Customer Service Case Study: A Nightmare at Disneyland!!

The plaque at the entrance of Disneyland in California reads: "Here you leave today, and enter the world of yesterday, tomorrow and fantasy".  The very core of the Disneyland brand has been to take you to that fun and magical place.  Our recent family trip to Disneyland was anything but fun and magical.  It was more a page out of a Freddie Krueger horror story.  And, if Walt Disney could see all the corporate greed for maximizing money making, at the expense of a fun user experience, he would surely be turning in his grave.  Below is a summary of our experience, and lessons for us all to learn for delivering a world-class customer experience (or not!!).

PARKING FAIL

You know you are not off to a good start, when despite arriving an hour before opening, you still have to wait an hour just to park your car.  The flow from the highway exit to the lot was bumper to bumper for about a mile, and when you finally arrived at the pay booth, six lanes merged down to one lane in a chaotic mess.  It was like Disneyland had never had to deal with parking flow issues in their sixty year history before.

FOOT TRAFFIC FLOW FAIL

The average person can walk at around three miles an hour; we were lucky if we were walking one mile an hour.  It was so overcrowded in the park, you felt like you were part of a herd of cattle being lead to the slaughter.  You should never feel like waiting in lines for the rides, was actually a reprieve from the chaos of walking through the park itself.

PARK DESIGN FAIL

Disneyland prides itself on how well-designed its park is, with "invisible" operations behind the scenes.  But, to me, the "visible" part of the park, was very poorly designed to handle large volumes of crowds.  There were so many "pinch points", where a wide walkways narrowed down to a thin walkway, creating crazy bottlenecks.  And, there were many "dead ends", where you needed to reverse direction back through crazy crowds, to get where you thought you were originally heading (based on very poor signage).

WAIT TIMES FAIL

There are around eight main sections of Disneyland, each with a main ride therein.  In a good user experience, in a 9-5 day, you should be able to ride each of the eight main rides in an eight hour day, with no more than an hour wait for any one ride.  Wait times were approaching two hours on many of the rides, which means the visitors were only able to experience around half of the rides offered.  Fun is enjoying the rides, not waiting in lines for the rides.

FAST PASS FAIL

I like the concept of a Fast Pass, to get a set reservation time to avoid a busy line.  But, the fails were many here: (1) you can't set reservations anywhere but the ride area, which means you need to battle crowds and wait in lines just to get your Fast Pass; (2) you are limited to one Fast Pass reservation every two hours, which reasonably means you only get a couple chances to use it per day; and (3) if you don't return in your slotted time, you lose your reservation (and many people were missing their one hour reservation time window because the crowds were so bad to get back to that part of the park in time).

MARCHING BANDS FAIL

I love marching bands as much as anyone, but there is a time and place.  You should not close down the main foot traffic walkways of the park, to accommodate marching bands on the busiest days of the park.  That takes a slow user experience, down to a crawl.  If you want bands, put them on the main stage at the entrance of the park, where they won't impede foot traffic flow during your peak times.

RESTAURANTS FAIL

When it is lunch time, around noon, and you can't get food for your kids until after an hour or two of waiting in long lines, there is a major problem.  And, when you finally get your food, and there are no empty tables for you to sit down and enjoy your meal, that just compounds the problem.  And, when you find the one open restaurant in the park with 20-30 open tables, and you are are turned away because you didn't have a pre-booked reservation (which many people missed due to crowds impeding foot traffic) is just plain stupid.

I understand the Disneyland amusement park experience has been in our country's core DNA since 1955, or over 60 years now.  That is around three generations worth of families that have taken their families to the Magic Kingdom for that break away from reality and to fantasy.  But, when that experience has become more of a nightmare, at the rapidly growing entry cost of $100 per person (and easily double that with parking, food and souvenirs), maybe it is time for the country to have a new family tradition.

Perhaps that is visiting any one of our 59 national parks, where the experience is equally spectacular, the land is plentiful and you won't be cattle-herded up against 65,000 other travelers.  Or, if amusement parks is a must, there are scores of them across the country--take your hard earned money to other parks that better respect your user experience.  For example, we visited Universal Studios in Hollywood, Legoland and the San Diego Zoo that same week we visited Disneyland, and they were delightful in comparison.

Anyway, take these business lessons to heart: (1) don't mis-serve your customers in delivering a poor user experience (regardless of how much money you can make); and (2) don't take your history and customer loyalty for granted (you never know when they will hit their breaking point and take their family and money elsewhere).  Disneyland should have capped their user maximum at a much lower level to preserve a better user experience (even if they needed to raise prices to enable that).

I know I will never go back to Disneyland after this recent experience, and I recommend you don't make the same mistake I made: trusting our once-in-a-lifetime family experience to Disney (did I really just say that??!!).  I am sure Walt and the brand team at Disney are cringing as those very words are leaving my mouth, as it is 100% counter to the brand positioning they are aspiring towards. But, it has become the stark reality, based on the current generation of Disney executives who have forgotten how to put their customers first (not their bottom line).  They may not feel the financial impact in this generation, but they surely will in the next.

__________________

ADDENDUM ADDED 1/13/16:  I have to give credit where credit is due.  I got an unexpected call from Disneyland this week after they read this blog post.  They said I raised a lot of fair points, apologized for the poor experience, acknowledged it was one of their busiest days of the year and told me their team is brainstorming the overcrowding issues to remedy it in the future.  Then, they offered my family five free Park Hopper tickets (a $750 value) to use on our next visit, anytime in the next two years.  That was an unexpected and appreciated offer, and a professional and honest way to treat an upset customer.  Problem is: with my family in Chicago, the odds of flying my family out to Los Angeles a second time in two years is pretty low.  So, I won't be able to take advantage of it.

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

Lesson #224: When to Take Off the Gloves With Competitors

Let’s face it: every company needs to deal with competition.  You compete on your product offering, your pricing, your customer benefits, etc.  And, for the most part, relationships against competitors, follow some sort of decorum, as best as two competitors can.  You usually speak to your company’s advantages, you keep the pitch factual and you don’t stoop to the level of bad mouthing the competition.  But, your competitors don’t always follow that logic, and oftentimes, they can come out swinging, especially if they are a new entrant in the market trying to knock out the incumbent industry leader.  So, when that happens, you have no choice other than taking off the gloves, and getting your hands dirty.

Competitive Case Study

I wanted to use a case study to help bring this story to life.  One of my Red Rocket clients was a pioneer in their industry, had the largest market share by a wide margin, and was perceived as the best in the market.  This afforded them the ability to charge premium prices and maintain rich margins.  But, a new competitor came along that had one clearly stated goal: to take down the king of the mountain, my client, primarily on a price driven advantage.  And, they would do whatever was necessary to make that happen.

This competitor did not play by normal rules of engagement.  They would price their product at half of market value, trying to steal accounts and get their foot in the door, even if it meant big losses to their bottom line.  They over-inflated the hype around their true product capabilities, which didn’t hurt them during the sales phase (only during the renewal phase when clients would drop them after being disappointed with the reality).  But, even worse, they would completely lie to customers, about my client with ridiculous made-up stories designed to create fear or give the customer a reason to move their business.  That is where I drew the line you should never cross: you just don’t lie in business.

What We Did About It

This is when we started to “take off the gloves” to better defend our turf.  In our RFP responses we would add a section about our competition (in general) and where we saw our strengths vs. other players in the industry, firing away against the weaknesses of our competitor (on a no names basis).  We added client testimonials and reference information of customers that had worked with both companies and had been “bamboozled” by our competitor (again on a no names basis), and came running back to our client.  And, we designed a lower-price point version of our product, to take the pricing discrepancy away. 

The Outcome

And, the good news . . . it worked!!  We finally were able to stop the “bleed”, losing existing clients to this competitor.  And, better yet, we won the next three competitive RFP situations against this competitor with our new and improved pitch.  And, worth adding, we did NOT go to the point of “no holds barred”.  We didn’t call the competitor out by name, we didn’t do it in a negatively intended tone, and most importantly, we did not lie to try and win business!!

In Conclusion

When pitching against competitors, do your best to always take the high road, where you can.  Speak to your strengths without bashing your competition.  You don’t want to have to “take off the gloves” unless you have no other choice.  But, if you are dragged down into one of those ugly situations, as discussed herein, don’t just take the “ass whooping” lying down.  Get in the ring, and punch your competitor right in the mouth (in a way your customer won’t perceive it as you doing it a specific or malicious kind of way). 

When Joe Frazier is pounding away at you, time to bring out your inner Muhammad Ali!!

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

Lesson #223: Ten Things You Need to Know When Responding to RFPs

If you are in the B2B space, odds are you will need to respond to Requests for Proposals (RFPs) from prospective customers throughout your normal course of business.  The RFP process is typically filled with potential pitfalls along the way.  This post will hopefully help you learn what those pitfalls are, and more importantly, how to avoid them.

1. Understand the Process

RFPs basically lay out all the specific project needs and questions of the customer in one document, which they send out to numerous competing bidders.  From there, the customer will typically narrow down all the submissions to a handful of finalists.  The finalists will be given the opportunity to ask any questions they have, and the customer may also ask additional questions of the finalists, as they compare and contrast the various proposals.  A final proposal is then submitted by the finalists, and the customer selects their winning bidder to move forward with.  This process can take from weeks to months to complete, depending on the size and complexity of the project.  And, expect enterprise customers to have a much more onerous process than SMBs, as that often means a procurement department will be involved (in addition to the business people needing the solution).

2. Make Sure You Are Aware of RFPs in the First Place

You can’t close sales if you are not aware of the RFPs in the first place.  So, you need to identify all prospective customers in your space, and make sure you are on their radar and ask to be included in any of their RFP requests.  Also, oftentimes, bigger companies will engage third party RFP process management companies to run the process for them.  So, uncover those third party companies that are active in your industry, and make sure you get on their radar, as well.

3. Be Prepared for Last Minute Requests, and Tight Deadlines

RFPs can often come in last minute, with a very tight deadline for submission (e.g., around two weeks).  The more complex the project, the tougher it is to pull together a thoughtful response in a short period of time.  For this reason, you should have a template RFP on the shelf, for when the RFP comes in, you have 80% of the standard materials all ready to go, and you can focus on the 20% that needs to be customized for that particular proposal.   Prepare for RFP responses to be a big distraction while they are happening, and the better prepared you are, the less of a distraction it will be.

4. Have a Well-Written and Thoughtful Response

A good response will typically have the following sections: (i) about your company; (ii) what makes you better than competitors; (iii) your specific thoughts on the RFP project, and how you are uniquely qualified to succeed; (iv) answers to any of the customer’s specific questions; (v) your pricing section; and (vi) your happy client references.  And, the response should be visually appealing, with graphic images carrying more weight than dense paragraphs of copy.  Most importantly, talk in the “customer’s voice” and intersperse their logo and images throughout the presentation, so they know you understand their business, and it looks like you put customized work into your response, tailored just for them.

   

5. Don’t Disclose Your “Secret Sauce”

At the same time you are trying to distinguish yourselves from your competitors, be very careful NOT to give away your “secret sauce” in your response.  There are very high odds that the customer will see your unique advantage in your response, and may ask the other bidders if they can do that too.  Which does two things: (a) educates your competitors on what you do; and (b) gives the competitor the chance to say, “sure we can do that”, whether they were or were not planning to in their initial response.

6. Bundle Price Where You Can

The more details you provide in your pricing proposal, the more specific line items the customer can try to negotiate down.  So, as an example, if you are a platform technology vendor, don’t detail pricing for all the various features and functionality in isolation, line by line.  Instead, aggregate pricing for the platform as a whole.  You want to make it is hard as you can for the customer to “turn the screws”, and truly understand your net margin on the project.  Understand, your customers will do everything they can to try and break out the details.  So, tread carefully and dig in where you need to.

7. Don’t Quote Your Lowest Price

Back in Lesson #39, I wrote about the art of negotiation.  As this post suggests, you need to leave the customer room for a “win”.  And, that win typically means letting the procurement department look smart to their boss, by having them negotiate further price savings from the original quote.  So, let’s say you normally like to price your business with a 50% gross margin.  Quote at 60% in the RFP, knowing procurement will be expecting at least a 10% haircut from there during the process.

8. Strategically Leverage the Q&A Process

There are two parts to consider when asking and answering questions during the Q&A process:  (i) protect yourself; and (ii) make life miserable for your competitors.  As for the former, all questions asked and answers answered will normally be shared with all the competing bidders.  So, be careful not to ask any question, where the questions itself, or the answers therefrom, will help educate your competitor on how exactly you do your work, which may be a unique advantage you want to keep secret.  And, on the flipside, if you know you are materially better than your competitors in certain areas desired by the customer, ask questions will that you know your answers will far outshine your competitors.  This is really a fine line to walk; you want to show off your strengths, but not all of your strengths that will give your competitors intelligence.

9. Beware the Procurement Department

There are typically two departments involved in the purchase decision: (i) the business people needing the solution; and (ii) the procurement department negotiating the contract.  The procurement department’s job is to save the company money, and often times, their personal bonuses are tied to the quantity of those savings.  Which means, even if you are the 100% ideal solution for the business people, the procurement department might start “lobbying and biasing” a different solution, if it makes them look smarter to their bosses.  Typically, the business people win out on small price differences, but the procurement department gains a lot more leverage the higher your prices are versus others, even if the business people selected you.  So, make sure you make friends with the procurement team, at the same time you are working the business team, and keep a close eye on your competitors’ pricing.

10. Leverage Back Channels

During the RFP processes, you are typically disqualified if you reach out to the customer during the process, trying to push or promote yourself.  They don’t want to be distracted by numerous bidders while they are trying to do their work.  But, you need intelligence during the process, so you can act on that information before it is too late.  Make sure you have “friendly” people in your back pocket, that are aware of the process and the discussions thereto, but are not directly involved in the process.   For example, let’s say you are pitching a social media technology solution to a brand.  Maybe you are friendly with someone at their social media agency or in their digital marketing team, that are colleagues with the decision makers, and can sniff around for “inside information” on your behalf.  But, be careful, these have to be VERY close friends of yours, where you are sure your intelligence gathering will not make it way back to the customer and disqualify you.

I bet you never realized how many moving pieces are wrapped up in a successful RFP response.   Hopefully, you are better educated on the process, to help you win the next one.

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

[VIDEO] George Deeb Talks Startup Marketing, Hot Chicago Startups & Coding in Schools with Tasty Trade

Red Rocket's George Deeb was recently interviewed by Tom Sosnoff and Tony Battista for Tasty Trade's "Bootstrapping in America" program. In this video, George talks about startup marketing, hot Chicago startups and the importance of getting coding into the school curriculum.


George Deeb Talks Startup Marketing, Hot Chicago Startups & Coding in Schools from Red Rocket Ventures on Vimeo.


This video is courtesy of Tasty Trade, all rights reserved. Be sure to check out Tasty Trade's other "Bootstrapping in America" programs on YouTube.

For future posts, please follow us on Twitter at: @RedRocketVC

[VIDEO] George Deeb Teaches Startups How to Build Team & Advisors

Red Rocket's George Deeb recently presented a "How to Build Your Team & Advisors" session for the new class of startups at Founder Institute in Chicago. This video tackles the following topics: How do you find the right team to launch your company? How do you identify the right set of advisors? How do you manage your advisors? What are responsibilities and compensation for advisors? How do you identify the right roles to help you launch a product or offering? Do you expect the roles to change over time? How can recruit people to fill roles when you have limited resources? What metrics do you track when recruiting? Do you need a cofounder? What are some common pitfalls with cofounder? Is a team necessary to launch a company?

Sorry for the poor quality of the video.  But here it is:


George Deeb Teaches Startups How to Build Team and Advisors from Red Rocket Ventures on Vimeo.

And, here is the matching Slideshare to go with the presentation:

How to Build Your Startup Team & Advisors from Red Rocket Ventures

For future posts, please follow us on Twitter at: @RedRocketVC

Red Rocket's Best Startups of 2015

Red Rocket gets introduced to hundreds of startups each year, in the normal course of doing business, or via our involvement with FireStarter Fund, TechStars, Techweek, VentureShot, Founder Institute or other startup groups or events.  We wanted to honor the best of these startups that we met in 2015, in Red Rocket's 4th Annual "Best Startups of the Year".  This list is not intended to be an all-encompassing best startups list, as there are many additional great startups that we are not personally exposed to each year.  And, this list is not intended to be only for businesses that launched in 2015, it is open to startups of any age, that they or their advisors had some personal interaction with us in the last 12 months.  The business simply needed to have a good idea, good team or good traction, that caught our attention.  Congrats to you all!!

THE BEST STARTUPS OF 2015 (in alphabetical order):

Apollo Medical Devices (CEO Patrick Liemkuehler) - B2B Rapid Blood Testing Technology

Bitsbox (CEO Scott Lininger) - B2C Subscription Box That Teaches Kids to Code Technology

Block Six Analytics (CEO Adam Grossman) - B2B Analytics & Marketplace for Sponsorships

Boatbound (CEO Aaron Hall) - B2C Private or Captained Boat Rentals

Built In (CEO Maria Katris) - Localized Business Networking Websites for Digital Tech Space

Dose (CEO Emerson Spartz) - B2C Daily Dose of Amazing Content & Virality Platform

Fitspot (CEO Jonathan Cohn) - B2C On-Demand Personal Trainers to Your Home 

Fooda (CEO Orazio Buzza) - B2C At-Work Lunch Catering Platform from Local Restaurants

Growth Geeks (CEO Bronson Taylor) - B2B Freelance Growth Hackers on Demand

HighGround (CEO Vip Sandhir) - B2B Employee Engagement Platform

Home Chef (CEO Pat Vihtelic) - B2C  Weekly Home Meal Kit Deliveries 

Hooks (CEO Oleg Kozynenko) - B2C Push Notifications for Anything You Want 

Maiday (CEO Sara Bokan) - B2C On-Demand Home Cleaning Service

Networked Insights (CEO Dan Neely) - B2B Social Listening & Insights Platform

Otobots (CEO Arun Simon) - B2C On-Demand Auto Mechanics to Your Home

SoloInsight (CEO Carter Kennedy) - B2B  Smart Gates and Workforce Management Software

Uptake (CEO Brad Keywell) - B2B Internet of Things Data Insights Platform

WeLink (CEO Nathan Chandra) - B2B Location-Based Social Listening Platform

And, don't forget to check out the 2012 winners, 2013 winners and 2014 winners, many of whom continue to be doing great things.

Congratulations to you all!!  Keep up the good work.  

For future posts, please follow us at: @RedRocketVC

How to Evolve from Selling Widgets to Selling Wisdom

I've previously written about the 1,024 different types of salespeople there are and the difference between selling simple products vs. ones that are much more complex and consultative in nature. I like to call this the difference between selling “widgets” vs. selling “wisdom.” So, what follows are some further thoughts on the difference between the two, the advantages of selling wisdom and ways in which you can effectively transition your selling efforts from "simple products" to "wisdom."

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

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

The CEO's Role Must Change as the Company Scales

I have previously written about The Role of a Startup CEO, during the company’s early stage of development.  But, if your company hits is stride and starts to materially grow revenues, I thought it was important to talk about how the CEO’s role needs to evolve as the company starts to scale. For simplicity sake, I am going to compare the role of a CEO in businesses between zero to $10MM in revenues (early stage), versus CEOs in businesses between $10MM to $50MM in revenues (growth stage).

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

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

[VIDEO] George Deeb Evangelizes Tech Coding for Core K-12 Curriculum

Red Rocket's George Deeb has recently been working with his local school administrators to emphasize the importance of learning to code technology, which he feels is a major void in the current core K-12 curriculum, one which is designed for a different era of students and eventual workers.  As part of that, he was invited in to present this concept to the fourth graders in the school, which is shown in this video. So, although the message was delivered in a student friendly way, the message should equally resonate with parents, teachers and school administrators.

We share this video with you, because we feel every student in our country needs to learn the basics of coding technology by the time they graduate high school, the reasons of which are shared in this video.  If you feel this message resonates with you and you want to make a difference in your own schools, please share this video with your local school administrators.  Hopefully, our collective efforts in our respective school districts, will make a collective difference in our schools at the national level, and help lay the foundation for a strong economy of well-employed workers for generations to come.


George Deeb Evangelizes Adding Tech Coding to Core K-12 Curriculum from Red Rocket Ventures.

If you prefer to have something in writing to share with your schools, below is a synopsis of what was covered in the video:

WHAT IS THE GOAL OF GETTING AN EDUCATION

• To increase your intelligence, and gain skills that will enable you to get a good job when you graduate?

KEY TRENDS—HIGH LEVEL JOB MARKET

• The rising cost of living, is making it harder for people to retire.  (define cost of living)
• When people don’t retire, it makes it harder for many college graduates to find good jobs
• And, with the rising cost of college education, many college graduates build up big college loans without finding a job that can help them pay back those loans (define loan).

KEY TRENDS—TECHNOLOGY & ENTREPRENEURSHIP

• But, the technology industry is exploding with lots of open jobs
• Over 100,000 open tech jobs in Chicago alone, up 2x in the last year alone
• And, these tech jobs are in such short supply, not enough trained technologists, the ones that are trained quickly have companies competiting for them, and paying them big salaries in the $100-$200K range
• This is fueled by technology companies like Google, Apple, Microsoft, Amazon and 1000’s of others you have never heard of
• Technologies are even taking over non-technical industries like manufacturing via IoT, further accelerating the amount of companies that need technology coders 
• The technology coding demand is highest around studying large amounts of data and driving insights that can help make better business decisions 
• And, the U.S. are competing in a global ecosystem of businesses—up against companies in China, India and beyond, where others a growing technology skills a lot faster than the U.S.
• In fact, the United Kingdom just required every student to learn how to code by the time they graduate from high school, in their core curriculum
• Even the Chicago Public School system has followed suit, rolling out coding into its curriculum this last year.  Chicago Mayor Rahm Emanuel wants to ensure all kids learn to code, as vital to their success.

WHAT IS CODING?

• It is not playing with your iPad or the apps therein.
• It is coding the apps therein, writing the scripts that make the apps do what they do—the layouts, the colors, the movements, the content, etc.
• And, although Kodable and Code.org teaches you how to think like a coder, through games.  It really isn’t teaching you to write the code itself.
• We are talking about learning new technology languages with crazy names like HTML, Java, Python and Ruby on Rails.  There are literally hundreds of technology languages one could learn, based on the need of the technology.

SO, WHY DOES THIS MATTER?

• Learning to code by the time you graduate from high school, ensures that you will easily be able to find a job, especially for the many families that can’t afford to send their kids to college, or don’t want to take on the big college debts without the certainty of finding a job.

WHAT ARE MY PERSONAL CONCERNS?

• Most schools are not required to teach coding in the core curriculum, and many local parents in our district are trying to change that
• The fear is kids today are going to graduate from high school without the skills they really need for this next generation of jobs.  And, if they can’t find jobs, that will ultimately hurt the U.S. economy and our country’s competitive position with the global economy.
• And, there are hurdles when adding new stuff to curriculum, like what other subjects are you going to cut?
• Where I think we can be creative—for art give the choice of pottery or digital design, for language give a choice of Spanish or HTML
• Or, we can even be creative and offer extended class days, weekend programs or summer camps if it is important enough to you kids and your parents

WHAT ARE WE DOING ABOUT IT?

• We are trying to get technology coding formally added to the core curriculum in our district as part of the school’s STEM programs.  So, hopefully, exciting news to come in the future.
• In the meantime, there are plenty of other resources you can take advantage of outside of school, where you can learn how to code:  online websites, summer camps, etc.   

IN CLOSING

• The school and the parents are going to really work hard to get you more coding experience for all the reasons discussed today
• But, if we are can’t get it fast enough, take control of your own destiny, and ask your parents to find you coding classes after school or on the weekends, or coding camps in the summer
• And, make sure your parents tell the school how much you are interested in learning stuff like this, so we can help accelerate our efforts, not only in our district, but for the whole state, if a successful pilot program can be done in our district.
• Coding is no longer a nice to know, it is a NEED to know.  This is really important to your future, and I want to see you all succeed—not only today, but 8 years from now when you graduate from high school.  And, it all starts now!!

Be sure to read my companion piece that I wrote for Entrepreneur Magazine:  K-12 Curriculum Needs Major Overhaul to Develop Entrepreurship Skills.

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

When to Take Off the Gloves with Competitors

Let’s face it: every company needs to deal with competition. You compete on your product offering, your pricing, your customer benefits and more. And, for the most part, relationships against competitors follow some degree of decorum -- the best that two competitors can manage, at least. On most days, you usually speak to your company’s advantages, keep your pitch factual and avoid stooping to the level of bad-mouthing the competition. But, your competitors don’t always follow those rules, and at times may even come out swinging, especially if they are new entrants in the market, trying to knock out the incumbent industry leader. So, when that happens, you have no choice other than to take off the gloves and get your hands dirty. The question is . . . how?

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

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

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. To me, an entrepreneur is so much more than that, and hopefully, the below definition will give you a better appreciation for how special entrepreneurs really are.

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

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

Thoughts on Chicago's Growing Tech Scene, And How to Improve It Over Time

I recently read a very good post on Chicago's tech scene: where it is today, from a talent and ecosystem perspective, and where it is heading.  But, honestly, many of the recommendations herein can apply to any startup ecosystem that is in the early years of getting off the ground.  It was written by my good colleague, Jeff Carter, an angel investor at West Loop Ventures, co-founder at Hyde Park Angels and author of the Points and Figures startup blog.  Jeff was kind enough to let us share this post with all of our Red Rocket readers.  So, here it is:

How to Recruit Employees for Your Startup

As a startup, odds are you will not be able to afford a dedicated HR person or 30 percent headhunter fees, and will most likely need to be doing the recruitment yourself. Here are a few tips on how to find the right talent for your business, in a way that brings in the best candidates and reduces any distraction from your main business focus.

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

Targeted Marketing Has Never Been Easier . . . or Cheaper!!

The marketing world has substantially evolved over the last few years, in terms of how you can target prospective customers for your business.  Before, your primary options for targeting, were largely around demographics or geographies through media buys on larger websites and ad networks, or through keywords through the search engines.  But, the major social networks have made some very interesting strides in the last couple years, in terms of letting advertisers drill down like a laser beam on very narrow targets within their broader audience.  Below are a few examples of what I am talking about.

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

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10 Things You Need to Know When Responding to RFPs

If you are in the B2B space, odds are you will need to respond to requests for proposals (RFPs) from prospective customers throughout your normal course of business. But the RFP process is typically filled with potential pitfalls along the way. Here's how to identify, and more importantly, avoid them.

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

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Lesson #222: Measuring Your Company’s Culture Can Pay Big Dividends

Building the right culture for your startup is a critical driver of its success or failure, as we learned back in Lesson #13.  It is one thing to talk about building the right culture.  It is an entirely different thing to actually know you have built it.  I recently got a crash course on this subject from my colleague Barry Saltzman at Culture Measures, a culture consulting firm, who taught me that measuring culture has become a science.  And, once harnessed, it can help turn culture into a competitive weapon for your business.  I wanted to share those learnings with you.

To start, and to be perfectly clear, your company’s culture is a direct driver of your business performance (e.g., customer satisfaction, employee satisfaction, productivity).  The better your culture, the better your business output (e.g., throughput, variable costs) and business outcomes (e.g., net profit, equity value) will be.

But, how do you measure culture?  Barry, suggests there are four key drivers of a company’s culture: (i) your people (and them feeling empowered, being trusted and getting engaged); (ii) your process (which should be adaptable with continuous learning and improvement); (iii) your clarity (in terms of clearly communicating and understanding the company’s vision and values); and (iv) your execution (in a way that is productive, accountable and collaborative).  Unless you can clearly track and measure these four different areas, and the numerous sub-categories therein, you really won’t know what is working, and what is not working, with your company’s culture.

If you feel you have a culture issue in your company, companies like Culture Measures can help you clearly identify where the problems lie.  Or, you can try to solve these items on your own by: (i) introducing the concept and survey to your team and getting all issues aligned; (ii) reviewing the results with the management team; (iii) appointing an in-house culture leader to plan steps to address issues raised; (iv) build a metrics dashboard to measure your success over time; (v) make sure goals are set and are in line with the company’s priorities and financial metrics; and (vi) roll out the program to  your employees with clear near term and long term objectives.

If you do this right, not only will your culture and employee productivity improve, but it will lead to data-driven buy-in from your senior management to know they are getting a clear ROI on their culture investment which is perfectly in alignment with the company’s goals.  Pretty cool stuff, bringing hard data to a formerly hard to measure area of the business.

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Lesson #221: The Internet of Things is Coming, Hang on to Your Hats!!

I recently completely a deep dive on the Internet of Things (IoT) space for one of my clients, and I was blown away with what I learned.  If we think the consumer Internet as we know it is a big deal, IoT will become an even bigger deal, over time.  Gartner predicts the IoT industry to be $1.9TN in size by 2020, and McKinsey thinks it could be as large as $6.2TN by 2025, in terms of economic impact.  Yes Trillion!!  Intel forecasts 15BN devices will already be connected to the internet in 2015 alone.  That's a lot of demand for embedded smart modules, cloud computing, connectivity, data security, mobile apps and analytics reporting alone.

To be clear, when I talk about IoT, I am largely talking about devices connected to the internet (e.g., think a Nest thermostat), or Machine-to-Machine (M2M) technologies.  IoT applications run across these primary sectors:  Consumer, Commercial, Industrial, Buildings, and Government.  And, get further segmented across these major industries:  Retail, Transportation, Security/Safety, IT, Manufacturing, Automotive, Energy and Healthcare, to name a few. Research suggests Manufacturing and Healthcare are the largest two of these industries, in terms of potential and investment to date.  From there, it drills down even further.  For example, in the Security/Safety space, it splits out into Real Time Alerts, Asset Tracking, Fire Safety, Environmental Safety, Elderly/Child Protection, Power Protection, Supply Chain Visibility and beyond.

So, don't try to be all things to all people, find your sizeable niche and dominate it.  Understanding a lot of big companies are also carving out their niches.  As examples, in just the smart home space, niches are being created around lighting control (Hager, Legrand, Leviton, Lutron, Matsushita), access control (Honeywell, Siemens, Tyco, UTC), connected home security (Alarm.com, Bosch, Kwikset), energy efficiency (Belkin, Nest), home automation (e.g., Smart Things) and appliance control (GE, LG, Maytag, Samsung).  So, even if you pick a good niche, odds are some big companies are already trying to figure out solutions in that space.

And, with this kind of next-generation market opportunity, it is attracting a lot of investment from a lot of big players.  In terms of financial investors, over $1.6BN was invested into IoT companies by venture capital firms in 2014 alone.  And, as for strategic players putting a lot of investment into IoT opportunties, it is an impressive list of expected companies, including Apple, AT&T, Bosch, Cisco, Eaton, Emerson, Ericsson, Fujitsu, GE, Google, Hewlett Packard, Hitachi, Honeywell, IBM, Intel, Johnson Controls, Lantiq, Microsoft, NEC, Oracle, Phillips, PTC, Qualcomm, Rockwell, Schlumberger, Schneider Electric, Siemens, Texas Instruments,Tyco and Verizon, to name just a few. So, get ready for a slug fest from a lot of well-funded companies that are also trying to get their piece of the overall IoT pie, across all industies.  These will most likely be the companies you sell your successful IoT startup, down the road.

The IoT is going to change everything.  In your homes, lights will automatically turn on and off as you drive your car in and out of your driveway.  In buildings, fire departments will exactly know who is in the building and where they are, in case of emergencies.  In corporate offices, window shades will automatically open and close based on the weather, to save on energy costs.  In restaurants, food will be re-ordered based on how many times the refrigerator door is opened or closed.  In logistics, police will be immediately notified if trucks veer off course.  In healthcare, drones will deliver medical supplies faster than ambulances. In factories, data from parts usage will predict when a machine will break, and automatically order the part and a repairman before it does. As you can imagine, life in 2025 will look materially different than it looks in 2015, as the pace of technology change accelerates, thanks in large part to the coming IoT boom.

So, if you are a startup looking to hitch your wagon to a rising tide, grab the coattails of the coming IoT tidal wave, and hang on for the ride of your life.

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

Mark Suster's "Venture Outlook 2016"

We just read Mark Suster's recently published "Venture Outlook 2016" and needed to share it with all of you.  Mark is a successful serial entrepreneur turned venture capitalist at Upfront Ventures, and author of the Both Sides of the Table blog.  Mark's post, linked above, is jammed packed with great stats about recent tech valuations and whether or not we are in the middle of another internet bubble, with valuations ahead of themselves. SPOILER ALERT:  Mark says we are.

Directly quoting Mark's high level outlook for 2016:

1. "I suspect 2016 will be the year that the over heated private tech markets cool but I’ve been saying that for 2 years so who the fuck knows. I do know the markets are over valued but one individual actor can’t change market prices, which is why the Bin38 scandal was always a red herring. I will keep funding early-stage technology companies who have a vision to fundamentally change some part of an industry over a normal (8-12 year+) time horizon. There are no quick bucks in venture outside of bubbles.
2. We will continue to see over-funding of late-stage venture financings until the bloom comes off the rose and then I predict rational non-VCs will return to their day jobs chasing returns in other corners of the financial world and we people who only know how to do venture will continue doing just that.
3. The rise of crowd-funding as a viable alternative to VC will continue to grow unabated. Too much capital will be allocated to this channel relative to its value until the next downturn when many unsophisticated investors will be burned or until the SEC begins to crack down on the less reputable platforms or investors in these platforms. I suspect this won’t pop until after 2016 when retail investors tire of the promise of easy money in tech.
4. In the meantime, the arc of technical progress will continue whatever the interim valuation scorecards of startups show. Technology continues to have profound impacts on society and industry and will continue to capture an increased portion of the total economic pie. And I suspect for the long-term venture capital will play an important role in helping support great entrepreneurs."

Be sure to also read Mark's great SlideShare presentation on this same topic:

Final venture outlook 2016 from Mark Suster

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So, You're a Startup CEO, What Do You Do All Day?

Chief Executive Officer? Chief Visionary? Chief Cheerleader? Chief Salesman? Chief Funding Officer? Chief Communications Officer? Chief Team Builder? Chief Lightbulb Changer? Chief Coffee Maker? Yup, all of these titles apply to the role of a startup CEO. It is perhaps one of the hardest jobs to do in the business world, given the wide range of skills required to excel. This is one of the reasons only 1-in-10 startups actually succeed, as it takes a really special person that has the right combination of skills and startup DNA. In many ways, it is a much harder job than a CEO of a Fortune 500 company. 

Here are the core skills a startup CEO needs.

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.

Lesson #220: Venture Debt Financing, A Hybrid Between Debt and Equity

Back in Lesson #109, we compared equity to convertible debt to bank debt as finacing options for your early stage business.  There is actually another class of investment called venture debt, which is structured as a hybrid between equity and bank debt.  It has a lot of the debt features associated with a loan, although at typically higher costs, plus some equity-based incentives through the form of warrants or other royalty on revenues.

The weighted average of cost of capital for venture debt ends up around 25% per year, in the middle of bank debt at 5-10% per year and equity at 40-50% per year.  And, it is designed for companies that financially sit in between the two stages (e.g., have some revenues and traction, but not large enough to secure a typical bank loan).

Below are representative terms for venture debt:

Amount:  Depending on lender, but in the $250K to $2.5MM range
Term:  Up to 5 years (more flexible than bank debt at up to 2 years)
Interest Rate:  10-12% (which is about double a typically bank loan)
Structure:  It is a debt instrument and must be repaid (unlike equity which does not)
Ranking:  Suborbinated to senior bank loans, and senior to everything else
Security:  It is often secured by the assets of the company (just like bank debt)
Paydown:  Interest only for two years, then principal paydown starts in last three years (vs. bank debt which is interest only until balloon payment of principal at end of term)
Board Rights:  Most venture debt lenders want rights to participate with your board of directors, as member or observer (much like equity investors, but unlike bank debt that does not typically require any board rights)
Equity Incentive:  1% to 5% "equity value" through warrants to purchase stock or some other royalty on revenues, based on the amount raised (where bank debt has no equity incentives, and equity investors would want a much larger stake).

In terms of a few lenders in the venture debt space, here are some that I am aware of:  Super G (Novus), Monroe Capital, Gibralter, Point Financial, Triple Point Capital, ATEL Capital Group, Trinity Capital Investments, Western Tech, Plymouth Ventures, Aldine Capital, Amerifi and Cambridge Capital Mangement.  And, sometimes hedge funds like Citadel and Fortress play this space, depending on size.  I am sure there are many others to research, as well.  But, before reaching out to them, research their industry focus and investment criteria on their websites, to ensure a good fit.

But, beware the key pitfall to consider here:  venture debt must be repaid, just like bank debt.  So, only take on debt, of any form, if you are 100% sure you can pay it back per the terms of the agreement.  Otherwise, any inability to repay your debt will be a noose around your neck and could force you into bankruptcy.

So, if you are having trouble raising bank debt, but you have pretty good traction and revenues (at least $1MM), venture debt could be the way to go.  Especially, if you are trying to protect dilution of your equity and stockholders, and are willing to pay a high cost of capital to do that (albeit not as high as raising straight equity).

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The Right Way to Give Equity to Your Employees

As a rule, entrepreneurs are very protective of their equity, and try to keep 100 percent ownership for themselves.  Usually this is fine, provided that important key parties (e.g., employees, partners) are appropriately motivated to help you succeed. Sometimes that motivation comes in the form of cash compensation (e.g., lucrative sales commission plan, profit share plan), and sometimes that comes in the form of equity or equity linked incentives (e.g., stock, options, warrants).

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.

What Would Entrepreneurs Have Done Differently?

I have previously written about the importance of planning ahead for proof-of-concept marketing based on my first-hand experience seeing the same consistent mistakes being made by the hundreds of startups calling Red Rocket for help: too much focus on product, and not enough focus on planning for a proof-of-concept around that product (which is what most venture capital firms are looking for before they make an investment in a company). And, to achieve such proof-of-concept, it requires inexperienced entrepreneurs to seek out experienced coaches or mentors to help create smart customer acquisition strategies and to budget for them accordingly.

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

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5 Things to Look For in Your Startup Team

Once you determine if you have a good business idea or not, the first step in building your business is putting the right team in place.  There are five key drivers to consider when setting up your management team.

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

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[NEWS] @RedRocketVC Client on Hunt for Tech Companies to Buy

We have a private equity firm client that is looking for a lower-middle market business to buy, or several synergistic businesses to buy, which can be rolled up into one larger firm (if you have been wanting to grow your business through acquisition).  They have up to $100MM to invest into any one platform investment (the initial acquisition, follow on acquisitions, and growth capital from there).  Growth plans can be organic or via acquisitions over time.

Target companies should be in the B2B or B2C digital technology space.  Or, they can be a services business, selling into either SMBs or enterprise scale clients, where the services can be productized into a technology platform over time.  Target financials should be in excess of $10MM in revenues and $2MM in cash flow out of the gate, either stand alone or post the rollup of known targets.  And, live within a market sector that can easily support growing into at least a $100MM revenue business within 3-5 years.  You must be able to clearly speak to a track record of growth and success, or have a reasonable explanation and turnaround plan in mind.  Companies need to be based in the U.S.

They most likely will put their own CEO in place, to help scale the business to the next level and to integrate any M&A efforts.  But, they are open to taking on the current management team in other executive capacities.  Or, they can assist the current team in transitioning out of the business after a reasonable transition time (although that may raise red flags, unless you are retiring).

So, if your business profile fits the description above, or applies for others you know, please contact us via the Red Rocket website with more information about your business.  Understanding we will keep everything confidential between us and our client, interested parties should provide us with the following:  (1) a link to your website; (2) summary of your business; (3) summary of your industry/competition; (4) summary of your growth vision; (5) a summary of any current challenges; and (6) summary of your historical and projected revenues and cash flow, to assist us with our analysis.  We may not be able to respond to all inquiries, but we will follow up with ones where we see a clear fit.  Serious inquiries from successful businesses with reasonable valuation expectations only.

Thanks for helping us spread the word to your connections.

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Lesson #219: Stock Option & Incentive Plans for Startups

I previously wrote about the importance of spreading equity to your employees or key partners. Stock options or other similar incentive plans are a great way to attract talent, incentivize employees and build long term employee loyalty for your business.

Some companies prefer to grant them only to senior management.  But, I am a fan of distributing them through the entire organization, so everyone feels invested in your success together.  Plan to set aside 10-20% of your equity value for your expanded team (e.g., 1-5% for senior execs; 0.5%-1% for middle managers; 0.25-0.5% for entry level staff). This is assuming they are normal salaried employees, and not a co-founder, where equity values could be materially higher (re-read this post on how to split equity between co-founders).

There are typically four types of incentive plans for you to consider, with various rules and tax consequences for the company and the recipients, as summarized below:

1. Non-Qualified Stock Option Plans (The Most Typically Used, Given Advantages Below)

Who Can Receive:  Anyone (e.g., employees, directors, partners)
Waiting Period to Exercise:  No restrictions.  Exercise anytime after they vest.
Exercise Price:  At any price, but taxable to recipient if less than fair market value (FMV)
Transfer Rights:  May or may not be transferable, depending on how you set up the plan.
Term of Options:  Exercisable anytime, provided plan is not set up otherwise.
Value of Underlying Stock:  No limit at time of exercise, provided plan is not set up otherwise.
Taxes to Company:  Deductions allowed from grants, at time recipient recognizes income, provided the company fulfills its withholding obligations.  This ordinary expense is equal to the ordinary income declared by the recipient.
Taxes to Recipient:  No tax at time of grant or exercise.  The recipient receives ordinary income at time of exercise for the difference between sale price and strike price. (So, people don't typically exercise until close to a known liquidity event where they will receive proceeds to cover taxes).

2. Qualified Incentive Stock Option Plans (Not Typically Used, Given Restrictions Below)

Who Can Receive:  Employees Only
Waiting Period to Exercise: One year.
Exercise Price:  At least equal to fair market value (or at least 110% of FMV for 10% holders)
Transfer Rights:  May not be transferred to anyone.
Term of Options:  Exercisable no more than 10 years after grant.
Value of Underlying Stock:  Cannot exceed $100,000 at time of exercise (in one calendar year).
Taxes to Company:  No deductions allowed from grants.
Taxes to Recipient:  No tax at time of grant or exercise.  Capital gain on sale of underlying stock (provided they hold the stock for at least one year after exercise, ordinary income if not).

3. Phantom Stock Option Plans

For some companies, the founders do not want any dilution to their equity.  But, they want to incentivize their employees with the same economic value they would have realized by owning equity.  In this scenario, you would launch what is known as a Phantom Stock Option Plan.  Instead of given rights to purchase stock, you are giving rights to receive the same economic value they would have made by owning the stock, without actually owning the stock.  These cash payouts are typically tied to a liquidity event or exit for the company. For tax purposes, phantom stock is treated the same as deferred cash compensation. Phantom stock payouts are taxable to the employee as ordinary income and tax deductible to the company.

4. Profit Sharing Plans

Another way to accomplish the same incentive, is to establish a profit sharing plan for the company.  So, instead of splitting up the equity and ownership of the business, you simply split up any profits that are generated each year.  The benefit to the individual is getting more control (easier to influence driving profits, than sale of company), in a more timely fashion (paid out annually, instead of at unknown time of sale of the company).  The problem with this route is early-stage businesses should not be distributing cash to its employees, it should be reinvesting that cash into accelerating the company's growth during its early-stage years.  So, if you plan on being a heavy cash user for growth, I would avoid this route.

Vesting, Acceleration & Other Key Terms

In all of the above cases, it is important you put a vesting schedule in place for the recipients before they are able to exercise their options.  Most vesting schedules are set over a four year period of time, to create long term hooks for retaining employees.  Typically, 25% vests per year, where it is a cliff vest in the first year (you have to wait all 12 months before first 25% is earned).  That ensures if an employee is not working out, you can terminate them without losing any equity.  Then after the first year, 1/36 of the 75% is earned monthly, over years two, three and four.  In the event there is a change in control of the business, you would typically accelerate the vesting to 100% earned, so the recipient can get the value created in the sale.

In addition, you want to make sure the company has a mechanic to buy back the underlying stock at the then fair market value and does not allow the recipients to transfer equity to other third parties outside of the company, without your written approval.  You typically don't want equity in the hands of strangers or "unfriendly" parties.

And, worth mentioning, you don't typically grant stock outright, as you do not want to trigger any immediate compensation tax consequences for the recipient or the company.  And, if you don't want to have the expense of setting up and maintaining a formal stock option plan, there are ways to motivate specific individuals, by granting them individual warrants to purchase stock, often with the same economics and vesting you would see with a stock option plan for many.

Hopefully, you found this high level education useful.  But, these are really complex issues.  So, as always, when setting up your plan, seek the counsel of a good startup lawyer to help you avoid the many known pitfalls (here is a good list of startup lawyers in Chicago).

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