Monday, December 30, 2013

How to Start a Business in 8 Key Steps

Posted By: George Deeb - 12/30/2013

For those of you who have not already started a business, or are trying to figure out how best to start your business, this post will help y...

For those of you who have not already started a business, or are trying to figure out how best to start your business, this post will help you learn the 8 key steps of the process.

STEP 1. DETERMINE IDEA

You can't start a business without a good idea. Your idea needs to build a real-world solution to a real-world problem, preferably in a sizable market. And, in all cases, do what you love, as it is important you have a passion about your startup, to get through the good times and the bad.

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

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

Monday, December 23, 2013

Lesson #161: Create an "Everyone Sells" Culture

Posted By: George Deeb - 12/23/2013

The common fault in the thinking of many entrepreneurs is that revenues will only be driven by the sales team, and the sales team alone.  Th...

The common fault in the thinking of many entrepreneurs is that revenues will only be driven by the sales team, and the sales team alone.  They put a lot of energy into hiring the best salespeople they can afford, training them up on their product or service, and them letting them loose and hoping for the best.  The problem with that thinking is salespeople are only one part of the equation.

Oftentimes, an startup with 1-5 salespeople may have 10-50 employees, which means that your salesteam only represents around 10% of your entire staff.  Wouldn't it be better to come up with an "everyone sells" mentality within your company, to get 100% of your staff helping you with your sales and marketing efforts?  And, in the process, get 90% more people helping you drive revenues!!

I am not suggesting that the other 90% need to drop everything they are doing, and not focus on their core role.  What I am saying is: all 100% of your staff have friends, families, colleagues from former employers, school mates, and other connections that are often very accessible by the employee's social media followings on Facebook, Twitter, LinkedIn or elsewhere.  So, help educate your entire staff on your products and services, and give them the tools and messaging they will need to help spread the word with their connections.

So, a good marketing plan for a startup is to tap into the best resources possible, especially free low-hanging fruit, like the personal relationships of your staff.  The fact a company message comes from a trusted friend, will increase the odds it will be seen or acted upon.  And, this not only means tapping into those friends alone, but their extended networks with socially viral "refer a friend" campaign efforts.  So, whether it is via social media, or personal phone calls, or whatever the medium, the key is to get all your staff thinking about sales opportunities for your business.  And, once a lead is identified, then the sourcing employee can hand it off to the salesteam to close and service from there, so it does not become a distraction to them in their normal job.

And, most startup employees are smart enough to know that the security of thier next paycheck arriving on time is directly correlated to the revenues of the business coming in.  So, in addition to the natural drive for a startup employee to want to help the team succeed, there are personal reasons in the form of income and job security, as well.  But, worth mentioning, this needs to be a proactive and fully-communicated plan right from the beginning of your organization.  You don't want this request to be interpretted as a time to panic, or get employees looking for the door.  So, keep it as positive/early as you can in your lifecycle, and not timed around bad news.

The last point here is to make sure you are celebrating your successes here, company-wide in your weekly meetings.  Call out key employees who helped to drive a new sale.  Or, financially reward them with a gift certificate to their favorite restaurant or store.  Or, create "employee of the month" programs with the framed picture of the staff member on the wall.  Or, create a 10%-revenue share for all sales sourced by employees, as an additional economic incentive for them.  All of this kind of stuff matters, both to the employee wanting to feel appreciated, and to the company who is trying to stimulate a certain behavior or sales culture within the company.

So, tap into the full 100% of your staff in helping your company with its sales and marketing efforts, in a way that does not distract them from their core role.  And, celebrate and reward them for their successes here.

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

Thursday, December 19, 2013

[NEWS] Nominations Now Open for the 2014 @Techweek 100

Posted By: George Deeb - 12/19/2013

In case you want to nominate any key individuals in Chicago, New York or Los Angeles for the 2014 Techweek 100 lists in each of those cities...

In case you want to nominate any key individuals in Chicago, New York or Los Angeles for the 2014 Techweek 100 lists in each of those cities, nominations are now officially open.

Here is the link to make your nominations:  http://techweek.com/techweek100/

If you feel Red Rocket, or our blog, has helped your business in any way this year, we would appreciate your nominating one of our partners for the Chicago list.

For future posts, please follow us at:  www.twitter.com/RedRocketVC.



Wednesday, December 18, 2013

Is Entrepreneurship Learned, or Wired Into Your DNA?

Posted By: George Deeb - 12/18/2013

The age-old question of whether or not good entrepreneurs are born that way, or if such entrepreneurial skill sets can be learned continues ...

The age-old question of whether or not good entrepreneurs are born that way, or if such entrepreneurial skill sets can be learned continues to be a debated topic. Is it fair to say some people are just not born to be leaders? Or can you really build yourself a great founder?  Let’s try tackling the answer to this question by defining which skill sets make for a good entrepreneur, and whether or not they can be taught.

Read the rest of this post on The Next Web, which I guest authored this week.

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

Tuesday, December 17, 2013

Avoid the "Death Zone" of Venture Capital

Posted By: George Deeb - 12/17/2013

Do you have revenues of $5-$10MM and profits under $3MM a year?  Are you a company looking to raise outside capital for the first time?  If ...

Do you have revenues of $5-$10MM and profits under $3MM a year?  Are you a company looking to raise outside capital for the first time?  If you answered yes to both of the preceeding questions, you are about to enter what I call "The Death Zone" for venture capital.  And, as the name suggests, "The Death Zone", much like its namesake in oxygen-starved environments north of 26,000 feet in elevation, can make for a suffocating experience when trying to raise capital.
Read the rest of this post on Forbes, which I guest authored this week.

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

Wednesday, December 11, 2013

Top Digital Trends for 2014

Posted By: George Deeb - 12/11/2013

The other day, my colleagues at Ensemble , the digital services alliance, were doing our planning for next year.  We were discussing the key...

The other day, my colleagues at Ensemble, the digital services alliance, were doing our planning for next year.  We were discussing the key trends we were each seeing in the market, for our various digital skillsets.  I figured it would be useful to share those key trends with all of you, to help you with your business or marketing planning for the year.

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

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

Tuesday, December 10, 2013

Red Rocket's "Best Startups of 2013"

Posted By: George Deeb - 12/10/2013

Red Rocket gets introduced to a couple hundred startups each year, in the normal course of doing business, or via our involvement with FireS...

Red Rocket gets introduced to a couple hundred startups each year, in the normal course of doing business, or via our involvement with FireStarter Fund, TechStars, Techweek, VentureShot, Founder Institute or other startup groups or events.  We wanted to honor the best of these startups that we met, or got reacquainted with, in 2013, in Red Rocket's 2nd annual "Best Startups of the Year".  This list is not intended to be an all-encompassing best startups list, as there are many additional great startups that we are not personally exposed to each year.  And, this list is not intended to be only for businesses that launched in 2013, it is open to startups of any age, that they or their advisors had some personal interaction with us in the last 12 months.  The business simply needed to have a good idea, good team or good traction, that caught our attention.  Congrats to you all!!

THE BEST STARTUPS OF 2013 (in alphabetical order):

AppGravity (CEO Christopher Jereb)--B2C Android app search engine

AudioMack (CEO Dave Macli)--B2C music discovery site

Belly (CEO Logan LaHive)--B2B and B2C loyalty rewards program

Blitsy (CEO Ross Peterson)--B2C arts and crafts e-commerce site

Brad's Deals (CEO Brad Wilson)--B2C curated deals & coupons site

BrightTag (CEO Mike Sands)--B2B tag management and analytics

Catalyze.io (CEO Travis Good)--B2B HIPAA compliant data platform for healthcare

Distractify (CEO Yakun Hu)--B2C humor entertainment site

Food Genius (CEO Justin Massa)--B2B big data for the food/restaurant industry

Freebie (CEO Ben Rosenfield)--B2B and B2C social influencer rewards app 

G2Crowd (CEO Godard Abel)--B2B business software reviews site

JumpRope (CEO Peter Braxton)--B2B and B2C pay to skip lines at key venues

Nexercise (CEO Benjamin Young)--B2C app to gamify and track exercising 

MarkITx (CEO Frank Muscarello)--B2B exchange marketplace for enterprise technology

Pangea (CEO Rahier Rahman)--B2C international money transfer mobile platform

Pathful (CEO Campbell Macdonald)--B2B website/marketing analytics to drive conversions

Premier Guitar (CEO Peter Sprague)--B2C publisher/portal for guitar/music enthusiasts

PrettyQuick (CEO Coco Meers)--B2C salon and spa booking engine

Project Fixup (CEO Sarah Press)--B2C dating/matchmaking service

Reserve Bar (President Lindsay Held)--B2C liquor/spirits e-commerce site

Savvo Digital Sommelier (CEO Joseph Sheahan)--B2B wine recommendations kiosk in store aisles

SceneTap (CEO Cole Harper)--B2C real-time bar crowd analytics app (know before you go)

Simple Relevance (CEO Erik Severinghaus)--B2B personalized email marketing platform

Smart Gardener (CEO Carl Alguire)--B2C personalized garden planner and e-commerce

Shapsheet (CEO Brad Weisberg)--B2B mobile insurance claims

Sqord (CEO Coleman Greene)--B2C gamified wearable technology to help kids exercise


TradingView (COO Stan Bokov)--B2C stock charts and financial social network

Vipeline (CEO Andrew Bosin)--B2B video based user reviews platform

Y Charts (CEO Shawn Carpenter)--B2B financial charts terminal and big data for securities 

And, don't forget to check out last year's winners, many of whom continue to be doing great things.

Congratulations to you all!!  Keep up the good work.  

For future posts, please follow us at: www.twitter.com/redrocketvc


Friday, December 6, 2013

Business Lessons from NBC's "The Sound of Music Live"

Posted By: George Deeb - 12/06/2013

Last night was NBC's live production of "The Sound of Music", one of my favorite musicals.  I thought there were a couple inte...

Last night was NBC's live production of "The Sound of Music", one of my favorite musicals.  I thought there were a couple interesting business lessons worth sharing.

1.  When there is already a "Rolls Royce" quality product out there with the same name (e.g., the beloved film starring Julie Andrews), make sure you don't set yourself up to fail, before you even start.  The Twittersphere was more focused on comparing the live production to the film, that they completely lost focus that this version was based on the original Broadway show, not the film, and how hard it was to pull off a high quality live production (which this was).

2.  When you aggressively market your new product for weeks leading up to launch, including a brand-name star like Carrie Underwood, you better make sure you deliver in the execution, as the expectations will be really high.  The reality last night was Carrie is a great singer and did the songs justice.  But, she is not a trained actress, especially compared to the well-trained other cast members, and her acting, when not singing, fell short for many.  This hurt the social buzz, right from the start.

3.  Kudos to Walmart, for tying their advertising directly in the theme of the show, including a "few of their favorite things" themed ad spots, including a music track from the show.

4.  Kudos to DiGiorno Pizza.  I was following the Twitter chatter for most of the night, assessing fan reaction.  And, about half way through the show, I started to see repeated posts from DiGiorno which basically piggy-backed on the #TheSoundOfMusicLive hashtag which was trending all night.  They used funny Sound of Music related tweets, like "You are 16, going on 17, and I assume you'd like a pizza for your birthday".  Want to get your brand out there?  Hijack a top trending hashtag for your own needs, in a smart and relevant way.

5.  And, of course, Twitter, tightened its stronghold on controlling the social conversations around live television, with the Twittersphere on fire last night.  I bet Julie Andrews never thought she would be trending all night!!  But, for all the wrong reasons for Carrie Underwood.

I really enjoyed the show, and appreciated it for what it was:  good family TV watching.  Kudos to NBC for taking the risk with creative programming.  Kudos to the cast, for a job well done.

For future posts, please follow me at: www.twitter.com/georgedeeb.  If you enjoyed this post, please click the social sharing buttons, to share with your social networks.

Tuesday, December 3, 2013

How to Model a 10x Return for Investors--The Bare Minimum to Get Their Attention

Posted By: George Deeb - 12/03/2013

Most entrepreneurs simply approach venture capitalists asking for money “hat in hand”, without educating the investor on how the investor wi...

Most entrepreneurs simply approach venture capitalists asking for money “hat in hand”, without educating the investor on how the investor will acheive their desired 10x return on their investment, which is what most startup investors need to see from your startup in order to break through the clutter of 1,000 other startups that approach them every year.  Below will help you learn how to build that bridge to a 10x return for your target investors, and hopefully, will increase your odds of being funded.

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

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

Wednesday, November 27, 2013

Make Sure to Research Before Choosing Crowdfunding

Posted By: George Deeb - 11/27/2013

As a quick history lesson, before the JOBS ACT was passed in 2012, the Securities and Exchange Commission limited private company investment...

As a quick history lesson, before the JOBS ACT was passed in 2012, the Securities and Exchange Commission limited private company investments to accredited investors – folks with an individual or joint net worth with a spouse that exceeds $1 million (not counting the primary residence).  But soon nonaccredited investors will be able to back private companies via crowdfunding – the raising of capital in small amounts from multiple backers. Lawmakers are currently hashing out the rules.

Previously, nonaccredited investors were prohibited from investing in private companies because the SEC seemingly assumed that such individuals could easily end up losing their life savings. The counter argument was that startup investing wasn’t any riskier than investing in penny stocks or gambling at casinos. What’s more, with proper controls and the convenience of Web-enabled tools, crowdfunding could help stimulate the economy by making it easier for startups to succeed.

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

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

Tuesday, November 26, 2013

Top 4 Traits VC's Desire in Startup Founders

Posted By: George Deeb - 11/26/2013

Having a great, defensible business idea in a scalable market is only part of the puzzle to attracting venture capital.  A more important pa...

Having a great, defensible business idea in a scalable market is only part of the puzzle to attracting venture capital.  A more important part is having a backable management team that can pull off the execution of the plan  Below are the top 4 traits VC’s desire in their startup founders.

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

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

Wednesday, November 20, 2013

How to Calculate Equity Split Between Co-Founders in a Startup

Posted By: George Deeb - 11/20/2013

There are a lot of variables that go into calculating a fair equity split for a startup team. These key factors must consider each employee’...

There are a lot of variables that go into calculating a fair equity split for a startup team. These key factors must consider each employee’s role(s) within the company, the compensation they receive for their work, the people investing in the company, and the people behind the idea of the company. Let’s tackle each of these points below.

Read the rest of this post on The Next Web, which I guest authored this week.

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

Tuesday, November 19, 2013

What Type of Entrepreneur Are You?

Posted By: George Deeb - 11/19/2013

The other day I read an interesting book called Entrepreneurial DNA , by Joe Abraham, the founder of BOSI Global, an operating partner to ve...

The other day I read an interesting book called Entrepreneurial DNA, by Joe Abraham, the founder of BOSI Global, an operating partner to venture-backed and owner-operated companies. The book is based on Joe’s study of over 1,000 entrepreneurs. The research confirmed the discovery that all entrepreneurs are not all wired the same way. The book suggests entrepreneurs fall into four distinct types of entrepreneurial DNA’s that leverage unique strengths, weaknesses and tendencies typical in each specific type of entrepreneur.

Read the rest of this post on Entrepreneur.com, which I guest authored this week.

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

Chicago's Startup Scene Is On Fire

Posted By: George Deeb - 11/19/2013

When I started iExplore in 1999, Chicago was jokingly referred to as a “flyover city”, as the big venture funds in Boston or Silicon Val...


When I started iExplore in 1999, Chicago was jokingly referred to as a “flyover city”, as the big venture funds in Boston or Silicon Valley would fly back and forth to each other looking at deals, ignoring Midwest startups altogether.  And, even worse, they would insist that any startup that wanted their funds, would need to relocate their business to their city in order to close a financing (which many aspiring entrepreneurs did, having no other choice), in order to leverage their expertise and tap into their local ecosystem.  But, 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 on Forbes, which I guest authored this week.

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

Wednesday, November 13, 2013

Try to Kill Your Startup, Before You Start

Posted By: George Deeb - 11/13/2013

Earlier this year, I was sitting on a venture capital panel with Joe Dwyer of OCA Ventures, who made a very interesting comment.  He was cou...

Earlier this year, I was sitting on a venture capital panel with Joe Dwyer of OCA Ventures, who made a very interesting comment.  He was counseling the startups in the room to try to kill their startups.  My initial reaction was: that is strange guidance to give to a room full of aspiring entrepreneurs trying to successfully get their businesses off the ground.  But, as he went on to explain it, he said “if you have done everything you could have done to kill your startup, and were unsuccessful in doing so, then you are truly on to something that is defensible and worth building.”  Which I thought presented very interesting pearls of wisdom.

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

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

Monday, November 11, 2013

Lesson #160: Don't Be Overly Infatuated With Your Own Startup Idea

Posted By: George Deeb - 11/11/2013

Back in Lesson #50, we talked about the importance of being passionate about what you are building at your startup .  And, that passion woul...

Back in Lesson #50, we talked about the importance of being passionate about what you are building at your startup.  And, that passion would be the key driver to successfully get you through both the good times and the bad times of your startup's growth.  This is still a very true assessment.

But, the other day, I heard a great quote by Mahendra Vora, the successful founder of Intelliseek (which he scaled to over $100MM in revenues and sold to Nielsen).  He said, "in everday life, passion can often lead to unwanted children, and entrepreneurs should never be so infatuated with their own idea, that their narcissism blinds good business judgment".  I thought there was some really good wisdom shared here.

We have all seen it.  That one entrepreneur who is so in love with their own idea, that they either: (i) tune out all reasonable guidance or suggestions of others; or (ii) they fail to make a pivot fast enough, riding their "passion train" right over the edge of a cliff.

The key point here is: although passion is a must-have for any entrepreneur, don't let it get to the point that it clouds reasonable business judgment or has you perpetually looking at things through rose-colored glasses.  Take in all signals the market is telling you, either thru advice from successful mentors, or lack of traction around your business, and adjust your sights accordingly.

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

Wednesday, November 6, 2013

If You Build It, They May Not Come. Budget Ahead for Startup Marketing.

Posted By: George Deeb - 11/06/2013

I am not sure how many of you remember the 1989 film, Field of Dreams , starring Kevin Costner, who plays a farmer who builds a baseball fie...

I am not sure how many of you remember the 1989 film, Field of Dreams, starring Kevin Costner, who plays a farmer who builds a baseball field in the middle of an Iowa cornfield, after hearing a voice tell him “if you build it, he will come”.  And, sure enough, despite people thinking he was crazy, people did end up coming, to watch a bunch of baseball legends of years gone by, reunited for a modern-day baseball game.

I often feel that startup entrepreneurs are building their own Field of Dreams, when launching their startups.  But, unlike the Hollywood script, often times the sad reality is:  “if you build it, they may not come”, especially without any foresight to building a sales and marketing plan and budget to help get initial users engaged with your product.

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

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

Tuesday, November 5, 2013

Why Startups Run Out of Money Too Fast--And How Excubators Solve The Problem

Posted By: George Deeb - 11/05/2013

Over the last five years, Red Rocket Ventures has consulted or mentored more than 500 startups -- nearly all of them suffering from the same...

Over the last five years, Red Rocket Ventures has consulted or mentored more than 500 startups -- nearly all of them suffering from the same problem. They are typically so focused on building their product, they don't raise enough capital to cover essential sales and marketing activities that will allow them to better attract additional venture capital down the road. As a result, many startups run out of money soon after launch, stalling out before they reasonably had a fighting chance.

Read the rest of this post on Entrepreneur.com, which I guest authored this week.

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

Monday, November 4, 2013

[NEWS] Red Rocket's "101 Startup Lessons"--Now a Downloadable eBook

Posted By: George Deeb - 11/04/2013

Red Rocket started writing its " 101 Startup Lessons--An Entrepreneur's Handbook " back in March 2011.  Over two years...





Red Rocket started writing its "101 Startup Lessons--An Entrepreneur's Handbook" back in March 2011.  Over two years later, it has evolved into a comprehensive, one-stop read for entrepreneurs who want actionable learnings about a wide range of startup and digital-related topics. The book is a startup executive's strategic "playbook", with "how-to" lessons about business in general, sales, marketing, technology, operations, human resources, finance, fund raising and more, including many case studies therein. We have demystified and synthesized the information an entrepreneur needs to strategize, fund, develop, launch and market their businesses.

Thanks to all of you 100,000+ readers who have already benefitted from these lessons via our blog, which we will continue to update with new lessons in years to come.

To download the full eBook into your eBook readers, visit your favorite eBookstore website:

Amazon (Kindle) - $0.99
Barnes & Noble (Nook)- $0.99
Blog Into Book - Free
Google Play - Free
iTunes - Free

Thanks for sharing this editorial adventure with us.  We appreciate your readership, and your sharing these lessons with your entrepreneurial colleagues in need.

For future lessons, be sure to check back weekly on the Red Rocket Blog, or follow us at:  www.twitter.com/RedRocketVC


Wednesday, October 30, 2013

3.5BN People Online by 2017--Think Globally ASAP

Posted By: George Deeb - 10/30/2013

Earlier this year, Cisco forecasted how large the world’s Internet-using population would be by the year 2017.  The data was quite staggeri...

Earlier this year, Cisco forecasted how large the world’s Internet-using population would be by the year 2017.  The data was quite staggering.  The global online user population is forecasted to grow from 2.3 billion people in 2012 (32% of the world’s 7.2 billion population) to 3.5 billion people by 2017 (48% of the world’s 7.6 billion population). The Asia-Pacific region is forecasted to continue to be the largest overall market, and the Middle East-Africa region is forecasted to continue to be the fastest growing market.

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

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

Monday, October 28, 2013

[NEWS] Join Red Rocket at the 4th Annual Entrepreneurial Bash--Save 30%

Posted By: George Deeb - 10/28/2013

Red Rocket is a sponsor of the 4th Annual Entrepreneurial Bash , presented by the Association for Corporate Growth .  The Entrepreneurship B...

Red Rocket is a sponsor of the 4th Annual Entrepreneurial Bash, presented by the Association for Corporate Growth.  The Entrepreneurship Bash is a collaborative event between leading early stage organizations in the Chicago region and Middle Market leaders bridging the leap to the next stage for these companies with access to capital and expertise for high growth companies. It will be a great evening with a bit of discussion and a lot of networking.

Robert Jordan, author of "How They Did It", moderates an all-star panel including Rishi Shah (CEO of Context Media), Ken Hunt (CEO of Vasco), Patrick Spain (Founder of Hoovers & HighBeam) and Mahendra Vora (Founder of Intelliseek & Secure IT).

The event will be held from 4:30-7:30pm on Wednesday, November 6, 2013 at the Galleria Marchetti at 825 W. Erie St. in Chicago, IL.

You can register at this link.  Be sure to enter Red Rocket's promotional code of RRV_VIP to save 30% on your admission--normally $50, now $35 for Red Rocket Blog readers.

Wednesday, October 23, 2013

The Top 4 Reasons VC's Bias Technology Startups

Posted By: George Deeb - 10/23/2013

I have had hundreds of startups reach out to me at Red Rocket looking for fund raising assistance.  Most with hungry, passionate entrepreneu...

I have had hundreds of startups reach out to me at Red Rocket looking for fund raising assistance.  Most with hungry, passionate entrepreneurs trying to build a great company in their space.  But, it is typically the technology startups that get through the filter of what I think is “fundable” by professional venture capitalists, based on my conversations with those investors.  This leaves many of the startups in other categories (e.g., CPG, retail, restaurants, real estate, manufacturing) struggling to secure startup capital.  Below are the primary reasons most VC’s bias technology investments.

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

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

Monday, October 21, 2013

Lesson #159: Never Stop Recruiting (Even If No Current Openings)

Posted By: George Deeb - 10/21/2013

Back in Lesson #106, we talked about the importance  succession planning  for all positions within your company.  But, in the event you don&...

Back in Lesson #106, we talked about the importance succession planning for all positions within your company.  But, in the event you don't have the right successor talent inhouse, you will need to recruit replacement talent for your startup, which we learned how to do in Lesson #34.  And, most likely, this means finding a quick replacement for an underperforming or lost staff member, or adding a new staff member for unexpected growth. 

As the old saying goes, time is money.  The longer it takes you to recruit and replace a terminated or lost employee, or fill that new opening, the longer it will take you to train and optimize the new employee.  And, therefore, the longer it will take your income statement to see the results.

One strategy to employ here is to never shut off your job postings or resume inflow, regardless of whether or not you have an open position, especially for high turnover risk or other key revenue driving positions (e.g., salespeople).  The small cost of the job posting should be more than offset by the weeks of time savings you will get by have a fresh batch of resumes in hand for when you really need them. 

And, better yet, it doesn't hurt to have had some active conversations with candidates for these positions, so you have pre-screened and prioritized the resumes, and know the first calls you are going to make when the time comes.  Understanding, some candidates may not still be available down the road, but at least you will have an opportunity sell them on your opportunity at that time, no different than professional recruiters do when stealing talent from one company to another.

Yes, I know recruiting can be a pain and often a time-consuming distraction in running your business.  I am not suggesting this becomes a full time job for you.  What I am saying is, during your free time, keep your recruiting process on a slow simmer on the back burner at all times.  So, that when you have the need to heat up your efforts, you are not starting from cold start.

Recruiting for talent is an everyday thing, whether you realize it or not.  Especially, for high-growth early stage startups.  So, you might as well put a process around it, to make it as efficient as possible for you, in good times (e.g., adding staff) and in bad (e.g., replacing staff).  Your bottom line profits will thank you, as your do your best to minimize any negative impact on your revenue stream!!

For future posts, please follow me at: www.twitter.com/georgedeeb.  If you enjoyed this post, please click the social sharing buttons to share with your social networks.

Wednesday, October 16, 2013

Out With MBA's--In With Masters in Entrepreneurship

Posted By: George Deeb - 10/16/2013

Back when I was in college (a 1991 graduate), an MBA was a heavily coveted degree.  The best business schools were heavily demanded, and gra...

Back when I was in college (a 1991 graduate), an MBA was a heavily coveted degree.  The best business schools were heavily demanded, and graduating students would most certainly walk out with rich offers from the leading investment banks, consulting firms and big corporations.

But, in the last decade or two, we have seen a seismic shift in demand for an alternative business education, especially with the rising costs of education.  One that teaches the basics in starting your own business and being your own boss.  One that is tapped into local startup ecosystems with access to venture capitalists and startup incubators.  One that marries expertise in technology development, with startup business and marketing skills.  A new breed of business education under the banner: a Master's in Entrepreneurship.
Read the rest of this post in Forbes, which I guest authored this week.

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Tuesday, October 15, 2013

Lesson #158: Understand Your Brand Positioning (An Al Jazeera Case Study)

Posted By: George Deeb - 10/15/2013

Back in January 2013, Al Jazeera, the Qatar based news agency, announced the launch of Al Jazeera America , a new U.S. based news agency co...

Back in January 2013, Al Jazeera, the Qatar based news agency, announced the launch of Al Jazeera America, a new U.S. based news agency covering news in the U.S.  They went on to recruit and hire a bunch of brand name U.S. newspeople (e.g., Ali Velshi, Soledad O'Brien, David Shuster) from the other big U.S. news desks (e.g., CNN, MSNBC).  The new channel launched in August 2013.
I thought that was a strange move by a brand most-known in the U.S. as the leader in news from the Middle East, with its "boots on the ground" coverage of events like the Afghanistan war and the political unrest in Egypt.  Did the U.S. really need another U.S. news desk, to compete with CNN, MSNBC, ABC, CBS, NBC, FOX and others, in exactly the same format?? 
Or, would it have been better for Al Jazeera to stay focused on its English-speaking channel, Al Jazeera English, working through the regulatory hurdles it has been met with in the U.S. to date, to provide an alternative perspective on all the happenings in the Middle East??  Apparently, I must not be alone in my thoughts, as the top three trending news items on the Al Jazeera America website, were all directly related to the Middle East on the day I researched this post (e.g., Egypt turmoil, Syria civil war, Al Qaeda capture).
Compare that to the BBC News here in the U.S.  They largely offer the same content in the U.S., that they offer in Europe, on their websites and on television.  Bringing a fresh European perspective to its U.S. viewers, as an alternative to most of the U.S. perspectives we are provided from the U.S. news desks.  They didn't try to enter the U.S. market as a direct competitor in the U.S. news business, which is what Al Jazeera America is doing.
I can understand why Al Jazeera did this.  The amount of Americans who consume U.S. news, is materially higher than the amount of Americans who consume Middle Eastern news.  But, the U.S. news brands have been built up over decades, on the shoulders of newsmen like Walter Cronkite (CBS), Peter Jennings (ABC), David Brinkley (NBC) and Wolf Blitzer (CNN).  The amount of marketing dollars it is going to take to get U.S. viewers to think Al Jazeera for U.S. news is going to end up an enormous sum.  And, even if the marketing and journalism efforts are top notch, will Americans really want to consume U.S. news from a company with a Middle Eastern brand positioning and name??  Time will tell. 
Frankly, Al Jazeera America entered the U.S. market with the acquistion of Current TV, the failed viewer-generated news channel backed by Al Gore, Joel Hyatt, Ronald Burkle, Comcast, DirectTV and others, with distribution into 40MM cable households via Comcast and others.  Wouldn't it have been better to keep that name for their U.S. news efforts??  Or, if the brand was negatively tainted by its history, come up with a new name that would better resonate with the U.S. market??
Anyway, the point is, once your brand is set in the minds of consumers, it is very difficult to change that mindset.  As examples, imagine buying hamburgers from Pizza Hut, or bed linens from Barnes & Noble.  That is why Kentucky Fried Chicken, Dairy Queen and International House of Pancakes rebranded themselves to KFC, DQ and IHOP, respectively, to allow for a more flexible menu and to get over their historical brand positioning hurdles.  Furthermore, when picking a name, pick a name that will best resonate with your target audience . . . and, preferably, in their native language!!
Or, if you have a current brand positioning hurdle, and are looking to make a dramatic shift without changing your name, your efforts need to be dramatic to create a major buzz.  As an example, if Al Jazeera had stolen away one of the most respected U.S. news anchors of the major networks, like Brian Williams at NBC, at whatever price that would have cost them, those viewers that are loyal watchers of Brian Williams, would have helped them to more quickly build their audience and reposition their brand over a faster timeline.  Can you imagine the press that would have received, "Al Jazeera America Steals Brian Williams from NBC".  Not to mention, hurting their big competitor in the process. 
I am sure that was their intent with their current roster of talent.  But, in my opinion, they either didn't aim high enough, or the biggest names in the industry turned them down (most likely for many of the reasons in this post, and them not wanting to take the risk or hurt their own personal brands in the process). 

ADDENDUM ADDED 1/13/16:  

Al Jazeera America announced they were shutting down its operations on January 13, 2016.  As you read above, I had a feeling they were doomed right from the start.  I feel like Nostradamus having originally published this article in October 2013.


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Wednesday, October 9, 2013

Comparing 'Shark Tank' to Venture Capital Reality

Posted By: George Deeb - 10/09/2013

I am sure many of you have watched an episode of Shark Tank on ABC.  The show allows a startup entrepreneur to pitch their idea to a panel ...

I am sure many of you have watched an episode of Shark Tank on ABC.  The show allows a startup entrepreneur to pitch their idea to a panel of five respected venture investors, who either like or don’t like the opportunity, and if they do, compete for the investment.  Many of the times I have watched the show, I end up cringing watching these poor entrepreneurs become the victims of undermarket valuations or a rushed decision which makes for “good TV watching” for the viewers at home, but bad business decisions for the company.  I wanted to compare Shark Tank to reality in the venture capital world, to confirm my assumption.

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

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Tuesday, October 8, 2013

Lesson #157: Consider Sharing Part-Time Executives Between Startups

Posted By: George Deeb - 10/08/2013

The cost of a proven C-Level executive inside a startup can be around $250,000 per person.  When adding together a CEO, CMO, COO, CFO and CT...

The cost of a proven C-Level executive inside a startup can be around $250,000 per person.  When adding together a CEO, CMO, COO, CFO and CTO, that could total $1.25MM a year in salary alone, just for your five person senior team.  Most startups can't afford this kind of spend, until after they have raised a material round of venture capital or are driving material revenues.  Instead, they opt to go without that role filled, merge mutiple roles into one body or downgrade the talent level to a VP position to make it more affordable.

But, what is the most important driver of success for a startup?  The team!!  Exactly the thing startups should not be cutting back on.  So, how can a startup attract the high-power talent they need, at a budget they can afford?  How about sharing executives between startups.  You get the same brain involved with your company, on an affordable part-time basis.

As an example, let's say your business needs a CMO to set the high level sales & marketing strategies to drive revenue growth, and to help manage the junior-level marketing execution team doing the day-to-day work (e.g., search engine optimization, email marketing, social media management, creative development).  At, $250,000 per year for full time salary, plus 20% more for employee benefits and payroll taxes, filling this role is often unaffordable for a startup.  But, what if this executive only worked for you one day a week, for only $50,000 per year, saving you 80% in salary and related payroll taxes, plus not having to pay employee benefits for part-time workers.

This would work great for startups, to get high fire-power talent helping to grow your business.  Provided, the job can reasonably be fulfilled in one-day a week, until the business can afford full-time talent.  As long as you have junior team members doing the lion's share of the work in that department (e.g., bookkeepers managed by a part-time CFO), this model should work out well for you, especially if the part-time executive is open to transitioning into a full-time role after the company has the resources to afford it.  You end up getting an executive-level brain for a junior-level price.

But, why would a proven executive do this for you?  They typically wouldn't, if you were their only job.  But, if they were simultaneously filling this role for five startups, spreading their talent across five different companies on each day of the week, now they are getting paid a full-time salary that they are worth, and get the excitement of working on a diverse group of companies .  Not to mention, if they are getting a small equity stake in each company in this part-time role (e.g., 1%), they now have a diversified equity portfolio strategy, instead of putting all their eggs in one basket.

So, give this model some thought for your business.  And, if interested, pitch it to other startup peers of yours (preferably in the same industry), and maybe five of you can collectively hire the executive-level brainpower you desire to accelerate your business.  Or, if you prefer, companies like Red Rocket can play "matchmaker" for you, helping to source both the executives and the other startups to fill up their time.  So, feel free to call me, if interested in learning more.

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Thursday, October 3, 2013

The Excubator--A New Type of Startup Incubator

Posted By: George Deeb - 10/03/2013

Incubators/accelerators are starting to play a key role in the development of startup ecosystems throughout the U.S. and world. According to...

Incubators/accelerators are starting to play a key role in the development of startup ecosystems throughout the U.S. and world. According to David Cohen, co-founder and head of TechStars, the #2 accelerator in the U.S. as ranked by Forbes, about one accelerator a day launches in the U.S. These programs provide resources that are critical to the success of any startup such as mentorship, connections, and capital.

Read the read of this article on Blackline Review's website.

Here is the great video that goes with the story:



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Monday, September 30, 2013

Lesson #156: How to Find a Co-Founder for Your Startup

Posted By: George Deeb - 9/30/2013

Often times, a startup entrepreneur has a good business idea, but doesn't know how to build the product. Or, the entrepreneur has deep t...

Often times, a startup entrepreneur has a good business idea, but doesn't know how to build the product. Or, the entrepreneur has deep technology skills, but is lacking in business skills.  In many cases, these entrepreneurs are on the hunt for co-founders to help them build their businesses.  The problem is, they often don't know how to start the process or where best to look.  Hopefully, this lesson will point you in the right direction.

The first thing you need to do is scope your needs.  Make sure you are perfectly clear on what skillsets will be most needed for the success of the business, and best fill a hole in your own resume and desired management team.  Back in Lesson #83, we talked about the various roles and responsibilities within a startup's management team, so figure out what role your desired co-founder can fill.  For example, you don't need five technologists in the senior team, all bringing the same skillsets.  Marry technology skills with marketing or finance or operating skills for an effective blending of complementary skillsets.

Once the role is identified, now you need to find the right type of person to fill that role.  Back in Lesson #27, we talked about how VC's define a backable management team.  It is those kind of attributes that make an ideal candidate, especially if you plan on raising outside capital.  Things like the candidate's past-start experience, industry expertise, intelligence, credibility, passion/energy, communication skills, personality fit, etc. should all be considered.

Now that we know "what" we need and "who" we need, we need to know "where" to find them.  To me, everything starts with my personal network.  Who do I know has a rolodex of people that could fit this role?  Somebody that I trust who can personally vouch for this person.  This would include people in your desired industry, people with the desired skillset or other people in the startup ecosystem (e.g., recruiters, venture capitalists, lawyers, accountants, consultants, entrepreneurs) who may know of logical candidates for your pursue.

If you don't know anyone in your own personal network (1st degree connections), try to find the same type of people in your 2nd degree connections.  Hopefully, someone you know can make an introduction for you, and help vouch for you and your idea with the 2nd degree connection, in order to get them to trust you and invest their time in helping you.

If your connections do not work, you have no choice but to find a stranger as a co-founder.  You can find them on startup networking websites (like BuiltInChicago.org).  You can find them at startup networking events (like Technori Pitch or Techweek).  You find them walking the halls of shared startup co-working facilities (like 1871 or TechNexus).  There are even websites and events specifically designed around matchmaking co-founders for startups (like Startup Weekend, TechCofounder, CofoundersLab and Founder2Be). 

The last category to consider looking for a co-founder is to hire a recruiter or place a job posting on the logical job boards.  Websites like LinkedIn, Monster.com, CareerBuilder or CraigsList.  Or, better yet, niche job boards, like Dice for technical hires, as an example.  And, remember, in addition to soliciting inbound resumes from sites like these, try to cherry pick logical candidates by directly reaching out to them.  For example, if you are building a travel website and need a strong digital marketer, try to identify logical candidates from Expedia, Orbitz or Priceline via LinkedIn.  Perhaps they are bored in their current role, looking for a new project to excite them.  Or, they may know people who are looking.

But, as you should when making any new hire, make sure you have thoroughly done your homework on a candidate before "jumping in bed" with them.

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Wednesday, September 25, 2013

Startup Survey--Looking For Tech Startups With a Couple Years of History

Posted By: George Deeb - 9/25/2013

Ensemble is working on better understanding what makes startups successful, by comparing various tactics used between those businesses and ...

Ensemble is working on better understanding what makes startups successful, by comparing various tactics used between those businesses and how it impacts revenue growth.  Therefore, we are looking to gather data from tech startups with a couple years of history.  The survey will only take 15-20 minutes to complete, and all reports therefrom will be shared with respondents.

Here is a link to the survey:
http://www.instant.ly/s/CkmDY

Thanks for your participation, and forwarding it to other logical companies.  And, feel free to share this with your social networks, if applicable.

New York or Chicago for Startups? MentorMob Compares Both.

Posted By: George Deeb - 9/25/2013

MentorMob is a rapidly growing startup in the B2C education technology space. The company was founded in Chicago in 2010, and was one of t...

MentorMob is a rapidly growing startup in the B2C education technology space. The company was founded in Chicago in 2010, and was one of the first tenants of Catapult Chicago, a shared location facility for startups. In 2013, MentorMob relocated to New York City, to participate in the Techstars/Kaplan Ed Tech accelerator program. The company has had the unique experience of living in the two cities, both with growing startup ecosystems. Vince Leung, MentorMob’s co-founder and CTO, was kind enough to share his experiences, helping us to compare the plusses and minuses of these two startup hotbeds.

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

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

Tuesday, September 24, 2013

A Blueprint for Startups--Try to Kill It Before It Starts

Posted By: George Deeb - 9/24/2013

Starting a business for the first time is one of the most rewarding, challenging, exhilarating and scary journeys an entrepreneur will face ...

Starting a business for the first time is one of the most rewarding, challenging, exhilarating and scary journeys an entrepreneur will face over the course of his or her lifetime. The first and one of the most critical steps in building a successful business is developing plan of action.

Below is a toolkit of things you need to successfully ideate, research, develop and grow a startup business. Hopefully, you have addressed all of the below in your business.

Read the rest of this article on Startup Beat, which I guest authored this week. 

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

Monday, September 23, 2013

The Unlucky 13 Reasons Startups Fail

Posted By: George Deeb - 9/23/2013

As the Managing Partner at Red Rocket Ventures , I have had exposure to over 500 startups in the last few years. I have seen really good st...

As the Managing Partner at Red Rocket Ventures, I have had exposure to over 500 startups in the last few years. I have seen really good startups and really bad ones. Below is a summary of the recurring problems I have seen in the flawed startups, and where relevant, how venture investors typically react to such problems.

Read the rest of this article on Forbes, which I guest authored this week.

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

Lesson #155: Best E-commerce Platforms for Small Business

Posted By: George Deeb - 9/23/2013

Choosing an e-commerce platform for your online store can be a daunting experience. There are many providers new, old, and truly tested, tha...

Choosing an e-commerce platform for your online store can be a daunting experience. There are many providers new, old, and truly tested, that are available in the market.  That said, it does seem like shopping for a new house - a very personal experience, as you try to find the platform that best meets your specific needs. To assist me with this lesson, I asked for guidance from Yulia V. Smirnova at CommerceBrain.com, an e-commerce marketing and technology consulting business.

Yulia pointed out that e-commerce platforms have some similar features between them and some unique features to themselves.  There is no perfect platform and there will be tradeoff you make in picking one over another. And, like with any system, there will be things you will learn along the way, that you wished you had known ahead of time. Hopefully, these lessons will help point you in the right direction for making the best decision for your business.

To decide which e-commerce platform is best for you, it comes down to: (i) your capital budget; (ii) your team resources (access to in-house developers); (iii) the scope of your e-commerce business (niche market or multiple revenue streams); (iv) your product offering (high-end vs. mass-market, depth of SKUs); (v) single retailer vs. multiple retailer marketplace; and (vi) expectations of your target audience (minimum features needed for them to effectively compare/buy what you are selling).

Below, Yulia selected and compared a number of cost effective providers that e-commerce startups and smaller online businesses mostly end up using, based on her experience.  She has broken the decision making process into four key user scenarios:

1.    Go with Shopify. Big Commerce or similar hosted solutions if . . .

·        you are a small startup that still needs to prove that you have a good market and that your product is in high demand.

·        you desire to keeps your back-office technology staffing costs low with an easy plug and play solution for your business people to use.

2.    Go with OpenCart, 3DCart or another open-source, self-hosted solution if . . .

·        you are tech savvy enough and need a low cost solution and have time to figure out the setup and implementation.

·        you wish to customize the solutions to meet your specific needs and want the control of a self-hosted system.

3.    Go with Magento, the largest and most-robust of the self-hosted solutions if . . .

·        you are a $10MM+ online business and need a more innovative user experience with custom functionality.

·        you wish to sell in international markets with no hassle on translations, pricing and fulfillment.

·        you need the capability to plug into the APIs of your vendors.

·        you have a team of smart developers to fine-tune the system.

·        you are up for playing a serious game in e-commerce built for scale.

4.    Go with building your own system if . . .

·        your tech team thinks they can build a system that is easier to use than Magento (complex to use), and you have the time/budget to build such.

·        you are building a longer-term enterprise needing highly customized solutions.  Not recommended for lean startups needing MVPs.

·        your other local systems do not work well with Magento or the others (you might be operating in an emerging market).

For a full comparison of the top 12 e-commerce platforms for small business, including the ones listed above, click here to learn about the pros, cons and costs of each.

It is also best to ask other e-commerce retailers in your industry or market to learn what they use and what works best for them, to get a better perspective.  Most of the times, it is these private conversations from the people running their stores which ultimately settles which system will work best for your business, getting their candid feedback.

Thanks to Yulia for sharing her insights here. She has made herself available for any e-commerce strategy, marketing or systems questions you may have from here.  Feel free to reach out to her at http://commercebrain.com/contact/ or 415-666-6002.
 
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Monday, September 16, 2013

Lesson #154: Entrepreneurial Lessons from "Breaking Bad"

Posted By: George Deeb - 9/16/2013

Breaking Bad on AMC is one of my favorite television shows of all time.  With the series ending this month, I figured I would honor the sh...

Breaking Bad on AMC is one of my favorite television shows of all time.  With the series ending this month, I figured I would honor the show with a case study of some key entrepreneurial lessons therein.  And, no, I won't be advocating you all start dealing drugs to make your fortunes!!  But, I think the show itself, and its main characters, Walter White (played by Bryan Cranston) and Jesse Pinkman (played by Aaron Paul), provide some interesting lessons for entrepreneurs worth sharing.
 
BREAKING BAD - THE STARTUP
 
When the producers of Breaking Bad first pitched the show to the networks, they were met with a lot of strange looks.  "Are you kidding me, a show about a high school chemistry teacher turned drug dealer", must surely have been their reaction.  But, with 42 Emmy nominations (and 10 wins) since the show launched in 2008, it is safe to say the risk takers at AMC, have seen a healthy ROI on this venture investment.
 
But, why did it work, from a startup's perspective?  It worked because it was a fresh idea in the entertainment market, and filled a big void with consumers.  It wasn't another hospital, lawyer or police drama, which we have seen scores of times in the past.  It was interesting subject matter we had never seen before.  More importantly, I can't think of another example of a show that evolves the sympathetic, cancer-fighting main character hero, into a power-hungry, money-grubbing anti-hero over five seasons.  That was the equivalent of evolving Batman into the Joker!!  And, it felt more like a 62 hour movie, with the brilliant writing and acting, than it did a typical television series.  So, a heavily demanded, innovative product is going to win every time.
 
WALTER WHITE - POWER OF THE PIVOT
 
Back in Lesson #31, I wrote about the power of making a pivot and thinking out of the box for getting startups onto the right course.  Walter White is the perfect case study in the power of making a pivot.  He took his skills as a chemistry expert, and instead of applying them as a high school chemistry teacher, where he made a modest annual salary, he began to use them in the production of crystal meth, in building an $80MM net profit business in two years.
 
I know, a bad example because he broke the law and endangered many people in the process.  But, the point here for entrepreneurs is: are you best using your assets or skills?  If not, point them in a new direction, where higher ROIs can be realized.  That could be shifting focus from B2C to B2B applications, or shifting from corporate to government clients, or selling into the healthcare industry instead of the financial industry, or whatever that can best leverage your assets and open up the biggest market for your business.
 
"I WANT THE BLUE STUFF"
 
But, what made Walter White's crystal meth particularly well-demanded was: (i) its highest premium grade quality which he acheived as a chemistry expert (and the better results it provided to his customers); and (ii) its unique blue coloring in the market, which made it stand out from all the clear product available on the street.  So, as a startup looking to break through the clutter of similar products out there, figure out what is going to be your unique competitive advantage (in this case highest quality which could demand highest prices).  And, figure out how to uniquely position your product in the market that will get your customers saying "I want the blue stuff".
 
PICKING YOUR CO-FOUNDERS
 
Talk about strange bedfellows partnering up to start a business.  On one hand, you have Walter White, the straight-laced high school chemistry teacher and family man.  And, the other hand, you have Jesse Pinkman, his drug-addict former student and lone wolf.  And, from a different perspective, you have an all-controlling Walter White, who basically uses Jesse Pinkman as his errand-running assistant, and not as an equally-contributing or respected partner to the business.  Not only was their business literally toxic, so was their working relationship.  It is no wonder, the relations between Walter and Jesse become strained overtime, putting both the business and their personal relationships to the test numerous times over the years.
 
When picking a co-founder for your startup, make sure you are both bringing something of value to the business (e.g., marketing skills or technology skills), and are both respected on equal footing.  Otherwise, you are teeing yourself up for failure, or an ugly transition down the road.

So, for all you Breaking Bad fans out there, I hope you enjoyed this unique look at the show from an entrepreneurial perspective.   Thank you Breaking Bad for the inspiration here, you will surely be missed.
 
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Tuesday, September 10, 2013

Lesson #153: Healthcare Benefits Decisions for Startups (Post Obamacare)

Posted By: George Deeb - 9/10/2013

With the passing of the Affordable Care Act (commonly referred to as Obamacare) in 2010, many of the business impacts of that law are starti...

With the passing of the Affordable Care Act (commonly referred to as Obamacare) in 2010, many of the business impacts of that law are starting to hit the market in 2013 and 2014.  So, I wanted to do a few things in this post: (i) provide a high level summary of how Obamacare has impacted small businesses; (ii) provide a summary of what healthcare benefits small businesses are offering to their employees today; and (iii) provide a few resources which may be useful to you in making your own healthcare benefits decisions.

To assist me in this effort, I solicited the help of Michael Flanagan and Gene Smith at Alliant, a full-service benefits brokerage firm in Chicago with experience on the business impact of Obamacare and the general healthcare decisions startups are making today.

IMPACT OF OBAMACARE ON SMALL BUSINESS

Well, the good news is, companies with 50 or fewer employees (including 50% count for part-time employees), are NOT required to offer healthcare to their full-time employees.  But, many companies of this size, typically do offer healthcare as an employee benefit to attract new employees.  All companies with 51 or more employees, are required to offer healthcare benefits to their staff, effective as of January 1, 2015.  Such companies will be subject to a $2,000 per employee "play or pay" penalty of this employer mandate coming out of Obamacare.  And, to make matters worse, this penalty fee is NOT tax-deductible, like benefits expenses are, so it is really like a $3,000 per employee fee when you add in the lost tax deduction.

To satisfy the healthcare benefit requirement, small businesses have a few options available to them: (i) they can offer their own corporate-sponsored plan; (ii) the can offer their employees a payroll increase to allow them to purchase their own personal healthcare insurance directly through a carrier or through one of the public insurance marketplaces; or (iii) they pay the penalty fee for not offering healthcare benefits.  Their decision will come down to an analysis of what works best for them financially and what impact do they want to have on their employee benefits for recruiting and employee satisfaction needs.

In addition, Obamacare impacted small business as follows: (i) no longer can carriers base insurance approvals based on up to 10 age bands (they are now compressed into three age bands benefitting older individuals at the cost of younger individuals--and many startups have younger individuals); (ii) no longer can carriers base insurance approvals based on healthcare risk (benefiting the sick with pre-existing conditions, at the cost of the healthy--and most startups are healthy); and (iii) businesses now have to pay additional fees or taxes related to their healthcare programs (which adds around 4% to their healthcare costs from where they are today).

The three new fees include: (i) $2 per employee "comparative research effectiveness" fee; (ii) a $5.25 per member (employee and family) "reinsurance cap" fee; and (iii) up to a 2.5% "healthcare industry fee".  The first two fees are temporary during the transition period, and the last fee is permanent in perpetuity each year.  So, if healthcare costs were expensive before to small businesses, it just got a lot more expensive.  In addition, changes coming out of Obamacare have made healthcare decisions more complex and time-intensive in nature, making it harder and more costly to administer.

TYPICAL HEALTHCARE DECISIONS BEING MADE BY STARTUPS

Healthcare programs can be designed for companies starting with two employees or more.  For companies with 2-15 employees, approximately 35% offer healthcare benefits (so most startups have decided not to offer it).  And, for companies with 16-50 employees, a materially higher 65% of such companies are offering healthcare benefits.  All companies with 51 or more employees will now be required to offer per the Obamacare changes.  One way that companies are trying to get around this requirement is to use more 1099 contractors or multiple part-time employees to fill full-time work needs, trying to defer the added healthcare costs as long as they practicably can.

For companies offering healthcare, the 2-15 employee companies are typically only covering around 50% of the plan costs of employees and 30% of the costs of any additional family members.  And, for 16-50 employee companies, they are typically covering around 70% of plan costs of employees and 50% of the cost for any additional family members.  Most plans offered to date are from one carrier (although some private exchanges are trying to evolve to multiple carrier programs over time), and they typically offer three options for employees:  a PPO, an HMO and a high-deductible FSA for employees to choose between.

It is too early to tell how many companies are going to opt for their own healthcare program, vs. providing payroll credits for employees to source their own insurance or pay the penalty.  If they simply think of it economically, it could prove a lot cheaper/easier for them to go down the latter of these options.  Especially, since the company can decide the exact payroll bump they want to give employees, to satisfy their healthcare requirement (which may end up well-below the real market value employees may need to pay--as individual plans tend to be a lot more expensive than corporate group plans).  But, companies need to be careful of not being too short-sighted here, as what can financially benefit the company in the near term, could end up hurting employees or recruiting in the long term.  So, it will be an interesting dance as companies sort through this.

That said, we are no longer in the era of employees working for the same company for 20 years.  People hop jobs all the time, and may prefer a plan that is more "portable" as they move from company to company.  Therefore, employees may actually prefer the payroll boost to fund their own plan, even if it comes with more hassle and cost to set up their own plan, as they only have to set it up once.  And, the benefit of buying your own personal plan is you are guaranteed to pick a plan that works best for you (with your in-network doctors, family situation, health conditions and budget), and not what works best for the company.

A FEW USEFUL RESOURCES FOR MAKING HEALTHCARE DECISIONS

Buying group healthcare has never been an easy process.  So, my recommended solution would be to talk to your insurance broker and research various carrier-specific plans or private exchanges to see what group solutions are available to you.  And, where you can, try to find a solution that not only addresses your healthcare needs, but your other business needs (e.g., general business insurance, life insurance, disability insurance, dental insurance, COBRA administration, legal compliance), in crafting the best benefits program for your employees.  This includes making sure you are supported by a help desk to answer any questions your administrators or staff may have over time.

For you Illinois-based tech startups, the Illinois Technology Association (ITA) has partnered with Alliant to help bring cost-effective healthcare solutions to small businesses.  You can learn more at www.IllinoisTechInsurance.com.  Furthermore, Alliant has further partnered with Flexible Benefits on a full-service solution for private exchange buyers, which are typically self-service solutions.  To take advantage of these services, you will need to become a member of the ITA.

For additional information on healthcare reform and its impact on Illinois based employers, Alliant and the ITA are hosting a live webinar on the topic at 11am on Tuesday, September 17, 2013.  You can learn more and sign up on their website here.

For all other questions, or for help in navigating your healthcare decisions and sourcing, feel free to directly reach out to Gene Smith at Alliant at gsmith@alliant.com or 312-589-6601.

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