When we pay for things, we expect to receive a specific value from the purchase. Sometimes that value is obvious, like a bar of soap or light bulb and other times it’s not. When it’s not and if there is too much perceived risk of not achieving the intended value, sometimes the seller has to offer an “insurance policy” in the form of a money-back guarantee or even not get paid until the value is confirmed (ie – contingency or success fee).
Many of us that sell products have learned about value-based pricing and the benefits from pricing our product based on the value the customer actually receives. But I’m still amazed at how infrequent I see this done by startups and early stage tech companies. Whenever I meet with them in an advisory capacity and pricing strategy becomes a topic of conversation, I always launch into an exercise I refer to as “extreme value-based pricing”. In this article I’ll explain the fundamental concept so that you can decide on your ideal pricing strategy and related pricing metric.
Continue reading “Extreme Value-Based Pricing”
Imagine this scenario. You decide to pay $2,500 for the cheapest exhibit option at your industry’s big annual trade show. You know you’ll spend another $2,500 on cheap travel, lodging and meals for you and a fellow employee plus some marketing materials. When you get there you discover that the 6-foot table you’ve been assigned is in the back corner of the exhibit hall near the loading docks and you return two days later with a handful of crappy leads, sore feet from standing hours on end and a big stack of brochures and other marketing material that went unused.
Amazingly, this same general disappointment can happen with spending $20,000 or more. This article describes some of my favorite hacks for gaining legitimate trade show value at EXTREMELY low cost.
Continue reading “Favorite Trade Show Hacks”
“Churn is like a leaky boat. You can bail water (more new customers) and/or work on the leak (happier customers).”
– Gordon Daugherty
The field of marketing has dramatically changed over the past 15 years due to the advent and dramatic proliferation of the Internet. Roles like social media marketing, activities like search engine optimization and tools like marketing automation platforms didn’t exist until the early 2000’s. Some didn’t really become mainstream in business until about a decade later. There is a new technology trend that will dramatically revolutionize the marketing function once again. I’m referring to Artificial Intelligence.
Continue reading “A.I. Will Revolutionize the Marketing Function”
I know, you just want me to show you the scorecard and associated secret formula investors use to decide a supposedly “fair” valuation for your company. Unfortunately, you are only allowed access to that information once you’ve become an accredited investor, pass the extremely difficult valuation certification test and finally swear yourself to secrecy, with an implanted microchip under your skin for enforcement. Haven’t you wondered why investors act so sketchy when you try to get them to explain how they came up with a proposed valuation for your company?
Continue reading “Negotiating Valuation with Investors”
“Whether you think you can or think you can’t, you’re right”
– Henry Ford
A company founder has no choice but to secure the first sales of their newly-created product and the first strategic partnership. That’s because they can’t afford to hire a sales or business development professional. But even with demonstrated success, they probably aren’t near as good at sales or business development as they think and this misconception can create some challenges later. Let’s explore this phenomenon a little further.
Continue reading “You’re Not as Good at Sales as You Think”
Over time, society has increasingly expected instant gratification and uses of an “easy” button to achieve a desired result. Unfortunately, when it comes to the pursuit of career success, it’s not near that easy. A lot of time and effort is almost always involved. I’m sure you have a story about a 25 year old that is already a multi-millionaire and that’s great. Maybe it was pure luck or maybe there was more to it.
The purpose of this article is to give you a framework for visualizing the key ingredients to long-term, personal career success, however you define that term.
Continue reading “A Model for Career Success”
“The best time to plant a tree was 20 years ago. The next best time is now.”
– Chinese Proverb
With as little as it costs to get a software startup off the ground these days, many entrepreneurs start off as what we call “bootstrappers” rather than fundraisers. There’s nothing wrong with that approach but staying in the bootstrapped mode for too long can carry some consequences. This article explores that further.
Continue reading “How Long Should You Bootstrap?”
Not much different than the famous chasm described in Geoffrey Moore’s book “Crossing the Chasm”, funding your startup venture over time also has a chasm. This fundraising chasm doesn’t trip up all startups but that might just be due to luck. Explore this further with me to better navigate the chasm in such a way that it doesn’t suck you into the abyss.
Continue reading “The Fundraising Chasm”
“Learning is not child’s play; we cannot learn without pain.”
(Greek philosopher, 384-322 B.C.)
It’s amazing how success can cause numerous blind spots for managers and executives. The greater the success, the more severe the blind spots. As an advisor I sometimes poke on these blind spots only to get a reaction like “Hey, we’re doing really well, what’s the problem?” Well, it can be a big problem for multiple reasons that can backfire on you later if you’re not careful. Let’s explore further.
Continue reading “Use Mock Layoffs for a Well-Oiled Machine”
Anyone that took a marketing class in college was taught about the 4 P’s of marketing (product, price, place, promotion). And although the fundamental concepts are still valid, they just seem too out-of-date to teach without a lot of interpretation or translation for modern times. So I’d like to propose an update while sticking with the same letter “P” so we can still call it the “4 P’s of Marketing”.
Continue reading “The New 4 P’s of Marketing”
Successful emergency room doctors must be highly intelligent and calm under pressure. Successful triathletes must to be goal-oriented and driven. Successful songwriters must be creative. What about entrepreneurs? Entrepreneurship is an interesting field and one that often stokes the debate over whether successful entrepreneurs are born with the prerequisite traits or if they can also be learned/developed over time. Rather than get into that debate, I thought I would share what I see as the eight most common personas of successful entrepreneurs.
Continue reading “The 8 Personas of Successful Entrepreneurs – Which Are You?”
“I never failed once. It just happened to be a 2,000-step process.”
– Thomas Edison
When I ask entrepreneurs what their most valuable resource is, I ALWAYS get one of two responses: money (aka – funding, cash) or people. And it’s hard to argue about the relative importance of these two things. But those resources are replaceable. There’s another resource that isn’t, and it’s Time. Time is an entrepreneur’s most valuable resource and is the subject of this article. Given the various other tools and resources you have, how can you maximize time? Let’s explore further.
Continue reading “Your Most Valuable Resource”
Almost no investor wants to be the “first check written” for your round of funding. This makes total sense if you think about it from their perspective. If you don’t secure any other investors, they are in big trouble because you needed a certain amount of money to remain viable and now their investment is already extremely risky. For this reason, until you actually have money in the bank from a few investors you will find most interested investors dragging their heels (artificially delaying things). This article describes how you can use verbal commitments as a crucial tool to shake things loose, get some money in the bank and trigger needed fundraising momentum.
Continue reading “Using Verbal Commits to Secure Your First Investors”
What do buying a new smartphone and being given a gift card have in common? In both cases you want to extract value as soon as possible. With the gift card you immediately want to go shopping and with the new smartphone you immediately want to port over your contacts and download your favorite apps so you can start using it.
The same thing happens when subscription-based companies sell their offering to a new customer. This article describes the all-important time-to-value (TTV) metric and the various ways it can be measured.
Continue reading “Importance of the Time-to-Value Metric”
“At one point in your life you’ll have the things you want or the reasons why you don’t.”
– Andy Roddick
(professional tennis player with 32 career titles)
Here’s a scenario I commonly see. A startup raises $1M in total seed funding to turn their MVP into a real product and figure out a profitable and scalable customer acquisition model. All goes well over the coming 12 months as they reach $80K in MRR while also growing the team to 10 employees. They find themselves setting plans for a Series A round of funding and predict the process will be similar to their seed round but just with venture funds as the primary target and larger check sizes. After eight weeks and zero success, they approach someone like me for advice and the reaction they get is some flavor of this: “a Series A is not just a larger version of a seed round”. This article dives deeper into what exactly that statement means.
Continue reading “A Series A Isn’t Just a Large Seed Round”
I didn’t invent this quote (can’t remember where I heard it) but what a great one to help remember that with most business-related transactions, price is definitely not the only factor. Three such transaction types relate to the things I commonly write about on this site:
- Fundraising (valuation)
- Technology licensing (royalty or license fee)
- Acquisition (price tag)
In this article I provide insights into possible terms for each type of transaction that could dramatically change the value equation.
Continue reading “Tell Me Your Price and I’ll Tell You My Terms”
FINALLY!!! After years of waiting for equity-based crowdfunding rules (aka Reg CF) to be adopted and put into effect following legislative approval of the JOBS Act of 2012, it’s finally here (effective May 16, 2016). So should you stand on top of your roof and heed the battle cry to all of your fellow entrepreneurs? Well, not so fast.
I think you should “double click” on the final regulation to know what you would be advocating. I’m not sure it’s for everyone and certainly it is not for every situation. In this article I’ll attempt to demystify at least the basics.
Continue reading “What You Should Know About the New Equity Crowdfunding Rules”
“A pessimist sees the difficulty in every opportunity; an optimist sees the opportunity in every difficulty.”
– Sir Winston Churchill
(there is controversy as to whether he actually said this)
I’m not talking about a stand-up presentation in front of an individual investor or VC firm but rather some form of on-stage pitching event. It might be called a “demo day” or “shark tank” and might also come with awards (including cash). Too often, I see entrepreneurs make basic mistakes that could have easily been avoided if they had prepared, even just a little. I actually think it’s a common personality trait of many entrepreneurs. They take pride in being able to “wing it”. But if the stakes are high, why impose the extra risk? In this article I cover a checklist of simple preparation tasks for pitching events.
Continue reading “Preparing for a Pitching Event”
“No battle was ever won according to plan, but no battle was ever won without one.”
(Related: “In preparing for battle I have always found that plans are useless, but planning is indispensable”)
– President Dwight D. Eisenhower, 1962
Some startups build core technology with the sole purpose of making money by licensing it to others while other startups later discover they have something that could be licensed as a revenue enhancement opportunity. In either case, licensing your intellectual property (IP) is a fairly involved venture with significant downside risks, if done wrong. But if done correctly and with the right partners, magic can happen. This article explains the risks and opportunities with technology licensing deals from a business development and deal structuring perspective (rather than a purely legal perspective).
Continue reading “Licensing Your Technology”
While you are still in the idea phase, investors tend to focus on vision, promise, potential and personality traits of the founder(s) because that’s all you have for them to evaluate. Once you’ve got an established business model, starting management system and initial track record of paying customers, investors will naturally give those things focus when considering an investment. But when you’re in between these two phases with a yet-to-be-launched MVP (software) or ugly-but-working prototype (hardware), the conversations and debates are often more challenging. You have something tangible (MVP, prototype) but can’t yet connect any dots of real customer traction. This article describes a method for helping the investor understand where you are currently and how their money will effectively be used to continue your pursuit of building a great product and eventually a great company.
Continue reading “Defending Your MVP or Prototype Stage with Investors”
“Imitation is the sincerest form of flattery”
– Charles Caleb Colton, 1820
Note: Similar versions of this quote can be found as far back as 1708:
- “You should consider that Imitation is the most acceptable part of Worship, and that the Gods had much rather Mankind should Resemble, than Flatter them.” (in a 1708 biography of Marcus Aurelius by Jeremy Collier and André Dacier)
- “Imitation is a kind of artless Flattery” (English writer Eustace Budgell, 1714)
Most startups think of a convertible note as the most common fundraising vehicle used during the pre-seed and seed stages (see related article titled “Convertible Note Basics“). What they might not know is that convertible notes are also used for what’s called a “bridge round”. It is just like it sounds, bridging the gap between today and some point in the future. This article describes the use of convertible notes for such a scenario and, more specifically, the differences and nuances versus using them for seed rounds.
Continue reading “Bridging a Gap Using a Convertible Note”
It seems like everywhere you look now there is some form of startup program advertising their method of helping entrepreneurs increase their odds of success. From incubators and accelerators to boot camps and co-working spaces, each has a different collection of benefits and associated costs. But how should you go about deciding if they are right for you and your particular venture? And if the answer is “yes”, how do you go about comparing them? Let’s explore further.
Continue reading “Is a Startup Accelerator Right for You?”
Some online marketplaces that have a local services component on one side of the marketplace carry an extra burden that “pure” online marketplaces don’t have. Such marketplaces can’t immediately gain broad geographic coverage for their offering. Examples, include transportation network companies (ie – Uber, Lyft), food delivery services (ie – GrubHub, Postmates), in-home cooking services, on demand photography services and many other types of services that aren’t easily on-boarded into the marketplace and activated without some local presence by the marketplace company itself.
This phenomenon creates an extra burden when trying to scale after initial business model validation and that, in turn, creates an extra burden when trying to convince investors to put their money into the company. If you have such a company, read on because in this article I describe some key things to consider and possible approaches to take when devising your market expansion plan.
Continue reading “Expanding Beyond Your Home Market (Marketplaces)”
Not all sales processes are created equal. In fact, the whole purpose of developing a sales process for your company is to uniquely match the dynamics of your target audience’s purchasing methods with the approach you use to convince them to buy your “stuff”. One major mistake I see a lot of startups make is thinking that a transactional, SMB-focused sales process can work with large enterprises but just with longer sales cycles and bigger deal sizes. It’s not nearly that simple.
There are many books about enterprise sales. In this article I’ll highlight what I think are the key attributes of a successful enterprise sales process while sharing some tips and tricks I picked up during my tenure as an IBM enterprise sales rep and later as Sales VP for an early stage tech company with an enterprise focus.
Continue reading “Intro to Enterprise Sales”
“If you fail to plan, you are planning to fail”
– Benjamin Franklin
I have written articles about various aspects of M&A and have even written two, based-on-true-story case studies (titled “A Tale of Two Acquisitions”) to teach the numerous lessons I’ve learned throughout 14 acquisitions I was involved in, mostly as the buyer. But these days when I’m approach by an entrepreneur for advice related to M&A, it is almost always because they were just approached by an interested acquirer and are trying to figure out how to react, what to do next and what to prepare for should things proceed down the acquisition path. This article intends to serve as a “Start Here” guide for such a situation.
Continue reading “Approached for Acquisition – Now What?”
Many (probably most) startups go through periods of extremely little cash in the bank and with visions of crashing and burning before being able to recover. Unfortunately, crashing and burning is what actually happens a high percentage of the time after getting extremely low on cash. But it’s not what always happens and even if closing the company is the only option, there is a certain way to go about it. This article highlights some golden rules to keep in mind upon hitting really tough times, having doubts about survival and deciding how to proceed.
It usually takes a huge effort to get the attention of a big strategic partner and impress them enough to get a formal partnership. In fact, might have you read my articles titled “A Secret to Securing a Strategic Partnership with a Major Player” and “Get the Strategic Alliance Partner to Come After You” and they worked. Either way, congrats. Unfortunately, at that point you’re still only half way to fully exploiting the relationship. You might get some interesting press attention right after the announcement and your employees will certainly be proud of the accomplishment. But that doesn’t mean your revenue production will suddenly shift into a new gear. In this article I’ll explain how to significantly increase your leverage by embedding with your new strategic partner.
Continue reading “The Hidden Value of Embedding With Your Strategic Partner”
“Desire is a contract you make with yourself to be unhappy until you get what you want.”
– Naval Ravikant
…(serial entrepreneur, angel investor)
As I was reading a collection of Mother Goose rhymes that I bought to eventually read to my new granddaughter, I was reminded of a great book titled “All I Really Need to Know I Learned in Kindergarten”. While my exercise is definitely more light-hearted, it is in that same spirit that I’ve discovered several startup lessons from the narrative and underlying messages in these rhymes. I did the same thing with various Dr. Seuss books and you can find that article here. I mean, how much more fundamental and principled can you get than Mother Goose and Dr. Seuss? I hope you enjoy this article and decide to pass it along to others.
Continue reading “Startup Lessons from Mother Goose”
As I was reading some Dr. Seuss books that I bought to eventually read to my new granddaughter, I was reminded of a great book titled “All I Really Need to Know I Learned in Kindergarten”. While my exercise is definitely more light-hearted, it is in that same spirit that I’ve discovered several startup lessons from Dr. Seuss’ narrative and underlying messages. I did the same thing with various Mother Goose rhymes and you can find that article here. I mean, how much more fundamental and principled can you get than Dr. Seuss and Mother Goose? I hope you enjoy this article and decide to pass it along to others.
Every field of study has its basic vocabulary of words and phrases that come up over and over again. This vocabulary is so fundamental that it is used to explain other concepts that are more advanced. Well, fundraising is no different. This article is intended to serve as a primer of sorts with a description of ten basic terms that must be understood by any startup pursuing fundraising.
There is one question that haunts every experienced marketing executive as it relates to spending money on demand generation: what is the optimal mix of demand gen marketing campaigns and if we have extra money to spend, where should we spend it and why? Lots of advanced marketing tools are available and new ones are released all the time. But none that I’ve seen exactly answer these questions and the reason is because optimizing your mix demand generation activities is just as difficult as optimizing your mix of personal investments (ie – stocks, bonds, real estate, CD’s, etc). So why not steal a concept from the investing world and apply it to marketing? I’m talking about Portfolio Theory.
Continue reading “Optimizing Demand Generation Using Portfolio Theory”
“If you can’t explain it simply, you don’t understand it well enough”
– Albert Einstein
Note: There is some dispute about whether Einstein actually wrote or said this. Lord Rutherford of Nelson supposedly said something similar: “An alleged scientific discovery has no merit unless it can be explained to a barmaid.”
You built your MVP, got it launched to the delight of some paying customers and just raised some seed funding to move to the next phase of your company’s evolution. You and your co-founder have been doing all of the selling (closing deals) but neither of you has real experience as a sales professional, so you decide it’s time to hire one. Easy, right? Well, maybe not as easy as you think. Forget the recruiting process for a moment and take a step back. Should you first hire a sales rep or a sales executive? How will you compensate them? How will you know if they are performing well? Let’s explore further.
Continue reading “Hiring Your First Sales Professional”
How can something that’s free and openly available cause so much unintended harm to your business? The availability of open source software has contributed as much to lowering the cost of starting a software company as cloud hosting services. So much so that it’s not unusual to find software companies with 40% or more of their code attributable to open source software. But too many startups learn later as they’re in the middle of due diligence from a big acquirer that their practices for using open source software created significant problems – including reducing the acquisition price or, worse, killing the deal.
I previously described a specific example of this, which I was personally involved in. You can read it here: A Tale of Two Acquisitions – Part 1. Let’s dissect the issues a little further so that you can decide what the right uses and processes should be related to open source software at your company.
Continue reading “Misuse of Open Source Software Can Kill Your Acquisition Exit”
“It’s not the size of the dog in the fight, it’s the size of the fight in the dog.”
– Mark Twain
Regardless of your ideal mix of demand generation programs, I’m willing to bet that most of them are designed to bring prospects to your website in the hopes of later converting them to a paying customer. It doesn’t matter if your solution is hardware or software and it doesn’t matter if your sales model is zero touch or requires full-blown field sales reps. The path to prospect conversion surely passes through your website at least 90% of the time.
If you agree, then also realize that even a perfect mix of demand generation programs can be totally destroyed if your website doesn’t do an effective job of facilitating conversion. In this context I’m using the word “conversion” in a generic sense because for some companies that might mean the prospect downloads a free trial while for other companies it might mean filling out a contact request form. But in all cases, I’m referring to the final desired action a prospect could take from the website along their path to becoming a paid customer.
Continue reading “10 Ways to Improve Website Conversion Rates”
Most startups desperately crave a partnership with a big, strategic player that could offer them significant leverage and credibility. Just think about the giants in your particular industry. That’s who I’m talking about. But they are huge and you are tiny, so how do you secure a real partnership in which they actually utilize their size and influence to help you? Too many startups only think about the benefits they will get from such a partnership when the only way to get the partner to even lift a finger is to provide real value to THEM.
In a previous article I described a way to get a prospective strategic partner’s attention (see “Get the Strategic Alliance Partner to Come After You”). In this article I’ll describe how to leverage that initial momentum into a real partnership that produces real results. I’ve secured several such partnerships throughout my professional career and have identified three primary categories of the needed value creation I described. Let’s dive into each of them further to see what your secret ingredient(s) could be.
Continue reading “A Secret to Securing a Strategic Partnership with a Major Player”
In a previous article, I described various ways to determine how much money to raise (you can read it here). If you’ve decided and communicated how much you are raising, you might be getting the obvious follow-up question: “Why is that the right amount?” It’s a very simple and justifiable question for the investor to ask but it is commonly met with a host of unacceptable responses, such as these:
Continue reading “Investors Write Checks for Outcomes, Not Activities”
When you first incorporated as a C-corporation, probably only you and your co-founder were named as board members. You never really had official meetings or voted on anything, that you were aware of. Your attorney would have you sign some documents from time to time but you didn’t pay much attention to them. After some time and some success, you raised an equity round of funding from a VC and one thing they required was a board seat and quarterly board meetings. Now it’s time for the first board meeting and you’re having a mild panic attack because you don’t know what to expect or how to prepare. And you certainly don’t want to embarrass yourself in front of your new VC investor.
This article is just for you. I’ll describe typical participants, presentation topics, formalities, common courtesies and other administrative activities associated with board meetings. Let’s get started.