Category: entrepreneurship

07
Feb

Why startups don’t need more pitch coaching

If alien economists went to startup events they’d conclude that all startups fail because they don’t know how to pitch VCs. (Some people think that all economists are, in fact, aliens, but I digress). The Canadian Regional Boot Camp for Technology Start-Ups

was announced recently by StartupNorth and others and I was struck by how much emphasis was placed on pitching.

The agenda consists of a session on “Funding Pitch Preparation” followed by “Pitching Session to a Review Board” consisting of Canadian and US VCs. I’d like to ask a simple question:

Why do so many startup events focus on pitching investors?

Here are some of my concerns:

  1. Funding is a solution to a problem that not everyone has. There are many great businesses that never raised a dime of outside capital. So why does every startup event talk about funding?
  2. When you put lipstick on a pig… We spend too much time training startups how to speak the language of VC. Investors are in serious trouble if they’re filtering deals based on the ability to pitch.
  3. The pitch does not equal the business. People argue that honing the pitch means improving the strategy of the business. But in the real world, hardly any startups have everything figured out in advance. What’s the point of hearing them lie on stage?
  4. 1 size does not fit all. Lots of people do unspeakable things in Excel to force their revenue projections to scale to $50 million. Why? Because VCs are only interested in business that “scale”. But scalable busineses are usually riskier businesses. A lot of entrepreneurs would be happy with the payouts from smaller exits.
  5. Watching awful pitches is entertaining... That’s why people watch the Dragon’s Den and pitch coaching at startup events. But entertainment value aside, isn’t there something more useful we could be doing?

I don’t mean to criticize event organizers all of whom are honestly trying to help entrepreneurs. I’m also not criticizing the VC model which is a very specific type of investment that has been improperly promoted as a funding solution for everyone.

I’d just really like to see more startup events focused on all of the problems facing startups, not just how to attract VCs.

03
Feb

Translating Strategy Into Action

In previous posts I talked about how to create a simple, strategic plan without falling down the rabbit hole of arguing about mission, vision, objectives, goals, strategies etc. I also talked about how to actually get a group of people to agree on a set of goals which is always fun and never easy.

cc Fenris Photography

cc Fenris Photography

This post talks about the crucial last step: translating your strategy into real action.

1. Follow-through – Once you have your plan finished, schedule monthly or quarterly review sessions right away and make sure people know in advance that they will be expected to report on their performance vs. the goal set in the plan. Send a meeting invite for a specific date and time along with an agenda right away. This tells people this is not a drill.

2. Make people uncomfortable when they don’t deliver – There have to be consequences when people do not deliver. For most companies, having to stand up among colleagues and say either “I didn’t deliver” or “My forecast sucked” is a powerful enough consequence. Don’t be afraid to be tough on people who don’t deliver, including yourself!

3. Reward people when they do deliver – Make a point of congratulating people when they deliver what they promise. It sends a signal that this is important to your company. It seems like common sense but most companies only focus on fixing the negative while taking the positive for granted.

4. Reward people when they deliver part 2 – Put your money where your mouth is. Tie bonuses and option grants to good forecasting and good delivery. If you have compensation tied to anything else you are sending mixed signals.

5. Be prepared for naysayers – People who were cooperative during your planning sessions will become less cooperative when the rubber meets the road and they have to explain why they missed their targets. They will question the planning process, claim that the strategy has changed, and blame external factors (e.g. The Downturn). You need to shut these people down quickly. Decide if you want to be a company with great performance or great excuses.

6. Get the whole company on board – Make the plan (and all the brainstorming materials) available to everyone in your company. After every review cycle, publish the results (good or bad) so they can be seen by all. Apply the same planning discipline to departments, your Board of Directors, and individual employees.

It’s probably fair to say that there’s no such thing as Really Simple Strategy Planning (sorry). In reality it’s a time-consuming process that’s bound to create some conflicts within your startup. But the payoff is huge if you can create a company culture that encourages thoughtful strategy development and hard-nosed dedication to performance. If you don’t have this mindset in your company it may be time to ask why not.

26
Jan

Reminder: Startup Drinks this Wednesday

Startup Drinks is back!  Come to local fave Brutopia (1219 Crescent St, South of Ste-Catherine) on Wednesday, January 28 and bring anyone you think might enjoy kicking back and talking tech.  Drinks start from 5:30pm until you say “when”; Happy Hour prices are in effect until 8pm.

Register now on at TechEntreprise!

12
Jan

Tips for Running Effective Strategy Sessions

The previous post talked about Really Simple Strategic Planning, a way to cut through the buzzwords and create a practical strategic plan for your company. This post provides some tips about how to organize and run strategic planning sessions.

Getting people together to talk about strategy is a tricky affair. Besides having different opinions about what strategy to pursue, people often differ about what strategy is and the difference between strategy and tactics. Like facilitating productive meetings, running effective strategy sessions is an art form that requires practice. The following recommendations, organized into the Five Ws (and 1 H), will give you a head start:

WHO? – In a small company, be as inclusive as possible, at least in the beginning. Excluding someone tells them you don’t consider their input valuable. On the other hand, it’s difficult to brainstorm in groups of more than 7 or 8, so consider breaking down into smaller groups. Don’t forget to include investors, Board members, outside advisors and (gasp) customers in your strategy sessions.

WHAT? – To be effective, you need to draw some boundaries. It may not be productive to re-strategize everything about your startup from first principles. It’s ok to give people some focus to the discussions by saying “we’re not talking about that”. Show people an example strategy so people know what they’re aiming for.

WHERE? – Don’t hold offsite meetings. Strategizing where you work sends a message that strategy is not a once a year event but fully integrated into your work. That said, you might need to some special equipment such as a cell phone/Wifi jammer, lots of sticky pads, and a timeout corner…

WHEN? – Again, don’t plan strategic retreats once a year. If you’re doing this for the first time you’ll need more sessions up front but discussing strategy should be a regular event. This doesn’t mean you should question your company’s strategy every day. But quarterly checkpoints are crucial for comparing your strategy with your execution, and updating your strategy if necessary.

WHY? – This is not as obvious as it sounds. Some of your staff may think your strategy is self-evident and question why you need to pretend like it’s not. You need to convince everyone on your team (including yourself) that developing strategy as a group is partly an end in itself as it gets everyone to buy into shared goals

by Jacob Botter (CC)

HOW? – The biggest challenge in running successful strategy sessions is to create an environment where people feel they can be creative. Believe me, this is more difficult than it sounds. Your intern might not want to contradict the founder/CEO and non-technical people might assume that the CTO “owns” all the technology strategy. Make sure someone is tasked with being a facilitator, i.e. someone who watches how the conversation goes, ensures everyone has a chance to speak, and gives people timeouts if necessary.

For more information on how to create an environment conducive to good ideas, watch this video about IDEO, a legendary industrial design company who have perfected the art of brainstorming (they designed the 1st mouse). Their GM has also written a number of books on innovation including The Art of Innovation

. Although they talk about brainstorming, most of the concepts apply to strategic planning. In fact, if your strategic planning sessions feel less like brainstorming and more like ops meetings, you’re probably not being very strategic!

A lot of what you learn about effective strategic planning boils down to organized chaos. You need organization to make something meaningful out of the process. But you also need the chaos, i.e. the debates, passionate disagreement, kooky ideas, and dead-end discussions. If you can organize the chaos you’ll find it will be easy to create a practical strategy for your firm that people feel motivated to achieve.

07
Jan

Really Simple Strategic Planning

Mark has a great post about 2009 being the year of execution. Great execution doesn’t mean shying away from strategic planning but most people either don’t know how to create a strategic plan or end up doing too much navel gazing. Remember, strategy is not what’s written down on paper but what you and your team implicitly believe is the direction you should go. If you’re wondering what your strategy is, ask your staff to tell you. It’s often an eye-opener.

The question is, how can you proactively create a strategy that’s actually useful and will drive your execution? I now avoid the whole “vision-mission-strategy-goals” method and go for something simple yet effective.

Step 1: Go back to basics

A very simple strategic plan

A very simple strategic plan

The one-line strategy is not as easy as it looks. Choosing one goal (to the exclusion of others) is a challenge and you’ll find that your Board and your executive team may disagree about what’s important. Have those debates now when the strategy is simple. People will also disagree about the timeframe. Your investor think a year is too long to wait for profitability and your operations team thinks it’s not enough time.

Step 2: Translate into key areas

Broken down into sub-goals

Broken down into sub-goals

I breakdown strategies into no more than 4 key areas (you can pick your own). People are at the top because you can’t just set goals and sit back and watch. You have to actively manage to your strategy. I make customers (rather than revenues or clicks) its own category because a lot of companies treat customers like means to an end rather than focusing on creating value for them. Product development is obviously key for any tech company (and I consider services a product). Finally, in 2009 you’d better make your finances a key strategy.

I would avoid making functional areas (like marketing, sales, tech, admin) the categories as this is you-centric rather than stakeholder-centric.

Step 3: Make a quarterly plan

Goals broken down by quarter

Goals broken down by quarter

The last step is to add in a time element to your strategic plan. I’ve chosen quarters because weekly or monthly goal-setting tends to be a to-do list rather than a list of strategies. Adding specific dates to your goals ensures that your company is accountable. Three things I would point out:
  1. Each goal is worded in such a way that it will be easy to measure if you’ve achieved it. Avoid effort-based goals like “work on marketing plan” and “hold weekly meetings”. Focus on deliverables.
  2. Be specific. Some of the goals in the example are actually too vague. Being very specific holds you to a higher standard when it’s time to see if you’ve achieved your goals.
  3. All the strategies should be linked so that moving left to right and top to bottom, you achieve your ultimate goal (which was set in Step 1). This is not easy and the more time you spend setting and synchronizing your goals, the more you’ll learn about how to plan for great execution.
Going through this 3-step process will let you develop a coherent strategy without getting lost in writing strategy documents. The resulting 4X4 grid is simple enough for everyone in your company to understand but sophisticated enough for most businesses. The real test comes after one quarter when you sit down and review your performance vs. your goals.
08
Dec

When does $5 million = $50 million? Comparing entrepreneur payouts.

There has been a lot of healthy discussion about the true implications of VC investments. Markus Frind (plentyoffish.com) wrote about it a year ago and Basil Peters (AngelBlog) has been analyzing how VC math influences a startup’s DNA.

In a nutshell, a $50 million exit = a $5 million exit when you factor in two things: risk and payout (the cash you actually take home). In the example below, the upper tree shows a $50 million exit and the bottom shows a $5 million exit:

The $750k represents the expected value in both cases. How come they are the same?

The VC-backed example represents a “home run or bust” investing philosophy. The exit is bigger ($50 million) but so is the risk (only 1 in 10 will make it). Also, your portion is smaller, only 10% at exit in my example. So if there is only a 10% chance you’ll earn your $5 million payout, the expected value is only $500k (10% X $5 million). Add to this a 50% chance of a “sideways” exit, i.e. not much, and you get $750k.

The other example is a startup done lean or with some friends, family and Angel money. The exit may be much smaller because the funding isn’t there to go big. But nor is there the desire to “go big or go home”. So out of a much smaller $5 million exit, you retain $2 million (a bigger chunk) plus your chance of success is now 25% instead of 10%. So 25% X $2 million = $500k. Add to this a 50% chance of a “sideways” exit, i.e. not much, and you get $750k.

Some people may object to the numbers:

  • 10% ownership at exit is too low – Actually, you may own less these days given lower valuations. See this presentation from Union Square Ventures.
  • 90% chance of failure is too high – I agree this may be pessimistic but there are a lot of VCs out there who don’t have one home run every 10 investments.
  • The success rate is too high for modest exits – Few people would claim they could get higher rewards with lower risk…

I’m definitely not suggesting that the numbers I’ve used are the right ones for you. But they are a revealing way to explore alternatives when funding your company. Every option has pros and cons and it’s up to you to understand them. This method gives you a way to quantify those options.

You may be surprised to find out that bigger is not necessarily better, at least not in terms of how much money you take home when you exit your company.

12
Nov

Bulletproofing Your Ideas: Part 1 – The Quick Screen

As entrepreneurs, we all have great ideas and we love turning them into reality. Unfortunately, most people spend more time justifying why their idea is great rather than questioning whether it is great. Here’s an example:

    1. Have brilliant idea, e.g. Curling Rink Management Software

by Reverend Aviator (cc)

  1. Daydream about becoming the Microsoft of curling
  2. Write business plan about how you will dominate the curling software market
  3. Convince poor souls to jump on board your curling startup
  4. Do an investor road show to raise funds for MyCurlingERP.com

What’s wrong with this picture (besides thinking that curling is just plain wrong)? The problem is that there was never a rigorous process for vetting the idea. This is a missed opportunity because vetting can reveal hidden strengths and weaknesses in ideas.

I use the following quick screen process for evaluating ideas:

  1. Are you an expert in the field? If you aren’t you’re probably overestimating your idea or underestimating the difficulty of executing it.
  2. Does your idea make something 10 times better than the alternative? If your answer is “how am I supposed to measure that?” you’re in trouble already.
  3. Do you understand how the industry makes money? Understanding how people give away things free is not the same thing.
  4. Can you win? Being #17 in an industry sucks.

If you answered NO to all 4 questions it’s a good indication your idea needs major surgery. If you answered NO to some of the questions, it’s time to focus on improving its weaknesses.

photo by Divine Harvester

photo by Divine Harvester (cc)

E.g. if you aren’t an expert in the field take the time to recruit one. Better yet, try to recruit the industry’s best expert. If your value proposition is a combination of ease of use + slightly cheaper + runs on a Mac + is multi-lingual, you’re probably proving your idea is only incrementally better. No one ever switched painkillers because of better taste and they won’t adopt your solution unless the thing they care about really works. Prove that and the UI can be ugly.

Don’t understand how your industry makes money? You probably won’t make any. Before inventing a new revenue model study the revenue models of your competitors and complementors. One tip: if no one is making money in an industry (e.g. curling software) it’s a good sign you won’t either. Finally, seeing a path from your idea to dominating some industry niche is very important. If there are insurmountable barriers to entry or high capital requirements to win, your idea may never get a chance to win. Think about this in advance.

The point of idea screening is not to generate ideas. That’s your job. Screening protects you from your natural tendency to believe that your ideas are great. If they are great, screening will help you prove it.

If you have other ways to screen your ideas feel free to post them.