Happy Entrepreneur Day!

To celebrate, some thoughts about my journey as an entrepreneur.

Most entreprenuers are not serial entrepreneurs.  Not in any way shape or form.  They have to wear lots of hats. Possibly have multiple sources of income.  Have many different thoughts and ideas almost simultaneously.  Most don’t do one business right after another.  They try lots of things.

There is no replacing a founder’s excitement for their current project.  Nothing can touch it.  You can’t bottle it.  When you talk to a founder who truly believes their idea, you feel it at an emotional level.

The founder’s enthusiam about what they do drives all things.  Sales and partner deals, funding.  Teams. 

The best founders get their teams and partners to co-flow.  Borrowing a concept from Bill Warner, the ability of the founder to get his team to co-flow or in my interpretation, share his vision while wearing their respective hats makes a team real.

No idea is bad.  It is either the timing, the implementation, relevance of the idea, or the demand that makes it tangible or fungible.

The terms alpha and beta to describe a startup’s launch product are simply wrong.  Last week, I wrote about so many startups failing to launch and many of the sites are in “beta” mode.  Alpha, beta, bronze, silver, gold, it’s all stinkin’ thinkin’.  Startups must be focused on the customer and providing value to them.  Orient your release names towards customer acquisition and let your early adopters tell you when you can start charging. 

Why?  If you’re not focused on getting paid, how and why are you in business?  Secondly, if you change to this kind of naming convention, your potential paying customers have the notion that others have adopted it.  It’s true, early adopters have, they just haven’t paid for it or have paid a lower fee.

Consider the following names for your release stages:

Demo – Enough to truly demonstrate your value propositions.  This should be completely out in the open if you’re confident that no one can imitate you easily.  If they can, I would suggest that you don’t have enough to get to market in a big way. 

First Adopter(s) – Just enough code beyond your demo for your first adopters to grasp your value proposition and consider paying for the product (unless you’re freemium of course.)  The great part is that you can add more features until your early adopters say “Yep, we love it and you can start charging for this.  In fact, we’ll start paying for this!”  (Next question of course, how much would they pay?)

Paying Customer – You’ve validated your principle value proposition and customers are willing to pay.  There might be other more suitable names but your customers get this one.  Potential paying customer: “When did you release this product?”  You: “We had early adopters in March.”

Once you have paying customers, lean and agile notions start to shine.  No more traditional phase names as you’re continually putting customer-driven features in front of them.

I don’t think people realize how extremely hard it is to get a company launched.  Some folks say that if you make into college ball, you have a 1:40 chance of turning pro.  The odds are longer for startups.

My friend, Tom Summit of Genotrope does quarterly updates called “When will they launch?” that lists a few startups we’re all waiting to see.  Only one out of twelve have actually launched.  The rest are in “beta” or “stealth” or they’ve morphed into something else. Tom only listed companies he knew about.  I could add six or seven to his list!  That tells me that out of about twenty companies, one launched. 

I’m think being generous here but I think once you’ve launched, you have about a 1:50 chance of getting angel or VC funding.

1:20 X 1:50 = 1:1000.

The odds are longer for web companies that are organically self-funded.  Perhaps even as high as 1:2000.  I know three or four and they’re very patient.  They also have an anchor business that helps them fund the new one.

That should tell you one or two things:  You need commitment and you need to be realistic.

As a startup consultant, I come across budding entrepreneurs who say “We’ve got this great idea but I don’t have any money! Can you help me find an angel?” only to find out they’re part timers who have an ok idea, no code, and no real commitment.  Sound harsh?  Go code and then we’d love to talk to you.

Others that I talk to have code but they’re part timers.  Depending on the circumstances (my time commitments and a deal), I’ll work with them – depending on how long it might take them to launch.  Are they prepared to quit their job?  It depends.  If it’s a straight IP play, they might not have to.  If it’s an operating business, how much are they willing to give up?

Still others are full time entrepreneurs who continually morph their business model until they find something that works and they like.  That’s ok.  It depends on their ability to stay in the market.  Each change in focus represents sunk resources and time.

Knowing the odds, are you committed?

When I first saw Steve Job’s quote, then Josh Porter’s (Bokardo) re-quote in www.bokardo.com and then Bijan Sabet’s repost, I nearly choked on my Wheaties and thought, damn, another sound bite that everyone’s going to analyze and memorialize.  The next sound bite that passes over Steve Jobs lips might as well be “We don’t write code.  It is divined by a higher being.”

My thoughts: Someone’s got to research the competition (to demonstrate to the VC that the potential portfolio company has a handle on the market and has something that goes beyond table stakes), understand who the market is (so that the VCs know the solution caters to the right market), size the market (so that VCs might also understand the potential of the investment) and on and on.

The most optimistic scenario for both the startup and a VC is that the startup is capable of doing of doing analysis and they have completed it -  because you (a VC) are going to ask.  You (a VC) might be wowed by the solution in the first meeting, think about it for a bit, and then come back around with more formal questions.  Whatever the process is, you (a VC) is going to need the data to make an investment decision.  The startup might have someone in that role  - analyzing that data – or alternatively, they’ve got enough bullets to satisfy your initial requirements.

Most of the time, I find that there are undiscovered opportunities that the startup hasn’t considered – primarily because they’re heads down writing code or executing their initial plan – which in many cases, can’t get them a meeting with the VC in the first place.  Sometimes, they’re entire misses or Phase II ideas.  Whatever the case, the consultant serves as an adjunct to the start team.

The long and the short of it is:

1. Not every startup is firing on all cylinders (yet.) 

2. The best entrepreneurs (including VCs) know one thing:  They don’t know everything.

3. The right consultant will increase a startup’s odds of success – either as a coach, sounding board, market sizing, validation, market maker.

(Sorry Josh for the initial typo)

Created by two Salem web geeks, Marc Amos and Angelo Simeoni, the Build Guild is a monthly event where folks in the web industry (designers, coders, project managers, hobbyists, etc.) can get together to talk web, debate industry topics, share ideas, make professional connections, land gigs, and discuss the real reasons why mustaches need to make a comeback.

I’ve followed these folks at a distance and they’ve got the right idea – so much so I thought I would donate a door prize for their one year anniversary!  Here’s what they did: Get a bunch of like minds together, start taking about useful stuff over beers until its time to go home.  Do it again the next month!  A few months later, open the concept in other areas like: Albany and Philly!  Next up?  Probably anywhere there are coders who want to share a beer, and possibly a story and some knowledge.

Click http://upcoming.yahoo.com/event/2995101/ to attend.

Cheers to Build Guild!

Part of this is response to Don Dodge’s opinion on the Microsoft BizSpark site that VCs don’t look at or need business plans. 

I agree that, from a VC’s perspective, business plans are a waist of time; however, the process and building of a plan arms the entrepreneur with a disciplined view of their intended or current business, their projected revenues and expenditures, as well as their feature set as it competes with their present and future marketplace(s). 

Too often, entrepreneurs fail as the result of not knowing the market well enough or not adequately sizing it, knowing the full cost of entry to the business. Without one, internet entrepreneurs have a great idea and perhaps some code – maybe even some users and/or revenue.  With one, they have a stated direction, some level of introspection of their ability to deliver and and an analysis of risk. 

Business plans can serve a VC well (even if they aren’t presented during the pitch):  They save the VC time and money because they increase the entrepreneur’s ability to have the right pitch and more thoughtful answers.  Ultimately, they increase the VC’s opportunity for a home run. 

This is not to say that all ideas are good, just that the best ones are those most easily defended.  A good defense takes preparation.  This is not to say you’re going to present all you know or even have it available in your slide deck.  The prepared startup should at least come away with a “Come see me when” statement or know better whether or not to pitch at all.

Also, more often than not, I’ve heard entrepreneurs come back with “they liked the idea but they wanted me to go in “x+1”” direction; where “x+1” changed from VC to VC.  Having a plan helps them consider what “x+1” is before they get in the room.  A plan and competitive analysis helps them avoid being in a gelatinous state or DOA.  It also helps them know how much money they need and how much they’re already worth.

Lastly, a short story: A startup I provided services to this spring received $1M+ of private seed funding (repeat seed) from a knowledgeable VC.  The VC didn’t need a plan either; yet, if the management team hadn’t gone through the business planning process, they would not have known they needed to make a change on their team or to adequately compete, found they needed to add new features and change their licensing structure or most importantly, found a previously untapped, measurable revenue stream opportunity.

Do you need startup advice or help with your plan?

(photo by ex.libris on flickr, creative commons)