Friday, August 17, 2018

Lesson #297: Top 10 Warning Signs Your Startup Will Fail

Posted By: George Deeb - 8/17/2018

Being an entrepreneur is no simple task, given 90% of startups collapse. But, based on the learnings from these past flame-outs, there ...




Being an entrepreneur is no simple task, given 90% of startups collapse. But, based on the learnings from these past flame-outs, there are some leading indicators that can identify whether your startup is headed for failure. I collaborated with my colleague, Taylor Ryan, a five-time serial entrepreneur, author and expert digital marketer (currently the CMO at Valuer.ai) to come up with the following list of warning signs that you should look out for in assessing the health of your startup.

1. Lost Focus on Primary Goal

For some startups, their focus can divert to unimportant factors than the primary goal at hand. A successful startup learns to prioritize its efforts, and stay religiously focused on that end goal. Keeping the team firmly focused on the end goal can also be beneficial for the work environment as it will keep the team all rowing in the same desired direction. If you see a startup flailing in the wind of change, going in multiple directions based on the "flavor of the month", you know that business is in trouble.

2. Poor or Slow Execution

There are startups that begin with innovative concepts but cannot execute them properly. This is due to a number of reasons – lack of relevant resources, lack of motivation or poor  working habits for starters.  Firms that are properly tracking their progress with regard to a particular project will quickly see if they are falling behind and come up with ways to correct the problem before it becomes a material one. Those that are not executing well will suffer deficits in capital or timelines. There is also a problem with the speed in execution, with many startups not being able to push out products or services as fast as their competitors. Speed is critical, to staying ahead of your competitors as the first mover, and not being forced to play catch up..

3. Lack of Customer Engagement

A lack of customer engagement is something many early-stage startups face. There are a many possible scenarios in which customers might lose interest in a product or service.  Maybe the startup didn't properly research the market to ensure meaningful demand?  Maybe sales and marketing efforts are not the best strategy for that business?  If you don’t truly understand your customers pain points, they will never have a serious interest in your product or service. It is best to figure out why customers are not engaging, sooner than later, to try and resolve those product or marketing related issues to see if they are fixable, before deciding to cut your losses and close shop.

4. Poor Teamwork

Sometimes, perfectly capable and promising startups begin descending into failure because of differences among team members or lack of effective teamwork. This does not necessarily have anything to do with how well a person or a group of people can perform in the workplace.
It just means, at times, some people cannot work well together. It is a startup CEO's responsibility to know what is required to keep the team gelling and how to improve the team's performance in thinking and acting like one well-oiled machine. If ineffective teamwork goes undetected or unresolved for an extended period of time, the startup will struggle to recover.

5. High Employee Turnover Rate

If the employee turnover rate is high and recurring, it could be an indicator of a failing startup.
There could be a number of reasons why the turnover rate is high. For one, a startup’s culture plays a strong role. If employees are unsatisfied with the work environment, don't like the people they are working with or don't have confidence with their management, they will most likely be looking to leave.  So if you have a revolving door with your staff, something is wrong and needs to be fixed, as you can't scale a business on a wobbly foundation of talent.

6. Lack of Adaptability

Any startup that says it is immune to changes in the market is setting itself up for failure. External market forces ultimately dictate how your startup will fare against changing trends and competitors in the industry. If a startup doesn't truly understand or disregards what is happening outside of its own office, it is doomed to fail.  For a startup to truly reach success, it may have to pivot several times until it finds the right mix of product-market fit. If a startup does not pivot fast enough, that is usually a sign the end is near.

7. No New Product Development

For a startup to stay relevant, it needs to constantly be reinventing itself. Your product development efforts are never done, as you should always be striving to improve from version 1, to version 2 to version 3 over time.  Because if you don't, you can rest assured your competitors will clearly copy whatever you are doing successfully today, and will be improving their business at your expense.

8. Unaware of Finances

Every good startup should always be aware of its financial situation.  But, you would be surprised how many entrepreneurs have no clue about their finances, and hence cannot easily predict they are about ready to slam into a brick wall. There needs to be financial reports, dashboards and KPI's that a startup studies closely each week to understand how much it is spending, earning and retaining vs. its goals.  You can't manage what you are not measuring, so make sure you get your key reporting metrics identified and tracked.

9. Creative Block or Stubborness

Oftentimes, a startup’s team gets hung up on a particular perspective or approach to an issue. When things are not going well, it is important to push the team to change their perspective and try something new and creative to solve the problem. Startups that are heading towards failure are often unsure of where they should be heading as a company, and lack the creative thinking skills that are required to ideate potential solutions. Or, they are simply inflexible and not willing to entertain a different approach.

10. Boredom

The team getting bored with what they are working on can surely be a startup killer. Early in the startup’s life, the team is motivated, as the venture is exciting to work on, and the team enjoys working towards the success of a startup. Hence, everyone works with dedication and puts in long hours.  But, the reality is, after the euphoria wears off, it is easy for the team to get bored with their work.  It could be due to their attention diverting elsewhere, lack of motivation, or monotony in the day-to-day grind of the workplace, especially if the business is not succeeding as planned. A good entrepreneur will figure out ways to keep its employees engaged and motivated at all times.


So, do a critical assessment of your business to make sure you are not about ready to drive off the cliff.  If any of the above resonates as happening with your business, it is time to put an immediate fix in place.  Thanks again Taylor for working with me with this post.  If any of you need help connecting your startup with logical corporate partners, Taylor and his Valuer.ai platform could be your solution.


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



Monday, August 6, 2018

Entrepreneurs Mellow & Mature With Age

Posted By: George Deeb - 8/06/2018

I've been an entrepreneur for most of my life. I started an odd-jobs business in high school, founded a collectible comic-book busin...



I've been an entrepreneur for most of my life. I started an odd-jobs business in high school, founded a collectible comic-book business in college and launched my first venture capital backed startup -- an adventure-travel company -- in my 20's. And my entrepreneurial endeavors continue today. I'm in my late 40s, running Red Rocket and managing our portfolio investments, looking for companies to buy and advising hundreds of early-stage businesses. Given this winding road of past experience, my approach to managing businesses today is very different than when I was younger. The experience I now bring to the table has materially mellowed me as a leader. But I didn't have that background or that perspective when I was younger.

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

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


Where to Find Expert Consultants for Your Business

Posted By: George Deeb - 8/06/2018

From time-to-time, you may need to find a consultant to help you with your business. Sometimes, those needs are high level, like setting ...


From time-to-time, you may need to find a consultant to help you with your business. Sometimes, those needs are high level, like setting strategies or marketing plans. Other times, those needs are more point solutions, like a pro in search engine optimization or product sourcing. Whatever your need may be, there is most likely a consultant out there that is immediately available to help you. The problem is finding them. This post will tell you how best to fill your consulting needs.

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

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


Thursday, August 2, 2018

Lesson #296: Copy Proven Ideas for Quick Success--A Fortnite Case Study

Posted By: George Deeb - 8/02/2018

The best ideas are not always the most original ideas.  As we have learned in my past post , copy-catting others' proven ideas, perh...



The best ideas are not always the most original ideas.  As we have learned in my past post, copy-catting others' proven ideas, perhaps in different markets or ways, may be the quickest path to success.  And, nothing illustrates this point better than Fortnite Battle Royale, the video game made by Epic Games, which my son introduced me to this year.  To me, Fortnite appears to have pulled a page right out of the The Hunger Games movie playbook, copy-catting it into a huge success.  Allow me to further explain.

THE HUNGER GAMES SUCCESS STORY

The Hunger Games was a top selling film from 2012, directed by Gary Ross and starring Jennifer Lawrence.  The movie was based on the best selling book by Suzanne Collins.  To date, more than 17.5 million copies of the book has been sold worldwide (grossing $169MM in book sales for this first of three books in the trilogy alone) and the hit movie has grossed another $752MM in sales worldwide on top of that.  I would say that was a pretty huge success for the author, the book publisher and the movie producer.

THE HUNGER GAMES PLOT

Here is The Hunger Games plot as copied from Amazon's book description:  "Could you survive on your own, in the wild, with everyone out to make sure you don't live to see the morning? In the ruins of a place once known as North America lies the nation of Panem, a shining Capitol surrounded by twelve outlying districts. The Capitol is harsh and cruel and keeps the districts in line by forcing them all to send one boy and one girl between the ages of twelve and eighteen to participate in the annual Hunger Games, a fight to the death on live TV."  Now keep this firmly imprinted in your memory, for what is to follow.

WHAT IS FORTNITE BATTLE ROYALE

Launched in 2017 (five years after The Hunger Games--about the amount of time it takes to develop of video game of this scale), Fortnite Battle Royale has become one of the highest grossing video games of all time, set to have over $2 billion in sales this year (yes, billion with a "b").  They sold over $300MM in the last month alone, suggesting it is now on a $3.6BN annual run rate!!  Here is the game description, as copied from their website: "The battle is building! Fortnite Battle Royale is the free 100-player PvP mode in Fortnite. One giant map. A battle bus. Fortnite building skills and destructible environments combined with intense PvP combat. The last one standing wins."  Sound familiar!!??  It is basically the same plot as The Hunger Games.

THE SIMILARITIES ARE BEYOND A DOUBT

In both The Hunger Games and Fortnite Battle Royale, a bunch of contestants are entered into a fight to the death with a last man (or woman) standing in both cases. The contest is set up in a way that the battle takes place within a fixed geographic space, that gets manipulated to be smaller over time, forcing the last remaining contestants to battle each other at some point.  Both drop the contestants into an unknown environment and make them race to find the closest and best weapons.  And, in both cases you have no visibility into where your competitors are coming from, so you can be unexpectedly attacked from behind at any time.

WHY COPY-CATTING CAN BE A GREAT STRATEGY FOR QUICK SUCCESS

There are many advantages of copy-catting.  First of all, it de-risks your venture based on the proven learnings and investments of others.  Why experiment with a new idea that has a 90% chance of failing, when you can double down on a proven 10x return winner.  Secondly, you may be able to take a great idea in a good market and make it a great idea in a huge market.  Look what happened in this case study--a $169MM book become a $752MM movie become a $3.6BN video game all with basically the same blueprint.  Let this be a lesson to the book and movie industries, perhaps the video game industry is where you can really create the most wealth (at least with products targeting teenagers).  In just a short period of time, using what I feel is a copy-catting strategy (that I doubt they will ever admit), the founder of Epic Games, Tim Sweeney, has just become the newest member of the billionaire club!!  Not so bad for a couple years worth of work, retooling someone else's playbook.  I am surprised The Hunger Games hasn't sued Fortnite for copyright infringement.

CLOSING THOUGHTS

So, for all you entrepreneurs out there, looking to become the next unicorn billionaire, your path to success and wealth does not need to be a unique one.  Look for proven ideas that you can repurpose into your own.  And, in the process, you will materially accelerate you product development curve and growth trajectory.  At the same time, if you are working on a great idea in one market, perhaps it will be a much bigger idea in a different market.  As an example, I bet Marvel is happy they transitioned from a low revenue comic book company to a huge revenue movie production juggernaut ultimately acquired by Disney for $4BN.  So, who is ready to help me start building my Revengers video game, a Fortnite-style fight to the death between Avengers-style superheroes of your choosing set in a Jurassic Park-style dinosaur setting!!  Sounds like three home runs in one, to me!!

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



Friday, July 20, 2018

Lesson #295: Top 5 Media Buys for First-Time Marketers

Posted By: George Deeb - 7/20/2018

Getting the word out about your startup business is always a challenge, but at least there are a handful of techniques you can focus on ...



Getting the word out about your startup business is always a challenge, but at least there are a handful of techniques you can focus on to jump start your early marketing efforts, all of which are available on a cost-effective basis.

1. PAID SEARCH (MORE SPECIFICALLY, GOOGLE ADWORDS)

Paid search is clearly an obvious choice.  When people are searching for your products or services on the search engines, you need to make sure they can find you.  Organic search from search engine optimization efforts are out of your control (although you should do your best to optimize your site for success there).  But, paid search is 100% in your control and can drive immediate traffic out of the gate.  Yes, there are other search engines beyond Google (e.g., Bing, Yahoo, Ask, AOL), but Google controls 65% of the search market and an even bigger percentage of the mobile market for search, given their Android platform powers over 80% of the mobile phones out there.  So, if you were going to focus on one place, Google is it.  Re-read this post for specific search engine marketing strategies to help get you started.

2. SOCIAL MEDIA (MORE SPECIFICALLY, FACEBOOK)

With over 80% of Americans having a Facebook social media account, it is the single largest media property with which to market to target customers, all in one place.  And, better yet, Facebook brings levels of customer targeting that have never before been easier or more cost-effective.  To give you a sense to how easy it is to drill down to your specific demographic, psychographic or other consumer interests, check out this great infographic of what targeting is possible on Facebook.  If you have the time to focus on LinkedIn, Twitter, Instagram, Pinterest or other social networks, you can add those in after Facebook.  The only exception would be if you are a B2B business, where LinkedIn may be a better place to start.

3. SHOPPING MARKETPLACES (MORE SPECIFICALLY, AMAZON)

If you are a product seller, there is no better place to get started than Amazon; more than 65% of all shopping searches start at Amazon (who has successfully wrestled that function away from Google over the last few years).  Not only can Amazon help you with marketing to their audience, but they can also help you with any warehousing or distribution needs for those products they sell for you.  There are other marketplaces like Walmart, Jet, eBay, Wanelo, Rakuten and Sears.  But, if you are trying to move the needle with a ton of volume, there is no better place to focus than Amazon.  That said, when you are setting up your Google Adwords campaign above, I would also turn on Google Shopping campaigns and distribute your product feed through their shopping search capabilities, as well.

4. RETARGETING (MORE SPECIFICALLY, CRITEO)

The above three categories are helping you find new customers, but there is nothing more effective than going after known past customers or prospects using retargeting techniques.  In terms of how it works, as a user visits your website, the retargeting technology drops a cookie on their computer, which follows them across the internet. Then, as ads are run on those third party sites (e.g., checking email on Yahoo, reading news on CNN, watching sports on ESPN), retargeting companies can push your ads to those exact same users.  This works particularly well using dynamically generated creatives that publish the exact same products the users were looking at on your website.  Especially, when you are targeting users that went all the way through the purchase process on your website, but abandoned their cart or checkout process.  Criteo is the biggest player in this space, claiming that can get your ads up on approximately 2,000,000 websites, including many of the big ones like Facebook.  Their reach is around 6x larger the next biggest player, AdRoll.  Google and Facebook also offer retargeting options of their own ad platforms, but the advantage of Criteo is their functioning as a one-stop shop for retargeting across the web, as Google can only get you on their network sites (about 25% of the reach of Criteo).  That said, the rates on Google and Facebook can be cheaper, without Criteo’s middleman fees included.  And, retargeting can be more expensive than the other options above, so start with those first.

5. LOOK-ALIKE AUDIENCES (EASILY FOUND IN FACEBOOK)

Once you have found known customers that have an affinity for your product or service, nothing is better than finding look-alikes to those customers, with which to focus your new customer marketing efforts.  For example, if you copy and paste your customer email list into Facebook’s advertising tools, they will recommend new prospective customers to market to that share similar attributes as your customers.  For example, let’s say you are selling beauty products, and Facebook can see that your customers’ emails match to 18-25 year old women that are fans of Style magazine and listen to Ariana Grande music, then Facebook can match to those exact lookalikes.  Very cool!


Anyway, there is a wide world of options to consider when setting your marketing strategies, campaigns and tactics.  But, if you are looking for a quick cheat sheet on how to start driving new customers in mass, using cost effective, pay for performance techniques, then these five options are the way to go.

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



Saturday, July 7, 2018

Sales Enablement Tools Are the Key to Making More Money

Posted By: George Deeb - 7/07/2018

Over the last several years, many technologies have been developed to help accelerate and automate the sales and marketing functions. Fi...



Over the last several years, many technologies have been developed to help accelerate and automate the sales and marketing functions. First, it was upper funnel tools that help drive customer awareness and consideration through marketing automation. Then came the middle and lower funnel tools that help drive customer evaluation and purchase through sales enablement tools, which I will talk about in this post. These sales enablement tools can make a material difference in helping you drive revenue faster, consistently across your entire sales team.

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

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


Thursday, July 5, 2018

Want to Scale Revenues? It's All Math!

Posted By: George Deeb - 7/05/2018

Over the last year, I have been networking with key influencers in the tech startup community in the Raleigh-Durham area.  I had the joy...



Over the last year, I have been networking with key influencers in the tech startup community in the Raleigh-Durham area.  I had the joy of meeting Alex Osadzinski, a seven-time successful serial entrepreneur  and venture investor in town.  Alex's career took off as an early employee with Sun Microsystems between 1986-1994, helping lead their meteoric rise to over $1BN in revenues in only a few years. And, since then, he has helped enterprise software companies rapidly scale their businesses to new heights, most recently as the CMO at Relias Learning, whose sales have almost tripled to almost $200MM since he got involved in early 2016.

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

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


Wednesday, June 20, 2018

Lesson #294: Marketing Attribution: What Is It and Why It Matters

Posted By: George Deeb - 6/20/2018

Long gone are the days of blindly spending marketing dollars without a data first mindset to clearly calculate and prove you are driving ...


Long gone are the days of blindly spending marketing dollars without a data first mindset to clearly calculate and prove you are driving a return on your marketing investment (your “ROMI”).  This previously linked post demonstrates how to track your ROMI at the 30,000 foot view, based on your overall business revenues vs. costs, or at the unit level of an average transaction.  But, if you want to really fine tune your efforts to maximize your ROMI, the best marketers turn to marketing attribution tools to help optimize marketing within every sub-channel of their business.  Let me explain.

WHAT IS MARKETING ATTRIBUTION?

According to Wikipedia, “marketing, attribution is the identification of a set of user actions (‘events’ or ‘touchpoints’) that contribute in some manner to a desired outcome, and then the assignment of a value to each of these events.”  Boy that was a mouthful.  Let me translate that into “simple talk”.  Your customers are interacting with your business in many ways.  Let’s say you are a retailer, and one customer may be visiting your store, your website, your mobile app, your direct mail catalog, etc.   Marketing attribution helps assign value to which of those channels (if not all) should get credit for the sale.  So, when you go to calculate your ROMI for that business unit, you are fairly matching revenues with marketing costs.

CALCULATING ATTRIBUTION IS HARD

The above makes it sound like marketing attribution is a relatively straight forward thing to calculate, which it can be if the customer clearly only visited one channel.  But, what happens when they concurrently visit multiple channels; that is when the calculation becomes much harder.  Let’s continue our example from above.  Let’s say a customer receives a catalog in the mail, decides to go to the website to learn more, and decides to purchase the product in the store?  Now, who should get the credit?  The answer:  they all should get partial credit, and that is where marketing attribution tools come in to help you calculate that.

WHO SHOULD GET THE MOST CREDIT

Determining who gets the most credit for a sale is the big debate.  Should the first touch point get the most credit, as the transaction most likely started from them?  Or, should the last touch point get the most credit, as that is where the customer actually pulled out their credit card and purchased the product?  The arguments can clearly be made both ways, especially by the marketing managers in each of those respective departments!!  To help me with determining my ROMI, I tend to bias the first touch point (e.g., the catalog that arrived in the mail), to help me assess if I should keep spending monies on that specific tactic, or not.  But, oftentimes, I simply split the credit evenly between each channel that touched the customer during that sale cycle.

MARKETING ATTRIBUTION TOOLS

Many companies turn to sophisticated software packages to help them.  Some of the more sophisticated tools are found in expensive enterprise grade solutions from Adobe and others.  But, there are others that serve the SMB market, as well, including Bizable, Bright Funnel, LeadsRx, Looker, Track Maven, Active Demand, Tealium, ABM Analytics and Attribution, to name a few.  You can learn more about those products from their websites, or the marketing attribution sections of software user review sites, like G2 Crowd or Capterra.

HOW TO CALCULATE IT ON YOUR OWN

Are you too early in your growth curve to able to afford software here?  That is okay, here is how you could calculate marketing attribution on your own.  Let’s say you spend $10,000 on a direct mail piece, and you get 1% (100) of those people to buy a $200 product from you—50 through your call center and 50 through your website.  You know the website orders were tied to the direct mail piece, because the user needed to enter a unique promotion code to redeem the offer in the mailer.

In this example, to me, I would attribute 50% of the 50 web orders to the catalog and 50% of those web orders to the website, as they both equally played a role in the sale.  So, the catalog gets credit for 75 orders ($15,000 in revenues) and the website gets credit for 25 orders ($5,000 in revenues) from this one campaign.

Then, you need to carry that logic through to expenses.  You need to allocate 75% of the mailer costs ($7,500) to the catalog division and 25% ($2,500) to the website division.  And, in reverse, if the website has costs to operate, let’s say $10 per transaction (or $250 in total web orders from the mailer), you need to add those costs to the catalog division’s total campaign costs.  The call center costs of $25 per order (or $1,875 in total catalog orders) will be incurred entirely by the catalog division, as the call center was not used by the website orders.

So, totaling it all up from this campaign, the catalog had:  $15,000 in revenue less $7,500 in mailer costs, less $1,875 in call center costs, less $250 in website costs.  For a total profit of $5875 and a total ROMI of 2x (ignoring product costs).  And, the website had:  $5,000 in revenue less $2,500 in mailer costs, less $750 in website costs.  For a total profit of $1,750 and ROMI of 1.54x.  Voila, both divisions that participated in the sale, sharing in the sale credit in a fair and equitable way.

POTENTIAL PITFALLS IN YOUR CALCULATIONS

There are many instances that create calculation challenges.  For example, who gets credit for the REPEAT sale—the channel that began the customer relationship, or the channel that got the repeat order?  Here, I would bias the most recent channel, but don’t lose credit for the lifetime value calculations of the first channel.  Or, what happens when the tracking data is incomplete, and you are not sure who should get credit for the sale?  Then take the untracked orders, and allocate them pro rata in the same percentages of the tracked orders.  So, an an example, if your website accounted for 50% of your clearly tracked orders, there is a good chance it represented 50% of your untracked orders, as well.  So, add those untracked orders to each respective tracked channel.  This is as much an art as it is a science, so it will take time to set your rules and optimize them over time.

CONCLUDING THOUGHTS

Hopefully, you now better understand what marketing attribution is, and why it is so important to track:  it helps you to fine tune your ROMI calculations by marketing channel to make sure you are optimizing your marketing spend by channel.  The better you understand your customer behaviors (e.g., touchpoints) with a customer-centric omni-channel mindset, the better you will be able to truly take your marketing efforts to the next level.

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



Wednesday, June 6, 2018

Reflections After a Year in Raleigh-Durham

Posted By: George Deeb - 6/06/2018

As you know, Red Rocket opened an office in the Raleigh-Durham area a year ago.  As I was reminiscing on my life changes over the last ye...


As you know, Red Rocket opened an office in the Raleigh-Durham area a year ago.  As I was reminiscing on my life changes over the last year, I thought it would make for a good blog post for any of you looking to break into a new market, or perhaps considering a move of your own.

RALEIGH-DURHAM VS. CHICAGO, AS CITIES

  • Chicago is one of the most world-class cities, with around 9MM in the metro region, and the business community largely centralized in or near downtown Chicago.  The RDU area, in comparison has 2MM people in the metro market, geographically spread across very disparate cities (e.g., Raleigh, Durham, Chapel Hill, Cary, Morrisville).  The RDU area lacks the identity of being one central city, and the competition between the cities that comes with that.
  • The Chicago economy has a lot of challenges with Cook County and the State of Illinois near bankruptcy, with rising taxes resulting in a leaky bucket of a slowly declining population.  The Raleigh-Durham area, on the otherhand, is exploding.  The population is forecasted to approximately double to 3.5MM over the next 20 years, creating new tax revenues.  Both Amazon and Apple are giving Raleigh a serious look for adding tens of thousands of jobs in the region, with new second headquarters locations.
  • Chicago is a pretty diverse city in terms of industries served, including companies the technology, advertising, financial, retail, manufacturing, hospitality, consumer products, aerospace and other industries.  The Triangle area is very deep in technology and life sciences, as their primary industries served. And, the technology here is much more B2B facing, with a much smaller B2C community.
  • The pace of business is a lot faster in Chicago, with a bigger sense of urgency to move at light speed.  People moving to the Triangle area, often do so to create a better lifestyle.  So, a lot less late nights and rush to get things done quickly in the area.  Which can be a good thing, or a bad thing, depending on your perspective.

RALEIGH-DURHAM VS. CHICAGO, AS STARTUP ECOSYSTEMS

  • Chicago is a much more mature startup ecosystem, built over decades.  You have seen serial entrepreneurs build one successful startup after another, and reinvesting their "winnings" from their prior companies, back into the ecosystem with their next companies, spreading equity deep and creating hundreds of millionaires in the process.  Chicago has clear leadership propeling the ecosystem forward, in terms of what it wants to become in future years, and is flush with capital from investors across all stages of investment.
  • The Triangle feels like Chicago about 10-15 years ago.  It has all the ingredients to make for a successful startup ecosystem, with a lot of key players in town trying to take the region to the next level.  But, the region is desperately short on capital, and needs more funds in town to support the local startups.  And, only a handful of entrepreneurs have built unicorn scale companies, with equity largely concentrated with the founders, many of which have not reinvested their "winnings" back into the startup community.  For this reason, many of the successful startups, typically sell much earlier in their growth curve, than their Chicago counterparts, and include a lot more "first timers".
  • Both markets have world-class universities to lean on for talent and research innovation.  Chicago with greats like Northwestern and the University of Chicago. And, the Triangle with greats like Duke, North Carolina and North Carolina State.
  • Both markets are equally conservative, not wanting to make mistakes with their venture capital investments.  Both markets equally unlike Silicon Valley with their "failure is a badge of honor" mindset, not afraid to swing for the fences on long shot game-changing ideas that may explode to success, or miserably flame out.
  • Chicago invests about 2x the amount of venture capital into startups than the Triangle area does each year, most of which into the technology industry.  Raleigh-Durham splits its investments between the technology and life sciences industry.  So, that means there is about 25% of the capital going into tech startups in the Triangle area, as compared to Chicago.
  • Both markets have equally warm and welcoming members of the startup ecosystem.  I had no trouble meeting about 200 key influencers in town over the last year, all willing to welcome me to the market and offer whatever assistance they could.  Just as easily as I could in Chicago.

MY PROFESSIONAL LIFE

  • I typically like to work with growth stage B2C companies.  Those basically don't exist here in any material quantity.  Many of the B2C startups that have to gotten to that point, are sold beforehand.  So, it is like looking for needle in the haystack for B2C.  But, there is plenty of B2B here to keep me busy.
  • I am loving running our newest acquisition, Restaurant Furniture Plus.  I am glad I was able to find a good business, that was not in the region, that could easily be managed virtually from here.  It is so much fun building another business of my own, in addition to my Red Rocket work.

MY PERSONAL LIFE

  • I moved to a bigger, newer home for half the price of what I was paying in Chicago.  For example, my real estate taxes dropped from $20,000 to $5,000 a year.  So, I love the cost of living advantages, for largely the same nice suburban lifestyle I left behind.
  • Our neighbors are all friendly and welcoming.  We live in the Cary area.  So, there are a lot of transplants from the north, like us.  Both regions lean liberal, politically (which is an outlier within the more broadly conservative state of North Carolina).  And, both regions are very diversified, ethnically and racially.  The people are down to earth here, and less concerned with competing for material things.
  • Because the population is growing so quickly, the schools are having a hard time keeping up with the growth, which creates overcrowded classrooms and constant redistricting as they add new schools, in many areas.  But, overall, I think the education experience is actually equal or better to what we left behind, forcing the kids to compete on a bigger stage, sooner than they normally would have, with less hand holding in the process.  We also like how much more diverse the schools are, more representative of the real world.
  • Chicago winters were so depressing--six months of grey, cold and snow.  I love the warmer climate here.  Winters rarely have high temperatures below 50 degrees and the sun is always out.  Which means I can workout outside year round.
  • The Raleigh-Durham area is surrounded by a lot of great roadtrip opportunities with the kids--two hours from the ocean, three hours from the mountains, four hours from Charleston or Washington DC, etc.  So, we are loving the close proximity to a lot more great weekend trips.  Chicago was largely an island of itself, with not much to do within a few hours of the city.


CONCLUSION
  • Both cities have so much to offer.  Chicago a world-class city, and the Triangle a world-class lifestyle.  I love both for very different reasons.  And, startups can succeed in both regions, with a supporting ecosystem.  I am very excited to see how Raleigh-Durham evolves in the coming decade as all the new people and companies move into the region.
  • Both cities are ripe with terrificly skilled people to work with, across all needs of the community (e.g., entrepreneurs, lawyers, accountants, bankers, investors, accelerators, community leaders).  So, you can't go wrong professionally or personally.  I am glad we have a presence in both markets.

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


Friday, June 1, 2018

To Find the Holy Grail of Product-Market Fit

Posted By: George Deeb - 6/01/2018

Every entrepreneur believes they have the product that is going to revolutionalize the world, worthy of venture capitalists bathing the...




Every entrepreneur believes they have the product that is going to revolutionalize the world, worthy of venture capitalists bathing them in piles of cash to achieve their dream. But, venture capitalists don’t back products; they back winning business models. And, winning business models are anchored by companies that have the potential to generate lots of revenue with easily scalable, repeatable and profitable sales and marketing strategies. And none of that will be truly determined until you successfully test and optimize your product-market fit with potential customers. This post will help you learn exactly how to do that.

Read the rest of this post in Entrepreneur, which I guest authored this month.

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


Thursday, May 24, 2018

Lesson #293: Don’t Be Afraid of Hiring Former CEOs as Employees

Posted By: George Deeb - 5/24/2018

The common mistake that most entrepreneurs make when setting up their management team is filling it with people that they feel are easi...




The common mistake that most entrepreneurs make when setting up their management team is filling it with people that they feel are easier to control or won’t make them look stupid.  That typically means an older, former CEO would never get a reasonable look as a direct report into the CEO of most early stage companies.  But, is that fear justified?

WHY MOST ENTREPRENEURS TYPICALLY AVOID HIRING FORMER CEOs

First, their inferiority complex kicks in.  I don’t want a former CEO to come in and identify all my shortfallings, or tell me how to do my job.  Second, they think there must be something wrong with the candidate.  Why would a former CEO be interested in this non-CEO position?  Third, they think the former CEO likes to manage others, and won’t get his or her hands dirty rolling up their sleeves with the execution work that is required.  Or, lastly, they simply conclude that an older person, simply doesn’t have the energy to put in the work required at an early-stage startup.

WHY THAT IS THE WRONG PERSPECTIVE

My immediate reaction:  that is rubbish.  Yes, there may be some candidates that could validate the above hypotheticals.  But, in recruiting, there is never a “one size fits all” perspective, as everyone is truly different, and should be assessed on an individual basis.  Have confidence in yourself, to keep your new hire in check.  Maybe the CEO just prefers the marketing tasks, and has no problem focusing on one department.  Maybe that candidate likes getting early stage businesses off the ground, and has no problem putting in the long hours required.  Don’t forget, there is only room for one CEO in a company at a time, so when CEOs are looking to make a move, they may have no choice but looking at other executive positions if the right CEO positions are not open.

WHY PAST CEOs CAN BE GREAT HIRES

First of all, only a CEO truly understands all the different areas of the business, and how they work together.  So, for example, hiring a CTO that used to wear the CEO hat, not only understands the needs of the technology department, they also know how those needs impact financial budgets, recruiting, product marketing, etc.  So, instead of having an executive that has lived in a vacuum of one department their entire career, it can often be better to find someone that has a broader vantage point when making decisions.

Secondly, former CEOs are not threats to you, they can be material assets for you.  Your business is bound to go through uncharted waters in your growth curve.  Who better to help you navigate those waters, than someone that has been there and done that before.  So, instead of taking time to assess various routes (with  potentially wasted investment dollars), now you can confidently move much faster and waste less “experimenting dollars” in the process.

Thirdly, with lots of CEOs being a jack-of-all-trades, they are great utility players to put out fires as needed in other areas of the business, for which they were not originally hired.  Maybe your COO just quit, and he or she can fill in on that role until a new person is hired.  Or, maybe your head of HR is struggling with creating the right culture or dealing with lots of employee turnover, and this person can help share how they solved those same problems in their last company.  Former CEOs often have lots of tools in their tool box, to help you fix whatever needs fixing.

WHY YOU SHOULDN’T BE INTIMIDATED BY FORMER CEOs

Whose problem is it if you are worried about being intimidated by hiring a former CEO?  Yours!!  Hiring a former CEO doesn’t mean you are losing control.  You are still the boss!  Be confident in yourself and your decision making, just as before.  Only now, you have someone with experience in the office that can help you toss around new ideas . . . not hurt or impede your efforts.  They aren’t here to make you look stupid or take your job, they are here to help you.  And, if it doesn’t work out, you can always make a change down the road.  Remember, always hire people smarter and more experienced than you are.  If you are the smartest person in the room, you have a problem!!

CONCLUDING THOUGHTS

To be clear, I am not saying there isn’t any justified merit to the entrepreneurs’ concerns raised above.  Those concerns are often very real for several candidates you will meet.  But, that doesn’t mean those concerns should prevent you from interviewing other candidates, who can impress upon you that those concerns are nothing to worry about.  And, more importantly, can impress upon you that you are hiring somebody with the proven skillsets who can help you take your business to the next level, having done exactly that, in a prior company.  So, don’t be afraid of hiring someone smarter or more experienced than yourself . . . that is the holy grail of hiring, when you can find them.

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



Saturday, May 5, 2018

5 Cheapest-to-Most-Expensive Options for Marketing at Trade Shows

Posted By: George Deeb - 5/05/2018

If you are a B2B marketer, industry trade shows are often the ideal meeting place to network with your industry peers, all in one centr...




If you are a B2B marketer, industry trade shows are often the ideal meeting place to network with your industry peers, all in one central place. So, incorporating trade shows into your marketing plans is often a terrific way to get in front of your target customers.  There are many ways to get the word out about your company at trade shows, with varying degrees of cost. Here are the top five options to consider, in order of cost, from least expense to most expensive.

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

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


Wednesday, April 25, 2018

Lesson #292: Should You Clone Yourself When Hiring?

Posted By: George Deeb - 4/25/2018

Come on, we have all thought it as entrepreneurs, at one point or another in our careers:  “I just wished I could clone myself in findin...



Come on, we have all thought it as entrepreneurs, at one point or another in our careers:  “I just wished I could clone myself in finding new employees for my business.  Nobody works harder than me.  Nobody is as smart as me.  I don’t trust anybody to make decisions or manage teams better that I do.”  Sound familiar?  But, is cloning yourself really the right solution for your hiring goals?  There are clear advantages and disadvantages of a strategy like this, so you will need to figure out if cloning yourself will help or hurt your business, based on your business’s specific needs.  Read on.

WHAT EXACTLY IS CLONING YOURSELF?

Any of you fans of the Alien movie series?  Remember in the fourth installment, Alien: Resurrection, when they manufacture a clone of Sigourney Weaver’s Ellen Ripley character 200 years after her death (from DNA samples of her blood saved in storage), to go kick some alien butt again?  It is pretty much that, only for yourself, while you are still alive, building an army of lookalike “Yous” to go kick some competitors’ butts.

HOW DOES CLONING MANIFEST ITSELF IN YOUR BUSINESS?

Your clones are typically identified by you, personally or through your direction of your HR teams, during your recruiting process.  First, through the job descriptions, with every bullet point sounding like you were actually describing yourself.  Second, through the interview process, with you assessing every candidate as “is this person exactly like me”?  And, third, through the onboarding process, with you training your new “Mini Me” (think Austin Powers), to do the job exactly the way you would do the job.

THE ADVANTAGES OF CLONING YOURSELF?

There are many good reasons to try and clone yourself during your hiring process.  Looking for another similar personality that will fit with yourself and the team culture you are trying to create.  Looking for someone with exactly your same skillsets, that you trust to do the job required and potentially replace you down the road as your succession plan.  Looking for someone who is an optimist on the prospects for your business and can cheerlead that vision to your team with the same fervor and passion that you would.  As a few examples.

THE DISADVANTAGES OF CLONING YOURSELF?

For as many reasons you think cloning yourself is a good idea, I can envision an equal number of reasons cloning yourself could actually be a bad idea.  Maybe you don’t need a “glass half full” optimist like yourself, that is going to tell you everything you want to hear.  Maybe you need a “glass half empty” realist, who will bring a sense of caution to your investment decisions.  Or, you may need a similar “A-Type Personality” to lead your sales team efforts, to help jazz up potential clients.  But, maybe a “B-Type Personality” may be a better fit to manage your more introverted team of technology developers.  Or, why hire someone with your exact same experiences or vantage point, because maybe someone else can help you better identify a better process or avoid known potential pitfalls based on their different past experiences.  As a few examples.

WHAT IS THE RIGHT PATH FOR YOUR BUSINESS?

To me, the decision whether or not to clone yourself comes down to a couple key things.  First of all, what the business needs to be successful should outweigh everything else.  Let’s say you are hiring a head of finance, and one candidate has a dream resume and a track record of proven success for the position, but perhaps the personality is not as outgoing as yourself.  But, another candidate has an okay resume, but a great personality fit.  At the end of the day, who do you trust more to “have their hands on the steering wheel of your business”?  The person that has solid experience and references, or the person that could do the job, but you would rather have a beer with?  In a perfect world, you want everything you are looking for in one candidate.  But, more times than not, you will only get 80% of what you are looking for in one candidate, and you have to be careful to prioritize what of the 20% they are missing is going to do the least damage.

Secondly, it comes down to what do you need personally.  If you did a critical assessment of yourself, are you sure you really need a bunch of “Yous” running around the office.  What do people say about you in your employee reviews from your peers?  Are you creating more chaos than calm?  Are you pulling the company in different directions all the time, without a clear focus?  Maybe what you really need is the opposite of yourself.  You need your Anti-Me to help keep yourself organized, on plan and in check.  It really comes down to what you see as your personal strengths and weaknesses, and filling in any voids in your skillsets.  And, better yet, maybe it is less what you think about yourself, and more what your team thinks about you.  So, man up, ask the tough questions, and get honest feedback from your peers, when needed.

CONCLUDING THOUGHTS

I have tried to present both the plusses and minuses of cloning yourself in your business, and gave examples of when to do it, when not to do it.  But, if you forced me to side one way or the other on this topic, with all other things being equal, if you can find people that share your same passion, vision, energy, work ethic and skillset, good things should surely follow.  But, if you can’t find more “Yous”, that can be perfectly fine too, as greatness comes in many different shapes and sizes, and having new ideas and fresh perspectives can be equally invigorating for your business.


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



Tuesday, April 17, 2018

Lesson #291: Properly Classify 1099 Contractors vs. W-2 Employees to Avoid Legal Troubles

Posted By: George Deeb - 4/17/2018

Back in Lesson #30, we talked about when it is appropriate to hire employees vs. contractors .  But, often times, small businesses try ...




Back in Lesson #30, we talked about when it is appropriate to hire employees vs. contractors.  But, often times, small businesses try to permanently take the contractor path instead of hiring employees, to try to permanently avoid paying employee benefits and payroll taxes.  That can get you into a lot of trouble.  This post will help you know when staff members will legally be classified as employees vs. contractors in the eyes of the IRS, to help you avoid costly penalities down the road.  To help me with this post, I solicited the input of Maria O. Hart, a member of the employment litigation, trials, and appeals practice group at Parsons Behle & Latimer.

For most small businesses, labor is the biggest line item on their P&L statement — and it can be a vicious circle of needing employees but not being able to afford them. These businesses need employees to scale (and, in some cases, survive), but the true cost of an employee can push even the lowest paid workers off the budget. When that happens, business owners turn to 1099 contractors to fill in the blanks. But expecting these contractors (workers who aren’t entitled to the same benefits as full-time employees) to act as employees, and be treated as such, could result in a major Fair Labor Standards Act (FLSA) violation or, at the very least, some substantial tax fraud accusations.

So, how can you comply with federal labor laws? It starts with knowing the difference between 1099 contractors and W-2 employees. It’s not black and white, but there are a few ways to determine a worker’s correct classification, as you can read at this link at the IRS website and the summary chart below from Law Gives:



 Ask yourself, do they work on site? Do you control their schedule? Do they use the company’s tools and equipment to get their job done? Do you discourage or prohibit them from taking on more jobs or other jobs in your niche or industry? Do they work more than 30 hours per week? If you answered yes to one or more of the above questions, you might need to consider that contractor a full-blown employee.

Misclassifying an employee as a 1099 contractor could land you in some hot water with the U.S. Department of Labor, or you may find yourself defending against an FLSA lawsuit from an unhappy employee or contractor — after all, misclassification lawsuits are on the rise. That’s because the line between employee and contractor is blurrier than ever. More and more workers are able to work remotely using their own devices and equipment. It’s a technological loophole the FLSA’s creators couldn’t have imagined when they drafted the statute in 1938 — and more business owners are falling prey to this deadly sin.

Avoid a potentially catastrophic lawsuit by classifying your workers correctly from the start and reclassifying them as needed. Know what your workers are doing and how they’re doing they’re assigned duties. Circle back frequently and perform annual audits to ensure everyone is classified as they should be. When in doubt, put yourself in their shoes. Would you feel taken advantage of if you were in their situation? And, of course, always check with your attorney or employment counsel.  Because if you don't, the price could be steep, including penalty payments plus unpaid past taxes all coming due obligations of the business and its owners (even if they think they are protected from limited liability company structures).

Thanks again, Maria, for your help with this post.  If you have any further questions on this topic, feel free to reach out to Maria at  208-562-4893 or mhart@ parsonsbehle .com.

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


Friday, April 6, 2018

5 Essential Media Buys for First-Time Marketers

Posted By: George Deeb - 4/06/2018

Getting the word out about your startup business is always a challenge. But at least there are a handful of techniques you can focus on...




Getting the word out about your startup business is always a challenge. But at least there are a handful of techniques you can focus on to jump-start your early marketing efforts, all of which are available on a cost-effective basis.

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

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


Friday, March 30, 2018

Lesson #290: Too Many Meetings Suffocate Morale & Productivity

Posted By: George Deeb - 3/30/2018

Early stage companies have many demands on an employee’s time.  From getting the product built to marketing for new customers to getting...



Early stage companies have many demands on an employee’s time.  From getting the product built to marketing for new customers to getting the capital lined up, it is a never ending battle to fit in all that work in a limited amount of time.  But, what I often see is productivity gets squeezed by early-stage entrepreneurs scheduling way too many meetings, which gets in the way of employees having enough time to do their actual jobs.  And, when productivity slows, the company’s bottom line suffers and employees start looking for the door in frustration.  Let me explain further.

Why So Many Meetings Get Scheduled

There are many reasons to schedule a meeting.  Some are recurring meetings between bosses and their direct-reporting employees, for weekly check-ins and collaborative needs of the team.  Some are one-off meetings for non-recurring items, like annual strategic planning, putting out a client fire or team building events.  But, most get set because entrepreneurs are inexperienced and don’t know any better.  That is largely related to their not trusting the team to do their jobs or their needing to control every single decision that is made.  It is this last category that is the killer.

The Negative Impact on Employees

Employees get frustrated when a couple things happen around meetings.  First, they think it is a waste of time, and they are not even sure why they are needed in the room (so don’t invite everyone to every single meeting, only invite the ones that actually need to be there).  Second, they get frustrated they are sitting in a meeting, and not sitting at their desk getting their actual work done in a more timely fashion (so maximize their time at their desks, not yours).  Or, third, they get offended that they are not trusted to do their job, by a boss that feels they need to keep tight oversight on all of the decisions (so empower your people to make decisions without you).  All of this is a recipe for a disaster, often having employees looking for the exit, where the resulting employee turnover can be crippling to a young company needing to race full steam ahead, as quickly as possible.

Case Study

I was once getting started as an interim executive at a new client and was given a team of people to manage.  On my first day I was handed a calendar of all the weekly meetings that I needed to participate in with my team.  I looked at the long list and realized that about 40% of my time was in meetings, many of which that I deemed as unnecessary, a legacy process from a prior manager.  I didn’t have two days a week to lose in getting my job done.

So, I pulled the team together and asked what each of the meetings were trying to accomplish, and we agreed we didn’t need as many, merging many of the meetings into one.  And, I asked each of the employees to look at their own personal schedules, and to cut out any unnecessary meetings.  One of those persons said they were being included in meetings that were eating up a whopping 80% of his time each week.  I asked how he got any work done at all?  He said he didn’t!!

He said, it was mandatory that he be in those meetings, and he didn’t have a choice.  To which I replied he need to cut his meeting time down to a cap of 20% of time, shedding 75% of his meetings.  He turned white as a ghost saying that was impossible.  I dug in and said it was not only possible, but required by the end of the week.  After a bunch of rethinking his time, he prioritized only the most important meetings, cut his meeting load down to the target, and actually started getting his own work done, reversing years of complaints that he was the bottleneck to others in getting their work done.

How Many Meetings Should Be Scheduled

To me, I try to cap my recurring weekly meetings at 20% of my time.  One one-on-one meeting with each of my direct reports, one meeting with the person managing me and one meeting with my peers to collaborate on needs between departments.  That leaves plenty of other time for the one-off meetings that come up during the normal course of business, again which should be capped within this 20% framework.  This keeps me efficiently working on the most important work that needs to get done, and keeps my team efficiently working on their most important work.  And, when people start checking projects off their to-do list, they feel a sense of accomplishment, the business moves forward and a healthy vibe is maintained in the office.

Flat Organizations Thrive Best

So, my appeal to all you entrepreneurs, don’t suffocate the life out of your companies with too many meetings.  Hire smart people, trust them to do their jobs, and get the heck out of their way, so they can do the jobs they were hired to do.  You don’t have to micro manage every single decision.  Empower your team to make their own decisions in a flat organizational structure.  Even if they make mistakes, that is fine, they will learn from them.  But, the team will be moving twice as fast at getting things done, than if they were burdened with a bunch of meetings.  And, as we know, speed matters with startups.

Concluding Recommendations

Challenge yourself and every employee in your company to cap their recurring weekly meetings at 20% of their time.  That is one day a week, or 8 hours in a normal working day.  That is up to 16 thirty-minute meetings they can schedule, so plenty of slots to work with.  Yes, I said thirty minutes, efficient meetings don’t need to be longer than that.  So, that means come to the meetings organized with a set expectation on how they are going to be run each week.  And, if there is nothing new to update on this week, there is nothing wrong with cancelling meetings.  Give your team the flexibility to only do meetings that they feel are absolutely needed.

As you can probably tell, I am not a fan of scheduling too many meetings.  It often leads to combatting issues like analysis paralysis, management by committee, micromanagement, disgruntled employees and an overall loss of business productivity.  So, instead, take more of a hands-off role in managing your team, kick your business into the next gear and start getting all those unnecessary meetings off of everyone’s calendars.  You will be shocked how much more work will actually get done!!


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




Wednesday, March 7, 2018

Lesson #289: Our First Acquisition--Red Rocket Acquires Restaurant Furniture Plus

Posted By: George Deeb - 3/07/2018

As many of you know, Red Rocket has been looking for a business to acquire for the good part of the last two years.  I previously wrot...





As many of you know, Red Rocket has been looking for a business to acquire for the good part of the last two years.  I previously wrote about all the challenges and hard work you can expect when doing M&A related projects, so I won't repeat those. But, I am excited to announce, Red Rocket closed our acquisition of Restaurant Furniture Plus last month, in partnership with Kessler Warshauer Ventures.  And, what a wild ride it was, getting our first acquisition to the finish line.  Let me elaborate with a few learnings from this process for your educational benefit.

OUR OVERALL M&A PROCESS

In the last two years, we looked at over 260 businesses for sale.  We made offers on around 20 of them.  That is a lot of hours invested to simply find 8% of them that were interesting enough to make an offer.  From that list of offers, we agreed to financial terms, and started a formal due diligence process with around 6 of them.  And, we got one to the finish line, successfully unscathed through the due diligence process and negotiations of the formal purchase agreements.

IT'S NOT A DONE DEAL, UNTIL IT'S SIGNED

At one point or another, over the last two years, I would have thought, with 80% certainty, that I was approaching the finish line towards acquiring a pet supplies, beauty products, candy maker, auto leasing, educational toys, and fitness video business.  But, there are many reasons why these deals did not close.  We learned something bad during due diligence.  The seller gets scared away by the agreement terms.  The seller tries to increase the price, after agreeing to a lower price in the letter of intent.  And, in one case, the seller liked our plan so much, they decided not to sell and try to grow the business themselves with our plan!  So, the deal is never done until the agreement is signed by both parties, as the process is laden with many potential pitfalls along the way.

OUR CRAZY MONTH OF NOVEMBER

Normally, serious conversations are pretty well spaced out.  So, with 20 offers made in two years, a normal spacing is around one big deal a month.  But, in November 2017, it was insanity.  We had six different deals that were all in competitive bid situations that we needed to pick one to focus on, and risk losing the other five deals in the process.

We originally passed on Restaurant Furniture Plus, picking a pet supplies business doing creative Facebook marketing, with a very large customer list, that was being sold at a very attractive purchase price.  But, we learned in due diligence that their Facebook marketing economics were deteriorating, the customer email list was really very low quality and with a declining profit base, the purchase price multiple of earnings was increasing by the day.  So, we passed on that deal in the 11th hour of negotiating the agreement.

We went back to Restaurant Furniture Plus and one other business to see if they were still available.  But, they were already under letter of intent, and off the market.  So, we focused on a candy seller on Amazon, that we liked their proprietary branded product line and their attractive purchase price.  But, when we learned their private label product was really branded candies by other manufacturers, that the purchase price did not include inventory (taking the purchase price way up) and there were scores of negative product reviews online speaking to the quality of the product, we got nervous.

At that same time, Restaurant Furniture Plus called back saying they were unhappy with their buyer, trying to change the purchase price last minute, and asked if we were still interested.  We always liked this business, and decided to shift direction and strike the deal with them.  So, I guess the third time of talking with them, really was the charm!

WHAT WE LIKED ABOUT RESTAURANT FURNITURE PLUS

As a lesson for what to look for in a good acquisition, Restaurant Furniture Plus really had it all.  They were serving a big market with a clearly differentiated service offering.  They had terrific unit level economics, with a high return on marketing investment.  They were growing over 67% per year, with a 50% conversion rate on leads, and a loyal repeat customer base making up over 50% of their orders.  It was a lightweight fulfillment model, with very little working capital needed, as their suppliers dealt with inventory and warehousing needs.  The founders were really smart and impressive, with terrific procedures in place, making it simple to transition.  And, it was a way to satisfy my marketing itch, with a service-driven B2B business model that was not going to go head-to-head with Amazon in the B2C space.

OUR THOUGHTS ON THE E-COMMERCE SPACE

With Amazon controlling 65% of all shopping searches, it is really hard to compete with their marketing muscle and pricing power.  Especially with Chinese manufacturers starting to sell direct on their website at wholesale prices (re-read this post about this threat to U.S. ecommerce companies).  So, to be successful in e-commerce, in the era of Amazon and Alibaba (re-read this post about Ali Express's threat to U.S. ecommerce companies), we think you need a couple things.  First, a proprietary branded product or service that you can call your own (preferably not manufactured by overseas suppliers selling the same product to others or themselves on Amazon).  Second, you need to find a category that Amazon isn't going to want to dominate themselves.  Restaurant Furniture Plus offered us both of those things.

KEY LEARNINGS ABOUT SMALL CAP M&A

As for a few learning to share about the small cap mergers & acquisition market, it is materially different than the middle or larger cap markets.  First of all, the entrepreneurs have typically never sold a business before, so they are new to the process, and unknowingly create a lot of friction to getting a deal done (e.g., having never seen a purchase agreement before, which can be scary to them).  And, secondly, they are typically not getting great advice from often less-experienced business brokers (which was not the case with Restaurant Furniture Plus, who was instrumental to helping us getting the deal done).  So, do your homework before engaging a business broker, to make sure they are really good at getting their clients to the finish line.

Compare this to bigger companies.  When a business is put up for sale, it is really for sale with low odds the owners change their minds (so low odds  you are wasting time, spinning your wheels).  And, the investment bankers are much more sophisticated at bridging the gaps and getting both parties to agree on deal terms.  Not to mention the stability and professionalism that comes when buying later stage, higher cash flow producing businesses that have their documents in place, which makes due diligence much easier.  It was frustrating for me being a former big-bracket investment banker at Credit Suisse, running through a process like this.

KEY LEARNINGS POST CLOSING

Make sure you have all your ducks in a row in how you are going to handle your post-closing training and transition period.  There is a LOT to learn in your first 30 days, if you are lucky enough to get that amount of time from the seller.  Make sure you have the right list of topics to get trained on.  And, the right list of technologies and other assets that need to be quickly transferred.  And, make sure the founders are on board to assist as consultants for some period of time after closing.  Preferably, a seller who is flexible to work with you when things ultimately go wrong when trying to transition systems, bank accounts, credit cards, supplier accounts, payroll processing, etc. on a flip of the switch.  Don't plan on running the business for the first month, as you will be knee deep in transition items.  And, the smoother the transition, the less opportunity something falls through the cracks to create problems for you down the road.  And, the first thing to do--hug all your new employees that you plan on retaining, with material incentives, as they will ultimately dictate your success or failure.  You don't want them looking for the door, the minute you arrive, or else you are toast as all their institutional knowledge walks out the door.

OUR PLAN FROM HERE

So, we are obviously excited to have our newest company in our portfolio.  And, I am personally excited to get back into a CEO role again, alongside my partner on this deal, Art Kessler.  But, Red Rocket will continue to be business as usual.  As you have business needs, continue to bring them our way, and our team will be happy to help.  I will do my best to keep the new blog posts coming on a regular basis.  We very much look forward to this new adventure.  And, if you know any restaurant chains looking to source new furniture, you know where to send them!!


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



Friday, March 2, 2018

How to Calculate What's Working When Marketing on Multiple Channels

Posted By: George Deeb - 3/02/2018

Long gone are the days of blindly spending marketing dollars without a data first mindset to clearly calculate and prove you are driving ...


Long gone are the days of blindly spending marketing dollars without a data first mindset to clearly calculate and prove you are driving a return on your marketing investment (your “ROMI”). This previously linked post demonstrates how to track your ROMI at the 30,000 foot view, based on your overall business revenues vs. costs, or at the unit level of an average transaction. But, if you want to really fine tune your efforts to maximize your ROMI, the best marketers turn to marketing attribution tools to help optimize marketing within every sub-channel of their business. Let me explain.

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

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


Monday, February 12, 2018

Lesson #288: How to Build a Startup Ecosystem

Posted By: George Deeb - 2/12/2018

I have previously written about Chicago’s exploding startup ecosystem .  But, startup ecosystems are popping up all across the country a...



I have previously written about Chicago’s exploding startup ecosystem.  But, startup ecosystems are popping up all across the country and the world, with varying levels of success.  I wanted to talk about the mix of ingredients that are needed to make a startup ecosystem thrive over time.  So, leaders in your local communities can have a blueprint with which to follow to propel your startup ecosystem, and hopefully, your own success in the process.

THE MOST IMPORTANT INGREDIENTS

Access to Great Ideas.  Great ideas turn into great businesses.  Think building “platforms” over “features”, or “wisdom” over “widgets”, or “painkillers” over “vitamins”.  Startups are hard in all cases, might as well be working on really big ideas.

Access to Talent.  Great entrepreneurs, preferably serial entrepreneurs that have learned from prior mistakes, are ultimately going to dictate the success of their businesses, and in turn, the success of the ecosystem.

Access to Capital.  The best ideas and the best talent are useless without the capital to fund their vision.  If that capital is local, great, as investors like to invest close to home.  If that capital is located in another city, that is also great, provided investors in those towns are willing to deal with travel (which they often don’t).  It is critical that the capital is available to embrace each stage of development, from seed to early to growth stages of your business.  Having seed stage, but not Series A or Series B stage, is a recipe for a likely “flame-out” of that startup, when they hit the wall in that level of their growth.

Access to Customers.  To me, this is the most important piece.  Customers drive revenues.  Revenues impress investors.  Investors fund growth.  Growth leads to big exits.  Big exits leads to a robust ecosystem.  This often means tight partnerships between early stage ideas with later stage companies to buy those services (ones who are supportive to helping the local startup community).

THE KEY PLAYERS

Entrepreneurs.  Duh, you need experienced teams running the startup businesses.  With an equal balance of needed skillsets from strategy, to marketing, to technology, etc.

Mentors.  First time entrepreneurs need to be able to ask questions of experienced leaders, to help get them up the learning curve, without making the same mistakes of their predecessors.

Investors.  Whether these are individual angels, organized angel networks, venture capital firms, private equity firms, family offices, corporations or other funding sources doesn’t matter.  What matters is the money is flowing from whoever can cut the checks for that stage of a business’s growth.

Incubators.  This category picks up everything from shared office spaces for startups, all the way up to formal startup accelerator programs with formal educational curriculum.  The point is, entrepreneurs can learn from each other, when they are in close proximity to each other.

Universities.  A lot of the biggest business ideas are born from the research inside of universities.  Having a healthy technology transfer process for these ideas to be monetized by business leaders is key.  And, university professors need to know, it is perfectly acceptable to try and monetize their ideas, at the same time they are trying to win a Nobel prize (which many don’t agree with).

Corporations.  The big companies in town help in many ways.  They invest through corporate venture capital funds.  They become potential customers of new local startups.  They have pain points of their own, that a local startup can build and solve for them.  They are often the exit for startups that have gotten large in size. You need a really healthy interaction between the startups and corporations working towards a common goal.

Associations/Events.  There are many groups in town that help organize and propel the ecosystem.  This could be industry trade associations, venture capital associations, entrepreneur networking groups, chambers of commerce, economic development groups, etc.  Leverage these groups of like-minded people at their big annual events or leverage their tools (e.g., job boards on their websites).

Government.  Whether it is at the city, county or state level, your local government can play a very important role.  That could include providing tax incentives for startups to launch in their city, tax free profits on any capital gains in a startup (to help stimulate investment), passing ecosystem friendly laws (like free access to the internet), or establishing venture capital funds with a portion of their treasury.

Service Providers.  The lawyers, accountants, bankers, recruiters, agencies, advisors, and consultants in your community all play a role.  The more experienced they are with startups, the better advice they will bring to the ecosystem.

OPTIMAL OWNERSHIP & ECONOMICS

Spread Equity Deep.  Most entrepreneurs concentrate equity into only a couple people at the top of the organization.  It is better to spread equity deep into other employees, as well.  Why?  Because if employees have a vested interest in the business, they will work harder towards hitting the goal.  And, when the company sells for $1BN, it creates hundreds of multi-millions that have new-found funds to start their next startup, powering the ecosystem to the next level.

Serial Exits.  Selling companies for big returns impress investors.  But, often times a first time entrepreneur, will see a $50MM sale as “big money”, and sell too early to put some cash in the bank for a rainy day.  But, a second or third time entrepreneur has already banked cash from their first exit, and now they are in a position to “roll the dice”, walking from a $50MM sale, in hopes of a $500MM sale down the road.

Reinvest Returns.  Money that simply goes into the bank account, or into safe real estate investments, does not help the ecosystem.  The money needs to round trip back into the community.  So, if you sell for $100MM, hopefully a good chunk of that is funding other startups in the ecosystem.

Shoot for the Moon.  Many investors are simply too conservative for a startup ecosystem to be successful.  Silicon Valley prides itself on “failure as a badge of honor”, as the lessons learned in one bad startup, will apply to the next good startup.  If you are too conservative, trying to cross potential “strikeouts” off your list, you are most likely crossing off potential “home runs” at the same time.

IN GENERAL

It Takes Leadership.  It takes a couple cheerleaders at the top that are going to “plant the flag” and have everyone rally around those goals for the community.  Preferably, somebody that can put their money where their mouth is, and can lean on their deep rolodex of key relationships in your region (e.g., the governor, the mayor, the local billionaires).

Leverage Local Strengths.  Figure out what your region does better than others, and focus your efforts around those industries or skills.  For example, New York would be a great place for financial startups and Los Angeles would be a great place for entertainment related startups, given the high concentration of experts in those areas.

It Requires Startup Density.  It will be really hard to build a robust community in very small towns.  There simply isn’t enough activity, breadth of industries or depth of expertise in any one industry to be effective.  So, either live in a town big enough to support an ecosystem, or prepare for a lot of travel between a bunch of smaller regions that have been aggregated into one community.

Collaborate Across Regions.  Don’t think a startup ecosystem is isolated to your city.  The best startup ecosystems feed off each other.  Think about the collaboration happening between New York and Boston startups, given their close proximity to each.  Or, between Detroit and Germany, because they both serve the auto industry, as examples.

Publicity Helps.  The rest of the country needs to know what you are up to.  Less about your desire to build an ecosystem.  But, more about the venture capital flowing into your region, or big exits being realized at big valuations.  So, celebrate your successes, and put those success stories locally “on display”, or nationally “on the road”.  That will get investors and talent to want to check it out.

Progress Must Be Measured.  Like with any business endeavor, you must have good measurement with which to manage it.  Quantify key metrics like the amount capital raised, investor value created, companies formed, jobs created and material exits in your market, and shoot to have those metrics improve year over year.

It Can’t Be Forced.  The community needs to share a common goal.  The goal of building a robust community can’t simply be embraced by a few, to be forced on others; it has to be embraced by everybody participating in the community, for it to be successful.

It Takes Time.  Don’t expect miracles overnight.  Ecosystems are not built in years, they are built over decades.  That is why Silicon Valley’s startup ecosystem is as big as it is; they have literally been working on it since the 1970’s, a fine tuned machine after 40 years of optimization.


Hopefully, you now have a better understanding of what it takes to build a robust startup ecosystem.  You can’t do it by yourself; you must collaborate as a symbiotic community with a shared set of common goals between people that are equally happy helping others, as they are at helping themselves.  Layout the blue print for your city, let it percolate for a couple decades and hopefully good things will come.


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



Friday, February 9, 2018

The Case for Your Startup to Hire Former CEOs

Posted By: George Deeb - 2/09/2018

A common mistake most entrepreneurs make when setting up their management team is filling it with people they feel are easier to contr...



A common mistake most entrepreneurs make when setting up their management team is filling it with people they feel are easier to control or won’t make them look stupid. That typically means an older, former CEO would never get a reasonable look as a direct report to the CEO of most early stage companies. But, is that fear justified?

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

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


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