Monday, December 18, 2017

Red Rocket's Best Startups of 2017

Posted By: George Deeb - 12/18/2017

Red Rocket gets introduced to hundreds of startups each year, in the normal course of doing business, or via our involvement with vari...



Red Rocket gets introduced to hundreds of startups each year, in the normal course of doing business, or via our involvement with various startup groups or events.  We wanted to honor the best of these startups that we met in 2017, in Red Rocket's 6th 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 2017, 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 2017 (in alphabetical order):

Adzerk (CEO, James Avery) - B2B private ad servers

Archive Social (CEO, Anil Chawla) - B2B social media monitoring for legal compliance

Canopy (CEO, Hunt Davis) - B2C on-demand lawn care services

Cloud Factory (CEO, Mark Sears) - B2B cloud-based human workflow services

Feelgoodz (CEO, Mark Saad) - B2C comfortable flip flops & footwear

Filter Easy (CEO, Thad Tarkington) - B2C & B2B air filter replacement subscription service

Freight Farms (CEO, Brad McNamara) - B2B mobile farming containers & apps

Genetic Direction (CEO, Edwin Mayfield) - B2C diagnostic health testing based on your DNA

Its By U (CEO, Caroline Strzalka) - B2B DIY flower arranging subscriptions

Leesa (CEO, David Wolfe) - B2C mattress ecommerce

MATI Energy (CEO, Tatiana Birgisson) - B2B healthy energy drink

Open Angler (CEO, Alicia Aloe) - B2C fishing charter reservation platform

Option It (CEO, Rich Gilsdorf) - B2C sports event ticket options market

Pearachute (CEO, Desiree Vargas Wrigley) - B2B reservation platform for kids activities

Pendo (CEO, Todd Olson) - B2B product user experience analytics platform

Pet Wellbeing (CEO, Darcy Foster) - B2C natural supplements for pets

Phononic (CEO, Tony Atti) - B2B next-generation semiconductors for refrigeration

PocketChefs (CEO, Jason Brown) - B2C on-demand chefs to your home

Precision Hawk (CEO, Michael Chasen) - B2B corporate drone fleet management

Ravean (CEO, Bryce Fisher) - B2C heated jackets and gloves

Remedy (CEO, Jeremy Gabrysch) - B2C on-demand doctors to your home

Seal Innovation (CEO, Graham Snyder) - B2C IoT necklace for safe swimming

ShiftWizard (CEO, Joe Velk) - B2B scheduling platform for nurses

Spark451 (CFO, Ron Tadross) - B2B admissions marketing & management platform for universities

Spiffy (CEO, Scot Wingo) - B2C & B2B on-demand car washing service

Stealz (CEO, Jim Zidar) - B2B turning customers into brand ambassadors

Sunscreenr (CEO, David Cohen) - B2C sunblock protection visualizer

TransLoc (CEO, Doug Kaufman) - B2G transit data for municipal transportation agencies

Validic (CEO, Drew Schiller) - B2B digital health IoT platform

Volata Cycles (CEO, Marco Salvioli) - B2C smart bicycles



And, don't forget to check out the 2012 winners, 2013 winners2014 winners, 2015 winners and 2016 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

Friday, December 8, 2017

Too Many Meetings Suffocate Productivity and Morale

Posted By: George Deeb - 12/08/2017

Early stage companies have many demands on an employee's time. From getting the product built to marketing for new customers to ge...



Early stage companies have many demands on an employee's time. From getting the product built to marketing for new customers to getting the capital lined up, it is a never ending battle to fit in all that work in a limited amount of time.  But, what I often see is productivity gets squeezed by early stage entrepreneurs scheduling way too many meetings, which gets in the way of employees having enough time to do their actual jobs. And, when productivity slows, the company's bottom line suffers and employees start looking for the door in frustration. Let me explain further.

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

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


Thursday, December 7, 2017

Lesson #283: Marketing Roles and Compensation

Posted By: George Deeb - 12/07/2017

. As your company scales, marketing becomes a bigger and bigger driver of your success.  You will experience expansion in ea...

.




As your company scales, marketing becomes a bigger and bigger driver of your success.  You will experience expansion in each of your marketing team, tactics and budgets.  I recently read a great blog post by Andy Crestodina at Orbit Media Studios, who studied the key marketing roles and salary trends based on the reports of 67,736 individuals as reported through Glass Door and PayScale.  

The conclusion was marketing salaries are on the rise, as there appears to be a shortage of really good marketing talent in the market, that is best skilled to deal with this generation of marketing needs.  And, in my opinion, that specifically means finding marketers that are well-versed in omni-channel marketing combined with a data-first, marketing ROI driven mindset.  That often means people that are deep in data and analytics, more than the softer branding and creative skills (which are freely available in the market.)

THE KEY MARKETING ROLES

Here is a summary of the key marketing roles inside the organization, in reverse order of seniority and experience.  


Marketing Coordinator.  Supports external teams through project support, program execution, collateral development, sales programs, as well as via ad hoc requests.  The average salary in 2017 is $50,291.


Marketing Associate.  Support online and offline marketing and advertising initiatives with the goal of expanding brand awareness within targeted, relevant audiences. The average salary in 2017 is $57,140.

Social Media Manager.  Engage with communities and clients through social media channels, with the goal of web traffic, lead generation and revenue. Create, execute and revise social media strategy and social media marketing blueprint. The average salary in 2017 is $48,285.

Content Strategist.  Works closely with interactive designers, visual designers, product and project managers to: gather business and technical requirements, analyze user and business needs, define user requirements, and inventory and analyze existing content.  The average salary in 2017 is $90,402.

Marketing Manager.  Manage brand messaging via marketing, advertising and promotional activities. Ensures relevant metrics are measured, benchmarks met, staff performance enhanced, and managed communities enriched through assigned goals and objectives.  The average salary in 2017 is $80,668.

Director of Marketing.  Demonstrate leadership and expertise in marketing. Be savvy in various forms of online and offline demand generation. Charged with leading a wide range of community experiences and becoming the brand voice.  The average salary in 2017 is $113,503.

Vice President of Marketing.  Responsible for determining and leading the strategic direction for organization’s marketing functions including positioning, brand awareness, driving demand generation and lead nurturing, as the head of the department managing the team.  The average salary in 2017 is $167,194.

If you want more-detailed job descriptions for each role above, please visit Andy's original blog post at this link.

MARKETING COMPENSATION TRENDS

What was interesting is how fast salaries are rising in the marketing department.  Overall, they were up 22.6% year-over-year.  Here is a summary of how they changed by role, with Content Strategist and Social Media Managers in the most demand.




CLOSING THOUGHTS

Most entrepreneurs do not give marketing enough focus in their businesses.  This is really important stuff, as marketing drives leads which drives sales.  The better your marketing team, the higher odds of revenue success and growth you will have.  You won't be able to afford all of these people out of the gate, so maybe two people could be filling the roles of six to start.  But, as soon as you can afford to put full-time people in place, you should.


ADDENDUM (9/24/18):  I found this great updated marketing compensation chart for 2019 on MarketingProfs.com.  It includes a lot more roles than the above and updates for the most current year's data.  So, check it out.


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


Tuesday, November 28, 2017

Need Your 2018 Business Plan? Help is Here!

Posted By: George Deeb - 11/28/2017

I know, with Thanksgiving now behind us, the holiday season is starting to set in.  But, no rest for the weary!  Now, is the exact tim...



I know, with Thanksgiving now behind us, the holiday season is starting to set in.  But, no rest for the weary!  Now, is the exact time you need to be finishing your 2018 business plans and budget, so you come out of the gates in 2018 at full speed ahead.

Do you have a business plan?  Have you completed your budget, by department?  Is your plan properly capitalized?  Do you have a credible sales and marketing plan that will help you achieve your revenue target?  If you answered "no" to any of these questions, I am talking to you!

So, if you need help with any of this stuff, you know who to call!  Simply fill in the contact form at the bottom of this page, and we are happy to set up an exploratory call to see if we can help.

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


Monday, November 20, 2017

Lesson #282: Don’t Start Marketing Until You are Ready!

Posted By: George Deeb - 11/20/2017

I recently wrote about scaling companies , and the importance of having a solid marketing plan in place to support that growth.  But, ...



I recently wrote about scaling companies, and the importance of having a solid marketing plan in place to support that growth.  But, what I didn’t talk about was when should you turn on that marketing in the first place?  The answer is pretty intuitive—not until you are ready!  But, what does that specifically mean?  Read on.

PRODUCT NEEDS TO BE READY

You don’t have anything to sell until you have a product complete . . . duh!   So, don’t turn on the marketing investment until you feel you have a product that you would be proud of.  A product you are confident won’t break, that has been fully through a quality control process.  A product that will make a good first impression, as you only get one chance to do that.  A minimum viable product is fine, it doesn’t need to have all the bells and whistles in it.  But, the key word there being: viable.  It must be good enough to be of a need to a customer, solving the core of some major pain point in the market.

CUSTOMER SERVICE NEEDS TO BE READY

Once you are actively selling to customers, they may have customer support questions or needs.  Make sure you have a process in place to handle those inbound phone calls and a way to quickly resolve any bugs that are being reported by users.  And, even if something slips through your QA process, make sure your customers know you are apologetic and on top of the issue, reporting back to them once it is fixed, and hopefully to their satisfaction.  The way you handle breaks, is as important as how you handle the sale in the first place.

CUSTOMER RETENTION & INFLUENCER MARKETING NEEDS TO BE READY

Yes, you need to be thinking about retaining new customers, as soon as you get them in the first place.  Did you have a way for them to follow you in social media?  Did you have a way to collect their email address, and opt them into your monthly newsletter (and, is the newsletter template and content calendar ready to go).  Do you have a way for them to become brand ambassadors, and share their happy experience with their friends or colleagues.  You might as well leverage their excitement while it is still fresh in their mind.

GET YOUR MARKETING ECONOMICS TESTED BEFORE GUNS BLAZING

Don’t spend $10,000 on marketing in one month, until you have tested $1,000 in ten places first.  Leverage growth hacking techniques and set clear objectives around calculating your marketing ROI.  Once you have a sense to which marketing techniques are working best, then you double down on those efforts with the vast majority of your spend.  But, the point here:  test, test and test again, until you get your cost of acquisition metrics at a low enough level to drive a healthy profit from the lifetime value of your revenues per customer.

GET AHEAD OF YOUR RECRUITING AND BACK OFFICE NEEDS

Hopefully, your initial marketing efforts will be a success, at which point you are going to want to pour kerosene on the fire, in the form of additional marketing efforts and investment. And, with a growing and bigger company, will come additional people and back office needs that will be needed to effectively manage and operate a business of that growing size.  So, figure out what additional bodies, equipment or space you will need to be successful in the future, and start warming up potential candidates and resources.  So, when you are finally ready to engage them, they are ready to go.

BE SENSITIVE TO THE CATCH 22

This whole post is talking about waiting to start your marketing efforts, until you are ready.  At, the same time, the venture capitalists you are pitching for capital will most likely want your marketing efforts tested and successful, before they will consider investing.  So, in one breath, I am saying “proceed slowly and cautiously”, and in the next breath, I am saying “go as fast as you can, if raising capital is important”, which is most likely the case for most of you.  That is a tight rope you are going to have to walk very carefully—you need the marketing data to attract funds, but not at the expense of upsetting your early adopters.


Hopefully, you now have a better sense to what is required to help prepare your business for a “ready for prime time” initial marketing effort.  It’s much more than simply an effort to acquire new customers.  It is also an effort to retain them, leverage word of mouth, efficiently scale the business and attract investment, all at the same time.  So, it is critical you get your first marketing efforts right!

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



Monday, November 6, 2017

Lesson #281: Avoid Internally Shuffling People Into Wrong Roles

Posted By: George Deeb - 11/06/2017

The old adage, a “bird in hand is worth two in the bush” may work in some instances in business, but slotting people into employee rol...



The old adage, a “bird in hand is worth two in the bush” may work in some instances in business, but slotting people into employee roles is definitely not one of them.  I can’t tell you how many times I see early stage entrepreneurs slot a person into a role, simply because it is convenient, with them already known and on the team operating in an entirely different role.  Stop this madness!!  Do you want the quickest solution to your hiring needs, or the best solution?  Allow me to further explain.

HAVING RELEVANT EXPERIENCE IS KEY

Would you hire an auto mechanic to pilot an airplane?  Or, a landscaper to build an addition on your house?  Of course not.  So, why then, do so many of you move a technology developer into a marketing role, or an junior level contributor into a senior management role before they are ready, or slot a person in just because they are the quickest or most affordable option?  Building the right team for your startup is the single most important thing you will do, in terms of dictating your odds of success. And, getting the most qualified person in that role, with proven experience in that exact role is the key.

STARTUPS CAN’T AFFORD A LONG LEARNING CURVE

When you are an early stage business, you really can’t afford any mistakes; there simply isn’t the excess capital on hand to absorb those missteps.  As an example, if your marketing person hasn’t proven they know how to grow a user base in a cost effective way, you are most likely paying for their learning curve and for all the mistakes they make in their media buying decisions.  That is like flushing money down the toilet, compared to hiring a proven marketer that knows what they are doing based on years of similar experience.

RECRUITING TIME MAY SLOW YOU DOWN, BUT BEST FOR BUSINESS LONG TERM

Sometimes clients will say, “but we are moving quickly, and this candidate was the quickest option, as we don’t want to lose time recruiting”.  I’ve got news for you:  sometimes it is more important to take a pause, take one step back, in order to best position the business to take ten steps forward.  Nobody likes having to recruit a new role—that is typically a 3-6 month process by the time they are identified, interviewed and onboarded (time typically taken away from someone else’s normal job).  But, once the new person starts working, they are out of the gate running at full speed, like an Olympian sprinter making up whatever distance they need to take the lead.  Compare that to having an inexperienced person working during that same period, but inching along like a turtle in perpetuity.

BEING LIKED DOESN’T MEAN YOU HIRE THEM

I also hear things like, “but he is a really nice guy and good worker, and I wanted to find a place for him”.  Yes, I can see the appeal of that.  It is hard to find people that have the right personality fit or work ethic to fit into your culture.  That said, if there is not an open position for that person in which that person is trained or capable of succeeding, sometimes you need to make the hard decision of finding a different employee that is best qualified to do the job.  The same point I made above, about finding your Olympian sprinter as opposed to a turtle.

A RELEVANT CASE STUDY

I had a client that firmly believed that internally shuffling talent was the best thing for the business.  That could have been related to giving somebody a new promotion opportunity, putting out an immediate fire created by a departed employee, satisfying an employee that wanted to try a new department, rewarding somebody that had been with the company a long time, etc.   Not one of these internal shuffles bore fruit.  And, worse yet, the company’s revenues stagnated for years; they simply could not break through to the next level of their growth.  When you manage with emotions or move too quickly, instead of data-supported experience, you often end up trying to put a “square peg in a circular hole”.  And, by the time you realize it, it is often too late.

CONCLUDING THOUGHTS

I am not saying you should never internally shuffle people.  There are many scenarios it can work out great.  Maybe that is moving a salesperson into a similar business development role, or an accountant into a similar controller role, as examples.  But, when you try to mold “gatherers into hunters” or “artists into intellectuals” or “doers into leaders”, you often end up with a big mess on your hands, and losing a lot of valuable time in the process, versus filling the role the right way from the start.


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



Friday, November 3, 2017

How to Build a Startup Ecosystem

Posted By: George Deeb - 11/03/2017

Chicago’s startup ecosystem is exploding . But so are others all across the country and around the world, with varying levels of suc...



Chicago’s startup ecosystem is exploding. But so are others all across the country and around the world, with varying levels of success. I wanted to talk about the mix of ingredients that are needed to make a startup ecosystem thrive over time, so leaders in your local communities can have a blueprint to follow to propel your local startup ecosystem, and hopefully, your own success in the process.

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

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


Monday, October 30, 2017

Lesson #280: Tell a Story When Marketing Your Company

Posted By: George Deeb - 10/30/2017

I recently met John Replogle, one of the most successful entrepreneurs and consumer marketers I have ever met, which says a lot, given...



I recently met John Replogle, one of the most successful entrepreneurs and consumer marketers I have ever met, which says a lot, given my rolodex filled with many rock-star entrepreneurs.  In that meeting, I asked him, with the sea of competition in your space (largely using the same ingredients), how do you break out from the clutter.  His answer was short and sweet, it's all about "telling the right story".  Let's learn more.

ABOUT JOHN REPLOGLE

John has held CEO, President or GM roles roles at some of the biggest consumer brands, including Guinness (Diageo), Unilever, Burt's Bees and Seventh Generation.  What caught my attention was the fact he was able to sell two different companies for huge valuations in a short period of time.  He sold Burt's Bees to Clorox for $925MM in 2007, and he sold Seventh Generation to Unilever for around $650MM in 2016.  He currently is a venture investor and advisor at One Better Ventures in Raleigh, who specializes in helping growth-stage companies in the consumer products space.  Their portfolio includes many companies that are off to the races, including Leesa, the online mattress startup, who has built up over $100MM in revenues in less than three years.  So, when John talks consumer marketing, you should listen!

THE BURT'S BEES STORY

Burt's Bees is the natural skin care business, doing around $250MM in revenue.  When you go to their website and click on their "About Us Page", nowhere do you see the word skin care anywhere on the page.  It leads with their founder, Burt Shavitz, a bee keeper who learned the benefits of bees wax as a lip balm.  It speaks the the company's purpose: the greater good for the company's customers, employees and environment, from the products through the packaging (simple, natural, responsible).  They speak to key benefits of the product, like being nutrient rich, born out of "nature as a laboratory", using "whole formulas" and "ethical and sustainable standards".  It's as if Burt himself is still personally making you their products out of nature's back yard. 

THE SEVENTH GENERATION STORY

Seventh Generation is the natural household cleaners business, also doing around $250MM in revenue.  When you go to their website and click on their "About Us Page", again nothing about the cleaners themselves.  It is all about their "mission" to make a difference and save the planet.  They talk about building communities, transforming commerce, nurturing nature, their philanthropic foundation and reporting on corporate consciousness.  Yes, you buy their product, and the planet lives to see another day!

WHAT THIS MEANS TO YOU

I have previously written about focusing on the "why", not the "what", when selling your products.  That post was trying to get you to speak less about your "features and functionalities", and more about how your product is going to help your customers drive more revenues, lower costs or improve their customer experience (which is what they really care about).

But, this post is taking it to the next level.  Now, we are speaking to creating a personality for your company itself, as consumers love a good story almost more than they care about the product itself (especially when those products are commodities).  Burt's Bees is not a manufacturer of skin care (a dime a dozen when said that way), it is nature's laboratory founded in a bee hive.  Seventh Generation is not a manufacturer of cleaning supplies, it is a steward for the making the planet a better place to live.

So, take out the "About Us" page from all your own websites.  Start scratching out anything that speaks to the "what" your business does.  Replace it with the "why" you matter to your customers, with the personality and positioning within the world of what your company aspires to be.  All while building a community around that passion point, to help you spread the word.  By better telling your corporate story, one that resonates with customers and differentiates you from competitors, hopefully massive sales will soon follow.

Thanks, John, for the inspiration here!


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


Monday, October 23, 2017

Lesson #279: Ali Express, The Amazon Killer You Never Heard Of

Posted By: George Deeb - 10/23/2017

Back in Lesson #251, I talked about the U.S. based ecommerce companies being at risk to Chinese manufacturers selling direct on Amazo...



Back in Lesson #251, I talked about the U.S. based ecommerce companies being at risk to Chinese manufacturers selling direct on Amazon.  I wanted to provide a little more color on this topic, as I think I found the business that may actually be able to disintermediate Amazon itself!!

First a quick history on the evolution of ecommerce entrepreneurs, and their marketing and fulfillment platform of choice, over the years.

Phase 1:   Sell on your own site, market yourself and fulfill yourself.  That meant the ecommerce company needed to invest all the marketing dollars (and risk thereto), all the warehouse investment (and risk thereto) and all the inventory investment (and risk thereto).  Only big, well funded companies could make that work.

Phase 2:   Sell on Amazon, marketed by Amazon, fulfilled Amazon.  This meant the ecommerce company no longer has to worry about marketing risk (tapping into Amazon's huge website traffic) or warehousing risk (tapping into Amazon's huge distribution network).  They simply had to take inventory risk of funding their working capital investment and eating whatever inventory didn't sell.

Phase 3:  The newest generation of ecommerce entrepreneurs are bypassing Amazon altogether, since they take such a large fee for their marketing and fulfillment services.  Instead, they are marketing on Facebook/ YouTube/ Pinterest/ Instagram (keeping the marketing risk), sending traffic to their own "plug and play" Shopify website (which can easily be set up in a day at very little cost), with all orders fulfilled by "plug and play" Ali Express, a division of China-based Alibaba (who drop ship one-off orders directly to U.S. consumers from their Chinese warehouses.  So, here, the ecommerce company keeps the marketing risk (because it has uncovered profitable "impulse buy" or "financial arbitrage" marketing techniques through the social media sites), but no longer needs to pay Amazon a big fee for warehousing and distribution, and better yet, no longer needs to take any working capital or inventory risk, since Ali Express sells you inventory one item at a time, after it is already sold.  This is like lowering your startup costs and risks by 80%, and opening up a sea of entrepreneurs trying to figure out this model.  This is where the market is today.

Potential Phase 4.  If I were Alibaba, I would figure out how to launch an Amazon killer that aggregates U.S. consumers (no marketing risk for ecommerce entrepreneurs, like Amazon) and fulfills orders by Ali Express (no warehousing risk, like Amazon, but with the added benefit of no inventory risk, unlike Amazon).  With a little marketing effort in the U.S., maybe Ali Express becomes that solution, as nothing prevents U.S. consumers from buying direct on that site today.  That is the next evolution of where I think the market will go, and could end up being an Amazon killer in the process.

Now we know why Amazon is so focused on adding international suppliers to their site--to get prices down to international wholesale levels to stay competitive with Alibaba.  But, that still leaves Amazon saddled with their huge warehousing and distribution investment in the U.S., which Alibaba does not have.  Which explains why Amazon is so focused on same day shipping, as their core competitive advantage vs. Alibaba and all others, appealing to the U.S. consumers' desire for immediate gratification.  But, if consumers are willing to wait 2-3 weeks for their ecommerce orders to arrive from China, they may be able to save material monies, as prices on Amazon will end up higher than Ali Express when the dust settles, to cover their warehousing and distribution investment.

Food for thought, for all you ecommerce entrepreneurs out there.  It has never been easier to launch an ecommerce business.  Amazon made it easy with their Fulfilled By Amazon solutions and Ali Express has made it even easier, drop shipping direct to U.S. consumers from China, without you needing an inventory or working capital investment.  Time will tell how Alibaba ultimately plays the U.S. consumer market, potentially taking your start up investment down, closer to zero, as long as marketing arbitrage opportunities exist on the social media networks where you can get an immediate payback on impulse-buy oriented products.  Maybe Alibaba and Facebook should partner with each other here, taking Amazon off its mighty perch?

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



Tuesday, October 17, 2017

Lesson #278: Entrepreneurs Mellow & Mature With Age

Posted By: George Deeb - 10/17/2017

I've been an entrepreneur for most of my life. I started an odd-jobs business in high school, founded a collectible comic-book bus...



I've been an entrepreneur for most of my life. I started an odd-jobs business in high school, founded a collectible comic-book business in college and launched my first venture capital backed startup -- an adventure-travel company -- in my 20's.  And, my entrepreneurial endeavors continue today. I'm in my late 40s, running Red Rocket, looking for companies to buy and advising hundreds of early-stage businesses.

Given this winding road of past experience, my approach to managing businesses today is very different than when I was younger. The experience I now bring to the table has materially mellowed me as a leader. But, I didn't have that background or that perspective when I was younger.

EXPERIENCE COLLECTS WISDOM

I'm no longer a freshly minted CEO trying to figure it all out and making a lot of mistakes in the process. Decades of battle scars have sharpened my business thinking. With that hard-earned experience, I've accumulated years of learning. Not much thrown my way today is new. Chances are, I've already seen some version of it in the past. I simply dust off the old playbook and adjust from there, without having to think about the challenge as a first-time obstacle.

WISDOM DRIVES CONFIDENCE

Business decisions are like anything in life: The more you've done it, the more comfortable you get. With that comfort comes a sense of confidence that you're headed in the right direction. First-time entrepreneurs often lack that insight and second-guess their paths. Tom Brady didn’t become the greatest Super Bowl-winning quarterback overnight. It took years of practice, memorizing playbooks and logging game-time experience. Those combined effects propelled him to success, and he's now one of the most confident quarterbacks in the game. Entrepreneurship is no different.

CONFIDENCE LEADS TO EFFICIENCY

The better you know your subject matter, the more efficiently you can execute your plan. I don’t necessarily need to stay up all hours of the night trying to figure out how to do something. I can make decisions faster now, and I know how to best invest my time. I don't get bogged down in the weeds. I've discovered what actions lead to the maximum ROI on my time, research and energy.

EFFICIENCY THRIVES ON DATA

In the old days, I'd get all excited about the features and functionalities of the product or service I was building. Today, the product doesn’t matter so much. I'm more focused on the economics around that product or service. What is my average ticket? Gross margin? Repeat sale rate? Churn rate? Cost of Customer Acquisition? Lifetime revenues? Return on marketing investment? Without solid business economics, the rest is just noise. I've become increasingly data-driven in my decision-making. I'm always looking for the profitable levers that I can pull to help scale a business.

DRIVEN BY A WICKED SMART TEAM

Age has taught me I'm not in this battle by myself. Surrounding myself with the smartest people I know will also make me a more effective leader and executive. I'd go so far as saying I hope my direct reports are a lot smarter than me -- and no, that doesn't intimidate me. So many young entrepreneurs need to feel as if they're the smartest person in any room. I empower my team members to do their jobs, and then I get out of their way. I don't need to micromanage every one of their decisions as I did when I was younger.

WHO KNOWS NOT TO PANIC

Most important, I no longer panic when things start to go wrong. Many first-timers sound the alarm early and often. That's doubly unfortunate because panic typically creates unnecessary chaos and stress right when an organization needs to be its most focused on solving the problem at hand. Take a breath. It all will work out in the end.

IN SUMMARY

Here's my message to all the first-time entrepreneurs: gather up experience (directly or through mentors) to help bolster your confidence and help make you a more efficient, data-driven decision-maker who's comfortable leading a team of wicked-smart and empowered executives. And for goodness sake, don’t panic when things start to go wrong. There's always a logical fix.  If you follow this guidance, you can stop pulling your hair out in the wee hours of the night. Instead, you'll get that time back and can transition to living a well-balanced life -- all while watching your bank account grow along with your thriving business.

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



Monday, October 9, 2017

Lesson #277: Revenue Share Loans

Posted By: George Deeb - 10/09/2017

I recently met Benji Taylor Jones and Jim Verdonik, the crowdfunding team at Ward and Smith (a leading law firm in Raleigh) , who intr...



I recently met Benji Taylor Jones and Jim Verdonik, the crowdfunding team at Ward and Smith (a leading law firm in Raleigh), who introduced me to a new type of loan that I had never seen before, called a revenue share loan. Apparently, revenue share loans are being popularized by crowdfunding – especially in offerings to both accredited and non-accredited investors in Regulation CF and state crowdfunding offerings.  Let's learn more, to see if this is a valuable financing vehicle for your business.

WHAT IS A "REV SHARE" LOAN?

A revenue share is a loan that is paid back over time by the borrower "sharing" a percentage of its "revenue" at regular intervals until it has returned to the lender a fixed return.

For example:  let's say a local brewery needs $100,000 to expand (amount you can raise is capped at $1MM per year).  The business borrows $100,000 from investors with a promise to return to them a fixed amount (say, 1.5x the amount loaned) over time.  The business then pays off the loan by paying investors a percentage of its revenue (whatever is a comfortable amount for your business, say 5%-10%) in periodic (i.e., monthly or quarterly) installments until the fixed return (in this case $150,000) has been met.  As an investor, you would receive your pro rata share of such payments based the amount of money you loaned the business.  The business's obligation could be open ended (meaning the loan remains outstanding until the stated return is met), but more often it might pay the return back within a specific time window (say 3 to 5 years, which may also require the business to make a "balloon payment" at the end of that period if there is any shortfall).  The shorter the length of time the company takes to fulfill its obligation -- the quicker the payout, the higher the rate of return (ROI).  So, investors "hit the jackpot" on loans that have a five year maturity date if the company repays the loan in three years, because revenue increased faster than the company projects.

Revenue share arrangements have lots of labels– they can be called a "revenue share loan", a "revenue share note",  "revenue share agreement," "revenue share interest" or replace "revenue share" with "royalty" in all of the above.  But whatever it is called, a "Rev Share" (as Benji and Jim like to coin it) is a "security" and that makes it subject to federal and state securities regulation.

Rev Share is rapidly becoming a popular choice for companies using "investment crowdfunding" exemptions to access capital.  Crowdfund Capital Advisors recently released data focusing on the "small but significant group" of companies utilizing Rev Share to raise capital under Regulation CF.  Picking up on this trend, Startwise.com, the newest FINRA approved Regulation CF platform, is specifically targeting Rev Share, allowing anyone to invest in businesses for as little as $100.  LocalStake has been featuring Rev Share for the small businesses it helps raise capital for several years.  But Rev Share isn’t a new concept.  It has been used in the oil and gas industry, real estate and film and music industries for years.  Franchising, and even share cropping, are other forms of Rev Share that long preceded Ccrowdfunding for other business startups.

WHY ISSUERS SHOULD LOVE "REV SHARE" LOANS?

Crowdfunding is popularizing Rev Share, because many retail investors prefer an immediate monthly or quarterly investment return to waiting five to ten years for an equity investment to hit a home run.  Every dollar an investor gets back in monthly payments reduces investor risk.

It has the potential to be a great win-win for investors and small businesses – particularly those businesses that are close to, or already have a history of, producing revenue.  Take our brewery example, as an investor if you know that you basically get a penny of each beer the brewery sells each month (or sometime like that), then it's not hard to imagine where you will go for happy hour on Friday afternoons; whether you might buy that extra round for your friends while you are there or where you recommend your neighbor buy the keg for the next Labor Day cookout.  This makes it great for businesses with products to sell with relatively high margins and those with repeat customers (think food, booze, software).

Rev Share creates an incentive for investors to buy a company's products and services and to become marketing ambassadors for the business, which in turn builds revenue the company needs to repay its loan.

THE TOP 10 BENEFITS OF "REV SHARE" LOANS FOR CROWDFUNDING:

1. Rev Share is NOT equity.  Investors are not buying any ownership interest in the business.  Investors who purchase Rev Shares have no rights to vote or control management.

2. Rev Share investors are creditors, not shareholders or owners.  Thus there is no "messy cap table" as a result of crowdfunding.  Once the promised return is paid, the obligation is cancelled and any contractual relationship between investor and the business is terminated.

3. Rev Share is NOT dilutive.  Rev Share does not dilute the ownership, control or economic interest small business owners (and their core investors) have in the business.

4. Rev Share avoids setting a "valuation" on the business.  The company does not need to set or negotiate a valuation of its business to sell Rev Share.  

5. Rev Share is offers investors liquidity and immediate ROI, assuming the business is close to or producing revenue.  The quicker the obligation is paid, the higher the ROI.

6. Rev Share does NOT require an exit strategy.  Most small businesses considering investment crowdfunding are run by owners looking to grow the company long-term and stay true to the mission that lays at the core of their business.  They are not looking to have an exit (by selling the company or going public sometime soon).  With Rev Share investors do not need to wait for an exit to earn ROI.

7. Rev Share reduces default risk.  With a Rev Share the amount a company owes each measurement period varies solely based on the amount of revenue it receives.  This reduces the chance of default when compared to traditional loans where the borrower must find cash to service set interest payments on a regular basis or risk default (and the bad things that accompany missed payments) irrespective of how it business is doing.

8. Rev Share is  based on projected cash flow and is good for companies with seasonal or variable sales.  Since Rev Share is based on projected cash flow, it is a really interesting alternative for companies that experience seasonality in their cash flows.  During months with higher revenues, they can repay more of their debt.  On the flip side, when sales are slower, their repayment would be less.

9. Rev Share has benefits when compared to traditional bank financing.  While it's true that the cost of this kind of loan can be more expensive than traditional bank financing (i.e., the implied interest rate paid to investors is higher than what a bank might charge), many small businesses that are good Rev Share candidates are not ideal candidates for bank financing.  In addition, a business using a Rev Share typically avoids bank requirements for collateral, personal guarantees, security interests on assets and other financial covenants.

10. Rev Share is stackable.  You can combine Rev Share with other types of financings to fund a single project.  For example, a business could raise capital through an accredited investor equity offering, a secured bank loan or equipment financing loan in addition to a Rev Share offering (if the other investors and bank permit).

Crowdfunding is mostly about giving ordinary people the chance to invest in businesses (and products and services) they love.  Rev share builds brand loyalty and incentivizes customer-turned-investors (who are already committed to the business) to buy more products and services and to encourage their friends, friends, neighbors and colleagues to do the same.  This in turn increases the company's revenue and, potentially, allows the company to pay the loan faster and at a higher ROI for its investors.  So, when all the stars align and things work as planned, Rev Share is an optimal solution for companies seeking capital and customers-tuned-investors looking to support the businesses they love while having access to a relatively quick and decent ROI.

WHAT TYPE OF BUSINESS IS A GOOD "REV SHARE" CANDIDATE

The business attributes Benji and Jim look for when they recommend Rev Share deals are:

Either track record of having revenue or certain near term prospects so that investors will start getting money back within a few months.

Companies that are or soon will become profitable.  You can't repay debt from revenue that you have to spend to pay your operating expenses.  Revenue growth without profit growth can cause borrowers to default, because their monthly repayments increase at the same time their other expenses are increasing.

High margins hold the potential for profitability, but that's only true if management controls expenses.  So, the best Rev Share candidates are business where expenses don’t grow as fast as revenue.

Projections for high revenue growth rates enable companies to repay their loans from the faster growth they generate from the loan proceeds.

The business can make a good case that every dollar invested in marketing or expanding production has historically resulted in multiple dollars of additional revenue.

Benji and Jim have developed financial modeling tools that they can use to help you set interest rates and projected repayment installments based on different terms you can consider offering investors, to help you determine if this is a good road for your business.  But, in a quick example, let's say your business is planning to grow from $1MM in revenues today to $3MM to $5MM to $7MM in the next three years.  If you raised the $1MM cap, meaning you need to repay $1.5MM (1.5x) within the five year cap, a 10% Rev Share would repay $300K in year one, $500K in year two and $700K in year three, for a total of the full $1.5MM.  Leaving you a two year cushion, in case things don't go to plan, which they never do.  And, don't forget, you can structure this with a lower Rev Share (e.g., 5%, and set up for a balloon payment in the final year), if more desirable to you to "push the can down the road", understanding the risks to cash flow in that last year.

THIS SOUNDS TOO GOOD TO BE TRUE, WHAT'S THE CATCH?

Well, there are few challenges with Rev Share:

1. Repayments can slow a business' ability to reinvest in long-term growth compared to equity. Selling equity promotes faster growth because there is more money to reinvest in growth every year (because you are not repaying debt installments).

2. Paying investors is an ongoing expense and headache.  It also requires sharing periodic revenue numbers with many people.  This info may leak to competitors and customers.

3. In an LLC or other pass through entity, owners will be taxed on phantom profits used to repay the loans.  Not a problem with equity.

4. Future lenders may be unwilling to make new loans to the company while the Rev Share debt is outstanding.

5.  Let's not forget, this is debt, and will default the company if it is not repaid.

CAN YOU RAISE "REV SHARE" FUNDS OUTSIDE OF CROWDFUNDING?

Rev Share is absolutely an available alternative to any kind of investment (not just crowdfunding) – the terms may get impacted by the typical goals of the "class" of investor and the degree to which it can be marketed to them.  For instance, Benji was just talking to a company that was looking at a form of Rev Share to use for an angel round.  Angels typically have higher ROR objectives than the crowd – so the structure may need to target a higher payout (3x to 5x) and the question becomes whether there is sufficient margin to reach that threshold.  So, it becomes a numbers game and whether the deal is marketable to specific types of investors.  But, practically and legally, there is no reason you cannot use a Rev Share in a traditional offering or combined with another offering (e.g., like combine Rev Share with a little less equity than you might offer in the normal angel deal).
This product is so new, that there is a lot of education that  needs to go on with all types of investors in this area. 

INVESTOR CONSIDERATIONS

Investors also should recognize that there are always risks associated with any kind of investment, and particularly investments in small businesses and startups.  There is no guarantee that the business you love will actually continue to operate successfully or derive sufficient revenue to repay your loan.  Many of the things that might be appealing for companies about Rev Share cut the other way for investors.  For instance, unlike equity, Rev Share investors do not have any voting, economic or management interest in the business.  Although they are creditors, they typically do not benefit from personal guarantees, security interests, financial covenants, or other restrictions that protect banks or institutional investors.  Often Rev Share loans can be subordinated to other borrowings by the business.

Although Rev Share could be an attractive diversification strategy and offer the opportunity to support the businesses you care most about -- it is important you consider all of the terms being offered by the company, including whether the company is generating revenue, to minimize your risk of not getting paid back and maximize your expected return.  You should consult your personal tax, accounting and legal advisors before making an investment.

LIVING TOGETHER AFTER THE DEAL CLOSES

Raising capital through investment crowdfunding is complicated.  Businesses need to be prepared for added regulatory and compliance costs, as well as the distractions that accompany taking investments from the "crowd".  Management must provide information and respond to these investors, even if they are not "owners" of the business.  Businesses utilizing Rev Share must manage the payout process carefully.  Rev Share has a more complex tax impact than say, straight debt or equity, due to the variable nature of the installment payments.  Businesses and investors alike will need to understand how tax payments and paperwork will be handled post-closing.  (Many platforms, like Streetwise and LocalStake, offer post-closing payment services to help companies manage these hurdles.)

Like in any marriage, having a long lasting mutually-beneficial relationship with Rev Share depends on whether your projections were realistic and how you manage your business.  So, be careful your love of Rev Share doesn't end in a messy divorce.

Thanks again, Benji and Jim, for helping me to share your wisdom with our readers.  If any of you would like to reach out to them for help, feel free to directly reach out to Benji at (919) 277-9142 or btjones@ wardandsmith .com.


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




Friday, October 6, 2017

In Sales, Silence is Golden

Posted By: George Deeb - 10/06/2017

I have written dozens of useful how-to lessons for driving sales , but perhaps none is more important than this one. This is the day t...



I have written dozens of useful how-to lessons for driving sales, but perhaps none is more important than this one. This is the day that you learn that driving sales has very little to do with what you have to say. It has everything to do with what your client has to say.

The magic sauce to closing a transaction is knowing how to ask probing questions, then sit back and listen.  Keeping your mouth shut is typically a really hard concept for a salesperson to grasp. But, when they do, jewels of insights about your customer and their real pain points will quickly rise to the surface the more they say.

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

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


Tuesday, October 3, 2017

The 6 Steps to Taking Your Business Global

Posted By: George Deeb - 10/03/2017

If your business has seen successful growth here in the U.S., it most likely will see success in other countries, as well.  And you may ...



If your business has seen successful growth here in the U.S., it most likely will see success in other countries, as well.  And you may want to lock up those markets, before some other company does.  I recently met a startup that had successfully tripled its revenues, largely from the results of a successful international expansion effort.  I wanted to share those learnings with all of you.

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 #276: Lessons from Two Unicorns (LendingTree & Blackboard)

Posted By: George Deeb - 10/03/2017

At the recent CED Tech Venture Conference in Raleigh, I sat through the presentations of two successful entrepreneurs that both built...



At the recent CED Tech Venture Conference in Raleigh, I sat through the presentations of two successful entrepreneurs that both built companies worth over $1BN (unicorn level valuations).  The first was by Doug Lebda, founder & CEO at LendingTree, the marketplace for finding loans, now a publicly-traded company with a market capitalization of approximately $3BN.  The second was by Michael Chasen, the founder & former CEO at Blackboard, the education software business that was recently sold to a private equity firm for $1.7BN.  It's not every day you get to learn insights from companies that scaled to unicorn levels, yet alone two in one day!!  So, my pencil was feverishly writing to keep up.

LESSONS FROM LENDINGTREE

The summary of Michael's presentation was that most entrepreneurs follow the wrong process on ideating and rolling out new ideas.  Most entrepreneurs follow a linear process of causal-based thinking, most typically in this order: study market, brainstorm, ideate, budget, approval, prototype, build, sell, go to market and pray.  This process can often take over a year of time, from start to finish.  And, is filled with pitfalls along the way, since it does not start the process by identifying your key strengths, assets and relationship to best exploit before you begin.

Instead, Michael follows the principles of effectuation, a process pioneered by UVA entrepreneurship professor, Saras Sarasvathy, in 2001, based on her research of 27 entrepreneurs in the late 1990's.  There are five core principles that define effectual logic, as documented on Wikipedia and as further shaped by Michael:

  1. The Bird in Hand Principle. Entrepreneurs start with what they have: who they are, what they know and who they know. The entrepreneur does not start with a given goal, but with the tools he or she has to work with.
  2. The Affordable Loss Principle. An entrepreneur does not focus on possible profits, but on the possible losses and how they can minimize those losses.  Manage to risks you can afford to take in terms of time, money or reputation.
  3. The Crazy Quilt Principle. Entrepreneurs cooperate with parties they can trust to make a pre-commitment.  You look for partners with "skin in the game" by asking the question "what would it take to get your commitment" on a barter or low-cost basis.
  4. The Lemonade Principle. How do you turn "lemons" (surprises) into "lemonade (pivots to new opportunities).
  5. The Pilot-in-the-Plane. The future cannot be predicted, but entrepreneurs can control some of the factors which determine the future.  This includes creating your own market, creating a culture "grounded in change" and having new hires "self-eject" themselves after their first 48 hours of not fitting in.

By following these principles, you are able to take an "unknown road" which can take a year to travel, down to a "known road" which you can navigate in a couple months.  And, we all know how important speed can be in increasing the odds of success for a startup.  Doug was able to get all 500 employees at LendingTree to think like entrepreneurs, and not a big company, by following these principles for all of the key decisions they made along their growth curve.

LESSONS FROM BLACKBOARD

Michael came up with his own five pieces of wisdom gained from his time at Blackboard:

  1. Be passionate about what you do (even if others are not).
  2. Focus on the business (not the office)
  3. Share the vision (but sell the execution)
  4. Constantly seek advice (but make sure you are the expert)
  5. Realize disruption changes everything (again and again)

Which he then amended to six pieces of wisdom by adding:  when you are done, do it all over again!!  He is practicing what he preaches, by recently taking over as the CEO at PrecisionHawk, a leading seller of commercial drone technology.  Hopefully, he is on his way to building his next unicorn company.


Anyway, I thought there were some good pearls of wisdom in here, from two guys that know what they are talking about.  So, I share these nuggets with you, to apply to your own businesses.  This is the follow on piece to Lesson #275:  Lessons from the Best VC Ever (John Doerr), also from the same conference.


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


Monday, September 25, 2017

Lesson #275: Lessons From the Best VC Ever (John Doerr)

Posted By: George Deeb - 9/25/2017

This last week, I attended the  CED Tech Venture Conference  in Raleigh, the leading technology and venture capital conference in the ...



This last week, I attended the CED Tech Venture Conference in Raleigh, the leading technology and venture capital conference in the Southeast.  The conference opened with a fireside chat with Silicon Valley legend investor, John Doerr of Kleiner Perkins.  John was the initial institutional investor in powerhouses like Google, Amazon, Uber, Twitter and Slack before they became the household names we all know to today.  It was safe to say, the room was silent in anticipation to hear what wisdom this "best of the best" investor would share with his venture capital industry peers. Luckily, for all of you, my pen was scribbling as fast as it could to share all of those learnings with you.

HIS SECRET SAUCE:  IT'S ALL ABOUT THE PEOPLE

Invest in great teams, as the execution is materially more important than the idea.  A good idea with poor execution, is simply "an hallucination".  What he looks for in his teams:  integrity, team first attitude, resilience to get through the bad times, smart, tenacious, an effective recruiter, with a big vision.  In that exact order, which was interesting as the big vision was the last thing he mentioned, normally one of the first things mentioned by others.  He looks for leaders that aspire to be "Level 5 Leaders" as defined in his favorite book, "Good to Great" by Jim Collins: leaders that are driven by "the triumph of humility and fierce resolve", like Sam Walton was at Walmart.

ARE INVESTMENT OUTCOMES PREDICTABLE?

Sometimes, you meet a guy like Jeff Bezos at Amazon, and you know his energy and vision are going to knock the doors down towards achieving his goal, clearly presenting themselves as someone you want to get involved with.  Other times you meet guys like Larry Page and Sergey Brin at Google, that "frankly, were cynical about business building", but you knew they were on to something big and would figure it out over time.

WHAT IS THE FUTURE OF TECHNOLOGY--HIS CURRENT INVESTMENT FOCUS?

He is a big fan of "AI with IA"--artificial intelligence with intelligent agents, as that is going to revolutionalize the way decisions are made and things get done.  He is also a big fan of the healthcare space overall.  He said companies like Google and Facebook are fighting over an $85BN online advertising industry, but the healthcare industry is a $3TN industry, 50x bigger, that is ripe for disruption and much bigger financial outcomes.  Even his portfolio companies, Google and Amazon, are trying to figure out how to play in healthcare related data, artificial intelligence and logistics.

LESSONS FROM GOOGLE AND AMAZON

The two companies were similar in that they both "imagined a world ahead of us".  They were both "moonshots" with 10x return goals.  Amazon was driven by a much more extrovert culture and customer-focused obsession.  Google was driven with a technology and data science first focus.  Two completely difference ways of eventually turning into multi-billion dollar companies.

HIS FAVORITE ENTREPRENEUR:  STEVE JOBS

There was a point in the presentation that John Doerr visibly got choked up, and that was when he pulled out the original iPhone that had been signed by Steve Jobs, who obviously meant a lot to John.  John said that Steve Jobs once told him that "this iPhone nearly killed our company", with the drive to really change the world of mobile computing from the palm of your hand, forever. And, with over 700MM iPhones sold to date, what a testament to that drive and success.

John referred to Steve Jobs as the best entrepreneur he had ever known.  Sound familiar?  He shared stories about Steve being ruthlessly honest in his opinions, with a clear and crisp vision around the product.  But, he kept his "blinders open" to be flexible over time, as Steve originally didn't want third party apps on the iPhone, and we all know where that ended up, millions of apps later.

CLOSING WORDS OF WISDOM

Embrace technology, don't be scared by it.  Stay well-grounded, and close to your family.  And, let's aspire to a technology and venture community that embraces diversity and creates equal opportunities for women.

Wow, what a ton of learnings, in a very short period of time.  Thanks John for sharing your life's lessons with us.  And, thanks to the CED for adding him to the roster of speakers.  It really was the highlight of the event, for me.


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


Tuesday, September 19, 2017

Lesson #274: Do You Need a RE-Founder for Your Business?

Posted By: George Deeb - 9/19/2017

Oftentimes, startup entrepreneurs are simply too close to their businesses to get a clear, non-biased look at what may be holding them...



Oftentimes, startup entrepreneurs are simply too close to their businesses to get a clear, non-biased look at what may be holding them back from ultimate success.  Maybe they lack the required skills or business experience required to identify or correct problems inside their product, process or team.  And, more often that not, as a new entrepreneur  “you just don’t know, what you don’t know”.  And, when the problems become material enough that it could potentially put the company out of business, maybe it is time to hire what I call a RE-founder for your company, to help put it back on the right course.

WHAT IS A RE-FOUNDER?

Everyone knows what a founder or co-founder of a company is; it is the person or persons who formed the business in the very beginning of the company.  It was often their business idea that they birthed from a piece of paper, into an up-and-running product and business.  Think what Mark Zuckerberg is to Facebook or Jeff Bezos is to Amazon or Bill Gates is to Microsoft.

But, nine times out of ten, a startup is not successful in achieving mass customer adoption of their product or service.  And, then, they have to make some important decisions?  Is the problem so bad they need to close up shop?  Or, they need to reset their sights from building a big venture-backed company, to only building a small lifestyle business?  Or, they potentially need to get a new strategy and leadership to pivot the company into a different direction that has a higher odds of seeing scalable success.

It is this last route where I am suggesting you need to hire a RE-founder of the company.  The RE-founder will be responsible for doing a critically-needed and non-biased strategic planning process, to thoroughly understand the company’s core strengths, weaknesses, opportunities and threats.  And, then they will produce a 3-5 year long term vision and action plan for which the company to follow in hopefully pivoting the business to new heights.

WHERE TO FIND A RE-FOUNDER

In terms of how best to find a RE-Founder for your business, the process is quite similar to the Where to Find a Co-Founder process I wrote in the past.  The only differences this time around: (1) you are looking for more of a turnaround expert to help you solve your known pain points; and (2) you are looking to reinvent an existing business, including any or all of the people, product or process.  So, instead of starting with a clean piece of paper, you have to rework what you have.  Which is more like building a foundation and framing for a new 4,000 square foot two-story single family home, and having to re-architect it to a 4,000 square foot four-family apartment building.  You need someone that is good with implementing change within the organization.

HOW TO WORK WITH THE RE-FOUNDER

As the company’s founder, taking on a RE-Founder will require a material shift in the way you have been operating to date.  Now, you need to be prepared to get in the “back seat” and go along for the ride.  Don’t weigh down the newcomer with legacy thinking or sacred cows—let them do the job you are engaging them to do, to fix the business.  This will be a really hard, but necessary, process for most entrepreneurs who like to control every aspect of their business.  But, you need to be honest with yourself—there is a reason the business is struggling, and you will most likely have a better outcome (and equity value) if you simply get out of the way of the new expert.

CLOSING THOUGHTS

I have previously written about the importance of failing fast as a startup, so you don’t waste a lot of unnecessary capital.  I guess what I am suggesting in this post is once you have hit that fail point on your own, you now have a second option to consider.  Instead of simply shuttering the doors, maybe it is as simple as handing the keys off to a different proven executive to take a crack at fixing your business before you close it down.  You can never underestimate the importance of leveraging a fresh set of eyes, as the potentially perfect prescription to your woes.

So, after a critical assessment of your business, do you think you need a RE-Founder for your business?  If so, let’s do this thing, as time is clearly of the essence.


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



Red Rocket is a featured contributor on entrepreneurship for many trusted business sites:

Copyright 2011- Red Rocket Partners, LLC