Big Paper Blog

Not my usual topic, but I think often about micro/macro participation in the economy, and thought it’d make an interesting blog post. In no particular order, here are a few topics for discussion:

Building a Sales Pipeline

You cannot bank your financial stability as an individual or company by selling to a limited base of customers. What I see often is an entrepreneur waiting on 1 or 2 key deals or customers to close, and *then* things will stabilize.

Nope, it doesn’t work that way. You have to build a pipeline of individuals who are at various stages of learning about and being converted to purchasing your product. It’s called building a sales process, and it’s not a new concept.

Which is why it is so surprising that it is such an undeveloped skill for entrepreneurs. Many, perhaps 70% of entrepreneurs I talk with, have no idea how to sell their product. And I’m not talking about entrepreneurs who just came up with an idea, and don’t have the technology built yet.

Rather, entrepreneurs with fully developed products, with a large overhead and burn rate, who know the market is interested in their product, and yet– there’s a disconnect.

I think we believe that sales is a magical skill that only a few rare schmoozers possess, and we have to pay them $200K/year salaries in order to come on board and help us out.

Not so! Any entrepreneur can learn how to effectively sell their product by putting themselves in the shoes of the target customer and going through all stages of marketing/sales, and ask, “Truly– would I need/buy this product personally?”

The other part is to ask, “Are the sales/marketing steps I’m using a comfortable process to my customer?” There shouldn’t be anything out of the ordinary about the way you’re approaching a client. If there is, then even if your product is awesome, they’re unlikely to be.

If the answers to these questions are no, find out why. Then fix those reasons so the overall sales steps work, then apply that process to the people you’re marketing to. If you do this right, it would take less than a month and you could drastically turn around your ability to generate revenue.

Financial Literacy

It is frightening how many entrepreneurs lack basic skills in finance. I don’t mean that from a place of judgment, but from honesty– it is frightening! And here’s why:

Entrepreneurs without a basic understanding of financial principles seriously jeopardize not only their financial situation, but that of their dependents, employees, business partners, investors, and the economy overall.

I understand how/why this financial illiteracy happens. The entrepreneur has an awesome idea, a dream they want to pursue. Bootstrapping works for a while, or perhaps they find some easy money to get started. Or perhaps they focus exclusively on other areas of the business– skills they’re comfortable with, or building out the product.

All good things– but totally pointless if your business cannot sustain itself from month to month because you lack basic financial skills, such as recognizing how to properly value your product within the market, or assessing the total cost of sales + operations + cashflow.

How do you know you are financially illiterate? Four ways:

a. You don’t regularly scrutinize your bank statement
b. You avoid Excel documents
c. You have Excel documents but don’t know what they mean
d. You cannot recreate from scratch the basic financial documents: P&L, Cashflow statement, Balance sheet.

I know that Excel can be a genuine barrier and a pain in the ass, to boot. But each of those 3 documents are very, very simple and hold critical information–

P&L:

Sales per month
How much you have to pay out when you sell those items
How much you have to pay out for your total office/staff costs
What’s left over, if anything

Cashflow

Money coming in/out each month, and when
Points out those cash gaps so you can plan for it before they happen

Balance Sheet

What you own, what you owe, and what is left over– the business’s “value”

If you notice, these things (ratio of revenue to expenses, cash gap, and basic “valuation”), are among the most highly deficient areas entrepreneurs struggle with.

If you’re in a startup, do yourself and your team a favor– take a Saturday afternoon and immerse yourself in reading financial information online– read articles, look at templates, sample financial charts, blogs, etc.

There is no excuse for financial illiteracy except for 1 reason: not educating yourself, and that is a really, really scary reason to put yourself and others on the sure path of financial distress.

Job-hunting

This is a sales process. You are selling your ability and willingness to help a company solve their problems on a day-to-day basis. You cannot find a great job unless you identify:

a. What problems you can solve
b. Who has these problems and needs them to be solved badly enough that they will pay you?

I’ve written previously about job-hunting– read more here. I have followed that formula every time I needed to apply for a job or wanted to find particular things in a new job, and it always works.

If you need a job, please follow the recommendations in that blog post and take a sales process approach, and your chances of finding one in the time frame and in the type you want, will triple. Seriously.

Funding

This is also a sales process. There is no easy, fast, streamlined, shortcut way to find funding. No matter if you’re a terrific VC deal, or a microbusiness looking for economic development funds, the process of funding is the same, and built around core concepts:

a. No one wants to give you money and lose it
b. Most businesses fail and lose other people’s money

The biggest reason entrepreneurs fail to find funding is that they should not have been looking in the first place. If you don’t think this applies to you, you are probably wrong.

There is no great deal that cannot find funding. If you can’t find funding it’s because:

a. You shouldn’t be looking for funding
b. You aren’t taking a sales approach
c. You are looking for the wrong type of funding

Contrary to what many entrepreneurs think, it’s not because investors are wrong and you’re right. Or because you need to polish your business plan a few more times. Or because no one invests in the summer.

It’s because your business is not clearly demonstrating that you are in the top 2-10% of seriously money-making companies with a low risk quotient– and for whatever reason, you don’t realize this.

There are a few other things I’d like to write about–

• Defining a product
• Bootstrapping
• Microbusiness
• Poverty mentality vs. resourcefulness

–but I’ll save those for part 2.

Well, we’ve officially kicked off CoffeeWithAnExpert, the 5th Hundred Dollar Business project.

What is CoffeeWithAnExpert?

An online platform with offline initiatives that help startups tap into resources they’d only hear about over coffee, with an expert. Starting out with Ask An Expert and Coffee Clinic.

Who Are Your Experts?

People that wish to apply their abilities to help startups solve their problems. We have a pool of 42 Experts– the first 7 test profiles are live on the site, and we add new profiles each day.

Need More Experts?

Sure! View a sample Expert profile, then apply here. Online chat is all-volunteer, and in-person meetings are paid at the rate of $40/hour– you can choose to keep this or donate it to Kiva.org or a local nonprofit entrepreneurial organization.

Upcoming Coffee Clinics

September 18 at thinkspace (Redmond, WA-Eastside)
*Includes a free 45-min. group Q&A on Funding. Get no-B.S. answers to questions, plus low-key networking. If you need individual help, register for an individual Coffee Clinic session

September 23 at Office Nomads (Seattle, WA-Capitol Hill).
*Includes a free 45-min. group Q&A on Funding. Get no-B.S. answers to questions, plus low-key networking. If you need individual help, register for an individual Coffee Clinic session

What is the Hundred Dollar Business?

HDB projects use $100 and 30 days to crank out a business and test its viability, and extract core business principles from the experience in the meantime. We apply low-budget approaches to promote high-impact projects.

Do You Really Take Your $10 WordPress/Google Apps Hacked Website Seriously?

Nope– it’s just a functioning, proof-of-concept prototype. But we have technology partners lined up to build the site into a solid platform with Expert rating/feedback/Q&A features, that can by extended via mobile, wiki, video, and geolocation.

However, it makes no sense to spend more than a $10 effort building a site/program unless we confirm– do you need/want something like this?

Yes or no, please tell us everything that’s wrong/right with it. If you like it, awesome. If you don’t, we’ll integrate your comments to make the effort more closely match your needs.

Well folks, time to let Hundred Dollar Business project #5 out into the daylight.

The project is here, with a blog post talking about today’s soft launch here.

I’m really excited about this project because unlike projects #1-4, this one isn’t about a (seemingly) cool idea I had that I want to test.

Rather, it’s focused specifically around solving a painful problem for startups that I have seen over, and over, and over again during my experiences working directly with entrepreneurs.

It also ties in exactly to the kind of work I feel most passionate about doing: helping entrepreneurs resolve the core [preventable] issues that are undermining their success.

I’ll let you visit the site to find out the rest. And if it strikes your fancy and you want to get involved, feel free to do so here.

We’ll be launching formally this coming Tuesday– this is just a sneak preview for those faithful few who actually read my blogposts.

I’ve spent the last month getting Hundred Dollar Business project #5 ready… I’m officially starting full-time efforts on it tomorrow.

So I was a little surprised when I was at Gnomedex this weekend, and found myself struggling to articulate exactly what I’m working on. The description changed every time I talked to someone new about the project, and I realized I had a problem.

This is a problem common to many, if not most, entrepreneurs. Building something from scratch that doesn’t exist, and hasn’t ever existed, requires a clarity of concept and precision of vocabulary that are challenging to formalize on a new project.

I realized I needed a tool to help me clarify the concept, but the usual business plan templates aren’t my stye, plus they’re just not effective at describing the early stages of a new concept.

Anyway, so I ended up making a tool to help pull the overall concept for project #5 into a cohesive target, so I know what to aim for during the coming month’s efforts.

Here’s a photo. When I get some free time, I’ll make it into a downloadable document you can use.

And yes, of course, it’s on big paper.

The guy on the right thought he was “almost there,” and stopped trying so hard. So the guy on the left, who was not even close, ended up winning.

Don’t stop trying hard until you’re exactly there, ok?

Recently, in my discussions with entrepreneurs, I came up with a stupid analogy, called the Brain to Hand Spectrum. And because cartoons are the coolest way to communicate a message, thanks to my friends at toonlet, who make cartooning accessible to anyone, here’s the gist of it.

Click on the cartoon to see the full-size image (with text you can actually read!)

Brain To Hand Spectrum by olynnduncan

Well folks, it certainly has been a while since I cranked out a Hundred Dollar Business project! About 10 months ago, I finished work on The Entrepreneur Story, and have since left the HDB lifestyle alone for a while.

But, it’s just one of those things you can’t get enough of.

So I got an idea 2 weeks ago, and have been putting things together to get it started. In fact, this may be the only project I’ve ever worked on first before formally announcing, both from a business planning and technical site/product development standpoint.

But, sorry to say, you’re not getting the news just yet. Wait a few days. It’s good for the soul.

Just know that Hundred Dollar Business #5 is coming soon…

So, there are a lot of myths about funding, and the biggest one is regarding the types of funding (bootstrapping, FFF, angel, VC, bank, etc.)

For the record, here’s my take on the types of funding, and a checklist of basic requirements that apply to YOU if you are considering pursuing funding dollars from any of these sources in order to build your company.

1. Bootstrapping

Bootstrapping means building the business with NO funds– just bootstraps. Think MacGyver.

So when you sit down to make a budget as a bootstrapper, you put a big fat $0 next to:

• Income
• Expenses
• Personal Salary
• Bills

As a bootstrapper, your approach to spending money is, “We don’t need no stinking money!” In other words, bootstrappers can always, always figure out how to “buy” or do something for nothing, and they follow the old pioneer slogan closely:

“Fix it up, wear it out, make it do, or do without.”

ALL entrepreneurs, every single one of them, would retain far more equity in their companies (and thus potentially become wealthier in the end) if they asked themselves,

“How can we get by without this purchase?”

If there is a [lega] way to skip purchasing something/some need, and keeps momentum moving forward without distracting you from the core of the business, then do it!

If there is no good way to get by without the purchase, then you may actually need it. But the true bootstrapper will then assess, “Is there a way we can beg/barter/steal this for next to nothing?”

In essence, as a bootstrapper, you become the quintessential garage-sale shopper; hey, it’s good for the soul.

Requirements for Funding Via Bootstrapping Include:

• You have no revenue
• You have no stable revenue flow
• You are running out of money
• You have no functioning product that customers can use
• No one is showing legitimate interest in investing (anything besides a “Here’s my check deposited in your bank account!” is a NO.)
• You do not have a business; you have a business IDEA.

(The difference? A business where you can currently buy a product, walk into a storefront, or pay taxes on. A business idea resides in your brain, in your business plan, and in your coffeeshop conversations, with very little tangible evidence of a product/service ready to sell.)

2. Friends/Family/Fools

This is a category of funding that is probably most abused. Those who know and love you believe in your idea, so it’s easy to get and take money from them.

However, be cautious. A failed business idea is one thing, a failed relationship/family due to unrealistic expectations of investment potential is quite another.

You should consider taking money from friends/family/fools to be just as formal a business relationship as with a “professional” investor. Give them the same information: business plan, financials, etc. Draw up a formal agreement. Do not take money on a handshake, it is too easy to add exponential stress to your life, worrying about a friend/family/fool who’s worrying about their investment.

As a general rule, don’t take money from people who can’t afford to lose it after giving it to you. Or, who you can’t afford to not repay, for financial, personal, social, vocational, or familial reasons. This includes:

• Your 90-year old grandmother’s meager savings
• Your nephew’s college fund
• A loan from your wife’s father (who has never really liked you anyway)
• People you hardly know
• Co-workers at your day job
• People who like you, that you aren’t fond of
• Mobsters, gamblers, and the like

Requirements for Funding Via Friends/Family/Fools Include:

All of the above, plus:

• A detailed business plan/action plan (even if it’s pretty basic)
• First stab at realistic financial projections
• A detailed “use of funds” plan
• Clearly delineated expectations regarding the high-risk nature of the investment, a timetable for repayment, what will happen if the funds are lost, and frequency of communication about the business’ progress.
• Written specs of some kind re: the technology
• A prototype or model of the technology in actual tangible form
• A partner in crime
• A great business advisor/mentor
• Traction of some kind: anything indicating GENUINE INTEREST from people outside of your friends/family circle.
• A list of 10 potential customers
• 10 pages of articles, facts, statistics, and research that substantiate your assumptions about your target market
• A conversation from you to them, that you both recognize that a. investing in you is fun, but there’s a 50-90% chance they’ll lose everything and end up despising you; b. that you will try as much as humanly possible to spend their money wisely in areas that will build the business, and c. that if the business fails, you hope you can still be friends/family

3. Angel Investors

As compared to the F/F/F category, angel investors are the least abused, and most misunderstood group of funding sources.

From my conversations with dozens and dozens of entrepreneurs, the most commonly held perception of an angel investor is the following description:

“Angel investment is the easiest type of funding to get. It’s a nice, old, experienced businessperson who enjoys investing in promising young startups. We just need to find some angels to talk with, and I’m sure they’ll be ready to get started.”

Nothing could be further from the truth.

A more accurate description might be that angel investors are basically junior venture capitalists, but more nit-picky.

Angel investors are the tightfisted-est of all investors, because they take their own hard-earned money from their personal bank account, and place it into yours for 5 years. Trust me, they are not interested in paying off your business debt, or paying you and your team a salary, with their bank account.

By getting angel investment, your job turns into being an unpaid agent whose sole task is to be an exponential multiplier of their capital. If you work hard enough and pay them back quickly enough, you can buy back your soul and possibly get a new suit and eat out again like regular people do.

Also, angel investors are happy to meet with you indefinitely (to give advice), but are unlikely to part with their capital, and almost always invest as a pack, not as a lone wolf. So you’ll need to find not only 1 angel investor, but probably several.

“How many angels does it take to change a light bulb? None– why should they change it, when they’re counting on you to invent and sell a revolutionary light bulb factory that changes it for them?

3. Requirements for Funding Via Angel Investors Include:

All of the above, plus:

• Paying customers. Not one, but many. How many? Enough to make them say, “Wow.”
• Large partnerships in the works
• Key management on board & working well together
• Product done and being sold
• Have invested your own money
• Others (F/F/F) have invested their money
• The only reason you aren’t selling more/faster than “Wow” is because you don’t have the angel’s money to make it happen more/faster (but customers are tearing down your phonelines trying to place orders)
• Understand the basic structure of angel investing & be familiar with terms/valuation issues.
• Fine-tuned financial projections. Not just how much money you can make, but how you can make that much money.
• A management team that isn’t making newbie mistakes anymore
• Not just market validation (it works! people like us!) but a serious market need that is growing and demanding products faster than you can fulfill
• A stunning lack of threatening competitors. Good luck with this– and don’t even think about saying
  “you’re the only one doing this”, “no one else has done this before”, etc. All that means is that you haven’t Googled it yet to find out who & where.

4. Venture Capitalists

Hoo boy. This is where the rubber hits the road. VCs are also highly misunderstood, although, not in the same glossy, sparkly, heavenly way that angels are.

VCs get a bad rap, in my opinion. They are seen as aloof, disinterested, uncaring, that they string you along, and only care about money.

The core problem is two-fold:

1. Entrepreneurs do not understand the business model of venture capital.

2. VCs never say no, and they never say yes.

Because entrepreneurs don’t understand that VCs actually invest other investor’s money, they misperceive that all VCs are filthy rich and just don’t give a damn. Not always true. (Sometimes they aren’t filthy rich. )

So what happens is that every entrepreneur on the planet has seen the Big Idea show and thought, man, I should pitch to investors. VCs. Because VCs have the most money. “Hey Mr. VC, let me tell you about my startup…”

So VCs are pitched at by every entrepreneur in the state, 24 hours a day, 7 days a week. It’s exhausting. There’s too many emails to answer. Phones ring off the hook.

But it’s a catch 22, because if VCs put out a Do Not Call registry, they’d never find deals early enough. So they hire analysts as deal-screeners, to take some of the pressure off, and just ignore 97% of the entrepreneurs who email, call, stop by, or invite them to lunch.

They’re not unfeeling, they’re just inundated. Really, you should feel sorry for them. In fact, do your part to help by reading this list and committing that if the majority of these criteria do not apply, you will NOT try pitching to a VC!

Requirements for Funding Via Venture Capital Include:

• Intellectual property that has received, or is in the formal process of being approved, patents for innovative, disruptive, proprietary technology that has not been done quite like this before.
• A very carefully segmented and substantiated market opportunity of $100M or more.
• A currently operating “startup” that is already generating revenue, and substantial amounts of it (if at all possible)
• A “sexy” quality. Investors want to brag about your company to their other investor friends. “Yeah, we invested in Hotmail.” “Hotmail, schmotmail; we invested in the space shuttle!”
• Solid contracts with corporate customers like GE, Wal-Mart, Proctor & Gamble, Google, Amazon, etc. You gotta have some big names on board, baby!
• A management team smarter than the investors (essentially, they want to unbreakably high confidence in the technical/industry expertise of the entrepreneur).
• $250K in trailing revenue as an absolute minimum. Venture capital is not intended to start a startup, but to accelerate fast, money-making growth of a traction-getting, existing startup.
• Scalability, scalability, scalability. The investor will ask, “Talk to me about scalability.” This translates into: “You just mentioned getting to $75 million in revenue in 4 years. How the hell do you plan on making that happen? Computers? People? Cashflow? Marketing budget? Explain how those ramp up to actually make $75M look, well, achievable!”

The Sum Up

Well, that pretty much wraps it up! Here’s the reality: investors will meet with almost anyone, if the person isn’t too pesky. However, for 90% of the population, meeting is all you’ll get.

If you want to get results contact investors, try building a great business first, and then following these guidelines to know where you’re at.

Last, it’s important to note, “YOU ARE NOT THE EXCEPTION.” Entrepreneurs are exceptional people, however, you are not– in this arena.

The means all of these rules & requirements apply to you, whether your mom tells you you’re special or not. Please keep these things in mind and make sure you’re bootstrapping the investor’s time and efforts, as carefully as you would with cash.

I’m putting together a list of the most common questions I hear from startups… please feel free to leave a comment and add to the list!

What is the difference between angel/VC?
Should I go after angel or VC funding?
How much equity should I make available to investors?
How do I figure out valuation?
How long does it take to get funding?
How should I contact an investor?
What should I say to an investor?
Should I apply to present at local groups?
What is the difference between common and preferred stock?
What are warrants?
What is convertible debt?
How much control do investors have after the investment?
My credit is bad– can I still get funding?
What happens if the business fails and can’t re-pay the investment– am I liable to repay the funds?
Do you think I will be funded?
Does anyone read the business plan?
Do I need a business plan?
Do you have a template/outline/sample I can use?
Will you sign an NDA?
Will an investor steal my idea after reading my business plan?
How do I figure out taxes?
How much should I put down for depreciation?
Where can I get help with the financials?
What does “pro forma” mean?
Is it okay to show a loss on the financials in the beginning?
What do I write in the first email to an investor?
What happens during a presentation to investors?
What should I do to follow up?
How can I get an intro to an investor?
Do you know any investors I can contact?
What percentage of equity should I give key employees?
Should I use the services of someone who is willing to let us pay them with equity?
When can I start paying myself?
How can I protect myself from a bad partnership?
When should we start offering health insurance, etc.?
How should we compensate board members/advisors?

Entrepreneurs are notorious for lack of focus. To combat this, one of my clients & I are trying out a weekly “Big 5″ concept, to see if it helps.

On Mondays, we determine the 5 priority tasks for the week that will take the business to the next level. Those 5 tasks are written on a whiteboard, clearly visible by the desk. Throughout the week, the 5 tasks are actively worked on.

On Friday afternoons, the 5 things are noted in a planner, and the whiteboard is erased so that the week ends (and Monday starts!) with a “clean slate”.

Sometimes things come up during the week that become a priority. So I think there are occasions where it’s nice to only pick 4 priority tasks, and leave a “Plus 1″ open for that extra project that will no doubt rear its head during the week.

How do you stay focused, while working in a startup?