Sales lessons – my souvenir from Mexico

During the holidays I had a chance to take a short vacation in Cancun Mexico. Upon arrival I quickly was forced to deal with various types of sales people with a diverse range of techniques. And as any good entrepreneur would (or should), I began to pay attention and learn.

Imagine an endless row of stores all selling pretty much the same products, as a sales person how do you have a customer buy from you and not the guy next door? Now imagine you are selling a $20,000+ time share - and so are about a 100 other people in a 100 yard radius - and you have a few minutes while a tourist is walking by to open and no more than a few days to close. How do you do it?

After observing a significant number of data points (and it is not difficult as you can … yes, imagine again), here is some key learning:

1. Stay observant and you can build a relationship in under a minute - it pays.
2. Quality is a perception and price is not as important as most sales people think.
3. You must ask for the order.
4. It is not about sales pipeline or funnels - it is about real transactions and exchange of payment.
5. Don’t be afraid to negotiate.
6. Every sale matters – it is a matter of eating that night.
7. Dead lines are important in closing

Follow-up discussion: more on channels for raising equity

In follow-up to the Podcast discussion Frank Peters, Dave Berkus and I had a couple of weeks ago (http://www.thefrankpetersshow.com/), a few entrepreneurs wanted to learn a little more about the various channels of raising equity and particularly the characteristics of each channel.

Following is a 10,000 foot level, but focused discussion of the various equity sources:

Friends & Family

Your dad, uncle or a rich body – almost always non-strategic, almost always come with confused valuations and even more confuse structures that will be costly to clean-up later, and often the money raised gets to be wasted on experimentation. It is however, the easiest money to raise since they know you and trust you the most. Raising Friends and Family round generally does give the VC’s and the Angles the warm and fuzzy that at least your relatives and friends trust you.

Angels (individuals & groups)

An individual angles or group of angles that pull together to invest – generally invest as individuals or as an LLC. If you have the right angel or the right lead (if a group) to spearhead the process things go smooth, the right group or person can bring significant focus to the process, the wrong angels can introduce a confused direction, non-professional angels often offer less assistance than you expect or they originally may claim, professional angles go out of their way to help a good entrepreneur. Angles often do not make second round investments, if dealing with a group the process may take longer than you expect. Example: Tech Coast Angels

Incubators

Provide a place, some computer and office support, some HR and accounting support -- only the focused ones work, a lot of incubators have real estate motives which gets them derailed from operations, often too dilutive for very strong teams. Example: Idea lab.

Venture Capital Firms

Organized large funds with a few managers in charge of investing the funds money and helping portfolio companies on the path to exit - funding ratios are very low (less than 1%), generally. The firm matters A LOT, concept stage investments are possible for insiders or entrepreneurs they have worked with before, but new deals must meet minimum requirements. Strong team is almost a must have. Example: DFJ

Management Intrusive Solutions

Informal Virtual Incubators – Individual angels who take a line position – they do make an investment and often request some options. Some entities have a formal limited fund with experienced operator partners offering money & interim CXO; usually utilizing convertible loan vehicles with options. Example: Momentum Ventures.

Risk Sensitive Loan & Warrant Models

Non-convertible loans with a warrant kicker – taking the first position, acting like a bank, but with a very aggressive risk profile. They are an excellent vehicle to bridge to the next round, but could be very expensive money. Example: Agility Capital.

None-intrusive Capital & Execution Models

Structured and staged investments coupled with extensive execution assistance without management replacement and with targeted valuation increases. This is a new and innovative model that reduces entrepreneur dilution and provides very early stage companies with what they need the most: focus and connections. It works best when the company valuation is not too high and the product is ready for market. For example: Venture Farm.

Open Discussion on early stage funding options

Recently, Dave Berkus, Frank Peters and yours truly participated in a round table style podcast on the the Frank Petes Show -- click here to listen. http://www.thefrankpetersshow.com/

You may find it interesting.

Additionally, Graeme Thickins did a nice summary of the podcast on his blog at: http://graemethickins.typepad.com/graeme_blogs_here/2007/11/raising-startup.html

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Entrepreneurial Case Study: A true failure story.

… and it happens everyday - different people and different businesses.

A year and change ago, I was asked to make an investment in a venture – a couple of smart technologist with previous management experience creating a VOIP related company. I knew the entrepreneurs and was absolutely convinced that they are smart and dedicated. The business model, however, did not make sense to me and I did not invest.

The company raised around $500K. A few months later, they are looking for money and are considering a change in the business model… and later, a new angel investor with another $500K or so has influenced the team to focus on an originally tangent mobile technology to create a novel consumer application.

The new business model and technology was intriguing and reached for my check book! But before signing, met with the two founders and the recent addition to the team, a brilliant new CEO with big telecom and carrier experience.

So, I met the team and my check book was quickly back in my pocket. The founders were showing early stages of the “founder disease” – we are in love with what we are building, we know exactly how it should work, if we only need money to scale the product and market it, the company is worth millions and WE will build it into a new giant. In short, I found the team non-coachable and looking only for a check book and not a partner. I also found the new hotshot CEO Was suffering from the “big company syndrome” -- very limited early stage experience; I did it at XYZ so I can do it here, we had a $100 mil budget, over 300 developers and delivered the product in only 3 years - oopps there is no mega dollar budget, only a few developers, a very limited and rapidly depleting bank account – no room for error.

Later news … the team had made some progress and a pilot demo was built, VCs were approached and a term sheet was received at a great valuation (dilution of about 30%).

The team did not accept the term sheet. One of the clauses (standard in almost 100% of VC term sheets) was the ability for the board (not the VC alone) to augment the management team, if needed -- the team was offended!

A few months later the team is disassembled, the hot shot CEO is after the next big dream, my simple investigation indicates that the mobile product is falling far short what was promised, the founders are doing some consulting to make the ends meet and are looking for someone to buy the Intellectual property. What a shame! Very smart people, so many hours of hard work, over a million dollar down the drain, a great business concept (the second version), and a true failure story.

The question is who’s fault is it? The founders are of the opinion that they had a great team and a great idea and that the VC’s destroyed their dream company and that the angel seed investors failed them by not giving them more money.

I guess my opinion is rather clear… what do you think?

Entrepreneur Effectiveness alert - The curse & bliss of emails; mundane but important

This topic may not be sexy or intellectually challenging, BUT, I think it is important. As emails go, I think we are confusing effectiveness and speed.

I get in excess of 250 emails a day. So often important issues may be ignored due to volume and unimportant matters may take a lot of time. And I am not the only one inundated with so much volume.

The problem is that simple issues that can be resolved in minutes with a quick personal conversation actually take multiple emails. Important issues that require real discussion is boiled down to snippets of responses – the result is that decisions are most likely not as comprehensive and often based on either partial information or influenced by the desire to quickly get to a yes / no answer. We achieve speed of exchange but in a lot of situations lose effectives. I can’t count the number of occasions when efforts are duplicated because some one acted on partial information exchanges in emails and had to re-do things. Now, add the complications of global operations, language barriers and time zones and you have a real challenge on your hand.

There are clearly two schools of thought 1) short, abrupt, and to the point emails vs. 2) verbose and detailed – focusing on CYA. Some write so much stuff that makes me wonder, if they have nothing better to do, and others are so quick to rush to an answer that makes me wonder if they truly care about how their answers may effect the company results and effectiveness.

NO, I am not suggesting to go back to the dark ages. I am suggesting, however, that people are essential to execution and confused people can only produce confused results and effective communication is the only way to get to clarity of direction and purpose. One of the ten commandments of effective execution is effective communications – emails are effecting execution!

My advice, LEARN, AGAIN, TO USE THE PHONE for important issues, use the email for things that do not require fact finding and discussion. Be quick on trivial and very diligent on critical matters. Speed is important, but effectiveness is much more important than velocity.

Remember, the faster errors are made, the more errors can be made in a unit of time!

Entrepreneur Issue! - Why do many startups fail?

I got the following question from an entrepreneur and I thought I share it with everyone.

“Why do many startups actually fail? In my observation, i have felt that there are many a startups which have a brilliant idea, a genuine team to execute that and also a good support for the product they intend to build, but still the companies fail to break even. I would love to hear from you your views on why startups fail? cheers, Vaibhav”

There may be a thousand different reasons, but here is an attempt at simplifying a clearly completed question. Here is a stab at a few common reasons:

1- Chemistry: often entrepreneurial teams fail to have the winning chemistry together ; it is a combination of reaching for perfection and greatness and ability to work together to compromise their way to success.

2- Too much Brilliance: a lot of companies fail because the market is not ready for the innovation yet and the entrepreneurs focus on their vision as opposed to what the customer wants or needs – they continue to miss the mark by listening to themselves more than listening to those who pay.

3- Confusing Execution & Effort: a very typical problem in startups is that the team is genuine and genuinely believes that they are executing well, but they are not! Execution is not doing a lot of work. Effective execution is what bridges aspiration and results – simply put, if they were executing well, they would not fail!

4- Not Listening: I have seen this one hundreds of times, Entrepreneurs often think that their situation is different (it is a different market, a unique product, a whatever …) so they fail to listen to their investors or trusted advisors (whom they picked by the way) or listen partially. By the time they begin to listen it is often too late.