Lesson #101: Plusses & Minuses of Entrepreneurship

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

THE PLUSSES

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

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

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

THE MINUSES

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

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

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


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

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

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

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Lesson #100: The Definitive Checklist for Startup Success

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

___  A good business idea--"secret sauce" solution to real world problem  (Lesson #1, Lesson #112)
___  A well-thought out business plan and recurring revenue model (Lesson #7, Lesson #78, Lesson #108 and Lesson #132)
___  A large and growing industry, where a big business can be built (Lesson #118)
___  A firm handle on current and future competition (Lesson #19)
___  Defensible barriers to market entry (Lesson #43)
___  An experienced board of directors or advisors (Lesson #12 and Lesson #45)
___  A deep network of colleagues in your startup ecosystem (Lesson #47 and Lesson #85)
___  A motivating and credible CEO (Lesson #14)
___  An experienced and backable start-up team  (Lesson #2, Lesson #27 and Lesson #83)
___  Appropriately compensated employees (Lesson #58 and Lesson #59)
___  Equity in hands of key managers (Lesson #9)
___  An entrepreneurial office culture (Lesson #13)
___  A healthy office environment with work-life balance (Lesson #18 and Lesson #55)
___  A religious focus on putting your customer first (Lesson #33)
___  The right product and pricing strategy (Lesson #20)
___  A profitable and tested "go to market" sales and marketing plan (Lesson #21)
___  Infectious enthusiasm and passion for business (Lesson #50)
___  A clear management focus on what you are building (Lesson #40)
___  Speed to market and knowing when to cut losses (Lesson #71)
___  Disciplined decision making skills (Lesson #87)
___  Flexibility to fine-tune model and navigate challenges (Lesson #8 and Lesson #31)
___  Persistence in goods times and bad (Lesson #29)
___  The right mix of intangibles that investors are looking for (Lesson #86)
___  Market timing and luck (Lesson #3)

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

___  A good mix of the "must-haves" above
___  A sufficient proof of concept based on key milestones (e.g., revenues or visitor traction) (Lesson #122, Lesson #128)
___  Your planned go-to-market strategy tested and profitable (Lesson #120)
___  Meaningful customers under contract who would be solid references
___  A sizable pipeline of customers in the works
___  Key industry partnerships with brand-name marketing partners
___  Clarity you fit the types of investments your target investor makes
___  A fine-tuned elevator pitch, to get their attention
___  A credible "road map" for investor to realize 10x returns within 5 years (Lesson #140)
___  Realistic thoughts on potential exit options and buyers
___  A realistic expectation on valuation to attract capital (Lesson #32)
___  Clear handle on how much money you need, including cushion to last 18 months
___  Logical use of proceeds invested in future growth (not past debts)
___  A debt/equity investment structure that works for the investor (Lesson #109 and Lesson #116)

For this second list, please re-read Lesson #4--How to Raise Capital for Your Startup and Lesson #10--How Best to Approach VC's or Angel Investors.  And, be sure to watch this video presentation I made on How to Pitch Venture Investors.

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

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Lesson #99: The Basics of Direct Mail Marketing

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

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

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

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

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

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

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

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

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

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

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

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

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

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Lesson #98: Securing a Government Contract

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

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

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

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

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

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

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Lesson #97: Securing a Small Business Grant

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

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

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

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

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

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

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Lesson #96: Vertical vs. Horizontal Growth Options

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

VERTICAL GROWTH--DOMESTIC

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

VERTICAL GROWTH--INTERNATIONAL

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

SEMI-VERTICAL GROWTH

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

HORIZONTAL GROWTH--ENDEMIC

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

HORIZONTAL GROWTH--NON-ENDEMIC

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

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

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