Red Rocket Blog (Startup Lessons by George Deeb): September 2011

A place for entrepreneurs to learn and engage on various topics and lessons with George Deeb, Managing Partner at Red Rocket Ventures, founder and former CEO/CMO of iExplore and author of 101 Startup Lessons-An Entrepreneurs Handbook. The blog is a startup entrepreneur's "playbook", with actionable "how-to" lessons on a wide range of startup and digital related topics, including business, strategy, sales, marketing, technology, operations, human resources, finance, fund raising and more.

Thursday, September 29, 2011

101 Startup Lessons--An Entrepreneur's Handbook

Wednesday, September 28, 2011

Lessons #71 thru #101: A Recapped Index of Startup Advice by Topic

Here is an index of all startup lessons from our blog to date, for your quick reference by topic. Please forward to anybody that you think may be interested.

Click Here for an Index of Lessons #1 thru #35

Click Here for an Index of Lessons #36 thru #70

Lesson #71: Launch Fast! Fail Fast!

Lesson #72: The 10 Basics of Website Design

Lesson #73: Consumer Usability Testing

Lesson #74: Brand Building for Your Startup

Lesson #75: How to Implement Layoffs

Lesson #76: How to Implement an Employee Change

Lesson #77: The Basics of Email Marketing

Lesson #78: How to Build a Budget

Lesson #79: Determining Customer Lifetime Value

Lesson #80: Pitfalls to Avoid When "Reeling in the Whale"

Lesson #81: Considerations for Global Expansion

Lesson #82: Project Management & Prioritization

Lesson #83: Startup Roles & Responsibilities

Lesson #84: Lady Gaga--An Entrepreneurial Case Study

Lesson #85: Tap Into Your Local Startup Ecosystem

Lesson #86: Perception Often Outshines Reality

Lesson #87: The Art of Decision Making

Lesson #88: The Basics of Online Display Ads

Lesson #89: Startup Lessons from Scrabble

Lesson #90: Proper Business Etiquette for Startups

Lesson #91: My Entrepreneurial Heroes

Lesson #92: Building Your Personal Brand

Lesson #93: Make Your Employees Feel Appreciated

Lesson #94: Netflix--A User Experience Meltdown

Lesson #95: The Basics of Telemarketing

Lesson #96: Vertical vs. Horizontal Growth Options

Lesson #97: Securing a Small Business Grant

Lesson #98: Securing a Government Contract

Lesson #99: The Basics of Direct Mail Marketing

Lesson #100: The Definitive Checklist for Startup Success

Lesson #101: The Plusses & Minuses of Entrepreneurship

Click Here for an Index of all Lessons #1 thru #101

Hope you found these lessons helpful. Keep them handy as a useful startup handbook as your various business needs arise. And, thanks for sharing them with your entrepreneurial friends.

For future posts, please follow me at: www.twitter.com/georgedeeb

Lesson #101: Plusses & Minuses of Entrepreneurship

I finally made it to my goal of writing 101 Startup Lessons, with this being my last lesson of this series designed as a handbook for entrepreneurs. But, instead of a tactical lesson as my swan song, I thought I would speak more from the heart on the emotional plusses and minuses of entrepreneurship, and long term implications of starting your own business.

THE PLUSSES

Being Your Own Boss. Once you get the taste of being your own boss, it is very difficult to ever go back to being a "cog in the wheel" within a big corporate environment. Nowhere else can you get the thrill of making senior level decisions across a wide range of business topics (e.g., strategy, finance, marketing, technology, operations). The buck stops with you (literally!), and the success or failure of your business falls squarely on your shoulders, based on the decisions made by you and your team. That may sound a little daunting, at first. But, trust me, it is very exciting.

The Speed of Doing Business. Startups move at "light speed" compared to the procedural, political and bureaucratic morass of big corporations. If you want to do something as a startup executive, you make a quick decision within the snap of a finger, without multiple layers of approvals and procedures. This can make for a really exciting environment, watching the twists, turns and outcomes from your actions in "real time".

The Feeling of Accomplishment. Launching and building a successful startup is the equivalent of having and raising a baby. And, when your startup achieves its desired outcome and long term success (just like seeing your baby grow into a well-mannered and respected college graduate), it truly creates a real feeling of accomplishment, looking back and saying "hey, I did that!". Nobody really appreciates how hard it is to turn a "piece of paper idea" into a thriving business, unless you actually have done it yourself. So, don't be afraid to pat yourself on the back, for taking the hard road and a job very well done.

THE MINUSES

Living Like a Pauper. Let's face it, it is not easy plowing all your hard-earned savings into a risky startup, not getting paid in the early months of getting the business off the ground and not being sure where your next paycheck is coming from. Unfortunately, unless you are wealthy from other means, launching a startup with hopes of a long term payback, often comes with the strings of living very frugally until the business gets its "sea legs" beneath it. If you need the comfort and security of bi-weekly paychecks to cover your bills or lifestyle, don't get involved in the early stages of a startup.

High Stress Level. Obviously, with weak cash flow and other business constraints, comes constant worry and stress. Launching a startup was a big gamble: (i) you quit your comfortable job; (ii) you put all your savings (and those of your friends and family) at risk; and (iii) you will end up with nothing but life lessons learned and a "black eye" with your investors if the business goes under. That is a big burden to carry around each day. So, if you are not good when dealing with stressful situations, a startup is not right for you.

Impact on Your Resume. Before being an entrepreneur, I was a big-bracket investment banker to Fortune 500 executives. Nobody told me after 12 years of being an entrepreneur, that big company recruiters would label me an "early stage guy", making it very difficult to break into any business generating in-excess of $100MM of revenues. Don't get me wrong, I love being involved in startups. But, I would at least like to control my own career destiny, if I ever desire to try my hand at being a CEO of a bigger business. The longer you are involved with startups, the more difficult it will be at turning back from a lifelong career in early stage companies.

Being an entrepreneur is not right for everyone. Make sure you have a real appetite for the risks at hand, a real passion for your product and an unbridled confidence in your ability of building a great business, before jumping in. But, once you do make the leap, hang on for one of the wildest rides of your life!! As starting and growing your own business really is one of the most-rewarding life experiences you can have.

I hope you have enjoyed these life-learned lessons. Make sure to keep these 101 Startup Lessons handy, and reference them as business challenges arise. And, be sure to share them with your entrepreneurial friends who may also find them useful for building their own businesses.

It has been a real pleasure having you share this editorial adventure with me.

For future posts, please follow me at: www.twitter.com/georgedeeb

Tuesday, September 27, 2011

Lesson #100: The Definitive Checklist for Startup Success

Over the last six months, I have shared many lessons with you on how best to build your startup. Below is a checklist of the most important "must-haves" for any successful startup:

___  A good business idea--"secret sauce" solution to real world problem (Lesson #1, Lesson #112)
___  A well-thought out business plan and revenue model (Lesson #7, Lesson #78 and Lesson #108)
___ A large and growing industry, where a big business can be built (Lesson #118)
___  A firm handle on current and future competition (Lesson #19)
___  Defensible barriers to market entry (Lesson #43)
___  An experienced board of directors or advisors (Lesson #12 and Lesson #45)
___  A deep network of colleagues in your startup ecosystem (Lesson #47 and Lesson #85)
___  A motivating and credible CEO (Lesson #14)
___  An experienced and backable start-up team (Lesson #2, Lesson #27 and Lesson #83)
___  Appropriately compensated employees (Lesson #58 and Lesson #59)
___  Equity in hands of key managers (Lesson #9)
___  An entrepreneurial office culture (Lesson #13)
___  A healthy office environment with work-life balance (Lesson #18 and Lesson #55)
___  A religious focus on putting your customer first (Lesson #33)
___ The right product and pricing strategy (Lesson #20)
___ A profitable and tested "go to market" sales and marketing plan (Lesson #21)
___ Infectious enthusiasm and passion for business (Lesson #50)
___  A clear management focus on what you are building (Lesson #40)
___ Speed to market and knowing when to cut losses (Lesson #71)
___ Disciplined decision making skills (Lesson #87)
___  Flexibility to fine-tune model and navigate challenges (Lesson #8 and Lesson #31)
___  Persistence in goods times and bad (Lesson #29)
___  The right mix of intangibles that investors are looking for (Lesson #86)
___  Market timing and luck (Lesson #3)

And, more specifically, do not approach professional venture investors until you have acheived:

___ A good mix of the "must-haves" above
___ A sufficient proof of concept (e.g., revenues or visitor traction)
___  Meaningful customers under contract who would be solid references
___ A sizable pipeline of customers in the works
___ Key industry partnerships with brand-name marketing partners
___ Clarity you fit the types of investments your target investor makes
___ A fine-tuned elevator pitch, to get their attention
___ A credible "road map" for investor to realize 10x returns within 5 years
___ Realistic thoughts on potential exit options and buyers
___  A realistic expectation on valuation to attract capital (Lesson #32)
___ Clear handle on how much money you need, including cushion to last 18 months
___ Logical use of proceeds invested in future growth (not past debts)
___ A debt/equity investment structure that works for the investor (Lesson #109 and Lesson #116)

For this second list, please re-read Lesson #4--How to Raise Capital for Your Startup and Lesson #10--How Best to Approach VC's or Angel Investors.

So, keep this startup checklist handy. If you check-off most of the items on the above list, you should be "off to the races" in building a winning business that should attract smart venture investors for your business. Wishing you the world of success (and luck) in your entrepreneurial adventure.

For future posts, please follow me at: www.twitter.com/georgedeeb

Monday, September 26, 2011

Lesson #99: The Basics of Direct Mail Marketing

With the invention of email and mobile marketing, I assumed the direct mail marketing business would slowly die on the vine, given the heavy expense of producing and mailing the marketing materials. That may ultimately become its fate, as younger users, who prefer electronic media, get older. But, today, particularly for an older demographic, direct mail is still heavily used, particularly by catalog retailers, tour operators and vendors of local services. Today's lesson will summarize the basics of direct mail marketing.

The key things that drive the success of a direct mail campaign are: (i) the cost to produce and mail the piece; (ii) the type/quality/customization of the marketing piece; (iii) the quality/targeting of the mailing list; (iv) the quality of the offer; and (v) proper conversion tracking on the backend. I will address each of these points below.

The cost of the marketing piece has six components: (a) the cost of the list; (b) the cost of design; (c) the cost of printing; (d) the cost of shipping; (e) the size of the mailing; and (f) the cost of the offer, if any. If you are mailing your inhouse mailing list, there is no cost of mailing to your own names. But, if you are renting a mailing list from the major services like Experian, or dropping to a targeted media partner's list like Forbes Magazine, there are typically fees of $25-$50 per 1,000 names pulled to access such list (which can certainly add up the more names you pull). The cost of design will be cheaper by using your on-staff creative designer than using an agency, which can cost 15% more for the hourly time invested in the piece. Design costs can certainly add up depending on whether you are dropping a one-side post card or a 100 page catalog.

Printing costs can wildly vary based on where you have the piece printed and how big the piece is. One of the cheapest places for printing is South Korea, even after including the overseas shipping costs. So, depending on the size of your run, consider both domestic and overseas options, via the assistance of printing management companies. And, the per piece printing costs can vary from $0.10 per peice for simple postcards to $2.00 per piece for fancy catalogs (understanding per unit prices will be lower for higher volume runs than lower volume runs). A typical test run would not be less than 5,000-10,000 pieces, since the conversion rate on direct mail is only like 0.2%, on average. Dropping any fewer pieces is unlikely to deliver any conversions. And, on the high end, mailings can get into the millions depending on your budget and the size of your target market (e.g,. marketing toothbrushes that appeal to 100% of market; or Kenya safaris that appeal to 10% of market).

In addition, variables like four-color printing on thick page stock, will cost more than black and white postcards on thin page stock, so plan accordingly in your budgets. But, don't cheap out here. You are trying to break through the clutter of junk mail going to the mail box that most likely gets tossed unnoticed (hence the low conversion rates). So, an eye-popping creative will get their attention better than a bland creative. And, where possible, digital printers now have the flexibility to customize the printing to the recipient level. They can swap-in a person's name into the creative, or swap-in a man's photo for male recipients vs. woman's photo for female recipients. So, ask about these customization options with your printers.

And, don't forget, you are going to have to pay the U.S. Postal Service to get these pieces to the homes of your target recipients. Postage rates can vary significantly (from $0.15 to $2.00) based on the size of the piece, and whether or not they are pre-sorted. So, don't forget to include the postage costs in your budgeting process, and use a mailing service to assist you here with the pre-sorting process to help lower your postage costs.

Given the huge expense of direct mail, I am always a fan of doing more with less with your creatives. Dropping a postcard with a 50%-off offer, with more details available on the website, is more cost effective than dropping a multi-page piece detailing the offer by mail. Think of it as using the piece to get recipients to "self select" themselves into wanting to learn more. Tour operators are pros at this. They don't use 100 page catalogs for new customer acquisitions, given the heavy expense. Instead, they send a post card asking the recipient to profile themselves in terms of their desired trips and activities. And, then, they drop targeted catalogs to such recipients after they get their postcards replies back.

More important than anything is making sure your mailing is targeted to users that are actually interested in your products. As an example, at iExplore we had a lot more luck direct mailing the National Geographic list, than we had direct mailing the Gourmet Magazine list, even though they both served similar high-end demographics. And, as another example, if you are selling a new computer networking product, that is going to get a much higher response from CTO's than CEO's, and better yet, a list of systems network adminstrators would perform better yet. And, as another example, if you are a Nursery School looking for new students for your school in Winnetka, IL, limit your direct mailings to zip code 60093, the most logical direct marketing area (DMA) to pull students from. You can do sophisticated PRISM analyses to help you identify which zip codes are most appropriate to market your product or services (e.g., which zip codes have the highest average income). The better the targeting, the better your ROI. Period.

And, don't forget, mailing lists go stale at a rate of 20% per year with people moving to new addresses. So, make sure you are dropping to a freshly updated list to make sure your mailing gets to your desired recipient. I would avoid any lists older than one year old.

The quality of the offer is also important. And, what you think may be exciting to consumers, may not be. So, do a few small tests with variable offers to see which one performs best, before dropping to a much broader list. But, in all cases, I am a huge fan of: (a) some special offer; and (b) a deadline to redeem such offer, to create a sense of urgency. So, at iExplore, we would not send a generic "learn more about iExplore" mailing. We would send a specific and meaningful offer like, "save $1,000 on any new booking made within 30 days" (which can materially increase the cost of the overall direct mailing including the other costs above, so make sure you have enough margin to work with here to cover all costs, including the offer).

And, if you are a catalog marketer. Think of each quarter page of your catalog as a unique piece of real estate. You want to slot merchandise in each quarter page that converts at the same high level. If you have any slow sellers, swap them out for higher producers. Each inch of real estate matters in optimization the ROI from your expensive direct mail efforts.

And, underlying all of this is proper conversion tracking on the backend. There is a reason all catalogers ask you to read them the six digit tracking code in the pink box on the back of the catalog. They want to know what piece you are calling from, and see if the buyer is the same person the catalog was sent to, or if a new person not on the original list is calling, who borrowed the catalog from a friend. But, most importantly, they are adding up all the sales/profits from the direct mail piece, to compare it to their total costs of the piece for calculating the ROI from that initiative. Then, they are able to fine tune and tweak future pieces with the learnings therefrom. The best direct mailers are the ones that have done it for years and have optimized accordingly with each iteration (e.g., so not necessary the best tactic for startups with limited budgets).

Direct mail is a very big topic that deserves more space than allocated in this short lesson. But, frankly, as a startup, your marketing dollars may be more efficiently spent in other areas (e.g., search engine marketing, emailings, social media). So, make sure you have fully exhausted your higher ROI tactics before getting into the expensive world of direct mail.

For future posts, please follow me at: www.twitter.com/georgedeeb

Friday, September 23, 2011

Lesson #98: Securing a Government Contract

The U.S. government is the largest buyer of products and services in the world. In 2009, the federal government set aside $422BN to spend with small businesses. But, only $96BN (22%) was actually awarded to small businesses (the rest going to large corporations), given the lack of properly registered and qualified small businesses to work with. So, if your product or service can be sold into the government channel, it only makes sense to properly register your business to do work with the government. Especially, given how large government contracts can be, in terms of driving material revenues for your business.

In order to qualify as a small business to do work with the government, you need to: (i) have done at least $25,000 in annual revenues in the last two years; (ii) not employ any W2 government workers; and (iii) not source any of your products or services outside of the U.S., unless such countries are listed on the approved U.S. trade partners list.

If you qualify, then you need to file a U.S. Federal Contractor Registration (CRR) and negotiate preferred, 5-year government pricing with the U.S. General Services Administration to get on its GSA schedule. The government typically does not work with any vendor that is not on a GSA schedule. And, unless you pay up to expedite the process, it can take months or years to get through the entire approval process. So, the sooner you start, the better. You can learn more about the GSA approval process from this useful tutorial from Contracting Services Group, a third party consulting firm that can assist you through the process. There is also useful government contracting information on the Small Business Association website. For CRR registration consulting assistance, check out US Federal Contract Registration.

Once you are approved, you will be added to the GSA Advantage website, an easily searchable database of all GSA approved vendors, that government employees use to find vendors by product or service.

But, you don't want to be reactively waiting around for government leads to come in. Given the heavy competition to get these contracts, you need to proactively go after these government leads. One place to look for such government contract leads is at the Federal Buying Opportunities website, which has a database of over 40,000 active federal contracts, easily searchable by product or service. There are also independent websites, like B2Gmarket.com, Bloomberg Government and GovDirections.com, that may be helpful to you here.

So, now that you better understand the government contracting process, you can hopefully tap into this huge market.

For future posts, please follow me at: www.twitter.com/georgedeeb

Thursday, September 22, 2011

Lesson #97: Securing a Small Business Grant

Grants can often be an effective vehicle to finance your business, just as venture capital can be. And, the upside of a grant is, oftentimes, it does not need to be repaid or come with any long term hooks, like investors bring. That said, grants are not easy to secure. So, if you can get one, more power to you. Today's lesson will summarize a few basics around securing a small business grant.

Grants are basically funds distributed by governments, corporations, foundations, universities or trusts to fund some specific project that is important to their cause. According to Wikipedia, there are over 88,000 grants issued each year, totaling over $40BN in size (a sizable chunk of money). These monies are usually granted to non-for-profit businesses to use in their specific research or development, that relates to the desired cause. But, sometimes, grants can be made to for-profit businesses where interests are aligned. So, for example, if a startup biotech business is working on a new cure for cancer, they could get a grant from the American Cancer Society to help accelerate their efforts. Or, as another example, let's say the Elvis Presley Foundation is trying to preserve rare old video footage of Elvis Presley, they could make a grant to a video preservation company.

As I mentioned, grants are not easy to secure, given the high level of competition looking for the same monies. But, if you: (i) know where to look for available grants, (ii) engage the services of a professional grant writer, and (iii) submit a proposal in the correct format, you have as good a chance as anybody to secure such funds. I wouldn't invest a ton of time here, given the low odds of closure, but it is definitely worth a little high level research to see if there are any low-hanging-fruit opportunities which you can easily pursue.

In terms of finding grants, there really isn't one centralized place that spans all the various entities that have grants available. So, it will require a lot of digging via Google, using the word "grant" and the relevant keywords for your industry. As in the examples above, that could include searches like "cancer research grants" or "video preservation grants". That said, the federal government has done a nice job of centralizing all federal government grants at Grants.gov. There, you can easily search over 1,000 annual grants offered from 26 different federal government agencies, across a wide range of categories (including small business grant opportunities). So, I would start your search there.

The next step could be to engage the services of a professional grant writer, who has expertise or relationships in the space and knows the "tricks of the trade." There is a good tutorial on how to hire a grant writer on the American Grant Writers Association website. And, there are many professional grant writers and grant researching companies that I found from a "grant writer" keyword search at Google. So, research a few, to see who has expertise within your industry or the organization you are trying to approach. Expect to pay $50-$100 per hour for the assistance of a service like this.

You can also try to write the grant proposal yourself, to save some money. The elements of a good grant proposal can be found on this grant writing page on Wikipedia. So, follow the standard format, and make sure you address all the detailed requirements that are being asked for by the granting organization.

For future posts, please follow me at: www.twitter.com/georgedeeb

Wednesday, September 21, 2011

Lesson #96: Vertical vs. Horizontal Growth Options

For most startups, I give them the clear message to focus on building one business at a time, like we learned back in Lesson #40. But, what happens when you are huge success in that business and need to look for additional growth options? Those decisions typically revolve around vertical vs. horizontal growth strategies. Vertical growth is getting deeper in your current line of business. Horizontal growth is getting into new product areas that are not directly associated with your current line of business. We are going to discuss assessing these options, and a few variations to this theme, below.

VERTICAL GROWTH--DOMESTIC

I am going to use iExplore as the example company looking at options to grow its business throughout this lesson. iExplore was a tour operator for adventure travel in 100 countries, serving an affluent demographic. Domestic vertical growth options for iExplore could include things like: (i) launching high-end tours in additional countries; (ii) launching a line of more affordable trips to appeal to the middle-market; or (iii) launching a line of tours that are less "active" (e.g., hiking, biking, diving) and more "experiential" (e.g., culinary, wildlife watching, expedition cruise). In each of these examples, iExplore's growth is around their core business of running adventure tours. This is usually the first place startups will look for growth, in their core business. The only things to be sensitive about here are things like: (i) will any changes to your product or price impact your current brand positioning (e.g., less expensive trips could tarnish a high-end brand name); and (ii) is there really enough demand for the new products under consideration (e.g., do enough people really want to travel to South Sudan to justify building a tour?).

VERTICAL GROWTH--INTERNATIONAL

International vertical growth options for iExplore would mean taking its core trips today and marketing them to people who live in countries outside of their U.S. home. There would be many things to consider here: (i) is there a demand for your product overseas (e.g., do people in Europe buy adventure travel, or do they prefer cruises); and (ii) what will you need to do to localize the product (e.g., designing tours with native language tour guides, brochures, websites, call centers, etc.). Please re-read Lesson #81 for Considerations for Global Expansion for more detailed thoughts here, as you assess your options around international growth.

SEMI-VERTICAL GROWTH

Continuing on with iExplore's growth options, maybe they have tapped out all their growth options in their core adventure travel category. In a category I call semi-vertical growth, iExplore may want to remain being a seller of travel as its core business, but is considering: (i) vertical integration within adventure travel; or (ii) new travel verticals altogether. Vertical integration would be iExplore wanting to acquire its on-site suppliers, hotels or sub-contractors that it uses to fulfill its tour service, to get a higher margin or to better control their inventory position. The problem with this route is running a hotel is very different than running a tour operator marketing business, with a huge capital expense for acquiring and maintaining properties, staffing the hotel and keeping it at full occupancy. As for new travel verticals, iExplore may want to start selling cruises, spas, lodges, vacation rentals, ski trips, golfing vacations or other travel categories beyond adventure travel. The question here: is there demand for such verticals from iExplore's existing customers (lowest hanging fruit for marketing such new services), and how will getting into those businesses impact its brand positioning (e.g., adventure travelers wouldn't be caught dead on a Carnival cruise ship).

HORIZONTAL GROWTH--ENDEMIC

I split horizontal growth into two categories, endemic to your industry and non-endemic to your industry. Endemic horizontal growth for iExplore, would be extending their travel brand into new travel related businesses. That could include: (i) launching a line of iExplore branded tour books; (ii) launching an iExplore travel show on Discovery Channel; or (iii) starting an iExplore branded travel insurance company. All of these businesses require completely different skills than being a tour operator (e.g., book publishing, TV programming, insurance underwriting), but all can easily be sold to the same iExplore demographics and customers (e.g., buy a trip and we'll sell you the travel insurance, read our books while on your trip, watch our TV programming while not on vacation). Just make sure you have the appropriate management skills required for each of these distinct businesses, before drifting too far from your core strengths.

HORIZONTAL GROWTH--NON-ENDEMIC

Non-endemic horizontal growth for iExplore, would largely revolve around turning iExplore into a "lifestyle" brand, and selling those iExplore travel customers, everything else they need for their high-end lifestyle. For an affluent lifestyle, that could include selling iExplore customers opportunities around fashion, automobiles, boats, homes, restaurants, event tickets, etc. As you can imagine, the skills for selling fashion is pretty far removed from the skills for selling adventure tours. So, I would highly advise tapping out all other logical growth options, before taking it this far.

Hopefully, you have a better sense to the various vertical or horizontal growth options you can consider for your business. I have roughly put them in the order I would prioritize such efforts. That said, sometimes markets will let you take your time and grow them in a sequential process. And, other times you don't have that luxury. As an example, look how quickly Google evolved from a search engine, to also being an email, calendar, social networking, news, maps, web browsing, content, mobile, etc. business in their attempt to take over anything and everything internet related. But, that took a lot of venture capital and management bench strength to pull off growth like that. And, not all of us have that luxury. So, don't bite off more than you can easily digest.

For future posts, please follow me at: www.twitter.com/georgedeeb

Tuesday, September 20, 2011

Lesson #95: The Basics of Telemarketing

Depending on the nature of your business, telemarketing can be a useful tool to cost-effectively drive targeted leads and sales for your business. There are two types of telemarketing strategies, outbound and inbound, that we will cover in this lesson.

OUTBOUND TELEMARKETING

Outbound telemarketing is often referred to as "cold calling". This tactic is most used by B2B businesses looking to sell their product or services, B2C companies that are selling home-based services or other organizations looking to raise funds or awareness for their cause (e.g., donate your clothes, support our candidate, police fundraiser). I much prefer cold calling for B2B, as that is the expected normal way of doing business in the industry. For B2C companies, traditional marketing is a much better way to reach a lot of people faster. However, for local service companies (e.g., window washers, landscapers, chimney sweeps, cable TV upgrades), that can logically open a dialog with a target (e.g., doing work next door for your neighbor, did work for you before), cold calling (or in this case warm calling), can be a very effective tool. But, just be sensitive to how much consumers hate receiving unexpected cold calls to their homes from businesses they don't know or for services they have no interest, so research accordingly and craft your pitch around those hurdles.

A successful outbound telemarketing campaign is determined by: (i) quality of the list; (ii) the pitch; (iii) the process; and (iv) the conversions. For quality, you want to make sure you are calling on people that are actually interested in your product or service, and preferably the decision maker who can pull the trigger on the order. So, for example, maybe that is using a service like Hoovers or D&B, to pull a list of phone numbers of nationwide CFO's for small and medium sized businesses that may be interested in learning more about your state-of-the-art financial software system. Or, in another example, you can work with AT&T to pull a list of phone numbers in the 60093 zip code, a ritzy Chicago suburb, to market your handyman services business.

In terms of the pitch, the more relevant it is to the listener, and the more trusted you come across to the listener, the better it will be for your efforts. So, for example, mentioning mutual colleagues or references can go a long way to warming up the client to listen more closely. Intros like "I was referred to your by John Doe, one of your CFO colleagues" or "I am doing work next door for Mrs. Smith" starts to build trust of you already doing business for people they know and trust. The other key part of the pitch is getting it out as quickly and sweetly as you can, in one sentence, not one paragraph. Just as if you were pitching a VC, the listener has a very short attention span and is trying to get you off the phone as quickly as possible. So, an opening pitch like "we are an award-winning insurance agency that can save you 80% on your healthcare costs using your current providers" will get their attention.

As for the process, where you can, avoid wasting the time of your best salespeople on cold calling. Use an administrative sales assistant to carry the heavy workload of "dialing for dollars" in mass, as an "appointment setter" for your key salesperson to swoop in can close the hot lead. But, in many startups, for budgetary constraints, you may have no other choice than having your salesperson do their own cold calling. There are also many professional appointment setting services you can use here, but I find their costs are typically 2x-3x the cost of you hiring your own admin and doing the calls yourself.

Finally, in terms of tracking expected conversions, here are the historical metrics I have experienced, which you can use as a benchmark. You will need to make 100 phone calls to get 5-10 serious leads, and of those leads, you can expect around 20% to close. Obviously, these metrics may vary based on the appeal of your core service and the price point of such service. But, as you can see, on average, it takes a lot of work to get the sale (1 sale in 50 tries), so make sure you are covering the labor and phone costs of your cold calling, with a large enough margin from your service. For example, if the labor for 50 calls at three minutes each costs $40 and the phone bill for those 50 calls cost $10, make sure your gross margin from successful sales is at least double the $50 investment. The economics get wildly better from cold calling, the more expensive your product. But, that also requires a much more educated/expensive sales person and a longer lead time to close the sale.

INBOUND TELEMARKETING

Inbound telemarketing is built around supporting a 1-800 number in your marketing materials and on your website. It is much easier to close an inbound sales lead, since the clients have pre-selected themselves as initially interested in what they have read about your product or service. So, unlike cold calling, you should typically have a receptive listener on the other end of the phone.

A successful inbound telemarketing campaign is determined by: (i) the pitch; (ii) the process; and (iii) the conversions. For the pitch, it is listening to the needs of the consumer, and giving them the exact thing they are looking for and reasons why they need to buy that product from you. So, for example, in a competitive space like travel, with a high $5,000 luxury price point like we had at iExplore, we would differentiate ourselves with competitive advantages like: (a) building your dream itinerary to spec--you pick the dates/sites; (b) privately guided trips without the "herd" of other travelers; (c) exclusive professionally-trained naturalist guides; (d) five star hotels at three star prices; (e) unique experiences only available at iExplore; and (f) a list of happy past traveler references. You get the point and can tailor this strategy for your business.

Equally important as the pitch, is the creative opportunity to upsell the client, to increase your average ticket and drive a higher ROI from the sale. So, continuing with the iExplore example, this could include things like: (i) while you are all the way in South Africa, it is a quick extension to take in "must see" Victoria Falls while you are there; or (ii) while at Machu Picchu, I would recommend you paying a little bit more for the Sanctuary Lodge, it is the only hotel right at the ruins site and you will have the ruins entirely to yourself after the busloads of tourists leave.

As for the process, most inbound call centers are organized around key product specialties. So, for example, when you call Comcast, dial one for cable TV, dial two for internet and dial three for phone, is sending you to different product experts on the back end, most qualified to answer those questions. Continuing with iExplore, we organized our inbound sales team based on geographies of the world (e.g., Africa sales to Marlyn, Europe sales to Rosemary). So, figure out how to most-efficientaly organize your inbound sales efforts and make sure the team is highly trained in educating, closing and upselling clients.

The converstion metrics are much better in inbound call centers than outbound call centers. So, expect 10-20% of the inbound calls to close (5-10 of 50 is 5x-10x better than the outbound telemarketing metrics we discussed above). And, once again this will vary based on your price point and the ease and availability of competitive products.

Underlying all of the above is the necessity for great salespeople that will ultimately make or break your telemarketing efforts. So, make sure you are hiring the best talent you can afford, with experience in your industry, that you can highly train and incentivize to succeed. Be sure to re-read Lesson #25 on how best to structure your sales team and Lesson #26 on how best to incentivize your sales team.

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Monday, September 19, 2011

Lesson #94: Netflix--A User Experience Meltdown

This morning, I received an announcement from Reed Hastings, the CEO of Netflix that they were splitting their business into two divisions, Netflix for streaming movies and a newly created Qwikster for DVD movies by mail, including a long apology for not communicating better with their customers regarding the rationale around key decisions. Hastings obviously didn't practice what he just preached, as Netflix obviously didn't first test the potential impact of such action with their users (as we learned to do back in Lesson #73). The consumer reaction, including my own, has been pretty negative based on today's posts on the Netflix Users' Blog. So, based on this, I thought Netflix would make an interesting case study on what to do (or more importantly, what not to do) from a user experience perspective.

But, first, a little history about Netflix's mounting woes over the last few months: (i) they announced a separation of their DVD services from their streaming services (which resulted in me paying 25% more than before for both services); (ii) they lost their major content deal with Starz, one of their only premium providers of high-quality current movies in their offering; (iii) their forecasted users for this year are 1MM less (5% less) than they estimated they would be at the beginning of the year, based on these actions; (iv) their stock price has cut in half (from around $300 per share to $150 per share), as a result of the above; and (v) now, we have this splitting of the business into two divisions, which is going to require users to maintain activity, ratings and queues at two separate websites, one for online streaming activity and the other for offline DVD rentals. I just don't think consumers will ultimately play that game, and Qwikster (or Netflix's DVD rental business) will most likely suffer a "Qwik" death. This is probably Netflix's long term goal anyway, but what a very strange business decision for Netflix to make given the company still has the majority of its customers still using the DVD rental services today.

So, what has Netflix done to its consumers in the last couple months: (i) they are making them pay 25% more for bundled online and offline services (or forcing them to pick one or the other); (ii) they are losing current high-quality movie titles, which is particularly evident on the streaming side of their business which they desire to promote long term; and (iii) now, they are forcing customers to maintain two different websites, instead of one, which is a big ask of 12MM people (the 50% of their total business which desires both online and offline services). Obviously, consumers are not responding well to these actions, given the 1MM lower members than estimated this year. And, the financial markets haven't responded well, with the 50% decline in Netflix's stock price in the last few months.

So, how did Reed Hastings get himself and Netflix into such a mess? The answer is really quite simple: they put their business goals in front of their customer goals. And, sometimes you need to do that if your underlying business economics are flawed, like Netflix's were (e.g., the need for a price increase to cover the cost of licensing the content--which would have been fine if communicated that way as a better option than going out of business). But, this most recent move may ultimately get the whole house of cards to fall in on itself, when and if 50% of Netflix's customers decide to unsubscribe from all or part of the service. Let me explain further.

At the end of the day, what are the challenges with Netflix's business: (i) it is much more expensive to fulfill mailing DVDs to home, than simply streaming them over the internet; (ii) high quality current content is very expensive to license from the major film studios, especially within the first 28 days of the home release; (iii) the studios get a lot less revenues from DVD rentals, than they do from cable on-demand or internet streaming (e.g., former simply requires Netflix to buy DVDs, and the latter charges Netflix on a per-subcriber basis for the service); and (iv) the markets are very bearish on the DVD business long-term, and Netflix doesn't want that albatross around its neck in the financial markets (in business practice or in name). So, when you look at Netflix's business this way, it is very easy to see how Netflix has ended up where it did.

I have been a huge fan of Reed Hastings, who has lead meteoric growth at Netflix and a real change in the way consumers watch movies (including the demise of former retail titans like Blockbuster). And, I have been a loyal Netflix customer for years, despite the ups and downs of their business. But, this most recent move does not sit well with me, hence the post.

I sure hope they figure out a winning long term business model, one that puts the customer first with (i) high quality current movies; (ii) that I can watch within the first 28 days of home release; (iii) via online streaming (or offline, if needed); and (iv) at a price that makes sense to Netflix's business (and is affordable to me). Because, I am sure the major studios are trying to figure out how to offer this service directly themselves (to cut Netflix as middleman out of the way), or in partnership with the major cable companies via on-demand services. But, the last thing I want to do is be forced to re-rate 1,691 movies watched on a different service, so they know what movies I have seen and which ones I haven't seen, in order to get their recommendation engines correctly working (where Netflix is the pro and clear first mover).

So, the key lesson here: put your customers' user experience first when making key business decisions. You should always be aspiring to give your customers more and more (and make your user experience easier and easier) over time, not less and less (and harder and harder).

I am curious what you think. Add your thoughts in the comments section.

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Friday, September 16, 2011

Lesson #93: Make Your Employees Feel Appreciated

Too often in startups, we are so busy executing on our visions that we forget to lift up our head, take a breath and celebrate our successes with our staff. The more your reward your employees for desired results (or just because you want to be nice), the more appreciated they will feel, and the more invested they will be in your mutual success.

Below are a few examples are employee rewards that have had success with in my past:

1. Gift certificate to the sales team leader each month, to the store of their choice

2. Employee features in the company newsletter and "shout-outs" at weekly team meetings

3. Celebrate all birthdays with a cake; celebrate all holidays with a party

4. "Lunch with CEO" program for one-on-one time, regardless of position within the company

5. Monthly all-staff event (e.g,. bowling night, happy hour, ball game)

6. Early office departures and mandatory time off around big holiday weekends

7. Employee discounts on the products or services you sell (e.g., "at cost")

8. Open door policy--to walk in with any idea they have, or problem needing solving

9. Free company-paid trip a year for each of the travel agents I had at iExplore--they liked the trip, and I liked the fact they would better sell the destination when they came home

10. Get to know your employees--what do they like, what drives them--and and wrap incentives around such personalized interests

This list could go on and on. The point here is: employees are not simply cogs in the wheel of the day-to-day grind. They are people with interests, emotions, and desires and they deserve the appropriate respect and recognition for a job well done. And, the more you invest in your team, the higher return they will invest back into the company.

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Wednesday, September 14, 2011

Lesson #92: Building Your Personal Brand

As a startup executive, your personal brand is as important to you as your business brand, to instill trust with prospective partners. Today's lesson provides a few suggestions on how best to increase your personal brand.

Strong Track Record. The more you can prove your historical success, the better odds people will bet on your future success. Did you graduate a name brand school? Did you get good grades there? Did you work for name brand companies in your past? Did you have a quantifiable level of success there? Have you done a startup in the past, and if so, what was the outcome for its investors? Have you won any relevant awards? The answers to these questions can help build your credibility.

Visibility as an Expert in Your Industry. Where you can, you want to be perceived as a trusted authority in your space. Are you getting quoted by major trade magazines? Are you speaking at any trade events? Are you writing a blog with high quality content? Do you have a large following on Twitter, Facebook or LinkedIn? What level of connections do you have in LinkedIn (e.g., thought leading CEOs or entry-level staff)? What is your Klout score? The answers to these questions further emphasize your expertise in the space.

Strong References. It is less important what you have to say about yourself. It is much more important what other people have to say about you, especially mutual colleagues that a prospective partner already trusts. Are your references publicly published on LinkedIn? Do you share any colleagues with the partner on LinkedIn that can sing your praises? If so, great. If not, do you have a list of credible references that can sing your praises, understanding your former CEO boss is much more credible as a reference than a secretary in that business or one of your unknown friends.

Clean Social Media Footprint. Make sure you clean up all your public facing profiles in the social media world. You want to make sure your persona is professional and trustable at all times. So, no crazy party pictures, swearing or liking/publishing offensive content. Potential partners will do their home work on you, and you do not want to leave them with any excuse not to trust you.

Clean Search Results. Same as keeping your social media footprint clean, you want to make sure partners will not stumble on anything offensive when they do a Google search using your name or company. So, do a Google search on yourself, and make sure nothing published out there you don't want prospective partners stumbling on. If you can, reach out to such sites to take down such pages. If you can't, make sure you have clear explanations to such topics if the question comes up.

Clean History. Having a free and clear criminal history and a good credit score (personally and professionally) are a must for when a prospective partner does their background checks on you and your business. This should be pretty self explanatory.

The Way You Carry Yourself. How you dress, how you talk, your personality style, your listening skills, your professionalism, your smarts all impact your personal brand. So, play the part required of you in order to get the trusted attention of your prospective partners.

Hopefully, you will follow these words of wisdom, and your personal brand will sparkle.

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Monday, September 12, 2011

Lesson #91: My Entrepreneurial Heroes

There have been a lot of great startups, led by a lot of great entrepreneurs over the last few decades. Too many to list in this post. But, below is a shout out to few of my favorites, including a few entrepreneurial lessons we can all learn from.

Steve Jobs (Apple).   One share of Apple stock back in 1996, when Jobs regained the reigns as CEO of Apple (the company he co-founded in 1976), was worth around $5. On the day that Jobs retired as CEO in August 2011, that same share of stock was worth around $366. Over that 15 year period, that was an average annual growth rate of 33% per year, far exceeding the S&P 500's 3% annual return for that peiod. Jobs out-performed the market by 10x!! That makes him, along with others below, one of the best CEO's in history, as long term and consistent success like that is almost unheard of. And, how did he do it: (i) intense focus on challenging the norm and improving the consumer product experience (e.g., via iPod, iPhone, iPad, iTunes, etc.); and (ii) a very hands-on, aggressive management style (almost to a fault). And, we didn't even talk about his early success in taking the first commercially successful personal computer to market in his first stint as Apple's CEO, or his role in helping turn Pixar into the undisputed leader in digital film animation in between. One huge hit after another. I am not sure we will ever see another Steve Jobs. So, religious attention to detail and provocative innovations will surely lead you in the right direction.

Bill Gates (Microsoft). What Jobs was to Apple, Bill Gates was to Microsoft. His run as co-founder and CEO of Microsoft from 1976 to 2006 produced an equally impressive 29% average annual growth rate for its shareholders (which frankly slowed way down between 2000-2006 due to government monopoly discussions and otherwise). The magic that drove Microsoft's success was getting their software products bundled into every piece of hardware requiring such software, hence the monopoly problems that eventually arose.  But, in addition to being an equally passionate innovator and product guy, what makes Gates so special is the way he is giving back to the community via the Bill & Melinda Gates Foundation, donating billions of dollars to those in need around the world. It is not only what success you create from society, it is equally important to give some of that back to society, for charitable causes that are important to you.

Larry Page/Sergey Brin (Google). How can you argue with the success of the Google Guys, driving a 22% compound annual return for its public shareholders over the last seven years, when the overall market has been dismal and Google's valuation multiples were completely off the charts at the time of their IPO in 2004. What made the Google Guys so special were: (i) their spirit of true innovation, coming up with a whole new way of driving search results based on backlinks and algorithms; (ii) getting that spirit of innovation infused into every employee in the company (e.g., giving their engineers 20% time to build whatever innovations they want); and (iii) their ability to see far enough ahead to make big bets (e.g., acquiring YouTube for $1.6BN seemed pretty foolish at the time for a site with no revenue model, but not any more). Make sure your employees never lose their spirit of innovation, as you never know what next great idea they will come up with, to help your business succeed.

Jeff Bezos (Amazon). There are very few sizable businesses that survived the dot com boom and bust period of the late 1990's. But, Amazon is alive and well today, dominating the e-commerce space, as the #1 internet retailer worldwide, largely to the credit of its CEO and Founder, Jeff Bezos. What made Bezos so special was his ability to bet big, in ways that were contrary to popular beliefs. Bezos had a vision that e-commerce would take off, and even though the markets were imploding around him, he was able to hold strong to his vision, even though it may have confused his early investors with atypical strategies, emphasizing long term revenue growth over near term quarterly earnings. It was a huge bet with a lot of headwind, but Bezos executed it brilliantly. And, not only for buying books, but for every other merchandise category, as well, driving a whopping 42% annual return for Amazon's public shareholders since 1997 (the best returns of the group on this list). And, did I mention contributing to the ultimate demise of retailers like Borders, via electronic books read through a Kindle. So, hold true to your core beliefs, despite what others are telling you, if your "spider sense" is telling you it is the best way to go.

Richard Branson (Virgin). There is no end to the growth potential for Virgin under the leadership of Richard Branson. What started off as an airline, evolved into a music chain, mobile provider, winery business, space travel company, media business and 50 other businesses. Branson's mandate, backed up with a big bank account, was go big, or don't go at all. And, sometimes that resulted in big wins. And, other times, it resulted in highly publicized failures. But, the ups, far exceeded the downs, from one of the most adventurous and eclectic personalities on the planet. Once you have mastered your core business disciplines, think creatively out-of-the-box for your next lifestyle-brand motivated growth initiatives. Because at the end of the day, it is all about the brand.

What do all of these entrepreneurs have in common? They were able to keep the reins as CEO from founding their businesses all the way up to running multi-billion dollar, multi-national corporations (although there may have been other CEOs along the way, that ultimately got replaced by the original founders). That is not an easy feat, as the skillsets are so very different, driving success in early stage businesses vs. later stage businesses.   Kudos to all of you, as a few of my entrepreneurial heroes.

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Friday, September 9, 2011

Lesson #90: Proper Business Etiquette for Startups

Being a startup requires you to pay extra special attention to proper business etiquette, to build trust with established companies and increase your odds of closing the deal. Below are a few suggestions to help present you and your company in the right light.

Know Your Audience. Whenever you are pitching somebody, you want to make sure what you are pitching is relevant to that business and that person. For example, if you are selling a $200,000 CRM package, that is most likely only affordable to larger companies, so don't waste your time pitching it to smaller companies. Or, if you are pitching cash management services, it is best to pitch that to a CFO, not a CEO. And, in that cash management example, the CFO would be right for a smaller business, but maybe you would have more success with a Treasurer in a bigger business, that is closer to that topic in their day-to-day job. Prioritizing your company calling lists, and your optimal executive targets therein, will save a lot of wasted time, both for you and your prospects.

Don't Harass Prospects. There is nothing more annoying than the pesky salesperson that won't leave you alone, or is calling every other day looking for updates. That is the sure way to kill a deal. Understand the normal pace of business, and that getting a deal done can take months, or even years, depending on your product. So, be sensitive to how frequently you are reaching out to a specific individual. And, if you don't get any response from them after three tries (perhaps spread out over 3 to 6 weeks), move on to the next person.

Listen More Than You Talk. Often times, the biggest mistake an enterpreneur has is having "diarrhea of the mouth", sharing their vision and rambling on about the features and functionalities of their product or service. It is much better to go into a meeting with your ears wide open, not your mouth. Ask probing questions that will help you better learn the exact needs of your prospective client. Then, once you know exactly what they are looking for, pound home the key assets of your business which directly address their sweetspot.

No Bravado--Be Respectful. Yes, I know, us entrepreneurs are all changing the world with the hottest new product or service that is going to revolutionize the way business is done. It is good to have excitement and confidence. But, sometimes, that gets dangerously close to arrogance or a know-it-all attitude, which can immediately put off the other party. You need to respect that the person across the table has years of experience in their industry, does not want to be perceived as being stupid or out of touch on current trends and certainly does not want to be embarrassed in front of their boss (in case they are in the room). You got the meeting for a reason, they must have liked what they saw at first glance. So, ease up on the machismo and focus on learning and serving their needs!

Work Towards the Middle. The worst negotiating position a startup can have is "take it, or leave it". As a startup, you really don't have as much leverage as you think you have. The bigger company always has the best cards at the negotiating table, and they are pros at using them. And, they want to think they are getting the best deal they possibly could (just like you). So, always do your best to negotiate towards the middle, and only dig in on the really important things. Be sure to re-read Lesson #39 on The Art of Negotiation.

Manage Your Social Footprint. Companies will research everything and anything about a startup before they cut a deal, since they don't want to make a mistake or "get in bed" with the wrong player. That includes researching the executives' social footprints on Twitter, Facebook, LinkedIn and otherwise. So, keep your tweets and posts clean and professional at all times, and consistent with the image you have presented to them to date. As an example, I have shut off my wall on Facebook, so I won't be associated with anyone posting inappropriate information that is not in line with my personal brand image. So, no crazy pictures of you engaged in drunken revelry with your friends!

Dress The Part. Always research the dress code of the other party and dress equal to or better than they do. You never want to show up in jeans to a company that works in business casual. The better you dress, the more professional you will come across, increasing the confidence of the other party in doing business with you. So, hide the tattoos, take out the piercings and polish up your wingtips. Remember, intangibles, like the way you present yourself, really matter.

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