When you’re raising money, the competition isn’t the competition

Written by (author unknown) and syndicated from Venture Hacks

Shared by ThomasEskebaek
A really good thing to keep in mind when doing the rounds and pitching, pitching, pitching, and pitching

Simeon Simeonov:

“You have to understand that you are not competing with an abstract notion of what a good investment is. You are competing with the other teams that saw the investor that week.”

This is why investors often don’t have good reasons why they’re passing. Maybe your company is good, but the competition is simply better. It’s really hard to understand this until 20 companies pitch you in one week. Simeon continues,

“To an investor, it costs about the same in terms of time to make a big or a small investment. Given the same risk/return expectations, they’d prefer the large investment most of the time.”

metacool Thought of the Day

Written by Diego Rodriguez and syndicated from metacool

Speed and Tempo: Fearless decision making for start-ups

Shared by ThomasEskebaek

The “fact based vs. faith based decisions” is very crucial - i.e. make your decisions quickly and based on the facts

(Editor’s note: Serial entrepreneur Steve Blank is the author of Four Steps to the Epiphany. This column originally appeared on his blog.)

I was catching up over breakfast with a friend who’s now CEO of his own startup. One of the things he mentioned was that when it came to decision-making he still tended to think and act like an engineer. Each and every decision he made was carefully thought through and weighed. And he recognized it was making his startup feel and act like a big ponderous company.

General George Patton once said, “A good plan violently executed now is better than a perfect plan next week.” The same is true in start-ups.

Most decisions entrepreneurs handle must be made in the face of uncertainty. Since every situation is unique, there is no perfect solution to any engineering, customer or competitor problem – and you shouldn’t agonize over trying to find one.

This doesn’t mean gambling the company’s fortunes on a whim. It means adopting plans with an acceptable degree of risk, and doing it quickly. (Make sure these are fact-based, not faith-based decisions.) In general, the company that consistently makes and implements decisions rapidly gains a tremendous, often decisive, competitive advantage.

The heuristic I gave my friend was to think of decisions of having two states: those that are reversible and those that are irreversible. An example of a reversible decision could be adding a product feature, a new algorithm in the code, targeting a specific set of customers, etc. If the decision was a bad call you can unwind it in a reasonable period of time.

An irreversible decision is firing an employee, launching your product, a five-year lease for an expensive new building, etc. These are usually difficult or impossible to alter.

My advice was to start a policy of making reversible decisions before anyone left his office or before a meeting ended. In a startup, it doesn’t matter if you’re 100 percent right 100 percent of the time. What matters is having forward momentum and a tight fact-based feedback loop (i.e. Customer Development) to help you quickly recognize and reverse any incorrect decisions.

That’s why startups are agile. By the time a big company gets the committee to organize the subcommittee to pick a meeting date, your startup could have made 20 decisions, reversed five of them and implemented the fifteen that worked.

Tempo = Speed Consistently Over Time

Once you learn how to make decisions quickly, you’re not done.  Startups that are agile have mastered one other trick – and that’s Tempo – the ability to make quick decisions consistently over extended periods of time.  Not just for the CEO or the exec staff, but for the entire company.  For a startup Speed and Tempo need to be an integral part of your corporate DNA.

Great startups have a tempo of 10x a large company.

Try it.

Photo by cod_gabriel via Flickr

When to fire your co-founders

Written by Sponsor Author and syndicated from Venture Hacks

Thanks to FastIgnite, a startup advisory firm, for sponsoring Venture Hacks this week. This post is by Simeon Simeonov, the firm’s founder and CEO (and formerly a partner at Polaris Ventures). If you like it, check out Sim’s blog and tweets @simeons. – Nivi

The best strategy for not having to fire your co-founders is to not bring them on board in the first place.

One of the most common early-stage startup mistakes is building a weak founding teams. Since a good team is often the closest you can get to a good business plan, this one anti-pattern is the cause of many company failures. Before we dig into why this happens so frequently and what entrepreneurs can do about it, I want to share one of the formative stories from my early days as a VC.

An entrepreneur who should have fired his co-founders

Many years ago, I met a 20-something technical founder who had recently left graduate school with interesting technology in the enterprise search and knowledge management market. Beyond his compelling personality and the technology, he had an impressive approach that allowed him to deliver benefits to users without prior user setup or explicit user actions, using desktop and email client integration. To use a current analogy, it was like Xobni but better.

A week later, he came to Polaris with his founding team. He had three co-founders. They all had grey hair and so-so backgrounds. Over the course of an hour, I learned one of the three was a relative who, after hearing about the idea, pushed himself onto the team as “the business guy” and then promptly brought in a couple of former co-workers as co-founders. The net effect was that a backable founder had become essentially unfundable. I passed on the deal. As expected, the company went nowhere. I am friends with the founder and would like to back him some day.

This is an extreme example, but it underscores the randomness by which founding teams are created. Three disclaimers before we dive into the issues:

• I’m not advocating that an entrepreneur goes it alone. Much has been written about the costs and benefits of partners when starting a company. I’m advocating for more thoughtfulness about the building of a founding team and more creativity around how to make progress with limited resources. See Venture Hacks’ post on How to pick a co-founder.
• I’m not advocating that what’s best for the company in an abstract sense should trump personal relationships or commitments that have been made. I am advocating for greater care in making commitments and more openness around the balance between business and personal spheres.
• I’m focusing specifically on founding teams here, but many of the lessons apply equally well to hiring in very early stage companies (before product/market fit has been proven).

How weak teams get built

Arrogance and ignorance, in small doses, are powerful tools that help entrepreneurs focus and execute against overwhelming odds. In larger doses they make a dangerous poison that kills startups. In most cases, they are the root cause behind weak founding teams.

It’s no secret that startup business plans tend to evolve over time, sometimes substantially. Yet, at any given point along that evolutionary path, many entrepreneurs are over-confident that, this time, the plan will succeed. Then they look at the founding team and, if they think they are missing a key role, they may bring a co-founder on board. This process repeats itself up to the point where either the company converges to what it will likely end up doing in the next few months or the founding team gets to a size that makes additions practically impossible.

I recently met an entrepreneur who started working on a consumer social media idea about a year ago. Thinking he was building a small dot-com, he brought on a college buddy who had done Amazon Web Services work as a chief technical officer (CTO). In a few months, the idea shifted toward working with agencies. He brought in a VP of marketing from the agency space, because he was confident that was where the opportunity was. After a few more months, the team realized there was only a services business in the agency space. Now they are pivoting towards expert identification/collaboration in enterprises, and neither his CTO nor his VPM is right for the team.

The entrepreneur in this example is a smart guy. But he didn’t have enough experience to understand what would be required for a co-founder role over the early evolutionary path of the company. He didn’t fully appreciate the opportunity cost of making these early hires given his limited recruiting network and the pre-product, pre-funding stage of the company. Further, he did not know how to evaluate a VP of marketing. He ended up with a communications-oriented exec who — beyond lacking understanding of the enterprise domain — is not very helpful in general with product marketing issues. This is how ignorance hurts.

What VCs think about bad co-founders

Keep in mind that when you recruit or you pitch investors, they don’t get the benefit of the history that might explain your decisions. Let’s imagine what goes on in a VC’s head:

“Shoot, this is a backable entrepreneur and the idea may have legs but the two other founders are B players and a poor fit for the company at this point. I could talk to the lead founder, but I don’t know about the personal relationships on the team and this can backfire. Also, I don’t want word getting out that I break founding teams. This can hurt my dealflow. Anyway, the CEO showed poor judgment in bringing these people on board. Also, there is still a lot of recruiting work to do whether the team changes happen before or after an investment. Frustrating… this could have been a good seed deal. Now it’s too complicated. I’ll pass using some polite non-reason.”

Agile founding teams

There is a principle in agile development that centers on minimizing wasted effort. One of the cornerstone strategies — supposedly one of Toyota’s rules, too — is to delay decisions until the last responsible moment. Because the future is uncertain, the idea is to make decisions with the most information. The emphasis is on “responsible,” because a lot of procrastination is bad too.

Last week, I wrote about how to raise money without lying to investors with this same principle. The logic also applies to building strong founding teams. Because you don’t know what your startup will end up doing, it can be a big mistake to hire the best people for this point in the company’s life.

The obvious solution is to build an amazing team of well-rounded, experienced athletes who can do anything that comes their way. The Good-to-Great companies put the right people on the bus and the wrong people off the bus. If you can do it, more power to you. However, you may have a few problems…

Entrepreneurs Anonymous

I am an entrepreneur, and I have team-building problems:

• I am not exactly sure what my company will do.
• I have limited resources and can’t have many people on my team.
• My recruiting network is limited.
• My company, especially pre-product and pre-funding, may not be very attractive.
• I may not be the best person to evaluate people in _______ and _______.

Ten rules for building agile founding teams

Here are some specific strategies for building founding teams. There are no silver bullets. Some of the advice is contradictory and situation-specific. Caveat entrepreneur.

1. Network, network, network. Learn how to learn through people. It’s the fastest way to understand a new domain. Value negative feedback. It often carries more information than a pat on the back. Expand your recruiting network, so you get access to better talent.
2. Set clear expectations. When getting involved with someone, establish the right psychological contract from the beginning. Talk about what might happen if there is a pivot in an unexpected direction.
3. Go easy on titles. Don’t give out big titles unless you have to and, even then, question why you have to. You can always “upgrade” someone’s title later if they perform well. They’ll appreciate it. On the flip side, big titles can cause many problems when you recruit or raise money.
4. Structure agreements well. Founders should have vesting schedules with some up-front acceleration. In some cases, you can bestow founding status without giving founding equity with accelerated vesting.
5. Be honest with and about your team. Get in the habit of discussing team fit with the business plan in an open, non-threatening manner. When you talk to experienced investors or advisors, be honest about the limitations of your team. Most likely they see any warts just as well or better than you, and you can only win by showing you have a firm grip on reality.
6. Hire generalists early. Hire specialists later.
7. Hire full-timers reluctantly. You can only have a few of them in the early days, whether they are co-founders or not. Be picky. Don’t fall for the chimera of “If only I hire a __________, then I can _________.” This may be true, but only if the person you hire is perceived to be good and does a good job. The perception of the quality of your team is as important as reality for recruiting and fundraising.
8. Find experienced part-timers. Sometimes you can get a lot of value out of very experienced people even if they only spend a few hours, or a day, each week with you. The key is to do this over a period of time and build context. Over time, experienced part-time employees can help in the process of building the company. They can help make many decisions — for example, around team-building, financing and the business plan — as opposed to any one decision. This is how I work with startups through FastIgnite. Depending on the situation, I’m an active advisor or co-founder and/or acting CTO. Other people, like Andy Palmer, take on a board or acting CEO role.
9. Find the right investors. Seek investors who pride themselves on their recruiting abilities and have a track record of helping startups build teams. These investors may see the holes in your team as an opportunity instead of a problem, as long as they feel confident the company is a good recruiting target. Some firms have internal recruiting teams led by experienced former executive recruiters. Examples include Benchmark (David Beirne) and Polaris (Peter Flint). Others, such as General Catalyst and Founders Fund, favor partners who are former entrepreneurs with deep networks and team-building experience.
10. Fire your co-founders. If you are behind the 8-ball and see your team as a key constraint, you should do something about it. Don’t wait for an investor or someone else to do it for you. The non-CEO co-founders can fire their CEO co-founder, too (or change their role and level of responsibility). This happened at a social commerce startup in the Bay Area I liked. The CEO came up with the idea (kudos to him) but he had enterprise background and provided little value-add. His two co-founders were responsible for most of the progress. It took them too long to reshuffle things. By that point, they’d made a bad impression in front of too many investors. The team fell apart eventually.

If you successfully apply these strategies, you stand a better chance of going after the right people at the right time and bringing top talent on board.

You may not even have to fire your co-founders.

50 Three-word phrases that can make your start-up a success

(Editor’s note: Dharmesh Shah is a serial software entrepreneur and the founder and CTO of HubSpot, which provides marketing software for small businesses. This column originally appeared on his blog. )

For some reason, I like wordsmithing and trying to make phrases smaller (while still retaining some meaning).  Not long ago, when I was up much too late, I tried to come up with some of my best startup advice and see if I could reduce it down to exactly three words.

One thing led to another, and I became obsessed with it. So obsessed, in fact, that I had put together 47 before I was able to make myself stop.  While it’s likely not the most brilliant startup advice you’ve ever read – it has a decent chance of being the shortest.

Startup Triplets:  Startup Advice In Exactly Three Words

1.  Watch your cash.

2.  Pick founders carefully.

3.  Hire generalists early.

4.  Hire specialists later.

5. Invest in culture.

6. Avoid tempting distractions.

7.  Support customers maniacally.

8.  Avoid business plans.

9.  Write a blog.

10. Never fudge numbers.

11. Encourage diverse thinking.

12. Guard your time.

13.  Defer renting space.

14. Get enough sleep.

15.  Delay raising capital.

16.  Persist through downturns.

17.  Decide with data.

18.  Improve product daily.

19. Recognize revenue consistently.

20. Start charging early.

21. Reward early adopters.

22. Sell something today.

23. Say “NO” often.

24. Accept imperfect data.

25.  Recruit with zest.

26. Nurture your best.

27.  Treat vendors well.

28. Believe in yourself.

29. Respect your competitors.

30. Try something new.

31. Build a brand.

32. Focus, focus, focus.

33. Iterate more often.

34. Use your product.

35. Live your vision.

36. Encourage rational debate.

37. Make decisions swiftly.

38. Face harsh realities.

39. Don’t break laws.

40. Protect your health.

41. Celebrate your successes.

42. Cancel unnecessary meetings.

43. Improve employee’s resumes.

44. Beware big bullies.

45. Share the experience.

46. Maintain your relationships.

47. Keep it fun.

Note: After I originally posted this list, Guy Kawasaki (yes, the Guy Kawasaki) was kind enough to post some of his own triplets. Here are a few of them:

48. Sales fixes everything.

49. Ship then test.

50. Do not partner.

You can see his full list here: Guy Kawasaki’s Startup Triplets.

You’re way smarter than I am – and I’d love to see your own startup triplets. Share them in the comments below or post it to twitter (with hashtag #StartupTriplets).  I think you’ll find it fun – and addicting.

A New Framework for Business Models

Quick: Describe your company’s business model.

Having trouble? That wouldn’t surprise me. In reality, there isn’t really any consensus about what the term “business model” even means. Suggestions range from the all-encompassing, everything-in-your-value-chain approach to the reductionist “A business model is nothing else than a representation of how an organization makes (or intends to make) money.”

That latter definition is from Peter Drucker. And while I applaud his attempt to reach for the essence of the idea, I think he went too far. A business model has to specify more than just how a company intends to make money. It also needs to include some information about why a customer would ever want to give the company any money.

As something of a middle ground, I’ve proposed (in both an HBR article and in more depth in my book Seizing the White Space) a framework meant to be specific enough to overcome the reductionist problem but selective enough to overcome the unwieldiness of the kitchen-sink camp. I’ve broken it out into four boxes that answer the following questions:

1. Why would someone want to buy something from you?
2. How will you make money selling it?
3. What, exactly, are the important things you need to do to pull off the plan?

(I know that’s three questions, but the answer to that last question comes in two parts, so the model requires four boxes.)

To answer the first question, you need to construct a customer value proposition (CVP) — not by trying to convince customers of the value of your products but the other way around, by identifying an important job a customer needs to get done and then proposing an offering that fulfills that job better than any alternative the customer can turn to. Generally speaking, the more important job is to the customer, the lower the level of satisfaction with current alternatives and the lower the price, the stronger the CVP.

To answer the second question, you need to specify your profit formula. On one level you could think of this merely as how much you expect to sell at a certain price minus your costs, but to be useful as a strategic tool, I’ve broken it out into four buckets:

1. Revenue model — simply, quantity times price
2. Cost structure — not only direct costs and indirect costs, but also overhead, which too many companies think of as immutable
3. Margin model — though technically part of the cost structure, I break it out separately because all too often companies mistake their margins for their entire profit formula and have tremendous difficulty understanding how a lower – margin opportunities could ever be profitable
4. Resource velocity — often overlooked as a profit generator, this measures how many widgets a company can invent, design, produce, warehouse, ship, service, sell, and pay for throughout the value chain for a given amount of investment, for a given amount of time. In some sense, it's a measure of not how much money flows through your company but how quickly it flows through it.

Finally, to answer the third question, you need to identify which company resources and which processes are essential to delivering the customer value proposition. These are not all the steps in the value chain — just those that are critical for the CVP.

As Peter Drucker did in the quote above, many people equate the profit formula with the entire business model. That’s often all that’s captured in many business model analogies, as well. Worse, many people focus just on the margin or overhead requirements of their current profit formula.

But every successful company is operating according to a business model that incorporates all four parts of this framework — a value proposition customers want, delivered through a coherent profit formula, which not only covers its overhead and margins but generates revenue at a certain volume and velocity, by employing certain key resources effectively through certain key processes.

Identify this model and you will go a long way toward understanding why your company is successful in what it's doing (or at least what it was doing before the recession). And unless you know that, you'll have little chance of working out what you need to change to be successful doing something else — like meeting whatever challenges the post-recession economy creates this year.

Mark W. Johnson is chairman of Innosight, a strategic innovation consulting and investing company with offices in Massachusetts, Singapore, and India, which he cofounded with Harvard Business School professor Clayton M. Christensen. Mark’s book is Seizing the White Space: Business Model Innovation for Growth and Renewal.

Video: Pilot This Hovering Quadricopter Toy Using Your iPhone

Wired.com plays with the AR.Drone by Parrot, a quadricopter you can pilot with an iPhone or iPod touch. Adults or kids can fly the toy in a real-world environment, see what the onboard camera picks up and simultaneously play a videogame when it’s in multiplayer mode.

Winner’s Curse: Why Losing A B-School Biz Plan Competition Is Better Than Winning

Written by Vivek Wadhwa and syndicated from TechCrunch

One of the best things about being an academic is being able to mold young minds and guide them to success. When one of my students, Andrew Leblanc told me he was entering the Duke Startup Challenge Elevator Pitch Competition, I told him to come and see me and do a practice run. After all, I had judged several of these contests at Duke and other universities. I thought I knew what worked.

After the eleventh iteration, Andrew got it right. He wasn’t trying to pack his presentation with unnecessary details. He had slowed down his pitch, added a personal touch and was now exuding confidence. Andrew even researched the background of the judges and tailored his message to their interests. So after two hours of intense preparation, I had little doubt that Andrew would win.

Andrew lost. I was surprised. But what I told him afterward is that it really doesn’t matter. Contrary to what the organizers of these competitions will tell you, university business plan contests don’t produce winning companies. Yes, a number of companies have emerged from business plan bake-offs that have been moderate or small successes. But not a single home-run has emerged from this now-omnipresent practice.

This is not to say that the contests are bad. Instead, they educate students in entrepreneurship and motivate them to come up with interesting ideas. But for all of you out there who think a biz plan victory is a ticket to the big time, think again. And for all the engineering students who think any outcome but victory is a waste of time, you also need to think again. Even though he lost, Andrew met a potential partner and also got to speak with Bill Maris of Google Ventures, a priceless encounter. (Bill promised to introduce Andrew to the Google Power Meter team. Don’t forget, Bill!).

In fact, let me throw out a radical thought. I submit that losing in a business plan contest is actually more beneficial than winning. There is a growing body of research that children who are praised too early and too easily end up under-performing peers who are not praised but are told, in constructive terms, they can do better. This is one of the core tenets of Po Bronson’s new book on parenting, “Nurture Shock.”

Extending this to the realm of entrepreneurship might be a leap (and it could be great fodder for a future PhD dissertation). But to me the outcomes don’t lie. Business plan competitions don’t breed winning businesses. Rather than winning a beauty contest, building a business is a marathon that requires steady and constant effort, surmounting regular difficulties, and living through emotional peaks and valleys.

The very roots of the current business plan craze go back to one of the periods that represents a low-point in sane business practices. The business plan competitions first started in the dotcom days. At that time, there was a frantic rush to start new companies. Entrepreneurs would create professional-looking, buzzword-laden business plans. Venture capitalists would then trip over each other to fund these plans, usually with way too much money. The prevailing theory was that a good business idea and enough money were enough to create the next hot IPO. B-schools readily jumped on the bandwagon and soon an arms race ensued to see which school could offer a bigger prize to winners.

With the bursting of the dotcom bubble, the tech world was reminded that even a great idea funded by venture capital didn’t necessarily produce business success. In hindsight everyone saw that it took more than a good idea. It took a thorough understanding of the market, excellent management, and the ability to navigate rough waters to build a thriving enterprise. Some of the biggest dotcom winners came from me-too ideas that were executed better than the originals.

Nor was this anomalous. Ask any seasoned entrepreneur in any industry, and he or she will likely tell you that his or her first business plan was probably the best work of fiction they ever created. A glimpse back through the big winners of the Dotcom Era also underscores the lack of impact business plan competitions actually had. Amazon, Google, Ebay, Yahoo—none of them won a business plan contest. In fact, not a single home run from that era won a business plan contest. And one of the biggest successes of its time,  Akamai Technologies, actually lost the M.I.T. $100K  contest.

After the great Internet Bubble burst, venture capitalists and entrepreneurs quickly adapted to the new reality and went back to basics. But no one told the b-schools. From Silicon Valley to Research Triangle Park to New Delhi and Shanghai, new contests are still sprouting. Only now, the prizes have gotten bigger and the competitions more serious. Yet real successes remains non-existent. (If I’m wrong in five years on this, then call me out). But failure is no surprise for these b-school business launches

Without a solid understanding of market needs and real-world validation of their ideas, few young entrepreneurs can achieve their business-plan projections. The hottest startup methodologies of today, built around ideas fostered by Y-Combinator and TechStars emphasize giving startups almost no money and encouraging them to get a product to market as quickly as possible in order to get real world validation. This is almost the exact opposite of the current business school competition ecosystem, where market validation is non-existent.

So realistically, few of the business school plan entrants can even understand whether their business plans even make sense. Business plan judges, for their part, are equally in the dark most times. Andrew’s plan involved utilities and power management, a topic I know virtually nothing about. B-school contest judges are usually generalists who have only superficial insights into the internal dynamics of the industries at which these plans are aimed. It would seem, then, that the insights of long-time experts in those industries would likely be far more valuable to a prospective entrepreneur.

Again, I am not at all saying that business school plans are inherently bad. To the contrary, Andrew learned an enormous amount about starting a business, the importance of understanding markets, utility and power management technologies, and team building. His plan to build software that would allow residents of college dorms to track their power usage through a visual interface and more easily understand the direct impact of their behaviors on electricity consumption was not a bad idea. In fact, it was a good enough idea that many others are currently attempting similar types of systems for various social settings and environments. My colleague, Lesa Mitchell at the Kauffman Foundation believes that these contests foster collaboration between business school students and engineers or scientists. This, she says, teaches valuable lessons about launching businesses to both potential inventors and would-be CEOs alike.

Finally, let’s not confuse failure to execute or unrealistic plan expectations with bad ideas. Young CEOs going into industries they barely know armed with b-school plan competition money are like lambs to the slaughter. But the core idea behind their plan may be quite innovative and powerful.

My takeaway from all this? If you want to be a successful entrepreneur, don’t win a business plan competition. If you do win, your first act might be to hire a CEO with industry experience. And win or lose, the most valuable lessons you’ll learn will come more from playing the game than from coming up with the best plan.

Editor’s note: Guest writer Vivek Wadhwa is an entrepreneur turned academic. He is a Visiting Scholar at UC-Berkeley, Senior Research Associate at Harvard Law School and Director of Research at the Center for Entrepreneurship and Research Commercialization at Duke University. Follow him on Twitter at @vwadhwa.

Crunch Network: CrunchGear drool over the sexiest new gadgets and hardware.

TEDTalks : Pranav Mistry: The thrilling potential of SixthSense technology - Pranav Mistry (2009)

Written by (author unknown) and syndicated from TEDTalks (video)

At TEDIndia, Pranav Mistry demos several tools that help the physical world interact with the world of data -- including a deep look at his SixthSense device and a new, paradigm-shifting paper "laptop." In an onstage Q&A, Mistry says he'll open-source the software behind SixthSense, to open its possibilities to all.

Contact lenses to get built-in virtual graphics

Written by (author unknown) and syndicated from KurzweilAI.net Accelerating Intelligence News

University of Washington researchers are developing a contact lens with embedded microelectronics for overlaying graphics on the real world that could provide a compelling augmented reality experience. (Source: http://www.newscientist.com/article/dn18146-contact-lenses-to-get-builtin-virtual-graphics.html)