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Thursday, November 29, 2012

Photo tour of the life of an entrepreneur

Every entrepreneur has dreams of great and wonderful things.  This is normal and expected.  They are highly motivated and dedicated to their technology and can find no flaws at all.  They are certain they will be successful and there is no one that can convince them otherwise.

They form a team ready to fight for success.The team prepares the development path and the operating plans.They start as much of the work as possible with little money on hand.

The CEO and other members go on the financial hunt. They need money and seek every possible source. Grants, loans, Friends & Family, and Angels are among the first sources approached. Few will see immediate success, but they will continue the search.
Given the tight money situation and highly competitive environment, the teams will continue but may soon become tired.  They may even reconsider their options. 

Some of the companies will not survive and will be eaten or die.  Many of the entrepreneurs start over at this point with a new company.
Some of the companies get their lucky break.  They become re-energized and enthusiastic.  They work hard to try to achieve all of the goals they established, hopefully, before the money runs out.
The winners emerge and go on to start new companies or become Angels.  They teach others to develop companies and coach or serve as board members. 

The road is difficult but the challenge is worth the fight.  Entrepreneurs do what they do because they believe they can succeed and want to do something grand.  They all are winners but some have more money than others do in the end!

Tuesday, November 27, 2012

Entrepreneurs must excel at selling

Entrepreneurs learn to sell and negotiate or they never get to YES!
A recent comment via friends (@RevenueDoctor & @Bill_Simmel ) on Twitter reminded me of the quote by Zig Ziglar:   Every sale has 5 basic obstacles: No Need, No Money, No Hurry, No Desire and No Trust.”   The need to overcome the obstacles and close a sale is critical if a company wants to survive.  Sales are essential to prepare for even before the product comes to market.    

Marketing and sales of medical products are even more complex than many other types of products.  The regulatory requirements of the FDA ensure that approvals are supported by validated and solid statistical studies.  Any marketing claims not properly documented supported by data result in severe responses by the FDA.  It is even possible to go to jail if the infractions are severe enough.   The need to match the marketing claims to data collected to support the claims is the reason many companies have a marketing person closely involved in any study designs leading to a product approval.  Thus, an additional obstacle to overcome is “insufficient data.”   This obstacle also flows to the medical site where the sale takes place.  The physicians review the data and may fail to adopt the product usage for lack of data, loss of patient to a different practice, or other means, i.e. “loss of revenue.  The control of the patient and revenue to the medical practice is critical to each practice.  As a sales person, you may overcome all of the 5 basic obstacles Ziglar lists, but the insufficient data and loss of revenue are two that will kill a medical sale even quicker.

Entrepreneurs need to understand the dynamics of the market place for medical sales and they need to convince investors to participate with their money.  This attraction of investors is no small task.  The last decade has contributed to a downturn in the VC funds and other investors willing to take on such risky investments.  There are numerous companies with fantastic product ideas in development all competing for the limited capital in the sector.  The risk tolerance of the investors is understandable since many of the VC firms fail to come close to the returns their partners thought were possible.  The larger number of companies in later stages of development results in a wider selection and greater competition for the money from the remaining viable funds.  In turn, this results in cherry picking of the more developed and therefore less risky investment opportunities.

The selling process to the investors by the entrepreneurs in the medical sector is requires two selling aspects:  1) they need to demonstrate that they understand and can competitively market and sale their developed product, and 2) they need to convince the investors to support the growth of the company.  The investors will actually review the first criteria as part of their diligence on the company.  The diligence never starts if the entrepreneur fails to sell the idea of the company to the investor. 

A different set of issues and criteria may occur in other fields.  The thought that starting a company requires a great idea is only part of the equation.  Entrepreneurs must understand their markets and sales criteria for the products.  They must also be able to sell the idea of the company to the investor community and negotiate the best deals possible.  Getting to YES is difficult and knowledge of selling and negotiating is essential.  Several criteria help take a company grow from the early startup to a huge success.  Nearly every criterion requires some ability to sell something to someone and negotiate the result.  In short, entrepreneurs must become master salespeople and negotiators and use these skills to grow the company.  

Wednesday, November 21, 2012

Your gut does not always lead you to the best decisions

Do my eyes decive me?

In a recent article, brief description of a key point, your gut may be wrong, was mentioned.  Daniel Kahneman, “Thinking Fast and Slow”, made this case in his best-selling book.  A recent Facebook story told as if by a leading professor and modified a bit, leads you to the same conclusion.  The story is below:

A professor stood before his philosophy class and had some items in front of him. When the class began, he wordlessly picked up a very large and empty mayonnaise jar and proceeded to fill it with golf balls. He then asked the students if the jar was full. They agreed that it was.

The professor then picked up a box of pebbles and poured them into the jar. He shook the jar lightly. The pebbles rolled into the open areas between the golf balls. He then asked the students again if the jar was full. They agreed it was.

The professor next picked up a box of sand and poured it into the jar. Of course, the sand filled up everything else. He asked once more if the jar was full.. The students responded with a unanimous 'yes.'

The professor then produced two Beers from under the table and poured the entire contents into the jar effectively filling the empty space between the sand. The students laughed..

'Now,' said the professor as the laughter subsided, 'I want you to recognize that this jar represents your life. The golf balls are the important things---your family, your children, your health, your friends and your favorite passions---and if everything else was lost and only they remained, your life would still be full. The pebbles are the other things that matter like your job, your house and your car. The sand is everything else---the small stuff.

'If you put the sand into the jar first,' he continued, 'there is no room for the pebbles or the golf balls. The same goes for life.

If you spend all your time and energy on the small stuff you will never have room for the things that are important to you.

Pay attention to the things that are critical to your happiness.

Spend time with your children. Spend time with your parents. Visit with grandparents. Take your spouse out to dinner. Play another 18. There will always be time to clean the house and mow the lawn.

Take care of the golf balls first---the things that really matter. Set your priorities. The rest is just sand.

 One of the students raised her hand and inquired what the Beer represented. The professor smiled and said, 'I'm glad you asked.' The Beer just shows you that no matter how full your life may seem, there's always room for a couple of Beers with a friend.”

The story above describes how you view the surroundings and make decisions using your gut and intuition.  Such decisions can often be less than optimal.  The use of analytics helps when applied to such events.  Analytics has even become an early trend in investing.  One VC actually raised capital on an analytic tool that uses investment patterns of other VCs.  They review by computer the lead firm and the lead partner making investments.  If you come to them with such information, this firm will invest based on the statistics of success of that partner and firm!  Other investment firms on Wall Street use analytics in a similar manner.  The point being that review of your decisions in a more analytical manner may allow for fine-tuning. You may end with a superior decision.  That is your ultimate goal in the end.

Taffy Williams is the author of:  Think Agile:  How Smart Entrepreneurs Adapt in Order to Succeed to via Amazon 

Tuesday, November 20, 2012

Dilution concerns by founders and investors

What is the dollar value of your ownership in the company?

Investors and co-workers in your startup often express dilution concerns.   A past article addressed this issue in part and a description of the need to communicate and educate your investors formed the basis for a different article.  This piece further addresses the issue of dilution as a result of an excellent question from a reader commenting on a recent article covering the summary of a conference.

“Regarding the comment on continually seeking capital: How is it that this approach, though desirable from the point of view of the entrepreneur, is not looked upon with some alarm by investors who will be diluted unless they are the ones who again capitalize the startup?  What's the thinking on that from the investor standpoint? In for a penny?”

The point made in the question is a very real concern expressed by many investors and team members in startups.  Just recently, a company’s team exchanged numerous emails discussing valuation and downstream dilution.  In a different company, the issue of downstream dilution was of high concern to the Angel Investor pool.  Even 15 years ago, a Board expressed these concerns as the company raised capital $18M.  The question is a one that requires thought and consideration as you seek to raise capital.  It even becomes a personal concern should you ever leave the company and the company continues to raise capital.

A few key areas to consider:

Does the capital raise enhance development and increase valuation of the company?

It is important to develop a long-term budget that shows expenditures required to become a profitable company.  Your investors are entitled to know this requirement and understand how it might affect them.  Raising capital for a company that does not increase or may decrease in valuation dilutes all shareholders and decreases the value of their ownership; this does happen by design.  Many times the company does not achieve their anticipated valuation increase and the dilution effect hurts investors.  No entrepreneur ever develops a startup to lose money for investors. They always believe the valuation will increase with development and sales of a product.  Sometimes the company does not capture the desired sales or attention and the company value never goes up. 

Plans to raise capital must fit the company development plan and launch schedule.  Raising all the money up front is dilutive and possibly in a negative way. For this reason, capital raises should take place with increased valuation increments; e.g., the last shareholders bought at $1 / share, the next round is at $5 /share.  Valuation should increase if the company meets their milestones and sales estimates.  The required cash should support this activity.  Many well informed investors will review the proposed spend and accomplishments.  They understand the need to progress while having adequate cash reserves to overcome difficult times.  They expect dilution to take place but look at the value of their ownership as important. 

Does failure to raise capital harm the company valuation?

One way all investors are harmed often occurs when the company needs capital because they are out of money.  The new investors realize there is not gas to fuel the company and they negotiate very hard for a larger piece of the company or a greatly reduced valuation.  Terms like “cram-down” or “down-round” originated from such events over the last 10 years or so.  The phenomenon became a real issue as the year 2000 bubble burst for technology.  The lack of investor interest for several years afterward forced many companies to expend their cash reserves.  These companies may have developed on schedule, but the reduced economy and fear by investors slowed financings.  The firms making investments cherry picked the best companies and negotiated very favorable terms.  Clearly, this form of dilution harmed those not participating because of the down-rounds.  

Are there preferences or anti-dilution provisions that may harm unprotected investors? 

Consideration of preferences and anti-dilution are important, but become less so if you are out of money.  The choice of closing the doors or completing a down-round is difficult for all involved.  No one wins if the company shuts down, so entrepreneurs try to close on a financing under the best conditions possible.  They may try to reduce the harm of liquidation preferences or anti-dilution provisions by trying to negotiate with the holders of these rights.  If successful, the dilution effects in down-rounds are not as bad; however, these deals do not usually work out favorably.

How do you answer the investor concerns?

The important piece of information for the shareholders is whether the percentage of ownership one holds shows an increased value with the anticipated dilution.  It may take time to realize the improvement, but this is an important point. For example, a 10% ownership of a $5M company is $500K, while a 1% ownership of a $1B company is $10MM.  Not all investors or team members accept this at face value and it takes time to help them see the long-term benefit. It takes time to raise capital and requires making countless presentations and developing relationships.  Entrepreneurs must immediately start the networking after each financing round to ensure they relationships are developed and investors are interested when it is time to complete a new round.  The key take home message is it is better to have a small part of a big number rather than 100% of nothing.

Sunday, November 18, 2012

Networking is not a one sided activity

What do you mean you want my help, knowing me should be enough

Some new and established networkers may have missed the office memo: “Networking is far more than asking for help.”   Networking is meeting others followed by establishing a relationship.  This requires more than a 5-minute intro in a bar.  Often it means meeting with people again and getting to know them better.  In addition to getting to know the people, you should learn their skills, likes and dislikes because that is part of the person.  This takes time and you can expect these people to want to know you as well.

It is a very odd email to receive when someone sends a note after a brief intro and they ask for intros to people that may invest in a company.  A brief intro to a person does not allow one to develop a sense of the right type of people that may help the requesting party.  Secondly, the personality of the person making the request may not be a fit with those were a referral is made.  Finally, some people never adequately describe their company in a brief meeting.  This does not allow for identification of the correct people that may be helpful.

It is equally odd to receive an email from people you have never met where they request help in finding investors for a company.  This happens rather often.  It is even more surprising when the person requesting introductions wants the help with nothing to offer back.  One interpretation of this type of behavior is “please help me get rich while you watch.  That should be satisfaction enough.”

Stranger still are the networkers that may have a great idea but fail to describe it.  Telling someone you just got a patent is wonderful, but that is not adequate.  Perhaps 1 in 5,000-10,000 patents are actually of significant value.  Often the people seem do not understand what having a patent means.  A patent gives one the right to block people from selling your product.  It does not give you the right to sell your product.  A lot of other work is required to understand whether you have a freedom to operate!  Some of the patent holders cannot even elaborate what their patent protects.  This sounds bad and it is.  You need to know what your intellectual property covers!

Meeting someone you wish to develop relations with requires your intentions to reciprocate; i.e. when you get a call, you will help them!  Perhaps you know people that are one-sided and always come with a handful of “give me.”  They may even be the ones with alligator arms when it comes to picking up a check after lunch: i.e. their arms seemed to get so short they can reach the bill.  No matter how often you go out with the person, they never pay the tab.  Guess they expect their company is good enough.

Networking means establishing a relationship.  You want my A-list of contact; you have to earn my trust.  Asking for help means, you may have to help me in the future and I have to trust you.  I have to understand why you need help and what you are trying to accomplish.  Can you imagine calling someone to make an introduction and not be able to provide any info what so ever?  I may lose credibility with my contacts or worse, introduce them to a person they will regret meeting.

Think of networking in the correct manner.  Developing a solid network is critical to your future.  People in your network are people you would help if they call you and available if you need help.  You are not to abuse your privilege and should be appreciative of what help you receive.  If you never get a request for help, that is fine.  However, you should never approach the relationship with only yourself in mind.  That makes it one-sided and doomed in the long term.

Friday, November 16, 2012

Lessons learned by local entrepreneurs

For some, small communities are more beautiful

Big Council hosted a technology conference for entrepreneurs yesterday in Charlotte NC.  The conference had panel discussions where VCs, CFOs, and entrepreneurs all participated in extended dialogue and question answer sessions.  Unlike Boston or Silicon Valley, the Charlotte NC area has fewer companies and less VC groups with local funding.  Several things the region has are worth sharing because the advantages are similar in many other smaller communities.  In addition, the companies experience the same issues, utilize the same terms for financings, and experience many of the same trends of technology companies across the USA. 

·        The local area has reduced talent for hire when compared to the more established regions.  However, when a person joins one of the local companies they tend to remain with the company and in the region.  Stories of talent shifts in Silicon Valley and other areas were described and retention in those regions is more difficult.  In those areas, highly experienced people find that if a company is not growing fast enough they will move to a different company.  This occurs less often in smaller startup communities.

·        There is a different type of network present in smaller communities. They are focused on helping grow the community. They tend to be friendly and approachable. 

·        Angels exist in large and small communities. Angels are always interested in new companies that fit their interests. A local company found angels in New York that owned sports franchises. The entrepreneur obtained expert help and investment from the New York groups. It is not true that you must move to find money; Angels recognize great technology and management and will invest if they like what they see.

·        All the entrepreneurs learned the lessons of timings relative to seeking financing. The realization espoused by all was that seeking funding never stops. The facts are that an entrepreneur will continuously be seeking capital until they depart the company or the company becomes hugely profitable. You never have enough money and seeking capital it the only way to improve your reserves. Fail to do so and you risk lower deal values in a future round.

·        Many entrepreneurs described periods of up to 2 years where they did not draw a salary. They found a variety of ways to sustain themselves and fund the company. Many took large risks by borrowing against their own properties. 

·        Entrepreneurs are the same everywhere. They know that the word can’t is not in their vocabulary. They realize that hard work and drive are part of the process.

·        NEWTORKING is the best way to find sources of money. Every entrepreneur that closed on a financing found it by networking. There is no magic involved and no central spot to go for the funds. They all worked hard, met lots of people, and developed relationships that yielded a closure to a financing.

The lessons are the same and the local companies have equal chances to become great businesses. There are differences from the more developed communities, but an entrepreneur is an entrepreneur is an entrepreneur. They will all strive to build something great and not stop until they succeed. Then they start over to create the next company!

Taffy Williams is on Twitter by @twilli2861.  Email questions to twilli2861@aol.com. More is available via his company website ,  photo website, or “LIKE” ColonialTDC on Facebook.  You can also find him in the group Startup Group on Linkedin. Other articles are in the Charlotte, NC- small business section of Examiner.com.

Wednesday, November 14, 2012

Try to avoid making key decisions under adverse emotional conditions

It is hard to make tough decisions when depressed
People often have problems that go well beyond the work place.  Home life for one is a place where issues arise that can leave one with a heavy heart and feelings of despair.  Look at all the people in New York affected by Sandy for example.  Many are without power and normal resources that were available prior to the storm.  Even those that are back to normal may have damaged properties that require filing of claims to recover for damages.  Such stresses are difficult enough.  Mix those issues with a major decision at work and maybe the work decisions are less than optimal.

A fight with a loved one creates emotions that may leave one depressed or angry.  The feelings may cause you to speak to someone at work in a manner that you would not under normal circumstances.  Suppose the argument was about money at home and a staff comes to you for a raise.  The home situation may lead to improper management of the work issue.  Perhaps you say something to a staff member you will regret later.

It is hard to set aside your feelings from your outside life when you go to work.  Those feelings carried to negotiations or business discussions may alter your views of what you will or will not accept.  When reviewing compensation of employees, you may feel overly generous and approve higher bonuses or pay increases. Feeling sad and depressed you may give your employees lower compensations.  Negative feelings may cause you to take a not seek proper solutions to problems.  Possibly, you may react in a negative manner to a co-worker and generate conflict in the work place.

Emotional issues and the effects on decisions are not one-sided.  If you have a bad day at work, those feeling may lead to issues at home.  Saying harsh things to a loved one when you had a bad day brings the tensions home and possibly may even generate problems for a few days. 

One of the hardest things to do is compartmentalize your feelings and keep issues isolated.  It would work better if it was easy, but it is not.  The best you can do is to try to separate the feelings from key decisions and spend a little more time thinking about them.  You may elect to wait until later to review what you have decided later and make sure you are really going in the direction you want to move.  Perhaps, you could have a third party review the decisions and discuss them with you.  Reconsideration of the decisions and adjustments often help to make for improved outcomes in these cases.

The one thing you want to guard against is making a bad decision because of external influences creating emotions counterproductive to the process.    You will have those days and you should consider steps to smooth out the decision process and ensure you do not do something you will regret. 

Thursday, November 8, 2012

Working hard is not enough

This swan worked hard but never moved forward!

It is easy to work hard and accomplish little.  The objective is to work hard and accomplish great things.  Employees or founders are easily distracted and engage in activities that cause them to spend time and energy achieving their objectives.  Improper objective identification by the team or the leaders complicates performance of the business by producing less than desired achievements.  The selection of objectives is up to the leaders in some cases, but in research areas, the investigator often selects the objectives within a broadly defined area.  All assignments should fit a project or program plan along with identified timelines.  Monitoring the teams’ efforts ensures meeting of goals and identification of any adjustments that enable meeting of those goals. 

Broad areas and objectives leave much room for creativity and innovation.  This is especially important in certain areas where research is taking place.  The process requires motivated scientists with specific ideas to produce products rather than simple research results.  However, there are cases where team members do not possess the skill set to self-govern their own day-to-day activities or identification of objectives.  When this occurs, the employee seems to work hard but never accomplish anything of value.  It is also hard to gauge their progress or accomplishments.  Efforts to improve outcomes can come from extra guidance, a better outlining of programs, assignment of the person to assist a more productive individual, or other such activities.  However, this does not always produce the desired result and sometimes makes good employees less productive.

The objective of the company leader must be to identify and separate those that are salvageable from those that are not.  Continued observation by others in the company or by the manager of a non-productive employee eventually create a reduced energy work environment.  People wonder why the individual receives the same pay and perks while producing nothing.  The company staff will always measure their value relative to others.  This is not the most ideal, but it does happen.  It works better when the team works hard and everyone sees each member as key to the success of the business, and not someone that is dragging the business to lower levels of productivity.

Helping others learn and develop in the business community is an important part of a leaders function.  Likewise, the rapid identification of those that one cannot retrain or reassign is equally important.  It is not easy to request that someone depart the business, but it is part of running a business effectively.  The best you can do in such cases is to treat people with respect and attempt to help them find something for which they are better suited. 

In short, you only have limited resources and time to build a startup into a successful business.  This requires defining objectives toward development of products that create value for the company.  Meeting the timelines and objectives are critical and serve as measures for investors gauging your performance.  Simply working hard is not enough for your company or your employees.  They must accomplish something of value in a timely manner and at a projected cost.  Each step must take you to an improved level in the company, or you may just stay put forever.  In this case, you as the leader are like the employee that works hard but never accomplishes much.