Red Rocket Ventures Blog (Growth Consulting, Small Business Experts)

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

THE PLUSSES

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

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

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

THE MINUSES

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

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

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

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

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

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

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

Tuesday, September 27, 2011

Lesson #100: The Definitive Checklist for Startup Success

Posted By: George Deeb - 9/27/2011

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 impor...

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.

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

Monday, September 26, 2011

Marketing

Lesson #99: The Basics of Direct Mail Marketing

Posted By: George Deeb - 9/26/2011

With the invention of email and mobile marketing, I assumed the direct mail marketing business would slowly die on the vine, given the h...

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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Thursday, September 29, 2011

101 Startup Lessons--An Entrepreneur's Handbook

Wednesday, September 28, 2011

General Business, Other

Lesson #101: Plusses & Minuses of Entrepreneurship

Tuesday, September 27, 2011

Editor Pick, Strategy

Lesson #100: The Definitive Checklist for Startup Success

Monday, September 26, 2011

Marketing

Lesson #99: The Basics of Direct Mail Marketing

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