A Sack of Seattle

3 years of startups is like 10 years of marriage

2009-12-09T09:06:05-08:00

I had coffee with a young entrepreneur that I've become quite a fan of. This particular entrepreneur, age 28 (best guess), started his company almost 2 years ago. His business originally was an online marketing and promotions company aimed at the college market. After about 6 to 9 months, he realized that business wsn't going to work and started to marketing and promotions on twitter. His business has continued to evolve -- as it should. I met him about 4 onths ago and he was "rudderless". He didn't know what he wanted his business to be when it grew up. He came to the coffee with a piece of paper with 5 very different strategic opportunities on it. The common theme: all were based upon twitter. He was thinking about customer service, lead generation, and marketing business all using twitter. I told him he had to decide what he wanted his business to do.

Well, at yesterday's coffee, he articulated for the first time a business that could be a business. Since the last coffee, he's met with lots of customers and gotten input and has figured out what he thinks he could sell NOW. He's realized he needs a "need to have" not a "nice to have" product. I don't know if he's right but it sounded directionally credible to me. That's Good. He knows what business he's building.

And now is where startups become hard. He's tired and his cap table is a bit upside down. He has 2 other people that have been working with him. They've taken little to no salary for 2 years. They raised an initial 300K but most of that is spent. They now spend 10K per month in total expenses including salary for 3 peopel (if you call it that). I told him founder weariness starts to set in around the 2 year mark and really kicks in around the 3 year mark. I told him it's a bit like what happens in marriages around the 7 to 10 year mark (for me it was 10 years). Things get REAL and get hard. The fantasy and dream of starting a business give way to the reality of no salary and limited success. This is when most people either push through or bail. He seems prepared to push through but....

His cap table is kind of upside down. He's raised 300K in a convertible note that assumed he'd raise a venture round in 12 months. Well, the venture round never came. The 300K is all from family. His dad recently agreed to give him 50K more into the same instrument. The problem is that when he makes traction in his new business and goes out to attract money for it...he's going to either get massively diluted himself or need to deal with those shareholders and cram them down.

I had a lot fo respect for him. I hope he succeeds. It's stories like this that are the real startups. We all dream about building the next Facebook, Google, or Twitter-- but mroe often than not success comes more slowly and with greater challenges and difficulty. Start ups are hard. They're not for the faint of heart. And capitalism isn't kind.

A Thousand Word Tiger Woods Post

2009-12-03T08:56:41-08:00

Here's the audio message too if you haven't heard yet. And here's the remixed version!

In this case, A picture and a voice mail are worth a thousand words. I admit it -- I am fascinated by this whole store.

Rookie entrepreneurial mistake or professional move? Probably both

2009-12-02T11:45:46-08:00

I have been talking to a potential investor in one of our deals and we were talking about syndicating the round to other institutional investors. He said he wanted to have a say in who the other investors were. I told him I understood this conceptually...but specifically, what did he think about investor x....and I gave the name of the investor. He said he didn't see a problem if x wanted to invest. Then he followed that up with the question : "so who else are you talking to" and I answer "y and z" and actually gave the names of firms -- I'm leaving the names out here to protect the innocent) The conversation continue for another 30 minutes.

On the way home, I was beating myself up for telling him the names x, y, and z. I told him for a simple emotional set of reasons: I like him, trust him, and feel like he's going to be a lead investor and so wanted to treat him like one. In that way, answering his questions, theoretically advanced our relationship and was a pro move. But he is not yet the lead investor -- and I just gave him the names of some of the people that I've been talking to and that information in no way can help me. One of the first lessons I learned in raising capital is don't tell the investors who else you're talking to. It's raising money lesson 101! What a rookie mistake.

Since that conversation, I actually talked about whether this was a mistake with the investor -- I'm not overly worried about it and it probably was both a mistake and a pro move. If he ultimately invests, then it was a pro move. If he doesn't, I'm sure I'll view this as one of my errors!

Lessons from selling "hot botties" -- what's that? Well, read this post...

2009-12-01T12:45:48-08:00

My daughter made her first hot water bottle cover over a year ago. She got into sewing and decided to make 2 of these covers for her teachers as a Christmas gift last year. The teachers loved them. She was inspired to make more. The idea evolved into making a bunch of these "hot botties" (that's the name she gave the hot water bottle covers) and to sell them to rabid University of Washington fans at the UW vs Washington State Apple Cup football game this year. As you can see from the photo -- they're cute, purple, and home made. All told, she made 20 of these water bottle covers...and the Apple Cup was this past Saturday. This post attempts to summarize my lessons learned from the rich first entrepreneurial experience.

Our experience on Saturday was rich and emotional. At about 11AM we started the process of boiling water and filling water bottles. We placed the water bottles in a cooler with wheels and the "hot botties" into 2 garbage bags (in case of rain). Also, since my wife and I had not yet been to a UW football game, we weren't sure about the security issues -- and since my daughter was not a permitted vendor the garbage bags would hide the merchandise. We packed up the car and I drove my wife, my daughter and my son to the tailgate area, dropped them off and went to go park. Due to traffic and parking challenges, I met back up with my family 15 minutes later. By the time I met them, they had only sold 1 "hot bottie". My wife indicated that they could use a shot in the arm -- i.e. they needed me to help them sell. The sale consisted of me going up to a group of people with my daughter -- I'd start the conversation and my daughter would offer the hot botties for sale. Initial price was $30.

The next 30 minutes weren't much better. I'd approach a fan or group of fans -- who were more interested in their hot sausages grilling on the bbq and their beer than my daughters "hot bottie". We sold 2 more -- but got a lot more no than yes. A lot more! My daughter was becoming dejected. She had the look of "this is hard and this sucks". It was the look that I would have had if I was being honest! Price was quickly reduced to $20.

As a family we verged on becoming desperate. My sales strategy evolved to emphasize the following points:

The hot bottie will keep you warm all game long -- here feel them (i.e. get the potential customer to hold the warm cute product)
These were made by my daughter for school and to learn entrepreneurship
Price is any donation amount you want (now no longer $20)
Focus on selling to older alum and to women. This product was lost on most males.

As a parent, there was a lot at risk to failing at sales. I kept thinking about how many hours she had put into making these things at my suggestion. My daughter's confidence and trust in me was at stake. No way were my wife and I not going to sell these things.

We pressed on. And we got a break -- one group of older alumni bought 3 at once. Ahh...some relief. By the ninety minute mark, we had sold half of them. The project was now respectable -- at least it wasn't going to be a failure. I suggested that we should sell a bit more and then go -- but my daughter now was feeling the mojo and she said she wanted to stay and try to sell more.

We sold all of them! And could have sold more! The last customers asked my daughter for her business card! The day was a huge family success.

Some reflections -- and think about how obvious a metaphor this is for your startup:

When we got home my wife and I laughed at how close to failure we had been. If my daughter had gone from a look of "this sucks" to breakdown -- we would have had to deal with internal breakdown and would not have had success.
Initial selling was hard! Price was wrong. Process was wrong. We needed to press through the "hard" part to get a few wins.
The blue bird sale of 3 botties blew wind in our spirits and carried us through to success
The line between success and failure is slim -- very slim
It would have been smarter to make 5 and try selling them before making 20 and trying to sell them. Testing the whole process would have taught us a lot!
When failure costs a lot -- success can happen. But it rarely is easy.
We would have had more success selling beer than hot water botties -- product market fit was off even though we had a unique cute product. It wasn't needed. Accessing the right customers was hard.
Be careful what you suggest your offspring get involved in!

Fans of Metallica and The Doors pose as two middle aged white businessmen

2009-11-24T13:05:17-08:00

I was at a meeting at Voyager capital yesterday and was talking to Geoff Entress and Bill McAleer. Photos enclosed. Bill and Geoff -- and myself are middle aged white guys. Both Bill and Geoff can come across as straight and narrow. Somehow the conversation turned to best concert we had seen of all time. I learned that Bill McAleer had been to a live Doors show and loved Paul McArtney. Geoff Entress has been to Metallica and loved the Smiths. The conversation totally changed the dynamic of "business" as usual and got us all to talk about experiences that were highly personal and that we were passionate about. It was fun and got the meeting off to a great start. It got me thinking that asking questions about people as a starting point for business meetings is a great way to start off a business meeting. It connects you with the people you're talking with on a personal level. That is good!

The risks of getting too aggressive: A story from one of my readers

2009-11-20T06:57:00-08:00

I got this email from one of my readers and just had to share it with all of you:

When I was about 13 or 14, I decided I wanted to run a web hosting company out of my bedroom (I had a successful BBS back in those days and wanted to start shifting into a profitable business). I figured I could charge like $50/mon and do web design and hosting, and if I could get maybe 5-6 customers I could afford a 512k frame relay line (everything was dial-up back then).. I wanted this so much, but didn't have the networking skills to find these customers. What I did was emailed the entire user list of a friend's BBS (who was already doing Internet hosting) and advertised my offer. My friend (who was a mentor to me) was very displeased with this, but I was too blinded by my visions of success to have thought about what I was

doing to people beforehand.

Persistence is omnipotent

2009-11-16T16:19:39-08:00

There's a lot of talk about "be persistent" in traditional business literature self help books. And the advice is sound -- but the meaning is often missed. It's easy to say "be persistent" but being persistent at the point when it matters is really freakin hard. I was reminded of this fact when I met with the entrepreneur, Scott Golembiewski, behind tuneyfish -- a how to video site that is now focusing on the automotive vertical. He started the company over 2.5 years ago and has almost bootstrapped the entire thing to date. He's been completely under-capitalized, built the site on a shoestring, doesn't yet have enough traction to be interesting -- but I'd say he's now just at the point where he understand what he needs to do to be successful and is starting to that in a small way. He's tired. He's broke. He hasn't received a pay check in forever. Being persistent is hard. That said, if he does persist -- somehow -- I bet he comes out a winner. The persistence that the business books write about is the hard persistence -- not the easy stuff.

Trust your gut: avoid scummy online transactions

2009-11-11T08:10:00-08:00

I was talking to Rahul Pathak, CEO of Lookstat, about ways to increase the number of sign ups for his analytics product. He wrote a blog entry about Microstock RPI and image formats (why it'sn not as cool as you think to be square). This blog entry has gotten lots of traffic because photographers can get some actual data about what formats to shoot in -- very useful data for photographers. I asked Rahul if he thought about "hiding" or cascading the conclusion of his report until after the user submitted an email. He told me that he had a negative visceral reaction to the idea of scummy online transactions -- I told him that meant he shouldn't do what I was proposing. We laughed. Seriously though -- my instinct to try to figure out a way to get a relationship with people who found value in his blog entry was good. My idea on how to do that was bad -- Rahul's gut reaction was good. This lead the two of us to a few very interesting engagement ideas that Rahul is going to be rolling out over the next few weeks. Stay tuned for good, interesting analytic candy -- and be sure to sign up if you want to have a direct relationship with the CEO who has a gut to avoid scummy online transactions. You rock Rahul. Trust your guy and stay awake.

The regret index

2009-11-10T08:07:00-08:00

I just watched this video of Josh Petersen of 43 things talking about the process of filtering ideas to see which one is worth pursuing. This process is a critical one -- and one that is filled with contradiction and emotion. in the video, he talks about using the notion of "regretting" not doing an idea as a way of sorting through ideas. I think he's totally right -- some ideas -- you just have to get out of your system...otherwise you'll regret not doing them. That doesn't mean that the start up is going to be a raging success if you only use this method of sorting through ideas -- I just think it's one of the more important ways to sort through your ideas. So along side your spreadsheet of market size, capital needs, skill fit, add a column for the regret index when analyzing which of your ideas to pursue -- and which ones not to pursue.

The Rise of Agile Organizational Development

2009-11-09T08:05:00-08:00

There’s lots of buzz in the startup community about agile software development; there are software programs, books and seminars on the topic, and even huge firms like IBM are now touting their "agile
development solutions". The general idea is to create a team and a software process that is flexible, quick and adaptive to feedback from the market. Put stuff out there, collect feedback on what works, kill what doesn’t, improve what does, rinse and repeat.

But there's a parallel trend occurring in the early stage technology market that hasn't been talked about much. Programs like TechStars, Y-Combinator, and Founder’s Co-op have been pioneering what I like to
call agile organizational development. These “initiator” organizations provide founding entrepreneurs with an incredibly compressed calendar of iterative feedback on all aspects of their company. The feedback comes from a broad network experienced entrepreneurs who serve as mentors in these programs, and it comes often, regularly, and relentlessly.

Mentors in these programs provide feedback on the startup’s team, 30second pitch, fund raising pitch, positioning, product, pricing – on just about every aspect of the organization. Some of the feedback is
contradictory - just like market feedback can be. The TechStars program even has a name for the confusion that results from conflicting advice: "mentor whiplash". But the net effect of all this
menot input is a set of organizations that adapt to market feedback much more nimbly than startup organizations of the past. This feedback cycle and the entrepreneurs' response is what I’m calling agile
organizational development and my bet is that the companies that embrace it are much more likely to succeed than those that don't.

These programs are all relatively new, and there aren't any books or seminars on the topic yet – but I'm betting there will be.

This blog post has been published by xconomy