Lesson #202: Writing a Book is Hard. Writing Your Second Book is Harder!!

I published my first book, 101 Startup Lessons--An Entrepreneur's Handbook, back in late 2011.  I am excited to say, even three and a half years later, it continues to be a best seller in the Google Play store in its entrepreneurship section.  That first book took me seven months to write.  I had excess time on my hands, coming out of the sale of my last business in 2010, and the world was my oyster, in terms of a wide range of business topics I could be writing about.

But, as more and more people read the book (and blog), more and more clients approached Red Rocket for services (which filled up the excess time on my hands issue).  And, after you have already written 101 Startup Lessons, coming up with ideas for the second 101 startup lessons became even more challenging.  But, thanks to our clients with lots of unique business challenges, that helped give me creative fodder to plow through the second set.

So, after three and a half years (not seven months), I am excited to say, that with this lesson #202, the second set of 101 startup lessons is now complete.  Like last time, I plan to publish it for distribution in Amazon, Google, iTunes and elsewhere for easy download to your e-readers.  That will take us a few weeks for my publisher to make that possible.  In the meantime, you can find the full list of "Startup Lessons #102-#202" in the full index link on our website.

Thanks for all of your continued readership.  I couldn't have done it without your inspiration!!

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

Lesson #201: What is an Entrepreneur? The Ultimate Definition.

The Merriam-Webster Dictionary defines an "entrepreneur" as: "one who organizes, manages and assumes the risk of a business or enterprise".  Really?  I am left completely underwhelmed, as this definition falls short at so many levels.  So, for the 30,000 people that are searching Google each month for the definition of what is an entrepreneur, this post is for you.

A RISK TAKER

The primary thing the above definition got right was the concept of an entrepreneur being a risk taker in business.  Often times they are investing their savings, taking out loans or quitting safer corporate jobs to take a flyer on an unknown adventure, where the odds of success and long term financial gains are very low (although they don't fully appreciate that at the time, and are typically very bullish on their idea).  Despite the 1 in 10 odds of building a long term winner, they follow their gut and gear up for the long road ahead, hoping for a long-term payday down the road.

A VISIONARY

Creativity and innovation ooze out of the pores of an entrepreneur.  They see things in ways most other people do not see them.  They are not focused on the now, they are focused on the tomorrow.  They are looking for solutions to today's problems, that can better drive revenues, lower costs, buid a better product or improve customer experience in the future.  This is true whether the person is launching a brand new startup or is a Chief Innovation Officer inside a major corporation, as entrepreneurs can come in all shapes and sizes.

A LEADER

It takes really special skills to line up co-founders, employees, investors, clients and partners to rally around a very risky undertaking.  A person with terrific communications and sales skills that can sell their vision to the people that will help to make it a success.  Let's call this being the Cheerleader in Chief for the company.  Entrepreneurs typically suffocate with the thought of being buried doing one small role inside a big small company, where they prefer to lead, than follow the leadership of others.

A PITBULL

If you run at the first bit of headwind you experience, entrepreneurship is not for you.  Good entrepreneurs know that building startups is two steps forward and one step back, the entire way.  When they are staring over the edge of a financial abyss, as capital for next week's payroll is not available, they buckle up and find a way.  That said, sometimes entrepreneurs can be persistent to a fault, and they need to be smart enough to know when "enough is enough", and to take the learnings from one failed startup to succeed in their next.

A SUPERHERO

I have always said running a startup company is materially harder than running a big company, despite the fact enterprise CEO's make millions of dollars a year, and most early stage executives are unable to draw a salary.  A startup executive needs to be a good jack-of-all-trades, not afraid to jump into the details, rolling up their own sleeves and making it happen.  And, whether that is doing glamorous tasks, like pitching clients or investors, or menial tasks, like changing lightbulbs, they really do it all, instilling confidence and creating enthusiasm in their wake.

So, dust off your capes, climb to the top of the nearest skyscraper (e.g., your startup idea), and take the leap!!  With a little bit of luck, an aerodynamic suit and your team of fellow superheroes, you just might defy gravity and see your success take flight.

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

Lesson #200: Startup Success Equals Strategy AND Execution

The right recipe for startup success requires an equal mix of: (i) a good strategy or idea; (ii) powered by a experienced management team that knows how to execute the plan.  If you typically have only one of the key ingredients, your startup won’t succeed.  And, in terms of ranking these two critical elements, as I have said before, I would rather bet on an A+ team executing a B+ idea, than a B+ team executing an A+ idea.  Building startups is really hard, and the team makes the entire difference.

Let’s bring this story to life, and look at two different startup clients that I have worked with at Red Rocket.  In these two examples, they were both being powered by first-time CEO’s with limited prior startup experience and they both had equally good ideas in comparable enterprise facing markets.

CASE STUDY #1

In the first example, the client engaged us to help them set a go-to market strategy only, helping them to productize their business and build a sales and marketing plan around growing their customer base.  This client believed that once they had the blueprint from the “architect”, that they could fill the role of “general contractor” and build out the “house”, as an analogy.  When I told the CEO, the success will come from the execution, and that the team didn’t have the background to properly execute the plan, their quote was “sometimes a batter needs to get up to the plate, and take a swing on their own, without their coach batting for them”.

CASE STUDY #2

In the second example, the client not only engaged us for the go-to-market strategy, but they also said they wanted our help with execution, and asked us to source experienced team members to help them implement the plan.  For purposes of this discussion, assume the go-to-market strategies were largely the same as the client in case study #1; the only difference was the experience of the team executing the plan in these two comparable businesses.

THE RESULTS

A year later, the company in the first case study failed to gain traction with clients.  Their immediate instinct was the plan must have been flawed, and they basically unwound the entire plan back to where they started.  And, in that rewind, they no longer clearly communicated what the actual strength of their business was, and even worse, repositioned the company in an even more competitive space.  Overall, revenues stayed largely flat, and the rocket ship never took off.

As for the second company, they built up $25MM sales pipeline in their first year (a good portion of that converted into sales, understanding they had a long lead time product).  The message resonated with the new target clients in new target markets and the company has teed itself up for 3x revenue growth in the next three years.

WHY THE DIFFERENCE?

In case study #2, the client understood their own strengths and weaknesses and wanted to fill in the holes to round out their execution team.  And, in that execution team, they were pros in enterprise sales and marketing.  They knew it was a long lead time sales cycle (and that sales would not be immediate), they knew which individual roles inside the company the message would best resonate (after testing many departments to see which was most excited), they knew how to nurture these leads in a consultative process, which was required for this product, and they held true to the plan.  And, it paid off, big time.

WHAT THIS ALL MEANS FOR YOU?

Take a long look in the mirror, and the mirrors of your fellow team members, and ask yourself this question:  have the people around the management table successfully accomplished what we are trying to accomplish in their past roles?  If the answer is yes, full steam ahead.  If the answer is no, prepare for a lot of headwind and turbulence along the way.  The devil is always in the details, and an experienced execution team could be the difference between a strike out and a home run, with exactly the same idea at the plate.

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

Lesson #199: Seed Investment Terms Trending More Founder-Friendly

Back in Lesson #116 we talked about the seed investment terms and trends from 2011.  A lot of things haved changed since then, and I thought a refresher course was in order.  To help me with this post, I leveraged the research done by my friends at Silicon Legal, a leading Silicon Valley lawfirm, in their 2014 Seed Financing Report (which includes the financing data from over 203 companies that raised $3MM or under in their first professional round in 2014).

KEY TRENDS

• Seed investors are starting to behave like later-stage venture investors (asking for key control, downside and pro-rata rights protections)
• Terms in the last three years have become a lot more "founder friendly"
• 41% of seed investors are investing in later stage rounds, desiring to protect their ownership percentages from future dilution (and 22% of which also looking at later stage deals as their first investments)
• The startup accelerator, Y Combinator, has pioneered a new investment vehicle called SAFE (Simple Agreement for Future Equity).  It is convertible into next equity round, but is not a debt instrument (no interest and no due date).
• "Party rounds" continue to proliferate with an average of 9-11 investors investing in the round, with some deals seeing as many as 20 investors).
• Crowdfunding platform, AngelList, helped make papering multi-investor rounds a lot easier and faster with the launch of their syndication model (helping to rally up investors and lower legal costs)

AVERAGE EQUITY TERMS

• $7.5MM median valution in 2014 (vs. $7.2MM in 2013 and $6MM in 2012)
• $2MM median dollars raised
• 92% included board seats (84% of which was one seat)
• 95% had pre-emptive pro rata rights for future investments (58% of which had a $100K future raise threshold before kicking in)
• 97% was not a participating preferred structure
• 99% had a 1x liquidation preference, paid back before others
• 85% had anti-dilution protection, in the event future down rounds
• 88% had rights of first refusal and co-sale rights (for any sales of shares)
• 82% had drag along rights for majority shareholders (to require minorities to follow their lead)
• 100% had other standard protective provisions

AVERAGE CONVERTIBLE NOTE TERMS

• $7MM median valuation cap (vs. $6MM last year)
• $950K median dollars raised (50% over $1MM; 25% $500K-$1MM; 25% under $500K)
• 84% with a term of 12 to 24 months
• 65% with an interest rate of 4%-8%
• 65% with a 20% valuation discount to the next round
• 84% automatically convert to equity at time of an acquisition
• 78% have no change in control premiums (but 20% did for up to 2x)
• 68% allow for conversion to equity at time of maturity
• 25% allowed for pre-emptive pro rata investment rights
• 15% allowed for most favored nation revisions (if any future rounds at better terms)
• They typically no longer come with warrant coverage for additional equity
• There are no veto rights offered on any change in control scenarios
• These notes do not typically secure the assets of the company or its founders
• These notes typically do not come with board seats

For those of you interested in the new SAFE structure.  They were typically $500K in size at a median $5MM valuation cap (including a 20% discount to the next round) and included pro-rata pre-emptive rights and change in control protection (at a zero to 100% premium).

So, when you are out doing your fund raising, use the above data as benchmarks for your own financings.  And, enjoy the more founder-friendly terms while they last!!

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

The 6 Key Components to Writing a Business Plan

Having prepared a good business plan before starting your venture, can often be the difference between startup success and failure.  I am not saying you need a 50 page detailed report, as investors don’t typically have the time to read them anymore.  But, it is more about taking the time to think through the below 6 key components of preparing a business plan, to make sure you know what you are up against in your industry and have reasonable foresight into where the business is heading in terms of go-to-market strategies and financial returns for the company and its investors.

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 #198: Support Your Sales Team

We recently learned the synergies between your sales team and operations team (Lesson #194), and between your sales team and R&D team (Lesson #197).  And, back in Lesson #161, we learned how to create an "everyone sells" culture within your organization, where all employees tap their collective networks to help drive leads for your sales team.  But, there several other areas where your organization can help your sales team to maximize efficiency and revenues.

APPOINTMENT SETTING

You always want your sales team spending their time selling, in front of clients.  Any time they are spending hunting down key contacts or trying to set up meetings, is time taken away from the client meetings themselves.  Where you can, try to find an in-house administrator or outside appointment setting firm to do the heavy lifting here, so your salesperson can come in and close the deal.  More closing time, means more revenues.

SALES ADMINISTRATORS

The same holds true around a salesperson's back-office tasks, like tracking and submitting expenses, entering lead data into your CRM or booking their travel.  Again, an in-house administrator should be leveraged to help maximize selling time.

SALES OPERATIONS

The third part of these better efficiency plays is having an internal sales operations person in charge of helping your outside salespersons track down stuff internally.  Maybe that is getting client deliverable dates approved, or doing the technical demo, or shepherding a custom sale through the R&D process, or tracking down signatures on key contracts or onboarding new clients with the account management team.  The sales operations process, is as important as the sales efforts themselves, if you are trying to scale your business.

SALES ENGINEERS

If you have a highly technical sale, nobody is going to know how to educate a client on its features and functionality better than the technical engineers that built it.  So, a salesperson, coupled with a sales engineer can make for an effective one-two punch with clients--the sales person selling the relationship, expertise and economics, and the sales engineer educating on the technical aspects of the product.  Notice I didn't say selling the product.  Very few technologists have strong sales skills wired into their DNA, like a good salesperson does.

Hopefully, the collection of wisdom above is helping you learn that sales success is a collective effort.  And, the better your process is optimized, and the key team players are aligned, the better your revenue growth will prosper.

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

Lesson #197: R&D and Sales Must Be Tied at the Hip (Break Down Silos Part 2)

Back in Lesson #194, we talked about how your operations and sales departments must be tied to the hip, sharing learnings both ways for maximum efficiency.  That was the first part of breaking down silos between internal departments.  The same should be said about the relationship between R&D (e.g., new product development) and sales, as the second part of breaking down internal silos.

HOW SALES FEEDS R&D

Too often, entrepreneurs get started building out their product before knowing if there is actual demand for that product.  And, by the time they realize the product is not selling, it is too late to pivot into a new direction before they run out of capital.

If the business had done the proper market research around their product before they launched (as we learned to do back in Lesson #118), by speaking with prospective customers to learn if your product solves a major pain point for them that they would be willing to buy (effectively pre-selling the idea before you even began writing one line of code), they would have saved a lot of unnecessary heartache by building a winning product offering of the gate.

Once you are up and running, your salespeople are the "eyes and ears" of your R&D department.  They have the tight relationships with the clients.  They know what new features the clients are asking for.  They know what clients are saying about competitors' strengths.  And, so on.  Your company needs a defined process on getting the right questions into the hands of your sales team, for them to feed intelligence back into the R&D department, to help prioritize their new product development efforts into winning solutions.

HOW R&D FEEDS SALES

Well, obvious enough, without a product there is nothing to sell.  And, the better the product, the easier it will be to sell.  But, most importantly, products should never be stagnant:  the R&D department needs to continue to innovate and iterate their products over time, building new versions of their products on a consistent basis.  The better the features, the better the user experience, the better you can differentiate your product, the easier it will be for the sales team to sell.

And, again, it is not about only building one product.  It is about building a suite of products over time, where you can start selling clients on product A in year one, and upsell them on product B in year two and product C in year three, improving your average client ticket and lifetime value of your customer along the way.  And, we all know, it is a lot easier to "land and expand" inside one client over time, than it is to add new clients from scratch.  So, this mindset will make it a lot easier and more efficient on your sales team and process.

THE CAVEATS

Not to counteract anything I said above about doing the proper prior research and pre-selling ideas with your clients, you can't always pre-sell a product without a working protoype to "set the bait".  And, that means sometimes you need to make smart bets, building minimum viable products from which your clients can better grasp your solution.  So, don't let your desire to be cautious before acting, slow down the speed in which you are innovating and staying ahead of the market with next generation ideas.

Hopefully, the message here is loud and clear:  don't let your R&D department develop products in a vacuum.  The business demands should always drive your product offering, and not the inverse (which, unfortunately, is not always the case in startup land).

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

Startup Success Equals Strategy Plus Execution

The right recipe for startup success requires an equal mix of a good strategy or idea powered by a experienced management team that knows how to execute the plan. If you typically have only one of the key ingredients, your startup won’t succeed. In terms of ranking these two critical elements, bet on an A+ team executing a B+ idea rather than a B+ team executing an A+ idea. Building startups is really hard. The team makes the entire difference.

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

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