then architect and implement your Minimum Viable Product, then be clear on that. Not every developer can cover all those stages well, but that's a good place to start the conversation. Likewise for non-technical cofounders - be sure you're clear on the skills and the outcomes you need.

6. Recognize that roles tend to change over time

It's good for you (and for your prospective cofounder) to realize that roles change. You might not need a Chief Technology Officer today - you might just need someone who can get that first Minimum Viable Product developed. Even if you first team addition is a CTO, remember that today's CTO might not be the right fit for CTO in a year. That can be true of any role - including CEO. So focus on what you need today and look for people who are strong contributors, who "fit" with your corporate culture, and who can grow and evolve with the company. But its good for you - and for prospective cofounders - to know that your roles in a year may be a lot different than they are today. Setting expectations early makes change management down the road a bit easier.

7. Think about company culture

What company culture do you intend to build? This is worth serious thought. The kind of company you want to build should be a very important topic for prospective team members. It's important that you and your cofounders agree on what corporate culture you want to build.

8. Be clear on what compensation you're offering: Will compensation be purely stock, or money, or both? If stock is part (or all) of the compensation, how much of the company are you willing to offer? And why? If you execute to plan, what do you expect that stock to be worth in 4 years? Sure there's risk - but it's OK to pitch the upside too.

9. Get out and network

Now you're ready - with a validated market, a "clickable" prototype, and a clear idea of why your company is important, a carefully considered corporate culture, and a clear idea of what capability you need. You're ready to network to find the right person. So where can you start?

The good news is that there are lots of networking opportunities. Some Oregon options: The OregonStartups.com entrepreneur calendar lists lots of events. Startup Weekend can be a great place to meet people. So is OTBC's Founders Seeking Cofounders (coming up April 19) Cofounders Lab and Founder Dating are a couple of other options.

So start with these tips to get prepared- then go forth and find a cofounder!

Congratulations to Sonivate, and all the Angel Oregon Finalists

Steve Morris — Fri, 05 Apr 2013 23:01:56 +0000

Congratulations to OTBC resident venture Sonivate on reaching the finals in Angel Oregon. Having already one the Bend Venture Conference, Sonivate is on a roll. Their finger-tip mounted ultrasound probe creates new application prossibilities for ultrasound.

Contratulations to the other Angel Oregon launch stage finalists too: Brandlive, Indie Vinos, Language Twin, Selfpubd, and SpinRiot.

6 views on Finding Cofounders

Steve Morris — Fri, 05 Apr 2013 22:25:04 +0000

Starting a company? Thinking about cofounders? To get off to a great start, I suggest you sign-up for the OTBC "Founders Seeking Cofounders" event on April 19.

Meanwhile, here are some ideas from my favorite cofounder blog posts (posts that are tagged "cofounder" in the OTBC blog tag-cloud):

Should you go it alone? Maybe not, as explained in "Going Alone: Thoughts on the Single-Person Startup "
Thinking about going virtual with people in different geographies? There are some drawbacks: Why a remote workforce is a bad idea.
Entrepreneur Brian Hamilton shares several suggestions in "Got a Startup Idea? How to Pick a Cofounder" - like look for complementary skills, and focus on accomplishments, not background.
D.J. Patil adds some good food for thought in "Want a Great Team? Focus on Talent, Not Hiring"
Audrey Watters has ideas on where to look - and suggests you consider both hackers and hustlers in "Finding the Right Co-Founder for Your Startup"
Steve Blank has some very helpful thoughts in his post on "The Startup Team", including this observation on hackers, hustlers, and one person teams:

...generally great technology skills (hacking/hardware/science) great hustling skills (to search for the business model, customers and market,) great user facing design (if you’re a web/mobile app,) and by having long term vision and product sense. Most people are good at one or maybe two of these, but it’s extremely rare to find someone who can wear all the hats.

It’s this combination of skills is why most startups are founded by a team, not just one person.

Come share what you've learned in looking for cofounders (and maybe find a Cofounder!) at Founders Seeking Cofounders on April 19.

6 ways to think like an angel investor

Steve Morris — Mon, 25 Mar 2013 17:30:51 +0000

Early stage entrepreneurs often have a lot of questions about angel investors - what they look for, how to convince them to invest, how long the process takes, and, in general, just what makes investors "tick". I'd like to suggest that it's not that hard to figure out. You can understand quite a lot about how investors think - by simply putting yourself in their shoes.

After all, angel investors aren't from another planet. They're just people with a reasonably high net worth who decide to allocate part of their investment portfolio (probably a small part) to startups.

So let's pretend that you're a high net worth individual. Here are some things you'll probably be thinking about:

1. The money you have to invest is your own, hard earned money

OK - so you have a high net worth. Maybe you can afford to lose that $25,000 or $50,000 check you write to a startup - but you sure don't want to lose it! It's you're hard-earned money. So you're going to look at investments pretty carefully before writing a check. And you're not going to invest until you're comfortable with the investment.

2. Like all people, you're unique

Asking "what are angels like" is kind of like asking "what are people like". They are all different. They all have different priorities and goals. Just like you.

Making a reasonable financial return on your angel investments is likely to be one of your goals. But you might have other goals. Maybe you want to "give back" in return for all the help you've received. Maybe you enjoy getting your vicarious thrills by getting involved in startups. Maybe you care deeply about some particular social cause, and you look for opportunities to support that cause. Whatever your goals, you have your own unique life experience and personality - and dealing with you will be different than dealing with any other angel.

To understand what's really important to you as an individual, entrepreneurs will have to do some research! Or, at the very least, they can ask you...

3. You know that investing in startups is risky

Because you've been around the startup scene for a while, you understand that startups are risky. Most don't make it. So you know that you'd better invest in more than just one or two startups. You know that in spite of all the research and care you put into it, most of the startups you invest in will not return a single dime.

So to get a decent return on your portfolio of startup investments, you'll invest in several - and you're betting that at least one or two of them will do very, very, well - to make up for those that fail. So you're likely to be interested in investing in startups that have the potential to return several times your investment (maybe even 10 to 30 times) because you know that to create a decent overall return, you'll have to have a home run or two. (Or at least some strong base-runs.)

So you'll be looking for big markets, and significant growth potential in every startup you consider. Because you need home-run potential.

4. You hear a lot of pitches

As you become known as an angel investor, you'll be hearing a lot of pitches. That's good, because you need to invest in several startups. But the range of quality of those pitches and the stage of the startups that pitch you will likely vary greatly. And you're in a great position to compare them, because you see so many pitches.

In the morning, you might meet with an entrepreneur who has an intriguing idea but no team yet and no headway to show. In the afternoon you might meet with a 3 person team that also has an intriguing idea - but they have prototyped their product, gotten customer feedback, and at least thought through the major components of their business model, and put together some financial projections.

Remembering the "hard earned money" consideration I mentioned in item 1 - you're likely to decide that although the entrepreneur in the morning had an interesting idea, the team in the afternoon also has an interesting idea, and they look like a much less-risky place for you to put some of that hard-earned money. Because they significantly reduced your risk.

They have a prototype (reducing the "product" risk), they have some customer feedback (reducing the "market-adoption" risk), they have more of a team (reducing the "team risk") and in addition to having made some substantive headway, they've developed some financial projections (reducing the "finance risk"). The afternoon team has significantly reduced the 4 major sources of risk that you, as an investor, have learned that you should worry about.

Two intriguing opportunities. Two big markets. One has made a lot more headway, reducing the risk. You'll likely decide that the team that's made more headway has a huge advantage. As for that first entrepreneur, you may well decide you should wait a while to see if he/she makes any headway… maybe say a few encouraging words - and ask them to "keep in touch".

5. You don't invest in strangers

But even if you like the pitch at the first meeting - and even though you are a high net-worth individual, would you write a check after one meeting?

Well - would you?

Not likely.

Again, remember we're talking about your "hard earned money" that you don't want to waste. The idea may be great - but what about the team? You only just met them. Do they seem trustworthy? Do they have integrity? Do you have confidence that they can deliver what they commit? And what about the market and the competition? Figuring out all those things (i.e., doing your due diligence) takes time - and multiple meetings. And probably talking with others that have worked with members of the team. You're not likely to make a quick decision with $25,000 or $50,000 at stake! Getting comfortable with all the issues takes time - so it's likely to take weeks or even months before you're comfortable enough to write that check.

6. You know that each company you invest in will need more checks than just yours

So let's say you like the company, and over time you get to know and trust the team. You do your "due diligence" (i.e., you do some research) on the market, the team, etc. And you decide "yes, I want to invest in this team and this idea".

But wait a minute. If the team really does need whatever amount they are trying to raise (let's say $500,000 just to have an example) and you're going to write a check for $50,000 - and you're writing the first check - then they still need another $450,000. Can they do that? If they can't raise it - then they probably don't have the funding they need to succeed. And your hard-earned money would be a total waste, because if they can't close the amount of funding they actually need, they won't be successful. And your return will be zero. Money flushed down the drain.

So you'll probably spend a little more time trying to make sure that in addition to being the first investor - you're not the last investor. You'll want to chat with the team about what headway they are making with other investors. You'll probably want to talk with some of your friends who make investments, to see if they might be interested in joining in. In other words, you'll want to make sure the finance risk is manageable.

And that adds even more time to the process of getting ready to actually write that check. But once you're reasonably confident that the team can raise the amount they need (and you've already decided you like the team, the concept, the market, the return potential, etc.) then you're finally ready to write that check.

So that's just 6 thoughts to consider when trying to get inside the head of an investor. It's not that hard to figure out some of the basics of what makes them "tick". And with all that said - remember point #2: all investors are individuals; they, like you, are all unique. They have different priorities, different thought processes, and different investment strategies. But if you keep these 6 thoughts in mind, you're much more likely to develop a realistic approach to your angel funding strategy.

blog_tags:

angel_investors

Please don't ask me if I like your idea!

Steve Morris — Wed, 20 Mar 2013 21:49:20 +0000

Last night at the Cofounders Lab event, the first entrepreneur I chatted with described his "idea" and asked me what I thought of it.

My response: I haven't studied your market or talked with your target customers - so why ask me what I think of your idea? I'd rather hear from you what customer feedback you've gotten that confirms that the unmet need you think you've found is a real and compelling need - and the feedback that you've gotten from customers that confirms that your "idea" for a solution does indeed solve the problem.

That's the advice I try to give to all early stage entrepreneurs. You won't learn much asking coaches, mentors, investors, and other entrepreneurs about your idea. Talk to your customer instead. And don't start by talking about your "idea". You have an idea, which implies you think you've identified an unmet need that is so compelling that someone will pay you to provide a solution. So go talk to 10 customers and find out if they agree that what you think is an unmet need is in fact a need. Then you can ask if your idea for a solution actually is a solution - from the customer's point of view.

So please don't aks me if I like your idea. Instead, tell me what confirmation you've heard from your customers!

blog_tags:

ideas