The 4 Key Drivers When Calculating Equity Splits Between Founders

I am often asked how best to divide up the equity between the founders in a new startup. That is a very big question, with lots of variables that go into calculating a fair equity split. Below are the top four drivers I consider, when coming up with a recommendation:

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

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

Lesson #176: How to Filter Conflicting Advice from Multiple Mentors

I am a mentor for the Chicago chapter of Techstars, now in my fourth year.  In the first month of the program, the member companies are immersed with mentorship from the 150 Techstars mentors that are part of the local program.  And, the consistent question I get, year after year, from the member companies is:  “I am getting conflicting advice from the multiple mentors, and it is confusing me, as they are all smart people, and I am not sure who to listen to?”.  Hopefully, this post will help you cut through the confusion and lead you to the best decision making skills.

LISTEN TO EXPERIENCE

In the above example of 150 Techstars mentors, ask yourself the key questions:  Which of these mentors has actually built a business in my industry?  Or, has faced similar marketing challenges?  Or, has built similar revenue or pricing models?  Or, similar consumer lifestyle brands?  Or, whatever other questions that may be relevant to prioritizing and filtering your mentor feedback.  You need to weight the “volume” of the mentor’s voice, based on their direct first-hand experience in your space.  Once you narrow down the base of mentors to only the most relevant, it will help you to gain more clarity of where to focus.

LISTEN TO SUCCESS

Not all mentors are created equal.  Sometimes the loudest voices come from unproven mentors that have never actually achieved any quantifiable success of their own.  As an example, in building the next big  travel site, are you going to listen to the founders of Expedia, Priceline and Travelocity, or are you going to listen to the advice of Uncle Bob that runs a struggling local travel agency . . . or worse yet, the corner dry cleaner?  And, turn up the “volume” of people that have proven their abilities time and time again, as opposed to “one hit wonders” that may have got lucky the first time around.

LISTEN TO THE MAJORITY

When you are filtering advice, if you start to hear the same suggestions over and over again, there is a pretty good chance that advice is the way to go.  There is not one right way to build a business, so two mentors may in fact both be right, even though they are suggesting different routes.  But, if you ask ten mentors the same question, and 80% of them are pointing  you in one direction, let majority-rule serve as your tie breaker when you are not sure which direction to head.  That all said, sometimes the 20% can actually be the best advice, if non-conventional thinking is actually what your business needs to succeed.

LISTEN TO YOUR GUT

If all else fails, and the above techniques do not clearly point you in one direction over another, then like any good entrepreneur, you need to follow your gut.  Your natural instincts will pull you in one direction over another.  And, in some cases, your internal gut instincts, may even end up overriding the above qualifiers.  It is OK to go against the mainstream way of thinking, if you are 100% sure it is the right solution for the long run.  But, understand, it may come at your own peril, or with a lot of headwind along the way, if it impedes your ability to attract business champions or investors.

Hopefully, you now have a better understanding of how to filter conflicting advice from multiple mentors.  Remember, at the end of the day, it your business and the buck stops with you.  So, only go in a direction which you feel comfortable.

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

Lesson #175: In-House Teams or Outsourced Services for Startups?

Entrepreneurs have many options to consider, in terms of how they go about building their businesses or seeking help.  Today's post will address the plusses and minuses of in-house teams vs. outsourced services, and when each road should be considered.

IN-HOUSE TEAMS

Let’s face it, where you can afford it, building your in-house team is great way to build your startup.  You can hand-select and train your staff, they are solely committed to your work and you can directly control their pace of work and what they are working on.  And, hopefully, all key employees have an equity-stake in your business, and have a vested interest to work hard and see it succeed.

But, this makes a big assumption:  that the startup founder actually knows how to identify what roles and responsibilities are needed for success, and what desired skillsets would be most needed in filling those positions.  Many first-time entrepreneurs often struggle in this regard, and often end up hiring the wrong founding team, poorly investing their precious startup capital, which may not still be there for them to fix any needed staff changes down the road.

Takeaway:  When you have the budgets and the know-how, building in-house teams is typically the preferred way to go.

OUTSOURCED SERVICES

For a first-time or time-constrained entrepreneur, the allure of outsourcing every aspect of their business carries a certain appeal.  This could include engaging consultants to help with strategy, technology development firms to build their product or marketing agencies to assist with search engines, social media or public relations, as examples.

But, the problems with this route are numerous.  Outsourcing services can often be more expensive, as these agencies layer in their profit margins.  And, because they are not all part of the same employee base managed by a central team, the communications and directions between the various agencies can often by inconsistent and not well-coordinated or managed.

Takeaway:  When you are not sure how to do something and are looking for a quick and easy solution, outsourced services can be considered (provided all parties clear on goals and being tightly managed), until you feel comfortable internalizing such needs.

HYBRID MODELS

Because of the above, some entrepreneurs decide to implement a hybrid solution, a mix of both in-house and outsourced teams.  Typically, they would internalize any mission critical efforts (e.g., their core product development efforts), and outsource functions that are less important (e.g., the CFO who closes the financial books at the end of each month).  This seems to be a very practical way to go.

Or, oftentimes, good startup entrepreneurs will try to surround themselves by key advisors, mentors or peers, to complement their own skillsets.  This obviously is much easier in big startup city ecosystems with deep bases of talent (e.g., San Francisco, Boston, New York, Chicago).  And, if not easily created on your own, many startup accelerators and incubators have created that network for you, at the cost of giving up equity in your business to participate, having to locate your business at their location or being required to participate for some minimum period of time (e.g., 12 weeks).

Takeaway:  It is not all or nothing when it comes to talent.  Internalize what is mission critical and outsource what is not.  And, when outsourcing, decide if professional service providers (do-it-for-me) or startup incubators and accelerators (do-it-yourself), makes best sense for your business.

NEW MODEL

Based on Red Rocket's involvement with the Ensemble Alliance, we are starting to see a new category beginning to emerge.  There are startups that don’t have the time or willingness to give up equity to a startup incubator or accelerator (or did not get accepted), and don’t have the budget for multi-month outsourced startup excubators, but need a swat team to quickly and cheaply come in and make sure they are heading in the right direction (because they are not in a big startup ecosystem or do not have an adequate mentor/advisor network of their own).  Ensemble launched its one-day Presto bootcamp, to fill this void with professional digital experts who have made themselves available at an affordable price (e.g., $5,000, with no equity required) and a quick turnaround (e.g., one-day bootcamp and business plan, so you can get back to focusing on your business).

Takeaway:  Now there is a solution for everyone and anyone that needs help, not just the lucky few who get accepted into startup incubator or accelerator programs.  Especially, if you are more of the "do-it-yourself" mindset, but are looking for experts to "sanity check" your stand-alone plans.

CONCLUSION

There is not one correct answer here.  Each startup is different based on the skillsets of their founder and robustness of their entrepreneurial community.  But, one thing is perfectly clear:  startups need help.  And, you should make sure you are getting it, from whichever model works best for your business.

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

Lesson #174: Growth Hacking--Marketing for Startups

As you may already know, I have detailed plenty of low-cost marketing lessons within our 101 Startup Lessons--An Entrepreneur's Handbook.  So, be sure to re-read those for more details about how best to market your startup.  But, the goal of this lesson is to try and pull it all together, and demystify the concept of growth hacking.

The term "growth hacker" was first introduced in a blog post by Sean Ellis in 2010.  He summarized a growth hacker is "a person whose true north is growth", and is disciplined in prioritizing and testing marketing ideas, and religiously analyzing such results to see which tactics worked the best and should be scaled out further.  To me, that is a pretty basic premise which be incorporated into most any marketing programs, defined as growth hacking or not.  Frankly, if you are not a growth hacker today, you are not being a good marketer period, in today's tech space. Perhaps the term growth hacker should be renamed Marketer 2.0 to better emphasize its importance for all organizations.

To me, growth hacking is the intersection between marketing and technology. What can you do and track as it relates to your web page design, email templates, purchase process, social sharing links, website analytics, content creation, search engine optimization, advertising creatives/landing pages, etc. that you can iterate with A/B testing, to continually improve until you find that "Aha Moment" that will lead to rapid, viral and affordable customer growth (as opposed to expensive traditional media buys which most startups can't afford).  Here was a more comprehensive list of growth hacking tactics from Jon Yongfook, for more inspiration here.

But, it is more than just the tactics, it is knowing how to apply and track them within the customer lifecycle: (i) acquisition; (ii) engagement; (iii) purchase; (iv) retention; and (v) referral.  At each step within this process, you have to figure out the key datapoints to be managing and optimizing.  As examples, maybe it is click-through rate from Google campaigns for acquisition, and contacts/unique visitors ratio for engagement, and transactions/contacts for purchase, and percentage of repeat clients for retention, and number of times a social sharing button is pressed for referral.  Figure out what the key drivers are for each, and religiously A/B test and improve along the way.  Growth hacking is a never ending process, that continues to iterate in a virtuous cycle over time.

As examples of companies that have built very large businesses via growth hacking tactics, here is a list of the top ten growth hacking examples I found on Quora.  The top three examples included: (i) Paypal offering a $10 bounty for all customer referrals sourced by their users; (ii) Hotmail including a "Get Your Free Email Account on Hotmail" link within all users' email messages; and (iii) AirBNB reverse engineering an automated integration with CraigsList for their rentals to be easily promoted to all of those users.  And, the list goes on and on, with great lessons from Dropbox, Twitter, Instagram, Pinterest, YouTube and others.  There is another broader list of 33 growth hacks published by Growth-Hackers.net at this link.  One of my favorites, not on either list, was Groupon's 24-hour ticking clock and 500 person tipping point to help spark the viral feeding frenzy for their deals.  So, piggyback on all these proven growth hacking tactics for your business.  And, frankly, experiment with some new ones of your own, so I can be writing about your creativity and success in the years to come.

Growth hacking has become such a highly-demanded discipline for startups, that stand alone information sharing sites, like GrowthHackers.com and GrowthHacker.tv, and dedicated events, like the annual Growth Hackers Conference, have been created to help better serve the startup marketing ecosystem.  So, be sure to tap into these key resources, to leverage the collective wisdom of the industry and to see how those learnings may apply to your business.

At the end of the day, growth hacking is all about driving as much growth as you can, with spending as little money as possible.  And, good growth hackers are driven by the challenge and the "game" of it.  So, make sure you find a proven growth hacker with the right DNA to help you here, that doesn't need a lot of budget to do their job.

If you are aware of any great growth hacking examples from your business, let me know.

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

Do Pass Go: Business Lessons from Monopoly

With my kids now in elementary school, I find myself back playing the same board games I grew up playing. Surprisingly, a lot of the game's strategy can be implemented in the startup world. Here are a few lessons entrepreneurs can learn from the game of Monopoly.

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

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

Seek Strategic Partnerships. But, the Devil is in the Details!

Overall, I am a huge fan of strategic partnerships, if they are structured correctly and both parties are incentivized to see the success of your business. I built both of iExplore and MediaRecall with equity owning strategic partners: National Geographic for iExplore and Getty Images for MediaRecall. This post will: (1) define a strategic partnership; (2) highlight plusses and minuses of relationships like this; and (3) list critical items to consider when contracting these relationships.

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

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

[EVENT] Red Rocket Office Hours With George Deeb: Tomorrow Monday April 21st 2-5pm.

If anyone has any pressing questions about your business, Red Rocket's George Deeb will be downtown Chicago tomorrow, Monday April 21st from 2-5pm with some time to kill between other meetings.  If interested, George will be holding a last minute office hours session at the food court on the 2nd floor of the Merchandise Mart in Chicago. 

To express your interest in meeting with George, please send an email to us via the contact form on our website.  In such email, summarize your business, size, stage, needs, budgets or other relevant information about yourself, your business and your challenges.  If George can add you to his schedule, he will reply with a good time to meet in the above range.  Based on the volume of leads, George may not be able to meet with all of you, and apologizes ahead of time, if he can't fit you into his schedule.  If you do not hear back from George, assume he was unable to meet with you.

For future posts, please follow Red Rocket on Twitter:  @RedRocketVC.

5 Pitfalls to Avoid When Joining Someone Else's Startup

Typically, entrepreneurs start their own business. But, from time to time, they will see a unique opportunity to join somebody else’s startup, either as investing CEO or as a new member of the executive team.
Here are five things you need to assess before making the leap

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

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

[NEWS] Nominations Now Open for Moxie Awards in Chicago-- Vote @Freebie_App, @EnsembleHQ and @GeorgeDeeb

Nominations are now open for the third annual Moxie Awards, celebrating the best entrepreneurs and companies in Chicago's digital startup/tech ecosystem.  Voting is open through through April 30th, after which time the finalists will be announced.  You can vote once a day at this link: http://moxieawards.builtinchicago.org/nominate.

If you are needing inspiration of who to vote for, consider Red Rocket's portfolio company, Freebie, for best consumer startup, Ensemble for best service provider and our own George Deeb for best mentor (assuming you are enjoying the valuable startup lessons shared in Red Rocket's Blog).  Thank you for your votes and shoutouts in social media here.

And, if there are any other startups or entrepreneurs in Chicago who deserve some love here, be sure to call them out in the comments section below.

For future posts, please follow Red Rocket on Twitter at:  @RedRocketVC.

Consider Sharing Part-Time Executives Between Startups--The Same Brain at 20% Cost

The cost of a proven C-Level executive inside a startup can be around $150,000 to 250,000 per person. When adding together a CEO, CMO, COO, CFO and CTO, that could total $1,000,000 a year in salary alone, just for your five person senior team. Most startups cannot afford this kind of spend, until after they have raised a material round of venture capital or are driving material revenues. Instead, they opt to go without that role filled, merge mutiple roles into one body or downgrade the talent level to a VP position to make it more affordable.

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

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

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

What the Evolving VC Market Means to Startups Raising Capital

Boy, how times have changed for the venture capital market over the last decade. Here are a few of the overriding trends (according to data collected by the National Venture Capital Association over the years):

• The number of VC firms has materially reduced
• The mix of VC firms has polarized away from the middle, and towards early stage or late stage
• The amount of venture capital dollars raised by funds is materially lower than historical levels
• The capital raised is dominated by the monster size-funds focusing on later-stage investments, creating any early-stage gap

What are driving these trends?

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

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

How to Filter Conflicting Advice from Multiple Mentors

Mentors are invaluable to entrepreneurs. But what happens when you get conflicting advice from multiple mentors? It can be confusing, as they are all smart people. Who should you listen to?  This is a consistent question I receive as a mentor for the Chicago chapter of Techstars. Hopefully, this post will help you cut through the confusion and lead you to the best decision-making skills.

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

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

[NEWS] @RedRocketVC Launches New Group on @Meetup--Please Follow Us There For In-Person Startup Events in Chicago

Red Rocket launched a new events profile page on Meetup today:
http://www.meetup.com/Red-Rocket-Ventures-Meetups-for-Startups-in-Chicago/

If you are interested in attending in-person educational events for startups in Chicago, and are members of Meetup, please follow us there.

Our first event will be  "Ensemble Office Hours: "Open Mike" Q&A Night for Startups (& Pizza Party)" on June 4th at TechNexus in Chicago.  The event will feature the five senior executives of Ensemble's members:  Red Rocket (startup consulting & capital), Ora Interactive (technology development), Loud Interactive (search engine marketing), SocialKaty (social media marketing) and WalkerSands (public relations), who will share their digital expertise for free, for your businesses.  You can learn more here:
http://www.meetup.com/Red-Rocket-Ventures-Meetups-for-Startups-in-Chicago/events/175134482/

And, you can make your reservation for this event on Eventbrite, here:
https://www.eventbrite.com/e/ensemble-office-hours-open-mike-qa-night-for-startups-pizza-party-tickets-11176239433

For future posts, please follow Red Rocket on Twitter at:  @RedRocketVC.

[EVENT] @EnsembleHQ Office Hours: "Open Mike" Q&A Night for Startups (& Pizza Party) on June 4th @TechNexus

Ensemble Alliance members George Deeb (Managing Partner at Red Rocket Ventures), Mike Kelly (CEO at Ora Interactive), Brent Payne (CEO at Loud Interactive), Katy Lynch (President at SocialKaty) and Mike Santoro (President at Walker Sands) will make up this panel of digital all-stars, who will power this "Open Mike Night" office hours session to answer any and all startup questions you may have for your business, as it relates to startup strategy, fund raising, staffing, design, development, search engine optimization, pay-per-click marketing, community managment, social media marketing, public relations and more. Come and get free advice for your business from proven digital experts across their various fields of expertise.

Date: June 4, 2014
Time: 5:30-7:30pm
Place: TechNexus (20 N. Wacker, Suite 1200, Chicago, IL 60606)

The agenda will include:

5:30-6:00 Pizza Party & Networking (courtesy of Ensemble). Please bring your own drinks.
6:00-6:15 An Introduction to Ensemble (by George Deeb)
6:15-7:15 "Open Mike" Q&A Session Between the Ensemble Panelists & Attendees
7:15-7:30 Closing & Networking

We would like to thank our friends at TechNexus for hosting this event. This will be a great opportunity to check out their brand-new 50,000 square foot startup collaboration space at the historic Chicago Civic Opera Building.

Any questions can be directed to George Deeb via the contact form on the Red Rocket Website.

Please RSVP on this Eventbrite page, so we know how much food to order. And, thanks for helping us spread the word about this event by clicking the social sharing buttons. Thanks!

For future news from Ensemble, please follow us on Twitter at: @EnsembleHQ

[NEWS] @RedRocketVC Blog Passes 200,000 Reads -- Thank You For Your Readership!!

We are excited to announce that the Red Rocket Blog passed the 200,000 reads mark today, more than doubling our readership in the last seven months.  Thank you for all your continued readership and support.

We hope you are enjoying our ever growing list of 101 Startup Lessons--An Entrepreneur's Handbook, now up to Lesson #173!!  With Lesson #201 clearly in our sights for 2014, if you have any suggestions for future topics you would like us to write about, simple add them to the comments field below, and we'll see if we can get them into our editorial calendar.  Thanks again!!

For future posts, please follow Red Rocket on Twitter at: @RedRocketVC.

Comparing Startup Ecoystems: The Midwest vs. Silicon Valley

Last week, I attended the ”Reinventing America” summit in Chicago, produced by Forbes. There was a very interesting panel discussion about funding innovation beyond Silicon Valley, with a lot of new money funneling into the Midwest. One of the panelists was Mark Kvamme, the founder and Partner at Drive Capital, a new $250 million venture capital fund based in Columbus, Ohio. As a former 11-year Partner at Sequoia Capital and lifelong member of Silicon Valley’s startup ecosystem, Mark had a very unique vantage point of someone that could compare and contrast the plusses and minuses of the two startup ecosystems in Silicon Valley and the Midwest. Here were my key takeways from Mark’s comments on the panel, paraphasing and commenting from there.

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

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