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Entrepreneurs: Under Stress, Don't Do What Comes Naturally

Several recent episodes in my "Sherpa" practice have reinforced this lesson for entrepreneurs that I was taught early in my career: 

In stressful times, over-communicate with all stakeholders in your start-up, if only about process/status.

One's natural tendency is to clam up; after all, stressful times, almost by definition, are crazy busy, so who has time..... 

Wrong.

Fight the tendency.

Radio silence arouses fears of the worst.

And, counter-intuitively, if you involve your board, your advisors, and even your significant stockholders, you will be surprised how quickly folks can flip into the "how can I help" mode.

Like everything in life, however, use your judgment; not all of these folks can contribute to a resolution of the problem, but keeping them in the loop at least never makes the situation seem to them worse than it is -- and that, in and of itself, can be a big benefit (and lessens the follow-on communications burden with them).

The guy I know who does this as well as anyone is Jason Goldberg, co-founder and CEO of Fab.com (disclosure: I'm early investor and board member).

Read his blog and you'll get a sense of what I mean; there are, of course, lots of other communications via email, phone, texts, etc.

Notes on the Evolution of Contact Information

I've noticed recently that, when you ask an email correspondent for their contact information (those who don't include it in their e-signature), what one gets is different today than a few years ago.

Today, one gets:

• one or more email addresses,
• cell phone #,
• Twitter handle,
• various URL's to information on the web (usually LinkedIn, Facebook, the person's blog/tubmlr, et al.); and

What one doesn't get:

• a physical address
• IM name
• landline phone #

Exceptions:

• Service providers (e.g., lawyers, accountants, consultants), who give reams of contact information, no surprise
• Executives in large companies with executive assistants (who, increasingly and humorously in some cases, have their own elaborate e-signatures)
• Folks outside the tech/media startup echo chamber in which I live

Interesting how address book technology hasn't kept up.  In Outlook 2007, the version I use, there's no field for one's Twitter handle (one can still enter one's IM address/name), only space for one "web site", and no recognition in any of the "database fields" of the rise of social networks as a part of one's identity and "address".

Note to Apple & Opportunity for a new Startup by Hardware Entrepreneurs?

I was in a meeting a few days ago with a bunch of tech-savvy folks here in Silicon Valley, and, as meetings these days usually do, this one started with a good deal of shuffling around, with everyone pulling out their various gadgets, plugging in extension cords, etc.

Increasingly, one can't attend a meeting, at least hereabouts, without the constant clicking of keyboards as the meeting participants take notes (and, truth be told, do email, check Facebook, browse YouTube, etc.) on some form of computer.  So, initially, as the clicking started, I didn't give it much notice.

After a half hour or so, however, as my mind started to wander, I glanced around the conference room table to check out the hardware on display.  I was very interested to note that four of the eight attendees at the meeting were using some kind of iPad-with-keyboard combination, fluidly using both touchscreen and keyboard (for an example of a cool version of this (not yet available), take a look at this video about the Brydge keyboard).

I had thought that I was pretty up-to-speed, with my new MacBook Air, but I found myself wondering if the other folks in the meeting weren't inadvertently previewing/inventing the laptop of the future -- with the best of tablets and laptops combined in the same device.

Or.....more radically, were they presaging the death of the laptop as currently designed, with a monitor and keyboard that can't be detached from each another?

I assume that the Apple product folks are working on this, but, if they aren't, might be an opportunity for entrepreneurs here.

Anyway, it made me envious, so I went out and bought an iPad-compatible keyboard.

Is Amazon.com Building a Private "Uber for Package Delivery"

We're heavy Amazon.com users in our household.  Since I frequently work from my home office, I'm often here when the deliveries arrive. Over the past couple of months (it may have been longer, but that's how long I've consciously noticed it), something has changed.

Prior to this past couple of months, the Amazon packages always arrived via some commercial service (e.g., usually UPS) or via the USPS.  Occasionally, that still happens.  Increasingly, however, the packages are delivered by private couriers in delivery vans or compact, hatchback cars -- in all cases, completely unmarked.

And, often, a day earlier than promised!

In addition, when delivered this way, the Amazon boxes are different.  They're covered with labels full of bar codes, etc., but no "branding" that relates to any courier/shipping service.  "Amazon" is the only brand that appears.

Wonder if Amazon is building/leveraging some sort of "Uber for Deliveries".  They certainly have the 'ooommph' to do so.  Once sufficient scale has been achieved, will Amazon then offer the service to other businesses (or consumers) who need local deliveries, a la the model in which the Amazon 'cloud' originally being used to support internal business functions, but then becoming a hugely successful service available to third parties for a fee?

Entrepreneurs: For Venture Capital Pitches, Say What Your Startup "Does" not What It "Is"

Entrepreneurs, as I've written here, when you pitch a VC, you don't have much time to make a good first impression.  VC's spend a good part of their waking hours sitting through pitches, so the "make an impression" hurdle is high.  Moreover, you are, like it or not, competing against the ever-growing pile of other pitches flooding onto the VC's desk (more on this in a subsequent post).  So, be punchy and quickly capture the interest of the audience (even if it's only one person). 

One good, simple bit of advice is to  avoid taglines beginning with the passive: "MyCompany 'is' [a platform for blah..]. Instead, state what problem your company 'solves'.  An easy way to do this that I recommend is to have an early slide entitled "Problem" and the following slide entitled: "Solution".

Be active, not passive.  Passive puts audiences to sleep; not good in a pitch where you're asking for money.

Entrepreneurs: Make Two Presentation Decks

Having worked with startups for over 30 years now, I'm noticing a trend (while trying to remain aware of the cognitive bias called the "recency (or frequency) illusion") among VC's to request to see the entrepreneur's pitch deck ahead of time, as a condition to deciding whether to take meeting with the entrepreneur.

On the one hand, this seems like a reasonable request.  VC's are time-starved, have too many deals to which they can realistically pay close attention, and reviewing the deck seems like a more time-efficient way to triage their deal flow.  And, some VC's hold the view that, even without "talking to the deck", any entrepreneur worth backing should be able to tell their story convincingly in a deck that is (only) being read.

There's a problem with this trend. The problem stems from the fact that most decks are NOT drafted to be read.  Instead, they are created as a "presentation" support tool; that is, they are created to be presented in a meeting in which the presenter orally explains and elaborates, using the high-level bullet points in the deck as talking points. 

Indeed, in most presentation skills training sessions, this lesson is heavily emphasized.  One is, in fact, taught to minimize the text on a slide, in order to avoid forcing the audience to try to read dense text on a slide at the same time that they're trying to listen to the presenter elaborate and explain.

So, how does an entrepreneur deal with this dilemma? 

My advice is to actually prepare two decks, one that is designed to be read, and one designed for the presentation meeting, where the presenter orally elaborates and explains the high-level talking points in the slide deck.

The good news is that, usually, this isn't a lot of extra work. In my experience, most people who draft presentation decks begin with decks that are more text-intensive, and spend a good bit of the rest of the creation process whittling down the amount of text (usually moving the text to the Notes section of the slide).  So, with some modest extra attention, a deck that is satisfactory for purposes of being read can be easily fashioned out of an early, "wordier" draft of the final deck.

Entrepreneurs Should NOT Answer This Question: "What Are Your Valuation Expectations?"

One of the first things I do when I engage with a company as their "Sherpa" is to help them raise money.  Quite often, if not all the time, they get asked by VC's in pitches: "What are your valuation expectations?"

Here's the wrong answer (the "Wrong Answer"): giving a specific dollar figure, even if phrased as a range (e.g., "...oh, it's somewhere between $X and $Y.").

Here's the right answer (this, or something very close to this -- the "Right Answer"): "We want to set the company up to succeed, and we know you need to have a substantial return to make your business model work.  We're reasonable people, with good, experienced advisors who know what the market valuation data, and VC minimum ownership requirements, are -- and we understand that the market will set the price."

Smart VC's will ask (one or more versions of) this question repeatedly, ratcheting up the pressure (even if in a low-key tone of voice).  And, it's very hard for an entrepreneur to resist the temptation to answer.  After all, most entrepreneurs do, in fact, have some sense of what they think an acceptable valuation is, and, on its face to an inexperienced entrepreneur the questions seems like a reasonable one.  Furthermore, while sitting in a meeting as an invited guest in the offices of the VC firm, it might even seem rude to resist giving a straightforward answer.

But, entrepreneurs should.

It will be difficult, given the reasons above, plus the strong power asymmetry inherent in the entrepreneur <-> VC relationship, where one person desperately needs the money and the other person has the money (e.g., "...will I blow my chances with this VC if I don't give him the number?").

But, entrepreneurs should.

Entrepreneurs should understand that the goal of the repeated questioning is to "pressure" the entrepreneur into feeling like he has to give the Wrong Answer or his chances of getting an offer from the VC are slim.

Why do VC's ask the question and what's so bad about giving the Wrong Answer? 

VC's, like the rest of us, are time-starved and don't want to spend time on deals that are not worth pursuing.  One quick, easy way to triage one's deal flow as a VC is to avoid spending time on deals, even if they are otherwise interesting, where the entrepreneurs have unrealistic valuation expectations.  Especially in bubble times like the present, entrepreneurs can, in fact, be way off base in terms of their valuation expectations, and VC's want to find this out early in the process so they don't waste time.

Seems reasonable?

So, why resist giving the Wrong Answer and remain steadfast in (some version of) the Right Answer.  Here's why:  it's a version of the reason a famous, old-school Ohio State football coach, Woody Hayes, supposedly said why his teams didn't throw many forward passes: "There's three things that can happen, and two of them are bad!" [i.e., an incompletion and/or an interception.].  When en entrepreneur gives the Wrong Answer, he can:

• Give a number that's too low (i.e., lower than the VC had in mind), thereby potentially leaving money on the table.
• Give a number that's too high (i.e., higher than the VC had in mind), thereby helping the VC to make the decision to pass.

The fundamental reality here that underlies this analysis and advice is that, no matter what the entrepreneur thinks, in both of the above cases, the VC "market" (as thin and inefficient as it is) will set the price.  Whatever the entrepreneur thinks his company is worth means nothing if no investor thinks it's worth that much. And, as I've argued here and here, getting more than one VC interested in one's company is the only way to discover the maximum price that the market will bear.

In the third "Woody Hayes" case, giving the VC a number that is near the valuation (or valuation range) that the VC had in mind offers no advantages to the entrepreneur over the Right Answer, so why take the risk?

Triumph of Hope over Experience: In Bubbles, the Price-to-Sex-Appeal Ratio Exceeds the Price-to-Earnings Ratio

In my "Sherpa" work with startups, one of the things I wrestle with (especially in "bubble" periods, like the present) is what metrics are best to show VC's when raising money.  The issue is a complex one, and easy to oversimplify, but I do think that there's merit in the advice that it is better to have rapid growth in some user metric (user growth or engagement being the primary ones) than it is to have revenue, at least small amounts of revenue (regardless of growth rate). 

From experience, I often think the best advice is that it's better to have either lots of growth in users, or lots of revenue, but NOT a small amount of revenue (even with good user growth).  Once you have even $1 of revenue, you invite VC's to employ "traditional" valuation procedures (e.g., some line item of your income statement times some "industry multiple") that, given the small multiplicand, will not generate a large valuation.

In bubbles, rapid user growth/engagement (without the messy matter of demonstrated monetization) allows the VC to believe that trees will grow to the sky.  This "triumph of hope over experience" (which seems to happen about once a decade) is exacerbated by the competition among VC's for the next hot deal (which competition is further fueled by the pressure from their limited partners).  Sadly, this pressure is based on some actual statistical evidence that the VC firms that do the best are those who find the "hot" deal (and, very importantly, who exit to some safer asset before the bubble bursts).

The required suspension of disbelief is easier when there are no hard metrics on monetization to analyze -- the bubble of the dream of infinite user growth is kept aloft by the belief that, somehow, either (a) one will be able to figure out how to eventually monetize the infinite user base, or (b) sell the company to a greater fool who believes that they can.

An interesting note on this by Nick Bilton in today's NYT.  Which has evoked a lot of debate in the start-up echo chamber (including, of course, this post).

Lord Acton -- A Little Study will be Handsomely Rewarded

One of my favorite historical figures (who is, except for his famous quote, unfairly (and dangerously) overlooked), Lord Acton, is a (late) wise old owl -- and worth a little study.   For a good primer on how to keep your perspective on an even keel while going into what looks to be the the worst, most vicious campaign season in 150 years, check out this sagacious list of quotes.

Facebook Logins Gettting Disfavored?

Maybe it's just me, and, Lord knows, the recency (or frequency) illusion is a strong cognitive bias, but I seem to be hearing from more and more people that they won't use a site or app that offers only Facebook (and/or some other established social network, e.g., LinkedIn, Twitter) as a way to log in (as a single example, I have a vague recollection that, in the last couple of weeks, Doc Searls tweeted that he won't use any social network login on a third-party site).

If true, this is an interesting hypothesis about a growing concern about the amount of data that Facebook is aggregating.  Re this worry about aggregation of personal data, the looming battle between the FTC & Google is another manifestation of this growing concern. 

On balance, it's a good thing to be concerned.  Too much data in the hands of a single organization -- whether a government agency, corporation or non-profit entity -- is dangerous.  It's very easy for the collectors of the data to persuade themselves that their every use of the data is, somehow, "good" -- even hidden or abusive uses. Data, combined with powerful analytics, is power; unregulated or uncontrolled power often corrupts (See famous quote by Lord Acton).

I doubt Facebook would release the relevant data to test this hypothesis (and it would, in any case, be a tricky analysis to tease out any downward trends here, given the overall rate at which Facebook is growing), but it would be interesting to see whether this is a strong trend, weak trend or somewhere in between.

Comments with any helpful data or analysis welcome!