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Thursday, January 31, 2013

Remember the square and round pegs must match the correct holes

Match the people to the correct task!

The matching of shapes seems like a simple concept.  Fitting pieces into a puzzle requires matching shapes if you want to see the final picture.  Putting Legos together to make a recognizable form requires a bit of skill and vision of what the final product should look like.  Building a home or office building requires planning the assembly of the pieces to achieve the final stable and attractive form.  The matching of pieces of something is critical to building everything.  This includes building a startup.

Entrepreneurs spend time studying to prepare the business plan and slide show.  They obtain the IP rights required to own the technology.  They carefully select advisors and mentors.  The assembly of the business structure and form is like putting a puzzle together.  Matching square pegs to square holes and round pegs to round holes.

Once the business is ready, the entrepreneur starts to recruit top employees to create a team.  Some entrepreneurs have prior experience recruiting and managing personnel, while others have NONE.  Recruiting and managing personnel is more than picking the best and brightest.  The matching of skills and personalities is just as critical to proper team construction.  Place the wrong people in the wrong spots and they will be unhappy, perform poorly, or be disruptive.  Hire poorly and you can end up with a very dysfunctional team: read “Supervising Snow White and the 7 Dwarfs.”

Some of the best people may be terrible fits for your startup.  They have the skills but are unable to adapt to the environment.  The personalities may mismatch with the team.  Your lack the ability to place them in the correct job or your management style is bad for that employee.  The meshing of people to the correct positions and ensuring a highly functional team takes practice and tuning.  Hiring them and assigning a role followed by lack of monitoring can lead to disaster.

A recruiter once stated that a question asked during the hiring process is, “What do you need to do your job?  Running a lean startup is different from working in a Big Company.  A tentative employee that provides a laundry list may need that level of support.  An employee that says a checkbook and a rolodex might be a better fit.  Hiring a project manager is important in some companies.  Project managers keep projects moving properly and meet the milestones on time.  Hiring an imaginative, inventive, idea person for this position may be a horrible fit because they require a more creative role. Tasking them with a job requiring a high level of focus on detail and timing will be boring and constrain them.

Keep in mind that building a business does require fitting the pieces together and placing them appropriately.  This includes the PEOPLE!  The team should be highly functional and mesh well.  They need to work and play well with each other.  This requires a great fit for all to ensure they are happy and productive.  

Tuesday, January 29, 2013

Teflon Man as a nickname is not a complement

If these are hanging on your door, consider seeking help!

People use a wide range of styles of managing their businesses.  The styles often reflect the personality and previous experiences of the individual.  Some people are true leaders and can attract a team that will follow them anywhere.  They are confident, coach their team, help them achieve goals, and share the glory of a success.  Good managers have learned that “Fixing the problem, not the blame” works well and makes everyone happier. Then there are those managers that have not learned that “Freaking out is not a management style.” As problems occur, they attach blame to their subordinates.  They never accept responsibility.  Since nothing ever sticks to them, they get the nickname “Teflon Man.”

Managing people in a leadership manner requires understanding the limits of individual abilities.  Pressing employees to work harder and faster is OK to a point!  When the pressure causes an employee to exceed his or her limits, mistakes become more frequent resulting in missed milestones or wasted money.  Sometimes the errors can be catastrophic.  Recognition of the error is easy; the problem escalates when the manager insists on blaming others for the error.  The Teflon Man always takes the stance that the error is never their fault.  They pass judgment and tell senior management the employee was at fault.  They see the fix for the problem as disciplining or removing the employee.

Employees do make mistakes!  If you hire well, trust and help the employees improve their abilities.  Coaching the employee and helping them become better should be one of a leader’s objectives.  Having a well-trained and confident team that works without fear is a blessing.  They will try harder and accept responsibility for mistakes they make.  They will offer more ideas and contribute more as team members when they are not concerned with continual negative feedback.

Teflon coated people are promoted because they never make mistakes: “their team makes them!”  Management that does not recognize this behavior fosters the activity and enhances the discontent of the employees.  The employees will always be concerned for receiving blame when they were not fully responsible.  Making errors in this environment may cause one to try to hide the problem rather than fix it. 

Taking risks is very much part of building a startup.  Working faster and harder is an important part of building a successful business.  Combining the risks with the speed can lead to errors.  There is often a shared responsibility for the problems.  Development of a successful company arises when successful problem solving takes place and errors are rapidly fixed.  Getting input from everyone and having them work without fear facilitates better solutions.

If you are the Teflon Man, try changing to become a leader.  Coach your team and help them become the best they can be.  Teach them there is no reason to fear you or making mistakes.  Seek solutions that resolve problems and encourage the team to be part of the solutions.  You may find that the business environment leads to more creativity, successes, and enjoyment among all that work there. 

Wednesday, January 23, 2013

Lack of social networking may hinder investment in your company

Originally, I would have thought this title was insane.  How can such a statement be true?  The answer resides in that type of company you have and how investors view you as the CEO and leader of the business. 

Take as an example a company planning to develop a business creating a software application intended to bring customers and service providers together.  You develop a business plan demonstrating the value proposition of the business.  You offer the marketing strategy in the plan and show how marketing would be to both service providers and potential customers.  Perhaps you intend to use the internet social networks to help launch the program and help bring the customers together with the providers. Remember this is hypothetical!

The investors review your slide show and invite you to present to formally to the group.  You make an excellent pitch and the investors love the company.  The investor group is happy with your answers to some of the initial questions and they elect to move to a formal diligence process.   If you recall from previous posts, your company is not the only one the investors will see at any given time.  They may see several businesses, which could even be similar to yours. 

One of the factors reviewed in the diligence are the people.  You can consider the people review any way you want, but be assured that the CEO is one of the team reviewed extensively!   CEOs are the face of the company and investors often review a wide range of topics, like the following:

·        Contact network – The CEO must be able to generate partnerships and raise capital.  Investors want experience and reach to companies and the investor pool.  Leaning on the job for this one is a minus attribute.

·        Ability to excite investors – The CEO must be able to present a great story to investors and convince them to invest. 

·        Understanding of the business – The CEO must understand the business and markets.  This includes the aspects of how the marketing is to take place and management of the process.

·        Leadership and team building – The CEO must be focused and be able to lead the team to achieve the milestones that create value.  In addition, the CEO must be a person that can attract talent to the company and keep them happy once they join.

Remember, this article is a discussion of whether you are at a disadvantage because of not having a social network established.  The proposed business presented data showing they planned to use social networking as part of their marketing strategy.  In diligence, the investors learn that the CEO has no experience in social networking but a different company looking like a great investment has a CEO with such experience.  Both investment opportunities appear to be great to the investor group, but one CEO is less experienced in social networking.

You can guess what the investor group may do.  In fact, the company and description are not related to the actual case, but the passing on an investment because the CEO was not familiar with social networking actually occurred.  YES, the group passed because the CEO was not experienced with social networking!  So in short, if your company has social networking as part of its projected operating plans, your lack of experience may cause an investors to pass on the opportunity.

Monday, January 21, 2013

All I need is a lead

Entrepreneurs raise money from a range of sources.  Initially, funds may come from family and friends but eventually the funding requirements escalate.  Road shows become commonplace and visits to a large number of funding sources becomes a major activity.  Entrepreneurs receive feedback from the investment professionals and often there are statements of interest.  One such statement is a bit misleading: “I will invest in your company once you identify a lead! 

This comment alone brings great joy and excitement to entrepreneurs, including the veterans and first timers.  It is hard to imagine that someone expressing a willingness to invest in your company should bring anything other than excitement.  However, there is a catch. 

In a recent article, several questions were listed that may help you in your attempts to raise working capital.  One of these is, “Do you lead or only follow?” Your visits to the funds must include a mix of those willing to do the heavy lifting and lead transactions.  It is possible to spend large amounts of time identifying followers and never find a lead.  The result is that you fail to close on a financing.

Failure to find a lead becomes an easy way for followers to weed out the crowd of companies seeking money.  It is easy to express interest and not conduct diligence until the data is presented by a lead they trust.  If no lead shows up, the follower is done with you!  In fact, even with a lead, they still may not invest.  Their seeming willingness to invest if you have a lead is exciting, but it is a maybe and NOT a firm commitment!  It is amazing how many times the statement of interest is pronounced.  Nearly every entrepreneur will hear this form of investment interest multiple times in his or her career.  The interest disappears later when a valid lead appears.  One hears excuses like “we recently invested in a different company in this space.  

Keep in mind that a lead investor may never step up.  In this case, you may have many potential followers but never get them to invest.  A valid lead investor may not wish to have your followers as part of the syndicate.  Many times, lead investors want other known investors working alongside them.

The point of this article is that you accept the statements of interest with cautious optimism and place more emphasis in finding investors that will lead a transaction.  Entrepreneurs have reason to be enthusiastic, but should not go overboard because the statement of interest is not a true commitment.  Especially, do not make the common mistake of bragging about all the investors you have lined up.  Think of it as a bunch of definite MAYBEs!  Approach the remainder of your fund raising tour with a realistic understanding of the situation.  Remember, your financing is not complete until the money is in the bank!

Wednesday, January 16, 2013

Negotiating tips summary and links

There is not magic wand in negotiating, only hard work!

·        Negotiating starts at your first interaction, Learn as much as possible, Watch where you set your anchor, Do not be afraid to walk away

·        Do your homework, Deal benefits, Perceived value created, Deal terms constructions, Analysis  and adjustments

·        Three things can kill a deal; valuation, location, and EGO
·        It is better to walk away than do a BAD deal
·        Tips from a great negotiator @TheCliveRich  or http://cliverich.com/

·        Planning is essential
·        Getting deals done mean you have something the other side wants
·        Taking your time if fine, but indecision will cause you the loss of business
·        You are selling to the other side in negotiations.  They must want what you have to offer.

Tuesday, January 15, 2013

Entrepreneurs experience piling on

Piling on in football implies that the opposing team members have jumped on the pile of bodies of a tackled runner after the end of a play.  Great energy and enthusiasm causes the team to over react and incur the penalty.  Piling on is an event that may occur to entrepreneurs on their startup playing field.  It occurs when numerous people or groups follow the herd after some company event.

Some events can be great for the management and the company.  For example, a company has an extremely exciting and valuable technology and finds that potential partners, investors, or consumers clamor for rights or access.  Consumers will flock to the stores to purchase the product and the company books huge increases in the sales and earnings.  Developing great business deals when multiple companies want to partner allows for optimization of the deal structure to provide the maximum return. 

Companies with the greatest excitement command the highest prices at the time of IPOs.  Facebook for all the problems after the IPO was an oversold offering.  This was due to the large number of investors wanting the equity. Apple produces products that are so desired that lines form at their stores just to be the first to obtain the latest and greatest device.  This form of piling on has a benefit to the company.

The reverse can occur and piling on can be negative.  Make investors unhappy and huge numbers will sell the shares out of fear or anger.  Indicate a slowdown in production and the share price will drop like a rock due to the massive amounts of selling.  In these situations, management must identify changes that will bolster public opinion and confidence.  Stabilizing and reversing the trends are possible when the underlying business is sound.

The case where the underlying business is not sound brings out the sharks.  People smell blood in the water and come after management and assets.  Shareholders and debtors may take the management to court claiming activities that caused the loss of value.  Debtors learning of a potential default go after assets in court trying to collect.  Any news of problems causes many individuals that feel disadvantaged to pile on.  Surviving and rebuilding the company becomes extremely difficult when this occurs.

Employees can become unhappy with management or feel compensation or conditions are unfair.  They tend to approach management one at a time.  Once some event triggers greater concerns, the problem escalates and employees become more organized or approach management in mass. 

Managing the positive events is so much easier than the negative events.  Balancing the positive becomes maximizing the return for the company.  Dealing with the negative events becomes crisis management and survival.   The management team may be able to tackle the issues one at a time, or handle the greatest concerns first followed by lesser concerns.  Remember, it is possible to screw up great situations or to make the bad ones even worse.  Your best bet is to always remain calm and approach all situations rationally.  

Friday, January 11, 2013

Managing risk is critical to success

Risk management includes your distance from the alligators.

People are different and individual tolerance for risk varies.  It is amazing that many people will walk up to an alligator just to get a good look.  The photo above shows two such animals just behind the tree.  Standing from a SAFE distance, I saw many people approach the animals as if they were pet dogs.  Some even took their children with them.  Alligators have an ability to run at around 30 mph for short distances.  They may attack if they are hungry or if they feel threatened.  The lack of fear of those that move so close is something I just do not understand.  The desire to see the animal over rules the sense of fear in some people.

Taking risks with one’s life or wellbeing can result in great harm.  Harm may also come to those that take risks with their money.   Loaning money to a person you know nothing about carries risk.  The risk level drops if you know the person very well, they have a great stable job, they pay all their bills on time, and you know how to contact them.  Risky loans were a good part of the financial meltdown around 2007 because of failure to adhere to proper standards some banks.

Holding company equity has risk just as loans have risk.  Companies may grow and succeed but some fail.  Even great companies can get into trouble and cause big losses for investors.  If you doubt this fact, look at the history of certain banks from 2005 to the present; at least the remaining ones! 

The same goes for startups and entrepreneurs.  Evaluations of the risks are essential to investors.  It does not matter whether the investment is as a loan or as equity.  Managing the risk would be up to the investor risk tolerance and risk management style.  One method of managing risk is extensive diligence on all aspects of the business and the people.  Couple diligence with diversification of a portfolio provides further protection.  For example, consider investing $100,000 equally over 10 investments with the performance of each investments being the following: 1 company increase 10 fold, 2 companies fail completely, and the other seven remain unchanged.  An investment of $10,000 in each becomes $170,000.  The fact that 2 resulted in complete loss was offset by a huge gain in the one that went up 10 fold.  The example of portfolio management becomes more important when a person is managing someone else’s money.  When you manage your own funds, you may elect to take greater risk.  Managing money for others usually comes with a more conservative approach. 

Fund managers and VCs manage money for other people.  They must mitigate risk by selection of companies that fit a portfolio strategy.  Balancing a portfolio may mean picking 10 different companies, but is can be further diversified by spreading investment over different technical areas or industries.   Funds often have a lifetime, which results in return of investors’ money with profit or loss factored in to the return.  VCs sometimes pick 7 years for this lifecycle.  They may elect to invest in greater risk and potential big return companies at the start of the fund.  Toward the end of the fund, the investments may become more cautious.   This means that companies selected toward the end of the cycle are those that are more advanced, expected to have modest returns, and certainly highly likely not to lose value. 

Funds have a responsibility to make money for their investors just as you do.  They manage risks and develop portfolios like you as well.  The decision to invest in your company becomes a balancing act for them.  You may have a fantastic company but the investment decision is based on much more than the business.   Eliminating internal risks in your business can help, but the management of risk for the institutional investor includes many factors.  The point is that a turndown by an investor may not reflect negatively on you or your company.  Investors may raise a new fund and your chances may be greater in their early stages.  Try to understand the fund situation before your first visits.  Knowing their timings and restrictions may help you understand their final decisions.

Thursday, January 3, 2013

Entrepreneurs must live in the present and predict the future

Failure to examine the path may lead to disaster!

Some entrepreneurs have been around the block; i.e., a nice way to say they have a bit of age on them.  The age comes with experience and knowledge of things past and present.  One of the down sides of the experience is trying to do what worked in the past without checking to see if it is relevant in the present.  This is not as much an issue for the younger set and first timers.  They have no history to draw from unless they get advice from mentors with “been there done” that experiences. 

There is nothing wrong with trying what worked in the past.  It is a good way to start.  The error comes when one forgets to survey the present and determine whether what worked in the past is even relevant today.  Sometimes, this strategy is outdated and overly complex.  Take for example a reverse merger into a shell company.  The laws for such methods have become more complicated and the waiting periods for listing on an exchange may make the process not suitable to what it being attempted.  In the past, these mergers were more easily funded and were one mechanism of going public; today it is not nearly as easy and it takes much longer than other procedures. 

Marketing is changing and even how you interact with your healthcare provider.  Crowdfunding is new and it opens the door for some companies, but not so for others.  The degree of acceptance of your services or products is altered by the ability for consumers to obtain information that may alter their decisions.  When was the last time you went to the doctor without having done an extensive search on a health issue of concern to you?  If you have not done this, you should.  Your ability to speak more intelligently with the doctor may improve your understanding of what you should do after leaving!

The point made in this article is that history is a guide and may be a great starting point for discussion.  Good evaluation of the steps you take to build your business requires your learning about the present and trying to predict the future as well.  You may elect to go with past strategies because they are solid and well founded.  This is great once you confirm they are still valid.  The later part is essential.  Trying to accomplish a task via an outdated process and failing to make corrections along the way may make your task much harder than it needs to be.  Kodak for example, failed to adjust their strategies even though they could have dominated digital printing.  There are other companies heading in the direction of being outdated and predictions are available for several large companies going that route if they do not change. 

It is up to you as the leader of your startup to know when change is required.  In a prior article, “The best guru for entrepreneurship and startup for your company”, the discussion of learning and taking advice suggested that you are the best person to make the final decisions.  You have many people that provide advice and data.  You must augment that advice and filter it to ensure it is applied in the most effective way. This goes for the seasoned professional as well.  You know what worked in the past, but you should not stick with that process until you have vetted it properly.  This includes listening to others and learning more about the present and predictions of the future.

The surprising aspect is that the more experience you have the less likely you may explore other ideas.  This happens more often than one can imagine; I even do it!  Learning to do things in different ways and modifying your strategies is critical to the PIVOT.  You must learn to change with the times and implement successful programs.  Sometimes, the successful concepts and actions are framed by the past, and then they are modified to fit the present and future.