Friday, September 19, 2014

How to Find Angel Investors for Your Startup

Angel investors (not venture capital firms) are the most likely candidates to get your businesses from a piece of paper to a proof-of-concept.  These angel investors typically come in four distinct groups.

Read the rest of this post in Forbes, which I guest authored this week.

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Chicago: The Next Big Startup Ecosystem

When I started iExplore in 1999, Chicago was jokingly referred to as a “flyover city” because the big venture-capital firms in Boston and Silicon Valley would fly back and forth to each other looking at deals, ignoring Midwestern startups altogether. Even worse, these funds would insist that any startup wanting their support would need to relocate to their city (which many aspiring entrepreneurs did, having no other choice) in order to leverage their expertise and tap into their local ecosystem.  That was a different time for Chicago, before it started to build a robust startup ecosystem of its own.

Read the rest of this post in the Wall Street Journal, which I guest authored this week.

For future posts, please follow me on Twitter at: @georgedeeb.


Wednesday, September 10, 2014

Busting the Lean-Startup Myth

The below is a really great guest post by Howard Tullman (@tullman), CEO at 1871 (the largest shared space for startups in Chicago), Partner at G2T3V (an early-stage venture capital firm) and good colleagues of Red Rocket.  I couldn't have said the below any better, myself .  Thanks, Howard, for sharing your wisdom.  You can also check out the original post on Howard's blog at Inc.com.

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One of the greatest TV commercials of all time featured a crotchety old Chicago woman (Clara Peller) whose plaintive 3-word inquiry ("Where’s the beef?") became not just a huge advertising home run for Wendy's but a national catch phrase. Every comedian, late-night television host, news commentator, and politician seized on the expression and couldn't use it enough.
"Where's the beef?" is a question that's still worth asking today, specifically at those many startups that have jumped aboard the latest and greatest craze--"lean" everything. That's because, when it comes to "lean," the same question applies: Where, exactly, is the beef?

Is There "V" in Your "MVP"?

I find myself thinking fondly of Clara's pronouncement whenever I have to sit through another bogus business review session where someone with the bare bones of an idea is trying to convince a group of otherwise intelligent investors that there's a real business opportunity buried beneath all the B.S., and that (a) all the shortcomings of the story being spun and (b) all the gaps in the gospel aren't actually problems at all. They're not bugs, oversights, or misses; they're the intentional result of trying to be "lean" and trying to launch "something" (not to say, "anything") to get the ball rolling.
I'm not sure when it got to be OK to try to do the least work possible in developing  something that you are seriously trying to do well, but maybe I missed a memo or two. But when people tell me that it's the minimum viable product (MVP), not the meat of the matter, that actually counts I remember that Clara knew better. This entire lean startup movement not only misleads and misdirects people into building mediocre products and potential services, it's also much more of a curse than a cure.
We're encouraging an entire generation of young entrepreneurs to rush things out to prospective customers--to throw a bunch of stuff against the wall and see what sticks. In the old days, people thought this was a good way to test to see if the spaghetti was al dente, but it actually wasn't. Pasta that sticks to the wall is most likely overcooked and too gummy to taste good.
Like so many other things in life, there's no simple shortcut or quick way to do these things right.  It takes time and craft and patience to build things that will matter and last. "Quick and dirty and out the door" sucks as a strategy for successful startups. Maybe you can never be too thin or too rich, but a startup can clearly be too lean. The ultimate goal isn't to build skinny start-ups, it's to build smart ones.
I understand that it would be na├»ve to delay your launch until you thought you had every single detail exactly right. We know that even the experts can completely overlook glaring interface flaws or other obvious omissions that the simplest novice user will see right off the bat. And it's equally arrogant to assume that you can't learn a single thing from the marketplace or your users. But that's a different issue. 
As I see it, there's a basic flaw in the common understanding of the "lean startup" concept, and then there are three main problems with the way most young entrepreneurs are trying to adopt and implement it.

The Basic Flaw

Even the best MVP won’t succeed without an MVA. An MVA is a Minimum Viable Audience (that's my simple shorthand for a bunch of potential buyers). Long before you start creating your product, crafting your code, and designing your UI you need to find out if anyone gives a damn about your idea and your proposed solution. This isn't easy work. You have to actually get off your butt and get out into the field and find and talk to actual people--not your co-founders or your folks--about what you're hoping to do.
You have to find actual problems that are generating real pain for a large number of people. You have to determine whether those people recognize the problem, appreciate the pain, are willing to admit that they have the problem, and are willing to pay for a solution. Then you might have a fighting chance to define and build a viable solution
You have to also recognize that: (a) there's an infinite demand for the unavailable (anyone can say they'll buy something that you don't have for sale); and (b) the easiest way for a buyer to get you to leave them alone is to say "Yes" and "Come see me when your product is ready," and then show you the door.

Problem 1: They Won't Care

If you haven't done your homework and identified the right pain points and the right target customers, you might as well take a hike because no one wants the cure for no known disease; no one is going to invest in solutions in search of problems; and you'll end up building and wasting a lot of time on the greatest software never sold. The way you start the process determines where you end up, and these businesses are hard enough even for the people who do all the proper research, preparation, and planning.  A goal without a plan is just a daydream on someone else’s dime.

Problem 2: They Won't Suffer

The idea that you can dump some partially-baked solution on your first prospects and they will then help you figure things out is another pipe dream. Trying to make your first users into your last beta testers is a waste of everyone's time because smart users want simple solutions that work right out of the box, not more problems. And it doesn't really matter what the problems are (implementation, training, support, stability, or security) because they're all just more noise and aggravation that busy people don't need. We are quick to try and even to adopt things that work for us, but we're much quicker to dump stuff that doesn't. And while there is an obvious trade-off between the degree of the customer's pain and the customer’s otherwise heightened expectations, in the end no solution that simply swaps one set of problems for another is going to get out of the gate.  

Problem 3: They Won't Wait

As the Heads & Shoulders people say, you don't get a second chance today to make a first impression. Customers won't (and don't) wait for you to figure things out; if your first attempt falls flat you can bet that they won't let you come back. It's ridiculously easy to burn your bridges and impossibly hard to rebuild them when there are fast followers and copycats galore standing by, watching your mistakes. Customers don't want stories or excuses; they want workable solutions.

The Right Way

There is a right way to do this and it's pretty simple. Do your homework and find an important unmet market need. Recruit the right early users who are invested (by virtue of their own desires) in your success. Build your MVP to their specifications and with their input and buy-in.  And then prepare to enter the perpetual iteration loop.
Launch, Measure, Modify, Re-Launch and Repeat the Process ad nauseam.
Successful solutions today are all the same: moments of mad creativity followed by months of maddening maintenance. Continually raising the bar and improving your offerings is the only way to stay in the game. 

For future posts, please follow us on Twitter at: @RedRocketVC

Friday, September 5, 2014

Innovate or Die: The Stark Message to Big Business

Big companies that fail to innovate risk extinction. That's the stark truth in the era of "digital disruption". Just look at the likes of Woolworths, Polaroid, Alta Vista, Kodak, Blockbuster, Borders... the list goes on. All steamrollered by strings of ones and noughts and changing consumer behavior. But why are so many big companies so bad at it?

Read the rest of this article at BBC, which we contributed to this week.

For future posts, please follow us on Twitter at:  @RedRocketVC.


Thursday, September 4, 2014

Lesson #187: The 1,024 Types of Salespeople. Hire the Right Ones!

Hiring good salespeople is one of the hardest things a company has to do.  Typically, companies need to go through three salespeople, in order to find one successful one with long-term closing power.   This hard fact can take its toll on early-stage companies, that have limited budgets, can only afford small teams and can’t afford to make any mistakes which will result in revenues getting delayed down the road.  Hopefully, the below categories of salespeople, will help point you in the right direction of which type you should hire for your business.

Enterprise vs. SMB

Enterprise sales is typically a much longer sales cycle, and needs someone who knows how to work numerous parties and divisions within an organization over time.  With smaller businesses, you are typically closer to the decision makers and budgets at the top of the organization for a quicker sale with fewer people involved in the decision making.

Early-Stage vs. Late-Stage

Early-stage salespeople tend to need more leadership, passion and brand ambassador skills.  And, later stage sales people tend to work better within structured and repeatable processes.

Inbound vs. Outbound

Inbound salespeople prefer limited travel and leads coming to them in the office.  Outbound salespeople are typically road warriors that spend most of their time selling and schmoozing prospective buyers at the clients’ offices.

Simple vs. Consultative

Most any good salesperson can sell a product that is simple and easy-to-understand.  It takes a really special salesperson that can put on a consultative hat with clients, to help them better understand a complex product and remove the fear of the unknown.

Competitive vs. Non-Competitive

Again, most any good salesperson can have success with limited competition in the market.  But, finding a good salesperson that knows how to win business with “hand-to-hand” combat skills up against entrenched competitors is much harder.

Big Ticket vs. Small Ticket

The bigger the ticket, the longer and harder the sale process, as more decision makers are typically involved in larger ticket purchases.  Not all salespeople have the persistence and nurturing skills required to succeed in longer sales cycle products.

Hunters vs. Recipients

Any good salesperson should be able to close leads that are handed to them by the marketing department.  But, many salespeople do not have the “hunter mentality” to have to drum up leads on their own, with persistent and long term success.

Doers vs. Managers

Make sure your salesperson actually has demonstrated recent success in selling, as opposed to managing a team of salespeople.  It is very different when you have to “dial for dollars” yourself and are building your own Rolodex of relationships.

Lone Wolves vs. Team Members

Very few virtual salespeople working from their home offices have the discipline to stay focused and put in the hard work required.  And, some salespeople just prefer the team environment of working alongside their peers in the office.  Don’t put a square peg in a round hole.

Direct vs. Reseller

Typically, you want to hire someone with past success selling one specific product or service, inside that company.  Resellers, distributors or channel salespeople are often selling multiple brands, leveraging a broad portfolio of products, and may not be able to show success for one specific product therein.

So, with ten categories above and two options in each category, that equates to over 1,024 specific types of salespersons (two to the 10th degree).  Try to hire ones that check off the most skills needed for your specific business.

Be sure to re-read Lesson #127, How to Screen Salesperson Candidates, for a list of key questions you need to ask during the interview process.

For future posts, please follow me on Twitter at:  @georgedeeb.