START-IT-UP CAFE!

2009-07-06T07:34:00.000-07:00

I'm not always a big fan of high profile entrepreneurs such as Marc Andreesen. Many times, in my experience, they make blanket statements about specific things such as business models, management teams, etc that are often misunderstood by the entrepreneurs. For example, the statement below about CEOs and who should run a start-up is too general. These types of decisions have to be made based on a number of factors that can't be generalized. At the same time, this particular article by Sarah Lacy is pretty interesting and is an easy read.

(Posted on TechCrunch, June 5 2009)

Marc Andreessen and Ben Horowitz are launching their much-anticipated $300 million venture fund this evening, aptly called Andreessen Horowitz.

The fund will make investments of $50,000 to $50 million (yes, $50 million), but will generally focus on early stage opportunities. And here’s a fun fact: they don’t currently have a website, and apparently they aren’t sure they will have one in the future. For now they’ve reserved a16z.com for use if they do ever launch a site. Basically, if you don’t already know Andreessen or Horowitz, or know someone who knows them, getting in contact with them is going to be…difficult.

Andreessen has long been one of my favorite people to interview, because he is tapped into nearly every hot company and isn’t afraid to answer questions directly. That is, when you can actually get him to sit down with you and a camera, notepad or tape recorder. But last week, he had to chat it up with the press since he and long-time partner Ben Horowitz were announcing their the new venture fund. This is not going to be your typical venture capital firm.

For one thing, there’s that $300 million fund size. That’s pretty big for a first-time fund and gargantuan when you consider there are only two general partners, Andreessen and Horowitz. It’s big enough that some people didn’t think they’d be able to pull it off.

How did they? Well, did we mention Andreessen was one of the partners? Heard of the browser? And the lesser-known Horowitz is no slouch. He was the CEO of their second venture, Opsware, which sold to Hewlett-Packard for $1.6 billion. As instant as Netscape’s success may have been, Opsware was the opposite, a hard post-bubble slog.

It’s too early to tell how well Andreessen’s third company, Ning, will do, but Andreessen and Horowitz’s angel stakes in companies like LinkedIn, Delicious and Twitter show their savvy at picking good teams and how much other entrepreneurs in the Valley value their advice. For instance, Andreessen is the only independent member on Facebook’s tiny board of directors. And investors were impressed by the 45 or so companies that Andreessen has independently invested in over the years. Just one, TipMobile, has gone under so far.

So, that’s how they raised $300 million in the worst fundraising environment in 40 years, here’s why: Andreessen says there are only fifteen companies started each year that matter. By “matter,” he means they’ve got the potential to generate $100 million year or more in revenues, and those companies wind up making up 97% of the aggregate industry returns. The firm wants the flexibility to invest as much as they want in those fifteen names, whether it’s $500,000 or $50 million per deal. Considering the two have run big teams and small teams over their time at Netscape, Opsware and Ning, there’s no logical reason they should tether themselves to just one stage of investing.

Like Founders Fund and unlike most everyone else, Andreessen and Horowitz are more comfortable investing when an entrepreneur wants to stay the CEO. Hiring a “grown up” CEO always sounds like a great idea, but almost always hastens a company’s failure, Andreessen argues. There’s strong evidence that the biggest hits come when the founders stay engaged at a C-level position. See: Google, Oracle, Microsoft, Hewlett-Packard, Amazon, Apple and Facebook.
Another distinction: They’re not meddlers. Because there are just two of them, Horowitz and Andreessen won’t always take board seats. If they pick the right entrepreneurs, Andreessen argues they shouldn’t have to.

The whole interview lasted about an hour, and you can see many of the highlights on my Yahoo show, TechTicker, today. Meanwhile, here are five other interesting things he said:

1. Twitter and Facebook’s investors aren’t worried about monetization, but “it’s sweet” of you to. Twitter has spent about $15 million acquiring 30 million users. It’d be a no-brainer to recoup that if need be. Meanwhile, Facebook will generate more than $500 million in revenues this year—it’s spent far less than that to build the company to date. In other words, these are pretty fiscally conservatively run businesses with huge growth potential and no trouble raising additional cash.

2. Digg isn’t done. Andreessen is still bullish on Digg, citing the fact that Kevin Rose is no longer distracted with Pownce and Jay Adelson is moving to San Francisco to manage the company full-time. He thinks having both guys focused on the company will make a huge difference in the next twelve months.

3. The venture capital market should stop whining about Sarbox and other factors that are hurting their ability to take companies public. Says Andreessen, “Build Companies More Valuable and You Won’t Have this Problem.” That said, he sees a conceivable scenario where public markets are no longer how investors get returns at all. Instead, the same institutional names that used to buy the bulk of the shares at an issue, will just buy out VCs at premiums in private deals. That’ll essentially mean everyday Joes can no longer invest in high growth companies. That’s a good thing or a bad thing, depending on how many scars you have from the dot com bust.

4. At least 300 venture firms will go out of business in the next five-to-ten years.

5. Innovation and opportunities to build businesses on the Web aren’t done. They won’t be done for a long time because the Web is one of the only inventions that’s pure software, compared to computers, the television or even the railroads. That means it can completely change without having to fit into set molds. Anyone—Andreessen included—is deluding themselves if they think they know where it’s going. (In other words, don’t listen to anyone making Web 3.0 predictions.)

GRASSROOTS BIZ!

2009-07-01T08:33:00.000-07:00

We have seen a rise in the number of entrepreneurs that are starting smaller side projects. Since the increasing number of layoffs and jobless claims that began in 2008 individuals are trying to create additional streams of income to hedge against the loss of a job.

Here is a quick reading article that highlights a few interesting businesses as well as some interesting SBA facts.

ECONOMIC UPDATE - BORING QUARTER

2009-06-29T06:36:00.000-07:00

Here's a good video that provides a snapshop of our current economic situation. Jobless claims come out prior to the holiday weekend...let's hope for smaller numbers!

http://www.cnbc.com/id/15840232?video=1167028705&play=1

WALL STREET JOURNAL - BIZ PLANS!

2009-06-26T10:02:00.000-07:00

There are dozens of articles floating around about business plans, how to write them, why you shouldn't bother writing them, etc. This article that a friend sent me is a good one and worth the glance.

Wall Street Journal - Article

PART 5 - THE EXIT

2009-06-25T10:37:00.000-07:00

The Exit is the final section of a well written Executive Summary. In this section, you should explain to the investor how you plan to provide a return on their investment. There are some key points in my previous post "Exit...Stage Left." This section gives you the opportunity to build trust with the investor. You should be 100% certain to show the investor that you will be a good agent of his/her money. Also, you should show that all partners and founders are in alignment and understand the possible exit strategies.

Below is a good video from our friends at FundFindr about exit strategies.

PART 4 - THE REQUEST

2009-06-24T11:10:00.000-07:00

This is an easy section of your Executive Summary. It's pretty simple...here you'll state how much money your project needs to execute the strategy and tactics you've outlined in the remainder of your business plan. This is a great section to help you build credibility. If written correctly, this section will show the investor that you have at least given some thought to where you intend to deploy the $5m you just asked for. It should clearly state, in rough estimates, how much you need for marketing, website, equipment, office furniture, and other assets, as well as how much you need for working capital to keep the business liquid until it reaches a level of fitness. You should also state here what type of capital you are looking for...is it debt or equity financing?

Again, as in the other sections of your Summary, don't be overly wordy or detailed. Give them enough info to generate interest and leave the boring and made-up details for the next start-up that is pitching to them.

PART 3 - THE BUSINESS MODEL

2009-06-23T08:48:00.000-07:00

So far we've discussed the first two sections of a well crafted Executive Summary: The Problem and The Solution. Next in line is the section we call The Business Model.

The Business Model section of your Summary should explain to the reader how and when your cash register is going to ring. It should explain who the actual paying customer is and your best assumption as to how frequently they will buy from you. You should explain the different ways you make money and drive revenue into the business. For example, in the health club business, club members pay a monthly or annual fee that may be automatically deducted from their preferred bank account. Additionally, clubs may have other revenue streams such as value added services that may include massage and spa treatments. They also may have a snack bar that creates an additional source of revenue.

Resist the urge to write a 2 page explanation of your Model here. The Summary should be just that...a Summary.

PART 2 - THE SOLUTION

2009-06-18T08:31:00.000-07:00

In my previous post, I discussed the section of your Executive Summary where you clarify to the investor what problem you are solving in the marketplace. The next critical piece is your Solution. In this section you should be specific but brief about what you are offering and to whom. This section should depict the essence and energy of your business because this is where you sell yourself to investors. Clearly depict your product or service with commonly used terms to state concretely what you have, or what you do, that solves the problem you identified in the previous section. You should avoid using jargon or acronyms that don't mean anything to most people. You may also want to clarify where you fit in the value chain as well as the dynamics of your distribution channels and how you fit in. You should also use this section to be clear about any current customers and revenue channels so you can show you have passed the wallet test.

PART 1 - THE PROBLEM

2009-04-16T06:08:00.001-07:00

Is your new product or service a "solution" looking for a "problem?"

If you're trying to raise money from a venture capitalist or angel then you should always pitch your business from the perspective of solving a customer's problem. Don't make the mistake of telling everyone how cool your new widget or new technology is unless you can directly tell the story of how it solves someone's problem. It's the same thing when you're a sales person and you're constantly selling your product or service's "features" instead of its "benefits." A customer doesn't care about the bells and whistles of your widget unless they can see how it will benefit them.

The same concept holds true when putting together your business plan. You have to be crystal clear that your business is solving problems and generating a benefit to a market. Start by explaining why the situation exists in the marketplace and why it is that only now can it be addressed. Use this part of your Executive Summary to explain the market dynamics and the size of the opportunity...briefly.

NEED CAPITAL - GET ATTENTION!

2009-04-05T18:03:00.000-07:00

Aside from prayer and/or doing the moondance naked through an investors office there are only a few real-world things you can do to get their attention. Guess what? Without their attention you don't get a check. So, pay attention!

Your business plan is one of the most important tools that you can have to create buzz about your project. The Executive Summary in your plan is often the first and last section that investors will read. If your Summary is positioned and written well then the investor will have lots of questions about your business model. If not, they will most likely show you the exit. Most entrepreneurs make the mistake of making their Executive Summary a description of their business written in operational terms with piles-o-jargon. As Guy Kawasaki puts it, the "Executive Summary is about selling not about describing."

We have had much success using a simple and straight-forward approach that includes 5 key components. Although I can't guarantee that your plan will generate a check, I can tell you that these 5 components will help you position your business for investment and perhaps soon you'll be off changing the world with your new product or service.

In the next 5 blog posts I will define these components:

1. The Problem

2. The Solution

3. The Business Model

4. The Request

5. The Exit

CONNECTING ENTREPRENEURS AND MONEY!

2009-03-12T12:03:00.000-07:00

Here is an interesting video from Vator.tv. In this particular episode of Vator Box they are discussing the different websites and organizations that match investors and angels with entrepreneurs and ideas.

See this video on Vator.tv »

NO DECAF STRATEGY!

2009-01-30T10:59:00.000-08:00

If you follow me on Twitter then you saw that I made a comment about Starbucks recently. Apparently, they plan to pursue a number of cost-cutting initiatives including cutting jobs and store locations. In addition, they plan to stop offering decaf coffee in the afternoons. Isn't that when people drink decaf? I guess I'm kickin' it "old school" when it comes to this stuff because I don't understand that strategy. Without having a complete picture of the idea it would be my guess that this may improve operating margin in the short-term. At any rate, this post is mostly about the reaction that Caribou Coffee is taking towards the Starbucks decaf cut. I LOVE IT!

Here's a recent press release:

MINNEAPOLIS, Jan 29, 2009 /PRNewswire-FirstCall via COMTEX/ -- Caribou CoffeeCompany, Inc. (Nasdaq: CBOU), the second largest company-owned gourmet coffee house operator based in the U.S., will give away free cups of decaf coffee starting at noon on Friday, January 30.

The promotion is in response to competitor Starbucks eliminating decaf coffee ready in the afternoons. All Caribou Coffee locations will offer free 12-ounce cups of decaffeinated coffee from noon until closing on Friday, January 30.

"Decaf drinkers deserve better!" says Caribou Coffee Senior Vice President of Marketing Alfredo Martel. "Caribou Coffee is first and foremost a coffeehouse, emphasis on coffee. We strive to give our customers the very best coffee, when, where and how they want it. And if that means a cup of decaf in the afternoon,then we're more than happy to oblige. We invite all decaf coffee drinkers to experience Caribou Coffee's exceptional customer service by tasting a truly delicious cup of our Natural Decaf(TM) coffee on the house.

"Contrary to competitors, Caribou Coffee first selects the highest quality coffeebeans, then uses an all-natural decaffeination process involving no chemicals. Soaking the beans in an all-natural water solution draws out the caffeine, leaving the robust coffee flavors, but none of the buzz. The result is a smooth,delicately balanced decaffeinated coffee experience, indistinguishable from regular coffees.

ABOUT THE COMPANY Caribou Coffee (CBOU), founded in 1992, is the second-largest company-owned gourmet coffeehouse operator in the world based on number of coffeehouses. At Caribou Coffee, our mission statement is "an experience that makes the daybetter." We provide this by sourcing the highest-quality coffee in the world and craft roasting it in small batches to bring out the best in every bean. We then bring this extraordinary coffee to our customers via several channels including grocery locations, online or via our coffeehouses, which provide a relaxing escape for our customers. Caribou Coffee is committed to expanding our business by bringing this experience to new customers through multiple means without compromising our unwavering commitment to quality. Caribou Coffee is a proud recipient of the Specialty Coffee of America Association's (SCAA's) 2008 Roasters Choice Tasting Competition Gold Award.

SOURCE Caribou Coffee Company, Inc.

A BUSINESS PLAN CAN SAVE YOUR LIFE!

2009-01-26T11:22:00.001-08:00

Most of you know that I am a big proponent of business plans. Here's a great video about how a plan can save your life and your business.

Click Here!

RUDE CUSTOMERS - BEWARE!

2009-01-06T05:59:00.001-08:00

Here is a post from Geoffrey James that my team has found very interesting. Although we haven't seen a rise in the number of rude clients (they're rare), we do have reports from other sales professionals in our network that tensions are high out there due to the economy. Enjoy!

I started my morning off with a customer chewing my rear off about a product. We’re talking rude, degrading, disrespectful insults flying out of this man’s mouth! I put on my best smile and worked to “pop” his balloon. But to no avail. He hung up, probably satisfied that he was superior in the battle. He slammed me, my company, and companies that did business with us. It took every part of me to keep my control and let this guy fume! My question is…are there just some times when all your sales knowledge just doesn’t help? And is there ever a time when you can just let loose? Please say yes! I’m still steaming!

Well, the standard answer is that you’re never supposed to “let loose.” After all, if “the customer is always right,” it’s your job to stand there, nod, and take it, right?

I don’t think so.

If you’re in sales, you’re a professional. Which means that you have the RIGHT to civility and respect. No exceptions.

Before I go further, though, I need to emphasize that the advice that I’m about to give is for sales professionals, not people working in customer support. Sales professionals can and must interact with customers on a peer-to-peer basis. Customer support personnel are paid to be subservient. Different role, different approach.

So here’s my advice for sales professionals. If somebody is being intense with you, then a failure to get intense in return only makes them more intense. If you want to defuse the situation, you need to get in rapport with the customer, which you can’t do if you’ve got “welcome” tattooed on your chest.

When a customer gets rude or loses his temper, the correct response is not to placate (i.e. “put on your best smile”), but to increase your own intensity and then demand civility.

Here’s how:

STEP #1. Raise your own intensity level. Don’t become as intense as the customer, but let your voice become firm and authoritative. If you’re face-to-face, put on a serious expression, one that expresses clearly that you don’t appreciate being yelled at. You’re a professional, not a doormat. Act like one.
STEP #2. Call the customer’s bluff. State clearly that you’re willing to help resolve the problem, but you’re not going to be yelled at. Don’t mince words. Make it clear that your help is dependent upon the customer’s ability to behave in a civil manner. In most cases, the customer will BREATH A SIGH OF RELIEF. It’s quite noticeable.
STEP #3. If the customer doesn’t comply, end the conversation. Do this politely but firmly. State that you’ll be glad to help once the customer is willing to treat you with the respect that you deserve. You will almost never need to do this, but it sometimes happens.
STEP #4: Apologize for the problem. Once you’ve demanded, and gotten, civil behavior — then and only then — you should apologize for the inconvenience that the problem has caused the customer. Explain that you are just as committed as the customer is to resolving the problem.
STEP #5: Work on the problem. Now that you’ve established rapport and the fact that you’re a professional, you can go ahead and work the customer’s issue.

The reason that sales pros don’t insist upon respect is that they’re afraid that that the customer will become even more rude. But answering intensity with (appropriate) intensity is giving the customer what he or she really wants, which is a connection. The customer wants to be heard. And nothing is more frustrating to an angry person than getting a “have a nice day” brush-off and nothing fuels a bully more than weak-kneed caving.

There are three advantages to demanding respect, before you work a customer problem:

1. It’s easier on your nerves. No job is worth being abused. If you’re a sales professional, you can always get a job elsewhere, anyway, so there’s no excuse for putting yourself through this kind of emotional wear and tear.
2. It establishes your credibility. When you placate, you’re just proving to the rude customer that you’re not a professional and therefore not reliable as an individual. The customer figures that, if you had something valuable to offer, you wouldn’t take the guff.
3. It prevents future flareups. Once you’ve laid down the ground rules for interaction, you’ll get the respect you deserve. I saw this happen with a boss who yelled at employees until they mustered the courage to yell back. At that point, he was satisfied and never yelled at that person again.

In other words, stop getting “steamed” and start standing up for yourself. You’ve got nothing to lose… except the aggravation.

What are some situations that you have been in with a customer? How did you handle it and what tips do you have?

INSANITY VERSUS CASH FLOW!

2008-12-11T13:29:00.000-08:00

I recently was listening to a podcast of the Frank Peters show focusing on Angel Investing. The guest on his show, Permjot Valia, is an early stage investor. He has an interesting perspective on the start-up and Angel investing worlds.

He had a very interesting philosophy with regards to what financial metrics are most important in a start-up. Often entrepreneurs manage their entire business around the profit and loss statement. Permjot recommends managing from a cash flow perspective.

Here's his philosophy in summary:

- Focusing on Revenue = Insanity
- Focusing on Profit = Sanity
- Focusing on Cash Flow = Reality

Here's a good article from Entreprenuer that started with this question...

Q: Can you give me some tips on managing the cash flow of my new business?

VATORTV VENTURE CAPITAL STATUS!

2008-12-05T07:29:00.000-08:00

Here's a good video from Vator.tv about the current status of transactions in the Venture Capital world.

See this video on Vator.tv »

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AVOID THESE SELLING ERRORS!

2008-12-04T13:06:00.000-08:00

I was just talking with a few folks here at Start-Up Smart about this article to take a random and unscientific survey. Of the half dozen people that I spoke with all of them said they have been on both sides of the "table" that is outlined below...

This article below comes from Aaron with SmartDraw.com.

How Not to Make a Marketing Presentation

Recently, one of my coworkers slid a handout from a marketing presentation he had attended across my desk and asked me what I thought of the material. This company was trying to sell us something that would increase our revenue, cut our costs, etc… the typical promises in every business-to-business pitch. This company was trying to sell us on some new advertising opportunities, specifically, and we receive at least a dozen proposals of this sort per week.
The marketing materials were very polished and it was clear that the salespeople from this company had done their homework on the nature of our business—well, most of their homework anyway. The pitch was very detailed; it told us exactly what we were paying for and outlined how we would potentially benefit from this company’s services. It was, in my book, one of the best-presented pitches I’ve ever seen. But it contained a handful of fatal errors that forced me and others to say “no thanks.”

Error #1: Make Your Customers Feel like Soviet Space Dogs

The first mistake this company made was not including any testimonials from other customers who tried this service and had a good experience. The proposal in this instance was extraordinarily expensive, and the company didn’t do much to assuage our concerns over the price tag by way of sharing the hopefully positive experiences of other customers.
No customer wants to feel like a guinea pig or a Soviet space dog. They want to know that other customers who’ve tried your product or service have achieved positive results and satisfaction. If you fail to provide that kind of reassurance over the course of your presentation, it leaves each potential customer feeling exposed. No amount of good presentation skills or masterfully-designed PowerPoint® slides will be able to overcome the lack of assurance left by not including any meaningful, specific testimonial information.

Error #2: Don’t Stand By Your Product

If a customer asks you “so, if we agree to spend all of this money on your product, what will you do if it doesn’t deliver everything that you’ve promised?” during the course of a marketing or sales presentation, you should probably avoid all of the following responses:

“We can’t guarantee that it will work, but we’re pretty sure that it will work!”

“Well, it may not work out the first time; you might actually have to use the service a couple of times before you get the results that you’re looking for. But we’re sure that we can deliver them eventually.”

“Well we won’t be able to refund your money, but we will be able to help you figure out how to use the service better down the road!”

The little handout I read made it clear that we had to pay for the service upfront and all of the risk was on us. When faced with a risky or expensive proposal, customers want to know that there’s a degree of shared risk between both the vendor and the buyer; it helps ease whatever concerns customers may have about purchasing your product, knowing they won’t absorb the full damage if the product or service doesn't pan out.

There are a number of ways to let customers get a taste of whether or not your product will work for them, and it’s an easier sell when you can offer them a guarantee or a trial of some kind. Telling your prospects to essentially roll the dice on you, however, is the last thing you should do—unless you’re presenting to tourists in Las Vegas.

Customers want to feel safe and confident when they commit to a purchase—especially large ones. And this company, despite their professional-looking slide deck and knowledge of how our company works, actually made us feel more uncomfortable about committing to a large advertising purchase. This is because they did nothing to mitigate our concerns about the risks.

This presentation didn’t fail because of bad design aesthetics or because it looked unprofessional; the presentation failed because it lacked the critical substance of testimonials and risk-sharing opportunities. Presentation can’t mend the gaps created by lack of substance.

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LEAVE ME A MESSAGE...BEEP!

2008-12-02T14:40:00.000-08:00

As entrepreneurs, we wear a lot of hats. One of those hats is to fill the role of a Sales Person. As sales people, we leave a lot of voicemail messages in our endless pursuit to turn potential customers into revenue streams and build client relationships. When leaving voicemails for a prospect or a customer, you can dramatically increase your chances of a return call by putting yourself in their shoes. In other words leave a message that speaks to their perspective.

One of the most common mistakes sales people make when leaving messages for potential customers is talking too much about themselves and their company. BLAH BLAH BLAH. If you consider what your prospect might be thinking when they listen to your message, you want to avoid thoughts like, "So what?" or "How will that help me?"

Using a valid business reason is an effective way to craft a compelling reason for your client or prospective client to call you back. Your potential customers are as busy as you are, so messages longer than 20 seconds will start to decrease your chance of a call back right out of the gate.

Criteria for a good message:
- Impacts what your recipient wants to accomplish.
- Sets the call as a high priority.
- States "what’s in it for me" to the recipient.
- Is clear, concise, and complete.

PRIORITIZE YOUR VENDORS!

2008-11-26T07:00:00.000-08:00

In bad economic times most of the emphasis and attention is on failing companies. However, here's an interesting article about prioritizing debt for companies that are healthy. Start-ups and growth companies that can display positive operating cash flow and continue to maximize that cash flow can certainly position themselves to take market share in a down economy. While most company executives are immobilized, the saavy executive with a high tolerance for pain can create competitive advantage.

Here is a great article by Jane Hodges with some tips on how to prioritize your debt:

The scenario: A company’s cash flow is pinched, but the stack of bills to lenders and creditors is piling up fast.
The tactic: Steal a page from the Chapter 11 handbook: Follow the “absolute priority rule” and pay off debts in order of importance.
In a recession, sluggish demand and slower-paying customers can put a serious squeeze on cash flow, making it tough to keep paying the most important bills. One of the most important tactics finance managers need to follow in a serious market slump, says Sheila Smith, financial advisory services principal and national leader of restructuring at Deloitte, is to plot out the timing of major expenses, such as renewals of credit lines, bond-debt servicing fees, and balloon payments on debt. Look at which ones are due in the next three, six, or nine months, Smith says, and then stockpile reserves to fund them. In the normal course of business, this might be easy to do without deciding which of those is or isn’t critical to business. But in a deep financial crisis, prioritizing can help companies save and prepare.
If a company can’t pay all its suppliers or partners on time, or if it has multiple suppliers across several categories (three office-supply accounts, two travel agencies, etc.), then managers need to create a hierarchy that dictates which accounts get cash first, second, third, and so on. By never paying priority vendors late and exercising more liberty with second-tier partners, the company can assure that its most important business functions are under control and preserve short-term cash flow.
Prioritizing debt is a trick that healthy companies can learn from bankrupt ones. In a bankruptcy, a company follows the so-called “absolute priority rule,” in which the company pays off debts in a clearly delineated hierarchy. Outside of bankruptcy the hierarchy is not predetermined, but companies can still use a priority-setting process to establish a smart strategy for who, what, where, and when they’re spending money, Smith says. For example, an aviation company definitely needs to pay a cockpit-door manufacturer on time. But the same firm may have hundreds of light bulb vendors to choose from, so paying one late has few consequences other than changing vendor.
Smith gives another example: A company that works with three overnight mail vendors might want to choose one as the “critical” or most important vendor who always gets paid on time, then designate the other two vendors as “B” and “C” priorities who can get paid later in the billing cycle.
Caution: Prioritizing vendors, suppliers, and debtors can lead to less negotiating power if these parties wise up to their ranking. Lower-priority vendors may decide not to work as cooperatively down the line. On the flip side, companies can try using prioritization as a launch point for negotiation with priority partners — i.e., “We’ll ship 70 percent of our overnight volume with your company if you shed 15 percent of the fee.”

SHORT, BUT SWEET!

2008-11-20T07:05:00.000-08:00

As most of you know, I am a big believer in keeping your business plan and presentation to investors brief and focused. Here is a snippit from a blog post by David Hornik on VentureBlog. David is blogging about an article he recently read in Wired about securing venture capital funding.

"ONCE INVITED" to present your plan (to VC), remember that brevity is a virtue: Use no more than 30 PowerPoint slides, and keep your presentation under 45 minutes." (Wired article)

(David's response) Yikes. 30 slides. Unless you are Lawrence Lessig, I don't think the words "30 slides" and "brevity" can possibly be used in the same sentence. I completely agree that you should aim to keep your presentation to about 45 minutes. If a VC gets excited about what you're working on, they'll spend more time with you in future meetings. But, as with entertainment, you are way better off leaving them begging for more. Get in. Pitch. Get out. There is no way that should take anywhere near 30 slides. I've blogged here before about the 6 -- yes, 6 -- slides you need to pitch your business. Even if you feel that 6 slides is too spartan, don't confuse quantity for quality. The fewer the slides and the more discussion the better.

(My response) Folks...I can't stress this enough. Resist the urge to take a presentation with a pile of slides. Simply put...don't do it. The goal of the presentation is to get their attention. Once you have their attention THEN you go into the details. Most Angels and VCs have their own process for going into the "details" of your idea.

TAKE YOU DOWN...DOWN TO CHINA TOWN!

2008-11-11T09:03:00.000-08:00

As most of you know, I run a boutique firm that specializes in helping entrepreneurs define their start-up idea or business and be able to explain it to potential partners, employees, vendors, investors, bankers, etc. Without a doubt the most common element that our clients overlook is their EXIT STRATEGY...more specifically a COLLECTIVE EXIT STRATEGY. This is the process where all founders, partners, investors, etc. have a clear understanding of how each will exit the business and hopefully capture ROI through a liquidity event.

Here are some common exit strategies:

1. Sell the business to another party such as a competitor, strategic partner, or other business of some type
2. Take the company to the public markets
3. Don't exit and keep the business as a cash flow or life-style business

At any rate, whatever your intended plan is to exit the company you would be well advised to have detailed and thorough discussions with all shareholders prior to launching the business. Also, discuss these strategies with an attorney that specializes in exit strategies. It's well worth the expense.

Here is a great video that is brief but highlights some key points when considering an exit strategy. It's from our friends at FundFindr.tv.

CRAZY CREDIT CATASROPHY!

2008-11-07T06:25:00.000-08:00

Yo...I ran across this interesting blog post from a member of Start-Up Nation. Of course your's truly posted a comment, but I would like to hear from others on what they would do with their business if access to credit vanished.

This used to be one of those "what if" questions. Not anymore.I've learned of a recent report from economist Peter Schiff that indicates that for the first time in decades, credit card companies cannot find debt buyers. You won't hear this widely talked about on television. People do NOT want to hear this stuff.For years credit card companies would extend credit to businesses and individuals, bundle them up and sell them off to investors, domestic and abroad. Places like China, Japan, Germany, etc.. A lot of this had to do with counting on a strong dollar. But, just recently, these credit card companies/banks have found nobody willing to take on this debt. Without buyers the card companies are left holding all of the risk and with the economy in trouble, these companies are faced with two choices-- tighten up, or shut it down. Some of you may have already felt this.We were worried about the Mortgage bailout but that is just a small fraction of the bailout that would be required to cover credit debt. How much? Nobody seems to know the exact number, but it is in the hundreds of trillions of dollars! A global recession could cause the credit industry to grind to a halt and it's highly unlikely that any bailout package could keep this from happening.I believe that we will still have a modest level of credit but it won't resemble anything that we have become accustom to over the last 25 years. I remember a time when my parents got by with two credit cards... a Shell gas card, and Sears Department Store. As I remember, those companies were so strict about issuing these cards that just having one of them indicated that you were likely to be a dependable payer....responsible/ worthy of credit. My, how times have changed.

Question:How would you modify your current business or alter your your business plans if credit was to all but disappear?

READ THIS FIRST!

2008-11-04T07:41:00.000-08:00

Well it's election day and I'm sure we are all distracted. However, I just read through this blog post from Rob James. It's a good one and he breaks down the 8 things he wishes he had been told prior to starting his business. I especially like his paragraph about business planning.

Here's a sneak peak...

3. Have a model, not a planOk, this is a bit of a ‘bum steer’. You do need a plan, but a fully documented business plan that is 100 pages long is so, um dotcom. Nobody reads those things, and at this stage, your business is changing by the day, if not the hour. The reason you have a business plan is to show that you have thought through all the issues. Good sessions in front of the whiteboard, and scribbling in paper gets the same result. You may want to have a 2 pager, but I generally find that whenever someone asks for one, I will rewrite from scratch anyway. But I can’t stress enough how important a model is. A model is just your spreadsheet plan of how you are going to make money. Not only is it good for any potential investors, but it is good for you. Because in your grand plan, you may have not worked out how to make money out of this idea yet. Well, if you don’t figure this out, who do you think is going to do it for you? The investors? Keep dreaming cowboy! Firstly, I speak to a lot of Angel Investors, Private Equity and VC’s and they are constantly frustrated by how many people come to them this way, and its a waste of time. If the VC does see the money potential, do you think they are going to disclose it to you? Of course not! They have to think of their investors. So they will try and get into the deal for as little as possible, and then they will make money from it. The model is also going to be good for you. After putting it together, you might see that you are not going to be cashflow positive for 24 months, can you last that long? How will you last that long? Or you might see that to realise a profitable business, you need 10 Million registered users, is that realistic? Believe me, you will live and die by your model - work on it often and don’t be scared to change it!

Read more here...

GUY KAWASAKI - THE IMPORTANCE OF TWITTER!

2008-11-03T16:43:00.001-08:00

Guy Kawasaki is a well-known author, entrepreneur and the Founder of Garage.com and Alltop. He discusses how he uses Twitter to drive interest in Alltop.

See this video on Vator.tv »

LOAN OPTIONS - IS THE MONEY FLOWING?

2008-10-27T15:56:00.000-07:00

Here is a good Q&A posted on the the USA Today Small Business page that highlights where to find business loans in today's nutty climate.

By Steve Strauss for USA TODAY

Q: Steve, it is no secret that credit and money are still tight, but what is a secret is where small business should go now. My line of credit has dried up last month and I am at a loss. What are our options? — Michael
A: The good news is that there still are options out there, it's just that if you want to find the money to start or expand your business, you may need to look in new places and be more creative.
The era of 'easy credit' is over, that's for sure.
In fact, according to Senator John Kerry, the chairman of the Senate Committee on Small Business and Entrepreneurship, in a letter to President Bush on this subject, the country's largest source of long-term small business capital, the SBA 7(a) loan program, has fallen by nearly 50% compared with the same period last year.
That's the very bad news.

So what do you do if you need capital for your business right now? Here are some options:
Bank loans: With many large banks now partially owned by the government (say what?!), with so-called toxic loans still on the books, and with the credit crunch not nearly uncrunched, you will find big banks are not the friends to small business that they once were.
But small banks still are, and that's where to go now. Community banks are still making loans. They are still offering lines of credit. They still say yes. Why? There are a few reasons:
• Small regional banks have always been run conservatively, so few have bad loans on the books.
• Many are local institutions, with deep roots and significant assets.
• Regional and community banks have proven to be better lenders, and so still have assets to lend.
Credit unions: Similarly, credit unions may also be a good place to go for a loan right now. Like local banks, credit unions are not exposed to the same risks that big banks are. As such, local credit unions have seen their portfolio of small business loans increase.
SBA loans: Small Business Administration loans have been a traditional source of small business lending, but that is drying up for various reasons: Cut backs by the Bush administration and increased fees have been the most common reasons. To exacerbate things, since SBA loans are, by their very nature, government-backed, and as the government is now busy backing banks with $700 billion elsewhere, things may get even tighter.
I wouldn't expect things to ease up on the SBA front until a new administration takes over in January.
State and local governments: There are no shortage of local government programs and agencies that may offer you financial assistance. For instance, check out local Economic Development Centers.
Credit cards: Credit cards have also been a traditional way for small businesses to fund the dream, and that remains true. However, because far too many small business owners get in over their heads with credit cards, a word of caution is in order. Just don't use them if you can't pay them back.
And if you do use them, be sure to transfer your balances onto the card with the lowest interest rates, and then pay off as much as you can as soon as you can. Using new cards with introductory artificially-low teasers rates is also a good way to keep borrowing costs down.
Other financing: Manufacturers and suppliers might offer a line of credit, or even inventory on consignment. They want to keep your business.
Also, check to see what sort of financing your business "partners" may offer. For example, Microsoft (a company I do some work with) offers technology funding to small businesses. Their "Total Solution Financing" helps small and midsized businesses finance their technology purchases with fixed-rate loans, and they do something similar with software licensing. You may have business partners that you work with who have programs of which you are unaware. Ask.
Bottom line: Time to get creative with your financing.
Today's Tip: Here's one final idea: Check out something called peer-to-peer lending. This form of private lending is increasing in popularity. Private lenders compete for your loans. Check out, for example, www.Prosper.com.