Lesson #56: Frequent Legal Questions of Startups

Getting good legal advice, from the very beginning of your startup, can save a lot of unnecessary hassles down the road.  For this lesson, I solicited the input of a great lawyer here in Chicago, Bart Loethen at Synergy Law Group, whose practice specializes in assisting early stage startups.  Below are some frequent questions early stage companies ask of their lawyers, and Bart's high level recommendations for each.

What business structure should I form (e.g., C-corp, S-corp, LLC)?  When building an enterprise, it is usually suggested to form it as an LLC.  An LLC brings all the legal protections of a corporation (e.g,. protects your personal assets if the company is ever sued), but avoids double taxation of the income from the business with flowthrough of the profits of the LLC directly to the shareholders.  That said, if you anticipate raising outside capital from venture capitalists, many of them will require you to form as a C-corporation for them to comply with Section 1202 of the tax code (which is set to expire in 2011, so this matter may become moot).  If a C-corporation is required by your investors, it is easy enough to transition from an LLC down the road.  If a financing is not imminent, the tax savings you will realize from the LLC is typically greater than the legal costs of switching to a C-corporation down the road.  So, more often than not, it is best to start with an LLC. 

The time to use an S-corporation is when you are launching a personal services business (e.g., law firm, ad agency, consulting firm), where you would not have multiple types of partners with different interests and where you do not intend to sell the company because the value is merely that delivered by the founder.  Also, S-corporations allow modest self employment tax savings compared to LLCs.

In what state should I form the company?  The answer to this question is largely around protecting the board of directors from any lawsuits from disgruntled investors down the road.  So, typically, venture backed businesses, or other businesses where the majority of the company is not controlled by a tight group of founders, will form their business in Delaware or Nevada, two states that provide a higher level of protection for the board of directors than in other states.  These protections will help you attract venture capital investors and high-quality outside directors for your board.  If these are not issues to you, there is no reason you cannot form your business in your home state, unless there are tax benefits of forming elsewhere.

How do I protect my intellectual capital? Do I need a patent?  Keep in mind, companies have intellectual rights whether they have a patent or not.  All a patent does is ensures no one else can come up with the same idea and claim it on their own.  The answer to whether or not it is worth the $10K average cost it takes to file a patent application varies on a company-by-company basis.  If you are a life sciences or hardcore technology business where your solution is critical to your business survival, then by all means, it makes sense to file a patent right from the start.  If you are a SaaS or services business, where protecting your process is less important to your survival, you can wait to file a patent until you have more cash flows from revenue, or after you have acheived proof of concept, when you can better afford such fees.  That said, patents are definitely selling points to talk about with investors or other partners.  So, keep that in mind, if you think it will help you close an investment. 

But, even if you have a patent as a startup, they can be very expensive to defend, often adding up to hundreds of thousands of dollars in legal fees, which most startups typically don't have lying around.  So, where you can, look for a patent lawyer who is willing to work on a contingency basis, taking their fees from any resulting awards to the company from their efforts on the back end.

How important are getting Non-Disclosure Agreements signed?  As with patents, you still have intellectual rights if you don't have an NDA in place.  So don't be too worried about sharing your idea with prospective investors.  As a rule, venture capitalists do not want to sign NDA's, and are often insulted by founders that ask them to sign an NDA, as that is not how they work.  So, proceed with VC's without an NDA, understanding there is nothing that stops them from investing in a similar business.  So, don't give away all the company secrets until you are far down the road with them.

But, for strategic partners, it is perfectly acceptable to ask for them to sign an NDA, most typically on their standard form, which your lawyer should review.  Theoretically, a strategic partner prospect is already in a similar business to start, otherwise you wouldn't be reaching out to them.  And, the benefit of an NDA is that it specially lays out your rights with governing rules of what needs to be done with the disclosed information.  More importantly, it proves they had access to the information at a certain point in time, which helps in your defense of your intellectual rights down the road, if necessary.

How should I structure my equity in the business, both for founders and outside investors?  There are too many variables based on your specific situation to specifically answer this question.  So, I will lay out a few things you need to be sensitive to around this topic. 

First of all, it is important that any work done on your business prior to formation, is legally documented as owned by the company at the time of formation.  So, collect key signatures from all founders, employees, contractors, etc. with them agreeing that all work done for the comapny was done on a "work for hire" basis and they assign all inventions to the company.  And, this document needs to be in place for any and all employees and contractors going forward, so no one can ever claim rights to the company's intellectual capital down the road.  This is relevant to equity discussions, so no previous founders or employees that are no longer working with the business, come back looking for equity value down the road after you hit it big.

If there are any co-founders in the business, their shares need to be put on a vesting schedule, earning full rights to such shares over time, in case they quit or die during the early months or years of building the business.  That way there is no confusion on what to do in those scenarios.  And, this document should clearly lay out any transfer restrictions on their equity, how the holder can liquidate their equity, and at what valuation metric, etc.  And, it should consider whether there needs to be multiple classes of stock, based on one founder investing cash or not, needing to get their invested capital returned before anyone else, or any other voting rights that need to be decided, for change in control or corporate issues.

If you are taking in outside venture capital, that opens up a whole new layer of complexity to your capital structure.  An investor will most likely be asking for preferred shares (at the top of the payout pile), with a certain level of liquidity preference (1x-3x return before common shares see any payouts).  And, they will be putting in lots of voting/board controls for themselves, and adding other restrictions on transfering or selling equity, or otherwise.  And, they will be putting in mechanisms, called rachets, that protect them from anti-dilution based on decreases in the company's valuation from "down rounds" down the road.  Way too complicated and way too many options to consider to get into any more detail for this high-level lesson.

So, as you can see, a good lawyer can help you think through all of these issues upfront, before running into any unexpected snags or ugly situations down the road.   So, if you need any futher help from here, and you most certainly will, Bart Loethen at Synergy Law Group has deep experience with startups and his hourly rates are a lot more affordable than those charged by the bigger firms.

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

Lesson #55: Creating a Healthy Office Environment

Back in Lesson #13, we talked about Creating The Right Culture For Your Startup.  In that lesson we talked about different management styles, communications styles and maintaining the proper work-life balance for your employees, to help build morale amongst your team.  Directly related to building morale is your office environment itself.  Nothing can dampen morale faster, than working in an uninviting or dysfunctional workplace.

We have all been inside exciting workplaces, where everybody is feeding off the energy of everyone else in the office.  You get this vibe inside offices like Google, YouTube and Groupon.  These are typically more open floor plans, without high cubicles, without a lot of private offices, where you can see and hear all of the action and buzz of the staff engaging amongst themselves.  These are places where employees are pumped up to come to work each day.  So, it is not coincidental really great startup companies, also have really inviting work spaces, which help them to attract and retain great employees.

We have also all been inside workplaces that are better defined as a "morgue".  These office spaces are typically not well-lit (or lacking windows), where employees are buried in their private offices or behind high cubicles and you can often hear a pin drop in the office.  No employee conversations, no music, no energy at all.  This kind of office space is a recipe for disaster for a startup, as employees will only deal with that type of environment for so long, before they will go stir crazy.  Especially "A-type" personalities that want to get involved with exciting startups.

Now, I am not saying startups need to go spend a ton of money on fancy desks and office build-outs, as that would be foolish.  What I am saying is: (i) locate your office in fun neighborhoods, with good local conveniences that are easy to commute to; (ii) prioritize "edgy" loft buildings with high ceilings over cookie-cutter high rise office spaces; (iii) set up workstations (or folding tables) without high cubicles which shut off employees from each other (impeding upon open collaboration and communication); (iv) make sure there is a good vibe in the office, with background music or otherwise; and (v) set up a room with a TV, video game player or ping pong table where employees can blow off steam, when putting in the long hours (provided these luxuries do not get in the way of their doing their jobs).

If you can find pre-furnished, pre-wired or previously built-out space, that is the best alternative to keeping your furniture, build-out and rental costs at a minimum.  And, if you need furniture or equipment, look for vendors of used furniture to save you a lot of money compared to full retail prices for new furniture or equipment.  And, I wasn't joking about considering folding tables.  iExplore bought all of its first desks at $19 per folding table to stretch our startup budget.

I was in the office the other day of a company trying to reposition itself as a high-flying dot com startup in a major turnaround story.  And, my immediate reaction was, "not until you break down these walls and infuse more energy into this space".  Morale was bad enough, with the company trying to recover lost sales and get the business back to profitability.  Yet alone, layer on the additional negative vibe of employees feeling like they were coming to the "morgue" each day.

Little things like this can really matter to employees, especially with lots of other startups out there for them to choose from.  And, sometimes, your office environment can be the difference between "high flying" and "six feet under".

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

Lesson #54: Incorporate Video Into Your Marketing Efforts

No longer is video an expensive medium, only used by, and afforded by, major brand marketers for their television advertising campaigns.  Today, video is being used by everybody and anybody, big or small, B2C and B2B, particularly for use on the internet, where it is easy and affordable to create, publish and distribute videos.  The primary uses for videos are largely around: (1) educational videos about your company; (2) educational videos about your products or services; (3) videos for advertising purposes; and (4) videos for viral marketing purposes.  We will talk about each of these uses, in the paragraphs below.

It has got to the point that website users are expecting to see a corporate branding video front and center on the home page of any company's website.  Gone are the days of the static, text-intensive "About Us" pages, and welcome the era of dynamic "story-telling" via videos.  Videos create emotion, personality and excitement much better than static text, and helps you to better communicate your corporate brand message.  And, a professionally-produced corporate video can can be produced for as little as $2,500, with many production shops fighting for your business (e.g., Switch Video, Vismo Media, How It Works Media, Kicker, PixelFish, Say It Visually).  There is even a crowdsource of video animators and producers called Wooshii, where you name your video desires and budget, and interested contractors submit their ideas to you (with you only paying for your favorite contractor, if you decide to move forward with them). 

And, corporate videos are not limited to videos within a video player, several companies are using video spokespersons to introduce users to their website.  So, if you are interested in this type of execution, there are several companies than can help you here, including I Speak Video, Website Talking Heads, Live Actor, Video Spokesmodel, Laser Stream Video, Your Website Spokesperson, Model2Web, Website Actor Live, VSP Worldwide and Tweople, to name a few.  And, these can often be produced at a very low cost (under $100).  So, check out these sites, and see the quality of their productions, models and story telling.  If you like what they have done for themselves, promoting their own business, you should like what they will produce for your business.

And, videos should not be produced only for your overall corporate brand message, you should figure out how to leverage it around all your products and services.  Nothing can teach a user how to use a product, or better explain the benefits of a service, than video.  And, the better you educate your consumers on the value of your offering, the higher odds they will convert into sales.  As an example, when I was at iExplore, we added this South Africa Tour Video, to our South Africa tour description pages, and we saw a 4x increase in leads and sales for that tour.  This four minute video did a lot better job of "dream creation", than one page of static text and one still photo could do.  Not only did it tell a "better story", it helped to better position the business as a trusted, high-end tour operator in a competitive space, which means a lot to consumers ready to plunk down $5,000 per person on a trip half way around the world in a foreign destination.

The third primary use of video, is around your marketing efforts.  No longer does a static banner ad cut through the clutter in terms of getting attention for your advertising online.  Consumers have a very short attention span, and a moving video tends to get their attention better than anything else.  So, where you can, use video ads in your marketing efforts, instead of static images.

The fourth primary use of video is for viral marketing purposes, to get the video seen by (and your product exposed to) as many people as possible, on YouTube or otherwise.  Here are a couple examples of the Best Viral Brand Videos of 2010.  And, with around 50 million views, one of my all-time favorites is the Evian Roller Babies.  But, this was obviously a lot more expensive to produce than the other examples.  That said, viral videos can be produced cost effectively as a startup.  My venture capitalist colleague, Andy Whitman at 2x Partners, told me that his startup portfolio company, Orabrush, was able to drive 15 million views with this Orabrush Viral Video for its tongue scraper that fights bad breath, of all things. 

As you will see, what do these viral video examples all have in common:  really funny humor or interesting content that people want to share with their friends.  So, if your product lends itself to something funny or interesting, maybe you will hit the social media jackpot with the next big viral video to spread over the web.  To stay on top of the best viral videos overtime, be sure you bookmark this Top 10 Viral Video Chart, updated weekly by Visible Measures and Ad Age with the most watched viral videos of the week.

If a picture is worth a thousand words, then a video is worth a million words, in our attention-deprived culture where nobody likes to read anything.  So, the earlier you embrace video, the sooner your marketing efforts will flourish.

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

Lesson #53: Search Engine Marketing Strategies

As a startup, there is no more cost effective, targetable and trackable marketing tactic than marketing through the search engines (e.g., Google, Bing, Yahoo).  So, driving search engine traffic should rank very high as a  priority within your overall marketing budget.  Today, we are going to discuss the two primary search marketing tactics: (i) search engine optimization (SEO) for organic search; and (ii) search engine marketing (SEM) on a pay-per-click (PPC) basis.

But, before we jump into that, you first need to do a little bit of research as to what specific keywords are most important for driving traffic for your business.  Some businesses are very simple to market for, with only a handful of keywords they need to optimize for.  And, some businesses are very complicated to market for, with millions of keywords they need to optimize for based on the breadth of their product offering (e.g., think about every SKU available for sale at Amazon or eBay).  And, to make matters worse, you need to think through all the numerous variations and typical misspellings of the keywords, and include those in your efforts, as well (e.g., "startup consultant" different than "startup consulting", "Israel travel agent" different than "Isreal travel agent").

A great place to research all the various keyword options is the Google Search Term Suggestion Tool.   Here, you type is a keyword for your business, and it estimates the monthly traffic for that search term, and suggests other keywords that are similar to your keyword, that you may not have even thought about.  So, prioritize your keyword efforts around the highest trafficked keywords for your business.  Also, be sure to research which keywords your competitors are optimizing for at sites like Open Site Explorer (for organic traffic) and SpyFu (for paid traffic), to see if any interesting learnings there.

Now that we have decided what words we want to optimize for, we are ready to start our SEO and SEM efforts.  In terms of SEO for organic traffic, there are several things that the search engines are looking for when deciding what links to push to the top of their search algorithms.  This includes: (i) age of the site; (ii) size/reputation of the site; (iii) amount of backlinks pointing to the site, with your desired anchor key words; (iv) content density (e.g., amount of times that word is on the page); and (v) title tags, image tags and meta tags using your desired keywords.  This is just a few to mention, with content density on the page and backlinks from third party sites carrying a lot of weight.  So, all of this needs to be considered when writing the content and coding the pages of your website.

And, worth mentioning, although there are many services which can help you grow your backlinks, and there are many "black hat" tactics your developers can consider when coding your pages (e.g., content stuffing with hidden white text), you should avoid these efforts.  As the last thing you want is to end up blacklisted by Google and de-indexed from the results by trying to game the system.  Google is very smart to know when companies are trying to game them (e.g,. can see when backlinks are adding too quickly), so don't even go down that road.  Always use a very reputable SEO expert.

In terms of PPC traffic from SEM, there are many things you need to optimize for besides the list of keywords.  This includes: (i) your cost per click objectives for driving ROI; (ii) where the ads will display (e.g., in search only, or in related content pages too); (iii) what variations of the keywords (e.g., exact match or broad match); (iv) the copy used in the ads (e.g., title/descriptions/offers); (v) the landing pages used for the inbound traffic (e.g., to targeted/unique pages matching the keywords); (vi) any geographic targeting (e.g, users in specific cities or countries); (vii) any dayparting (e.g., display ads on specific days, or during specific time ranges) and (viii) your budget (e.g,. unlimited or capped each day).  So, as you can see, there are a lot of moving pieces to PPC that you need to optimize for to ensure a healthy and profitable campaign.  Here too, there are many reputable services and technologies you can use to assist you with your campaign design, management and optimization.

The most important thing for PPC marketing is to make sure you have a clear understanding of the relationship between paid clicks and the resulting leads/sales, to ensure you are driving a good ROI from your efforts.  So, don't spend full force out of the gate.  Do a bunch of testing to start, at various ranking positions, various CPCs, with various creatives, with various landing pages until you get the right mix for your business.  Therefore, it is critical you have a way to track all inbound leads/sales activity from this campaign (e.g., inbound tracking links on e-commerce bookings or email leads or call center surveys), so you know exactly how much revenue is coming from your PPC spend, to ensure you are covering your costs.

And, worth mentioning, certain keywords are highly competitive and are nearly impossible to drive an ROI (e.g., "travel" that is used for branding objectives, not ROI objectives, by Expedia and others).  So, you will either need to sacrifice rank (below #1, #2 or #3 position) for these types of words, or you will need to focus on more targeted words with much less competition (e.g., "Morocco hiking trip"), where you can profitably achieve a top three position within your desired CPC/ROI objectives.  And, there is no one right answer for all businesses.  A $1.00 CPC could be suicidal for one business and drive a wild profit for the other, depending on the industry and resulting sale economics.  So test, test and test again, until you get the campaign optimized for your specific business.

It makes sense to engage an employee or firm to help you with these efforts.  One, because you will not have enough time/focus to do this justice on your own.  And, two, because the "rules of engagement" are constantly changing, with the search engines updating their search algorithms all the time, requiring you to change your tactics over time.  Also, unless proven otherwise, it could make sense to engage two employees/firms for your search work, as the skills required for good SEO (e.g., tech coding and copy writing) are very different than the skills required for good SEM (e.g., online marketing testing and analytics).  It is very difficult to find both skills in one solution.

It is tough to summarize all the moving pieces around search marketing in one short lesson, but hopefully this high level tutorial was enough to point you in the right direction.  Good luck!

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

Lesson #52: Viral Marketing Via Social Media

Although I consider myself an internet marketing pro, after 12 years in the industry, it is amazing how quickly the online marketing tactics change and your skills can go stale.  So, to make sure I was fully up to speed on the current trends in the industry, I enlisted the help of Katy Lynch, an expert social media consultant at www.SocialKaty.com, to help me create this post on best practices used today by viral marketers trying to drive word-of-mouth via social media, a very cost effective strategy for startups. 

First of all, why focus on social media (e.g., Facebook, Twitter, blogs) at all.  The simplest answer is:  there is nothing cheaper than driving new leads from word-of-mouth marketing, and social media has made it easier than ever to directly identify and engage with your customers and target audience.  And, with the current generation of social media analytics technologies, tracking a direct ROI from these efforts has never been easier.  Not to mention, with all the clutter from marketers these days, "likes" and "tweets" from your friends and colleagues carry a lot more weight in terms of stimulating interest and demand for new products and services.

Based on Katy's direct experience with clients (e.g., the Where I've Been travel site grew from zero to 145,000 Twitter/Facebook followers in 2.5 years from very inexpensive efforts), she believes that a successful startup needs to focus on the following five things in setting their social media strategies, and hopefully terrific viral growth with follow: (i) stay educated on the latest trends in the social media industry; (ii) create domain expertise within your own industry; (iii) identify and motivate brand ambassadors that help you spread the word; (iv) integrate social media throughout your entire user experience, not just in marketing activities; and (v) hire a social media expert whose sole job is to grow your business through these channels.  We will tackle each of these points in the below paragraphs.

Study The Latest Trends.  By the time this post is written, there may already be a new favorite tactic being used by social marketers.  So, it is important to stay on top of these key tactics.  As an example, the hot strategies today include the use of viral videos (like Evian's roller-blading babies), social gaming tactics (like Farmville) and customized Facebook company pages (like Coke).  The other key tactic being used today, is the use of hashtags within Twitter posts, to assists users looking for similar content within Twitter (just like users search keywords in Google).  Hashtags.org is a great resource to see what topics users are searching and to see what topics you should be engaging with for your business, to get in front of an immediate and targeted audience.

Create Domain Expertise.  People are more likely to spread viral messages from people they trust, or whom are experts in their field.  So, for example, Katy not only helped Where I've Been increase their follower base, she tried to position them as a domain expert in anything and everything related to the travel industry, whether it was directly related to their core business, or not.  So, when consumers would be looking for travel tips, news, forums or whatever, Where I've Been would come up within the results as an expert in the space, hence attracting a large follower base of passionate travelers.  A great way to position yourself as an expert on a topic, is to write compelling content on a blog, as I am doing right now in this post, hoping you forward these lessons to your colleagues (driving new leads for my business).

Seed The Community/Identify Brand Ambassadors.  You typically need a 100-1000 follower base, before viral marketing magic kicks in.  And, this base is the hardest part to build.  So, Katy recommends buying advertisements on Facebook around your targeted demographic to help get your base up to this level faster than you could on your own.  Based on Katy's history, it will cost you about $1 per follower, so budget $1,000 for Facebook advertising to get your base up to 1,000 followers.  In addition, don't forget to leverage any other in-house marketing lists you have, to help jump-start your efforts.  As an example, one of Katy's other clients used an in-house email list of 40,000 names to help seed 1,000 Facebook fans after only one mailing.

From there you need to identify and motivate your brand ambassadors.  This could be your most empassioned followers, continually singing your praises to their network.  Or, it could be third party ambassadors who are domain experts themselves (e.g., key influencers/bloggers in your industry).  Good places to identify these prospective ambassadors are: (i) from Google searches around your keywords; (ii) researching members of key Twitter Lists for your key topics, which you can search at www.Listorious.com; and (iii) www.invesp.com/blog-rank/ to identify key bloggers and domain experts by topic.  And, don't forget to reward your ambassadors for their efforts, with thank you gifts or other giveaways over time based on their activity.

Integrate Within Your Business.  Social media should not be a marketing tactic, in needs to be integrated into your overall user experience.  As an example, there needs to be "like" and "tweet" buttons around your core product pages on your website.  The reason social media-based games, like Mafia Wars and Farmville, built into huge successes with millions of users was the fact that each time the player played the game or reached a new level, the activity posted to their Facebook profiles, exposing the user's entire social networks to the game, driving viral word-of-mouth and new users for their business.

Hire An Expert.  Managing your social media efforts is more than writing a blog, tweeting on Twitter or posting information on your Facebook fan page.  You should constantly be looking for new followers and trying to figure out how to create a "personality" for your business.  And, the odds are, you as a startup executive are going to be too busy to do this any justice on your own.  So, hire an on-staff expert, or engage a third party agency, to help you focus on these efforts full time.  And, the advantage of an agency is they have access to and expertise with the sophisticated engagement and analtyics software you will need to implement and track your ROI from this campaign (e.g., TweetDeck, HootSuite, Twitter Analytics).

In addition to Katy's list, I would add a couple other things.  Firstly, the more you can build your entire business model around word-of-mouth driven engagement, the better.  The one example I am specifically thinking about is Groupon.  The whole idea of a 500-person tipping point for the deal to go through, bound by a 24-hour ticking clock before the deal expires, was pretty genius.  That means every day, users are forwarding deals to all their friends trying to get their desired deal fully subscribed, day after day.  It created a viral marketing machine, and the rest is pretty much history.  That said, don't fool yourself that viral marketing was the only key to Groupon's success.  Groupon was also spending millions of dollars of marketing each month to help drive their meteoric growth.

The second thing I would add is that there are some great tools out there to help you forecast the timing and scale of your word-of-mouth efforts based on: (i) how engaging your message is (e.g., what % of forwarded information gets acted upon); and (ii) the viral cycle time (e.g., how much time before the recipient forwards the message to their friends).  Check out this terrific Viral Growth Model and Tutorial by David Skok, a five time serial entrepreneur turned VC at Matrix Partners.

Thanks again to Katy Lynch, for her terrific insights.  Be, sure to reach out to her at www.SocialKaty.com for any additional help from here.

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

Lesson #51: No Public Displays of Rejection

Startup employees look to their CEO's for inspiration, communication and any hints of "perspiration", hanging on every word and action of their leader, as their primary source of information as to whether or not the business is in trouble, or not.  When an employee is paddling along with you in a "river raft adventure" of a startup, they want to make sure their lifeboat is not taking on water.  And, the CEO is typically the first person to know when things are not going as planned, and frankly, whether or not the business is going to survive and the employees will need to be looking for new jobs to pay their mortgage.

Back in Lesson #13, we talked about Creating the Right Culture for Your Startup, including having an open-style of communication between the CEO and the employees for the good, the bad and the ugly.  During difficult times, you need to learn how to communicate any bad news to the team in a way that will keep them informed, but motivated and confident at the same time.  The last thing you want is your staff to become demoralized, when they need to be energized, putting an already struggling business into a death spiral. 

What this typically means for a startup CEO is: no "public displays of rejection".  A staff seeing their leader worried, depressed or losing confidence is they equivalent of their swallowing a poison pill.  When a staff lives and breathes with eachother, they know everybody's specific habits, personality and style.  And, any change from the norm from their CEO, can often set off red flags with the staff.

So, when communicating with the team, use the same tone, personality and facial expressions you always would, in both good times and bad times.  This especially means keeping up your energy, confidence and eye contact, regardless of the problems at hand.  And, do your best to maintain your normal routine:  keep all normal meetings with staff, do all the normal birthday celebrations, continue to keep the door open to your office, keep a normal presence in the office, don't come across frantic in your daily activities, etc. 

A consistent and confident captain, will instill trust and confidence in his shipmates.  That said, your staff are smart people, and will typically know when confidence is unjustified and will not appreciate you trying to sell them a bunch of bull.  So, keep it honest at all times, and upbeat where you can.

As we discussed in Lesson #29,  iExplore was staring over the edge of the abyss after 9/11/01.  But, despite how ominous it looked that the business could survive, I was able to convince the core staff of nine employees to "hang in there", with them willing to work without any current income for the four month period it took me to raise the additional capital required to resume normalcy to the business.  I had built up their trust over the years (which was key, never promising anything I couldn't deliver, and successfully navigating the business through prior bad times).  So, if I said "trust me, we were going to get through this", then by George (pun intended), we were going to get through this, and all hands on deck to batten down the hatches.  It would have been much easier for these employees to start looking for a new job, which I even encouraged them to do, as a back-up Plan B to protect themselves.  But, we were all clear, saving iExplore was Plan A, and we were all on board to give it the college try, despite any personal sacrifices we needed to make.

And, it was largely due to the delivery of the message.  Had I walked into that room with my head down, crying with my tail between my legs (how I really felt), it would have been game over.  Instead, it was business as usual, with an open and honest message of the fact we were in a difficult position, but had a clearly communicated plan on how we would get through it.  And, the fact I acknowledged their personal fears of them potentially losing their jobs if the business went under, by allowing them time to interview for new jobs for Plan B, deepened their trust in me and had them wanting to work with me that much harder.

So, keep an even keel in both smooth and choppy waters, regardless of how much pressure or stress you may be under during the bad times.  If you can avoid letting your stress or fears pass along to your team, the odds of you successfully getting through those bad times just increased ten-fold.

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Lesson #50: Do What You Love!! Passion Drives Success.

Passion is one of those intangibles that drives an entrepreneur, gets them through the good times and the bad times, and ultimately dictates the success of any startup.  If you are not passionate about what you are building, you might as well pack up your bags right now, as your startup will never work. 

Webster's Dictionary defines passion as "an intense, driving or overmastering feeling of conviction" or "a strong desire for or devotion to some activity or concept".  I couldn't have said it any better.  Passion needs to ooze from every pore of a startup entrepreneur.  This passion is usually instilled by some core knowledge of the product or service that is being built, which translates into clear domain expertise and first-hand knowledge and confidence that you are heading in the right direction.  This passion also translates into infectious enthusiasm, that ultimately feeds the energy and drive of every employee in your office.  And, most importantly, this passion is the glue that holds the company together and gets it through its most difficult times.

When I launched iExplore, the whole business idea was conceived based on my personal frustrations experienced while planning my personal vacations as an avid adventure traveler.  I wanted a "one-stop shop" to look for all adventure tours in one place, I wanted the confidence of buying from a trusted resource and I wanted the flexibility to customize my itinerary and dates to my exact needs.  iExplore would fill the huge void in this highly-fragmented, packaged-tour industry, and our passion to build a better customer experience sparked the fire to iExplore ultimately becoming the #1 adventure travel website.  So, my personal passion as an avid adventure traveler and my personal experiences in the industry, fueled the vision and direction of the company.

But, it was more than that.  Because I was so passionate about iExplore, I came to work jazzed up every day, and that enthusiasm rubbed off on all of our employees.  And, I was intently-focused on hiring other empassioned adventure travelers, that shared the company vision based on their own personal adventure travel experiences.  It was like the iExplore staff was a team of whitewater rafters, all paddling in unison to avoid the potential business hazards of the rushing rapids, because, in fact, we all were whitewater rafters in real life.  So, our personal and business passions had become one, making for a very powerful combination and recipe for success.

And, had the iExplore team not had passion in the wake of 9/11/01 (remembering the company's dire straits in Lesson #29), the company would have never survived.  Believe me, it would have been a lot easier to close the business and move on from the carnage.  But, we were all passionate about what we were building, knew this was a short term hurdle and that we were committed to living and fighting another day.  A business only fails, when you stop trying.  And, passion was the lifeboat that carried us through those dark days.

Also, worth mentioning, there is no question that you are going to be a lot more passionate about your own startup, than you would be about someone else's startup.  I lived for iExplore and bled for iExplore for 10 years of ups and downs.  I can't say I would have done the same for another business that was not "my baby".  So, keep that in mind in your hiring practices, to find people that are equally enthusiastic about what you are building, and motivating them with equity incentives to share in your collective successes.  Or, when looking to join another startup, make sure to find products or services that you are truly passionate about, and which are willing to reward you for your hard work and effort.

I used to close every company meeting at iExplore with a question: "What are we building?".  And, like a football team breaking out of a huddle, the staff's response was loud and clear: "GREATNESS!!".  Passion cannot be taught, it has to be instilled into the DNA of your entire company, starting with and fueled by yourself: the Chief Cheerleader.

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

Lesson #49: How to Get a Loan, or Not!!

I am chuckling to myself while typing this post, as the concept of startups getting traditional loans is the equivalent of first-timers trying to summit Mount Everest; it is nearly impossible for a true startup to have any realistic chance of closing a traditional loan with a bank, or elsewhere.  So, for all of you really early-stage entrepreneurs out there, your time will be better spent elsewhere, as it is very unlikely you will ever get through a bank's underwriting process and meet their very restrictive criteria (detailed below). 

If this describes you, and you prefer to raise debt instead of equity, it is most likely going to come in the form of a convertible debt instrument from a traditional angel investor, not a bank.  So, go back and read Lesson #5 on How to Find Angel Investors, and pitch those angels a debt instrument, instead of equity, and you will most likely negotiate towards some convertible debt instrument in the middle.  That said, if you are beyond seed stage, and are actually driving profits that can service a loan, keep reading.

Notice I said "driving profits", as without profits, the loan conversation is practically a non-starter from traditional sources.  And, frankly, in the current economic climate, the traditional banks are ultra-conservative, not looking at any company without at least $3MM in annual profit, and a proven multi-year historical track record at such level to boot.  Perhaps you can find a more aggressive bank, like Silicon Valley Bank that specializes in earlier stage businesses, which may be a little less restrictive.  But, they too will require meaningful profits to ensure you can cover the debt service costs and the ultimate repayment of the principal within the term.

In addition to a proven multi-year history of company profits based on your tax returns, a lender is most likely going to want to see: (i) enough hard-assets in the business to collateralize the loan; (ii) a personal guarantee from you, so you are personally on the hook if the company goes under; (iii) sufficient equity invested in the business as a percentage of total capitalization; (iv) a credible business plan and financial forecast that shows a timely repayment of the loan; and (v) a good credit score for you personally.  So, if you don't have any of these things, or are unwilling to provide them, that pretty much ends the bank discussion, and it is back to the angel investors or venture capitalists for you.

Now, there are a few exceptions to the rule.  If you are trying to finance hard assets (e.g., equipment, real estate), or bridge known accounts receivable for working capital purposes, certain lenders or factoring companies could be a little easier to work with, lending 50%-80% of the asset value depending on the nature of the assets and risks associated with loan recovery.  This includes financing any equipment or other physical assets through capitalized leases, which require minimal upfront payment for the assets, but over the life of the lease, typically add up to 2x-3x the cost of the assets had you purchased them for cash upfront.  Just how mortgage payments add up on your house over time (therefore helping near term cash, but hurting long term cash).  These asset-backed lenders will also require personal guarantees, which are never fun if your business goes under, as it can take you down personally, as well (adding insult to injury).

And, if you are financing real estate, there are plenty of mortgage companies to reach out to.  But, you will need to have enough personal or other income to insure that the mortgage costs (combined with the costs of any other debts you have, like your home mortgage or car loans) are not higher than 40%-45% of your monthly income.  Not to mention, having enough other cash on hand to afford the 10-20% down payment.  I don't know many startups or entrepreneurs that will successfully meet this criteria, so most likely, this too will lead to a dead end.

One additional road to consider is trying to apply for an SBA-gauranteed loan.  In this case, the SBA is not the lender, the banks are still the lender to approach.  But, the SBA guarantees up to $200,000 of the loan,  hence making the loan a lot less risky to the bank.  So, a bank's lending criteria is a little more lenient for loans under this amount, assuming the SBA guarantee is in place.  And, the terms of the SBA-guaranteed loan, tend to be a lot longer, given you more time to repay the loan.  To see if you meet the criteria for an SBA-guaranteed loan, check out this link on the SBA Website.  But, keep in mind, you will have to have 10%-30% of additional cash sitting around, to contribute as additional equity, to close a loan like this.  So, in this case, once again, it takes money, to raise money (monies you most likely do not have sitting around).  And, the SBA will only provide a guarantee, if you really have run out of all other options (e.g,. no excess cash sitting around, and have been turned down by a bank already).

Sorry to be "doom and gloom" in this post, as that is not my style or desire, to demotivate entrepreneurs.  But, just keeping it real, to save you from wasting your valuable time.  I have personally approached enough banks enough times in my past, in better economic markets than these and with more sizeable businesses than your own, to know how really tough it can be to get through the underwriting process.  So, my advice to most of you looking for loans for your startups:  focus on angels, venture capitalists or other alternative asset-backed lending sources, not the banks, which will most likely lead to a dead-end for startups.

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

Lesson #48: Trade Show Strategies for Startups

Following up on my previous post, about The Importance of Networking, I figured it would be good time to talk about trade shows and how a startup needs to incorporate them into their marketing strategies.

To start, it is my recommendation that B2B facing trade shows are more relevant than B2C facing trade shows.  Given the high costs of participating in trade shows, B2C companies are typically better served in redirecting those marketing dollars to higher reaching, higher ROI vehicles (e.g., search engines).  As an example, a $10,000 investment in a booth at a consumer show may get you in front of 10,000 people at a trade show, versus 50,000 people via the search engines.  Now that doesn't mean B2C executives shouldn't be networking at trade shows, as they definitely should.  But, they would be much better served attending more industry-related events where they can learn and network with their peers (e.g., gathering of online marketing executives).

But, for B2B companies, trade shows can be one of the most important and targeted ways to market their businesses to prospective clients, given the highly targeted nature of the audience at that show (e.g., corporate buyers of their product or services).  As an example, if you are a developer of a digital video platform for government clients (e.g., Department of Defense, NASA), where better to find targeted clients than at the annual Government Video Expo, where sellers of government facing technologies exhibit to government buyers of such technologies in this very niche market segment (where all key people will be in one place at the same time).  So, as a B2B company, it is critical you research the key trade shows in your industry, and incorporate them into your marketing plans.  And, the more targeted the trade show the better (e.g., Government Video Expo, better than Video Expo, in this example).  So, prioritize accordingly.

Now, identifying the trade shows are only half of the exercise.  More importantly, you need to decide how you plan on participating at these trade shows.  Will you exhibit with a booth?  Or, sponsor the show? Or, be a presenter or a panelist?  Or, simply attend?  The answer to that question is directly proportional to: (i) the importance of the show to acheiving your overall sales goals; and (ii) your budgets to afford the various options. 

As a rule, sponsoring a show tends to be very expensive, but can be a good way to get branding benefits for your business and exposure in front of all the attendees of the show, both during the show, and in any marketing materials for the show.  If you feel sponsoring the show would be important for you, find the least expensive options to get your name out there (e.g., buying name tag lanyards with your logo on it, would be cheaper than buying the entire lunch for the event). 

Exhibiting with a booth is also an expensive proposition.  Not only do you have to pay for the design of the booth itself, but you have to pay to ship the booth to and from the show, store the booth after the show and pay for the time and travel expenses of the people who will be running the booth.  As a startup, you only want to go down this road if having a booth presence at the show is mission critical.  As an example, if all your key competitors are exhibiting with live demos of their products via booths, perhaps you should also be there with an equal presence.  But, only if the audience of the show are direct buyers of your products.  For example, if you are selling technology to CTOs, you want to make sure the CTOs are the ones attending the show, not CMO's.  And, where you can, focus on shows with CTOs (in this example), not lower level technologists that ultimately will not be making the buying decisions.  But, this is not always possible, and you may have no choice than to meet the junior level person and then work up the chain of command.

Simply attending a show is a very inexpensive way to have a presence at the show, gathering business cards as you roam the room and network with other attendees and exhibitors.  But, where you can, actually getting invited to be a featured speaker or panelist at the show, is typically free to attend and gets you quickly exposed to everybody at the show.  And, as we talked about in the previous post, it is always preferable to be the "hunted" at shows like this, where prospective clients are searching for you, than having to track down your prospects on a one-off basis.  So, apply to be a speaker or panelist at all of these events, and come up with a unique pitch to the event producer on why you would add value to the official program (e.g., "hottest new innovation in the industry", "real life data you can share with audience").

So, in summary, trade shows typically work better for B2B companies than B2C companies, given the lack of better marketing alternatives.  Both, B2B and B2C executives need to participate in trade shows where their peer executives are participating.  And, you need to prioritize your participation at these trade shows (e.g., sponsor, exhibit, attend, present), based on the importance of the show to your revenue goals and the budgets you have to spend.

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

Lesson #47: The Importance of Networking

The old adage, "it is not what you know, it is who you know", resonates particularly well for startup entrepreneurs.  And, it holds true across most all areas of a startup's business, including driving sales, hiring employees, raising capital and securing key partnerships.  Therefore, establishing, nurturing and mining a deep network of relationships can often make or break the success of a startup.  I know many of you may be uncomfortable with networking, but hopefully this post will help you understand the importance of networking and the need to break down any barriers between you and your network.  Let's discuss the various types of networking opportunities available to you.

Firstly, when people think networking, they think attending events to meet people that may be able to help them.  This could be industry specific events related to your business, or business task events (e.g., strategy, marketing, technology) related to certain specific business needs, or other events bringing together like minded individuals (e.g., fellow CEO's, fellow startups).  Do your best to stay abreast of all of these types of events via your respective industry trade associations, professional associations or local startup groups with the calendars posted on their websites. 

And, certainly, make time to attend the most important of these events.  I used to think time spent on networking was time away from the business, and tried to avoid it.  But, over time, I quickly learned a strong network can actually help me build my business faster than I could on my own, and should be a vital part of a startup executive's efforts.  You never know what new client, investor, employee or other business colleague will come out of events like these.  And, they can be a lot more productive than in-the-office initiatives, given the face-to-face natures of these events.

But, you do need to be sensitive to investing your networking time wisely, to get the biggest bang for your buck.  When assessing in-person networking opportunities, I try to have a good sense to: (i) the expected size of the event (hoping to meet more people than less); (ii) the quality of the attendees (hoping to meet more CEO's than lower level staff members); (iii) the location of the event (less time consuming to attend events in my home city, than having to travel, if I can avoid it); (iv) the type of event itself (e.g., hoping to avoid dinner events where locked into one table of people, instead of roaming the room); and (v) the reputation of the hosting organization (e.g., looking for the leading brands in the space to put on the best events).

Equally importantly, I want to make sure I have a clear mission for the event (e.g., what specific companies or executives do I want to meet based on announced presenter or attendee lists made available prior to the event).  This often means trying to arrange a meeting time with your desired targets prior to the event itself, which can often be crazy bedlam and tough to find the people you are looking for.  And, keep in mind, you don't always have to be the "hunter" at networking events.  Sometimes you can get in front of more people faster, by being the "hunted" as a featured speaker or panelist at the events.  So, figure out a reason for you to be the "featured attraction" (e.g., "one of the hottest startups in town", "pro in online marketing"), which can also save you on any event fees.

But, your networking efforts should not be limited to in-person events.  Networking has never been easier with the internet.  You should be an active user on networking sites like LinkedIn, Twitter, Facebook or other sites or list serves specific to your industry or location (e.g., The BuiltInChicago.org business networking site for tech startups in Chicago).  This means having a rich profile page that positions you as an expert in your field, posting relevant news and updates to your status updates and joining/engaging with the relevant "sub-groups" within that network.  But, remember, when networking online, it should not be a "one way sale" to the audience, it must be a "two way conversation" to get the dialog started.  So, an an example, answering forum questions (in a "non-salesy" way) can also be a great way to meet new relationships.

We all know how busy you are as a startup executive.  But, you can't bury yourself in your office, and you can't be bashful when building your business.  Start building your network, and great things (e.g., new clients, employees, investors, partners) are sure to follow.  And, don't forget, networking is more than simply the networking event itself:  you are building long term relationships and need to follow up with these new colleagues after the event, and over time.  So, manage this network nurturing process accordingly.

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

Lesson #46: 23 Motivational Quotes for Entrepreneurs

Entrepreneurs can always use a "pick me up", from time to time. And, I thought these 23 famous quotes would provide just the right inspiration to keep you marching along:

"Our greatest glory consists not in never falling, but in rising every time we fall." –Confucius

“Victorious warriors win first and then go to war, while defeated warriors go to war first and then seek to win.” --Sun-tzu

“Life grants nothing to us mortals without hard work” --Horace

"Energy and persistence conquer all things." -- Benjamin Franklin

"I am a great believer in luck, and I find the harder I work, the more I have of it." --Thomas Jefferson

“Always bear in mind that your own resolution to succeed is more important than any one thing.” --Abraham Lincoln

"Don't go where the path may lead, go instead where there is no path and leave a trail." --Ralph Waldo Emerson

“Do not hire a man who does your work for money, but him who does it for love of it.” --Henry David Thoreau

"Many of life's failures are people who did not realize how close they were to success when the gave up." --Thomas Edison

"You can't build a reputation on what you are going to do." -- Henry Ford

"Why climb Mount Everest? Because it's there". --George Mallory

"Imagination is more important than knowledge." --Albert Einstein

"Insanity: doing the same thing over and over again and expecting different results." -- Albert Einstein

"Everything should be made as simple as possible, but not one bit simpler." --Albert Einstein

"A good plan, executed now, is better than a perfect plan next week". -- George Patton

"Courage is being scared to death, but saddling up anyway." --John Wayne

"Success is a journey, not a destination." --Arthur Ashe

"Perpetual optimism is a force multiplier." -- Colin Powell

“You can't rest on your laurels. Your own body of work is yet to come.” --Barack Obama

“Real success is finding your lifework in the work that you love.” --David McCullough, Author

"The secret is to hire great people, don't interfere too much and when they're great, take the credit. Works like a charm." - Woody Allen

"Confucius always said, a schmuck is defined as someone who has achieved all their goals." --Sam Zell

"Summiting the mountain requires stamina and strength of heart, and you won't know if you have it, until you need it." --Jacob Kyungai, Kilimanjaro guide


Do you have other quotes you think I am missing? Add them to the list in the comments section.

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

Lesson #45: Find a Business Mentor or Business Coach

Earlier this week, I had the distinct pleasure of meeting and mentoring the 2011 class of 10 startups in the Excelerate Labs accelerator program in Chicago.   I am looking forward to a fun summer with these guys.  There is nothing more invigorating than being surrounded by a bunch of excited and motivated entrepreneurs, and trying to help them acheive their goals of building world class companies.  And, I am happy to contribute learnings from my 20 year career to help them get up the learning curve faster and for me to give back to the local Chicago entrepreneurial ecosystem, of which I am a part.  When I was launching iExplore back in 1999, I wished I had a pool of proven entrepreneurs I could freely approach to help show me the way. 

Mentors are one of the most valuable resources an entrepreneur should tap into.  Especially, if the mentors are freely organizing themselves into "on call and free consultants" via incubator and accelerator programs.  The idea of launching a business should no longer be a scary or daunting experience.  It should be a collaborative experience accumulating the learnings of the scores of local entrepreneurs who have already built successful businesses, and can help you move faster and avoid known pitfalls based on their years of experience, as an entrepreneur themselves.

And, what's great about mentors or business coaches is that they come in all shapes and sizes that can handle the myriad of topics that you may be having a problem.  So, search for the mentors based on your various business size, your various industry, or your specific business problem, on a case-by-case basis.  Unlike finding a long term person for your board of directors or advisory board, as we discussed back in Lesson #12, mentors are more like "hired guns" on one-off topics that present themselves over time. 

As an example, one of the startups I met this week needed help in structuring a strategic partnership with the leading media company in their industry to assist them with promotion and building up an audience.  And, modestly, who better to help them than me, who structured a very similar media-related strategic partnership with National Geographic, while I was building iExplore.  Having the benefit of hindsight of cutting a strategic deal with a big media company, I have first hand experience of where the plusses and minuses of that relationship presented themselves after the ink was signed, and it was too late to change anything in the agreement.  So, hopefully, this startup can benefit from my experience, and can write a better agreement in their deal, than I did in mine.

In terms of actually finding these people, it should be as easy working your offline and online business networks.  And, if some cases, willing mentors freely make themselves known on websites of the various incubator or accelerator programs' websites.  For example, here is the list of the Excelerate mentors you may be able to research and politely approach, whether you are formally in the Excelerate accelerator program or not.  And, I am a big fan of working my LinkedIn network (nationally) and my BuiltInChicago.org network (locally in Chicago).  The concept of six degrees of separation to anybody and everybody has never held more true:  I am never more than two or three degrees away from anybody that I am trying to reach out to.  And, sites like LinkedIn and Twitter makes it easy to search by keyword for domain experts on any topic you may need help with.

And, don't be intimidated or afraid to reach out to prospective mentors.  We don't bite ;-)   The worst thing that can happen is the mentor may be too busy to handle your specific problem, and they will politely decline or point you in the right direction to someone who may be able to help in their absence.  That said, you have to be sensitive to the mentors' time.  It is one thing to get one random question a month, that requires a little bit of time to solve.  It is another thing to get ten random questions a week, that requires a lot of time to solve. 

If you find yourself approaching this latter situation, now may be the time to move that person to your formal board of directors or advisory board with equity incentives to compensate them for their time.  And, in all cases, do not take your mentors for granted:  if they do something very helpful for you (e.g., help save you a ton of money, or negotiate an even better deal), send them a thank you note, or gift card, or bottle of wine or whatever to show you much you appreciated their help and keep them excited to continue to help you in the future.

Always remember: you are not alone in your startup efforts, there is a wide base of mentors and business coaches you should tap into to help you accelerate and optimize your efforts.  Good luck.

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

Lesson #44: The Importance of Blogging

All companies should have a blog, to demonstrate their expertise in a particular subject matter and provide a vehicle for two-way communications and engagement with their customers.

This blog that you are reading now is an example of that.  I, as the Managing Partner of Red Rocket Ventures, a startup consulting and fund raising firm, am trying to come across as an expert in startups who has lived through the same battles you now find yourself fighting through.  Not to mention, for many of you, this is your first time ever hearing about Red Rocket.  You may be asking, "why should I trust this firm to help me solve my startup-related problems?".  Well, hopefully the quality of the content on this blog not only educates the readers on various topics, but it also instills trust to get prospective clients to actually pick up the phone and engage with me on their various needs.

Also, this blog gives my readers the chance to voice their agreement or disagreement with various points that I am making.  For example, when I wrote my post on best practices for marketing, a reader rightly pointed out that offering deep discounts to attract new customers may work better for B2C facing businesses than B2B facing businesses.  Hence, further enhancing reader education on the topic, and creating a two-way dialog with my readers, so they too feel like they are participating in the discussion.

There are two other clear marketing advantages of writing a blog.  Firstly, search engines love rich content pages, and the more content you write, the more free search traffic you will drive into your website.  For example, this blog is only three months old, and is already getting 1,000 visitors per month, largely coming from people searching for information related to the posted topics via Google.  That is a lot a traffic for a small consulting firm, which I didn't have to spend one penny on, other than the 30 minutes or so that it takes me to write one post.

The second key marketing advantage is the virility of the content.  I have set up this blog to automatically post to my LinkedIn and Twitter status updates.  As of today (6/8/11), I have around 650 connections on LinkedIn and around 150 followers on my Twitter account that are receiving headlines to every one of my blog posts (Note: Twitter is up 3x from 50 followers three months ago when I started the blog--so extrapolate 3x per quarter from there).  And, since these connections and followers are largely business people related to startups or the digital media industry in which I have worked for the last 12 years, there are very high odds that: (i) the articles are not only interesting reading for them; but (ii) they will most likely forward or retweet the articles to their thousands of collective connections and followers of their own, all ripe new prospects for my own business (hence why Twitter followers are up 3x in three months and over 100 companies have reached out to me).

So, for the reasons above, consider a blog a vital component of your website, search marketing and social marketing strategies.  And, don't forget to ask for new followers, as I do in my last sentence below in all posts.

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

Lesson #43: Examples of Barriers to Entry for Your Startup

Anybody can start a business.  But, very few businesses started have long term, defensible barriers to entry to protect against potential future competitors.  That is the one of the key things you need to focus on in terms of building a winning a business model and increase the odds you get a big pay day down the road.  In today's post, we will talk about a few of these barriers to entry: (1) patents; (2) difficulty of replication; (3) exclusive, long-term strategic partnerships or contracts; and (4) high switching costs, to name a few.  I will give examples of each below.

Patents are a double edged sword for startups.  They are great to have to protect your idea and get investors excited about your business.  But, they are costly to set up (around $12K if straight forward filing and process, and much more if not).  And, patents are very costly to enforce, taking hundreds of thousands of dollars in legal bills to protect your idea, which most startups typically don't have.  But, assuming you build to scale with enough of a first mover advantage, hopefully your profits of the business will provide enough defense capital to enforce your patent and keep others out of your space.

Difficulty of replication, typically comes down to complexities of the product or the amount of capital or time required to duplicate the product.  As an example, it is very difficult to knock off a new biotech or pharmaceutical line that has been in research and development for the last 10 years.  Or, it is very difficult to replicate Google's dominance in search technology, given the years of learnings that have gone into refining their search algorithms and the billions of dollars in capital investment required to replicate their international network of high-speed servers and data centers.  Or, imagine replicating AT&T, Comcast or ComEdison's infrastructure investments in wiring and powering all homes and businesses.

Exclusive, long-term strategic partnerships or contracts can also be a game changer for a startup.  For example, at iExplore, we were the exclusive adventure travel provider for five years to the National Geographic audience.  Or, imagine you are Waste Management with the exclusive waste removal contract for the City of Chicago.  Or, Halliburton getting exclusive Department of Defense contracts to rebuild infrastructure projects in Iraq.  Or, maybe you are Lens Crafters, as the exclusive in-store optical departments within a Wal-Mart location, or Chase Bank as the exclusive ATMs inside a Walgreen's location.  Anytime you are talking exclusivity and long term in your contracts for customers or distribution, the better barriers to entry you are building.

Products with high-switching costs are also great barriers to entry.  Once, a Fortune 500 company has implemented a new customer relationship management platform, it is highly unlikely they will swap out that platform in the near term, and have to reinvest in technology and employee training all over again.  Or, once LinkedIn has built the "default business networking site" and users are comfortable using it, it would be very difficult for a new site in the space to get traction, since users will not want to make the change.  Same could be said about YouTube as the default place to store videos, Flickr the default place to store photos or iTunes the default place to store your music, and consumers not wanting to reload all their a content a second time in a second place.

Hopefully, you get the point here:  any startup requires long term defensible barriers to entry to attract investors, protect its turf and increase odds of long term revenue growth.  Critically assess your own business, and look for opportunities to build your own barriers to entry against potential future competitors.

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Lesson #42: Is Working With Family Members a Good Idea?

My immediate reaction to this question is no, working with family members is not a good idea, for the many potential issues I will detail below.  But, if structured correctly, a family-related team can work.

The biggest reason I think the answer is no, is the normal work-life balance can get completely thrown out of alignment.  Normally, you have your work life and relationships, you go home after work, and enter your personal life and relationships.  A nice balance of ying and yang.  When you work with the same people in your family, there is a risk that balance is not acheived.  You never get a break from eachother.  And, frankly, it becomes too easy to bring work home with you, and you never get a break from it.  And, vice versa, too easy to bring personal life back to work with you.  So, for a family working relationship to work, there has to be a clear understanding:  work issues stay at work, and personal issues stay at home.

In addition, when working with family members, and no different than with any employee relationships, it is critical there is a clear definition of roles, responsibilities and reporting.  If you are going to be equal peers at the same executive level, then there has to be a clear definition of what decisions and tasks are in each person's control (e.g., marketing decisions by wife, operating decisions by husband).  If one of the family members is going to be reporting into the other (e.g., father CEO and son VP-technology), then: (i) the managing family member needs to manage with "kid's gloves", no pun intended, to not ruffle long term family feathers; and (ii) the managed family member needs to understand that ultimate control and decisions rest with their boss, in this case, their dad.

The last consideration relates to succession planning.  With parent-child working relationships, there needs to be a clear long term succession plan put in place from the beginning, and both parties must live up to their promises in that plan.  For this, I will use an example from one of my clients.  The father CEO hired the daughter COO with the message she would learn the business, and she would take over for him in five years, when he would retire at age 65.  But, ten years later, the father was still CEO at age 70, micromanaging the daughter and driving her crazy to the point she wanted to quit.  But, since the father had no other person to transition the business to, the daughter played the "retire or I quit" card.  The strategy worked and they hired a consultant to help facilitate and enforce that transition.  But, it should have never got to that point, as it created a ton of stress for that daughter, dealing with an extra five years of uncertainty and management by her father.

These are just a few things to think about before starting a working relationship with your family members.  If you can, I would avoid it.  God knows, my wife would kill me if she had to work with me, as my "work personality and expectations as CEO" are very different than my "home personality and expectations as husband".  And, I would never want to worry about walking on eggshells in driving a successful startup business, which is stressful enough as it is.

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Lesson #41: Security Considerations for Your Startup

Security is certainly not one of my glitzier topics, but it is equally important to discuss for any startup business.  And, security has multiple levels: (1) the physical facility and files; (2) electronic files and internal systems; and (3) your website and other externally accessible systems.

When locating and setting up your office, make sure that: (i) the building is secure, with a doorman or keypad entry; (ii) your office unit is secure, with dead bolts or alarms; (iii) any rooms with sensitive information or equipment, are locked at all times; and (iv) any file cabinets with important or confidential documents are locked at all times.  This will prevent any external theft and limit internal access to key documents on a "need to know" basis.

In terms of protecting your internal intranet and electronic records, make sure that: (i) access to your entire systems are password protected by user (so you can track activity person by person); and (ii) for any shared file drives, limit access to such drives to employees in the respective departments that need to access such information.  And, never publically store any sensitive documents, like employee records, contracts, financial information, ownership records, website code, that you do not want desiminating through the entire office.  And, it makes sense to save any shared files as "read only", to prevent any unauthorized changes to the base documents.

In terms of protecting your website or other external access to your systems, make sure that: (i) there is a firewall installed that prevents external hacking into your systems; (ii) any confidential information, like credit card information, is encrypted and stored on secure servers; and (iii) that your server room is secure in a controlled environment (with air conditioning and fire protection).

You just never know what "evil" is lurking in the night, both by disgruntled employees or competitors sniffing around for information.  So, better safe, than sorry.

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Lesson #40: Focus! Focus! Focus! Build One Business at a Time.

The other day, I had a Red Rocket client pitch their startup looking for funding.  The pitch went something like this.  They were part services company and part technology company.  The technology was both an online video platform and an advertising sales platform.  They had B2C and B2B components to their sales and marketing plan.  Their B2B sales were selling into entertainment, corporate, government and university clients.  They had revenues from both product sales and advertising.  And, they were convinced they had a game changing business poised for success.

But, all I could think was the founder lacked focus.  The skills necessary to succeed vary wildly between services businesses and technology businesses, or B2C marketing vs. B2B sales businesses.  And, clients in different industries have different end-product requirements.  And, they didn't think of the channel conflicts of both selling technology to advertising companies, while at the same time, trying to compete with those companies with an advertising sales model of their own.  It was a mess indeed.  And, when I communicated that to the founder, all I got was a blank stare of disbelief.

It is really an easy mistake for an entrepreneur to make.  In those early months of getting a business up and running, many entrepreneurs float like dust in the wind, throwing a bunch of darts up in the air, just to see what is going to hit.  And, when people are desperate for revenues from anywhere and anyplace to stop their burn rate, they think that is the right thing to do.  But, all it does is create confusion for everyone and anyone:  both internally with the employees building the company and externally with clients trying to understand exactly what your core strengths are.  At the end of the day, to be successful, you really need a very simple business plan in a very targeted market with one key revenue stream.  You can't be all over the place, and everything for everybody.  Hence, the title of this post:  Focus! Focus! Focus!

I, myself, was not immune to these mistakes while I was a first time entrepreneur building iExplore in the adventure travel space.  At the same time during the early years of the business, I was trying to build: (i) a leading internet portal website; (ii) an adventure travel agency; (iii) an iExplore branded tour operator business; (iv) a corporate events vendor; (v) a fund raising events management company; and (vi) an advertising sales representation company.  It was simple too much, with each business having different requirements, pulling the company in different directions.  It wasn't until we laser focused our business around building the largest website in the industry, supported by an advertising revenue base, that the bottom line profits really started to take off.

So, I challenge you to all study your current businesses and make sure it is designed as simply as it can be for long term success and focus.  If you cannot simply describe your business in one sentence, it is too complicated.

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