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After talking with dozens of entrepreneurs in Entrepreneurs’ Organization and EO Accelerator, I’ve learned that most bootstrapped companies don’t have a formal board of directors. This makes sense as these are bootstrapped companies, and many would be described as lifestyle businesses. Here’s the interesting part: when I talk to these same entrepreneurs, they want more accountability and people to formally help them grow their business.
Here are a few reasons entrepreneurs want more accountability without a board:
- Many entrepreneurs get distracted easily (e.g. mild ADHD) and a board could hold their feet to the fire
- Entrepreneurs often miss growth targets and shrug it off blaming it on something outside their control
- Some entrepreneurs have a tendency to get complacent once their initial goals are met
Fred Wilson mentioned previously on his blog that a board is most useful if they can fire the entrepreneur. If some of these entrepreneurs want more accountability, and had a board with the power to fire him/her, that sure would make things different. My belief is that these entrepreneurs don’t want more accountability but do want more success.
What else? What do you think of entrepreneurs wanting more accountability without a board?
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Most startups aren’t bad and I’m not usually the best judge but I’ve seen some really good people work on bad startups. By bad startup I mean ones that languish for an extended period of time on an idea that isn’t working.
Here are a few reasons why good people work on bad startups:
- The desire to do a startup trumps the ability to see that things aren’t going well
- The more time and energy put into the startup the harder it is to recognize it isn’t going to succeed
- The camaraderie and bond with the team becomes so strong that you don’t want to let them down by moving on
- The badge of failure is more like a scarlet letter in some communities
Good people working on bad startups is never going to go away. The next time you see it happen ask them some hard questions related to the reasons above and see what’s driving them to continue doing what they are doing.
What else? Have you seen good people work on bad startups?
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In the past month I’ve heard two different entrepreneurs mention satellite offices they already have for their business. We don’t have any satellite offices so I’m always curious to learn pros and cons from others. In both cases the entrepreneurs said the driving force behind the locations (one in Denver and one in NYC) was that they loved the area. That’s right, these entrepreneurs have offices in different cities driven by their personal enjoyment of the location. Of course, the locations are justified by additional reasons: one wanted a location to service clients on the west coast and one had a big client already in the city.
The general idea isn’t that it’s right or wrong to make potentially important business decisions based on your personal lifestyle choices but rather that as an entrepreneur you can do that. Entrepreneurship, when successful, opens up opportunities to control your destiny and fulfill personal desires that might not have otherwise been expected.
As a side note, there’s a similar example with venture capitalists. A good friend has a fraternity brother who’s a VC in the midwest that invested in a company that’s in the hometown of his wife 600 miles away. I’m sure the investment passed the firm’s standard investing criteria, but I also know that the location helped with this VC’s personal interest in the deal.
What else? What are your thoughts on satellite startup offices because you like the city?
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I heard a term the other day that made me pause and think that it needs to be discussed more frequently: time series analytics. It simply means taking snapshots of data on a regular basis (e.g. daily) and then using it for reporting and decision making. Most startups build web apps that solve problems and provide data at a point in time (e.g. current number of employees) but don’t do a good job of providing time series analytics (e.g. I want a chart of the number of employees per pay period for the past 24 months). Sure, you might have a good feeling about the trends but being able to see it visually can provide more insight.
Here are some time series analytics we already do:
- Weekly KPIs Google Spreadsheet where a new column is created each week to input the two KPIs per department
- Monthly financial review where a new column is created each month to track different metrics
- Marketing metrics powered by GoodData
Time series analytics are one piece of reporting that need to be looked at more frequently. Startups should consider time series analytics in their own app reporting sections.
What else? What do you think of time series analytics?
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When I first started out in December of 2000 my goal was to build a Software-as-a-Service (SaaS) content management system for small businesses (see Iterate or Die). I had been building simple HTML (CSS wasn’t even part of the equation then) sites for three years but didn’t know how to write code. At the time, I enlisted some classmates of mine to be summer interns to build out the product for $10/hour. The thinking was that I could just focus on product management and sales.
Well, at the end of the summer I quickly ran out of money. Only having a couple customers that paid $30/month wasn’t enough to fund much software development even if it was relatively cheap at the time. Not knowing any better I picked up a teach yourself PHP book and jumped in head-first to writing code. It was one of the best moves I ever made.
Every startup CEO should learn to write code.
Here are some benefits of startup CEOs learning how to code:
- You understand the technical architecture and trade-offs of different product decisions
- You can call B.S. if a technical person pushes back on something being too difficult/time consuming
- You become a much better manager of other technical people
- You never run out of things to do (believe it or not I’ve had non-technical co-founders come to me saying there’s nothing for them to do as they are waiting for the programmers to finish something up)
- You can better communicate with prospects and clients as you’re not dependent on a sales engineer
Startup CEOs should learn to write code and become a better leader. Programming, much like finance or logic puzzles, is easy to pick up with some effort and patience. The goal isn’t to become a full-time programmer but rather to be a stronger part of the team.
What else? What are your thoughts on startup CEOs learning to write code?
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Sig Mosley is the god father of angel investing in Atlanta. At a GA Tech football dinner I attended last fall, John Imlay, for whom Sig manages Imlay Investments, stood up and said they they’ve invested in over 120 technology companies over the course of nearly 20 years. Investing in 120 companies in Atlanta and the Southeast is like Ron Conway investing in 10,000 companies in Silicon Valley — it really is that magnitude for the community.
Back in 2003, after having moved my company to Atlanta from Durham, NC one year prior, things were starting to take off. We were generating low six figures in revenue and I felt I needed to raise money for the business. For several months I talked to as many angel investors and VCs as I could in the community. The ATA was kind enough to select me to present to the group. After my presentation I was invited by Melanie Leath, Sig’s amazing investment colleague, to meet with them at their office in Resurgens Plaza, right near Lenox Mall.
The meeting was very cordial and polite. Sig asked a number of direct questions about the market, the team, progress-to-date, financial metrics, and how I would use the money ($300k). When Sig asked about revenue, I excitedly told him we had $200,000+ in revenue year to date. He then asked for me to break it down into license revenue, maintenance/support revenue, and services revenue. Upon doing that he taught me a lesson I’ll never forget: what I had described to him was bookings and not revenue. Only a portion of the bookings was recognized revenue and the rest was deferred until the obligation had been completed. I didn’t know anything about bookings, deferred revenue, and revenue recognition, but I was taught on the spot by the best.
At the end of the meeting I was kindly told my business didn’t have enough traction but that I should keep in touch as things progressed. I took the news in stride, decided not to raise money, and focused my time and energy on sales and marketing. Sig Mosley is the godfather of angel investing in Atlanta and I want to thank him for his contribution to the community and teaching me about software accounting.
What else? Have you had the chance to work with Sig?
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After my time as a flea market dealer I decided to become a sports card collectibles dealer. It seemed simple: buy low and sell high. I was still in high school, had a car, and most importantly had the internet. The strategy was to buy sports cards that were desired locally from people in other parts of the country at a discount. With the Atlanta Braves and Florida Marlins being popular teams in North Florida, there was plenty of inventory available.
After amassing a decent collection of sports cards that I thought were desirable I signed up to have a table at a Saturday show in my hometown of Tallahassee, Florida. In the back of the Beckett magazine there was always a list of shows around the country and the Tallahassee show only came around three times per year — it was a big deal.
I drove my little red Nissan pick-up truck stocked with sports cards, and a little wood display case my dad built for me, over to the local armory. Never having done a sports card show before, but with a little bit of retail experience from working my table at the flea market, I was excited and nervous. The show was a huge success. In that short six hour show I made $500.
Every show I did after that first one was a failure.
The first show made me think this sports card collectibles thing was easy money. With the internet I had an abundant supply of cheap cards, my costs were low since I was merely a high school student, and I didn’t have to go to too many shows. What I didn’t realize was that in my market the same people would come to every show looking for new cards to complete different collections (e.g. every Chipper Jones ever, or the 1989 Upper Deck set of Atlanta Braves). At the first show I had inventory they’d never picked over before, and thus a ton of cards for them to purchase. Even though I had purchased new cards in the interim, as a percentage of my collection there weren’t nearly as many new items, and my subsequent sales reflected that.
With three total shows under my belt I had learned my lesson. I itemized and listed my entire collection on a sports card collectible news group, took a few bids, and ended up selling everything for $1,600 to a guy that drove down from Nashville in a little Honda Civic hatchback. It was a clean exit and my time as a sports card collectibles dealer was over.
What else? Have you tried turning a hobby into a business without luck?
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Growing up I was always trying out different business ideas. When I was 16 I became a flea market dealer. The model was simple: I mostly sold new and used CDs, along with a few baseball cards.
To get the CDs in an affordable manner, I ordered them through the BMG music service. The BMG music service was a program where you signed up for an account, received your first seven CDs for the price of one, and then received a new CD every month at full price. BMG’s goal was to build a recurring revenue business with a monthly service. For someone like me, since it didn’t require a contract, I’d get my seven CDs for the price of one and then cancel the service. After doing the service with each family members’ name at different addresses, I had amassed a reasonable number of new CDs. The used CDs came from friends and family that no longer cared about the music.
As for the baseball cards, since I lived in North Florida, there was an arbitrage opportunity around the Atlanta Braves and the Florida Marlins. Those two teams, including players like Chipper Jones, were the most popular in my area so I used the Internet, especially news groups and eBay, to buy regional team players from people in other parts of the country where the cards weren’t as desirable. With those cards in hand, purchased at 40% off the Beckett price, I’d then sell them at the flea market for full price.
After four weekends at the flea market I had had enough. It was a great experience doing retail sales in a heavy negotiation environment outside in the Florida heat. Everyone should do a sales job, and this was my self-made sales job. I ended up making about $200 each weekend — a better hourly rate than my friends working at Publix, but didn’t warrant the effort and inventory risk.
Looking back, I’m proud of my time as a flea market dealer, and while it wasn’t financially viable, the experience was priceless.
What else? What odd entrepreneurially endeavors have you done?
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Last week I was talking with an angel investor that was lamenting an investment gone bad. The investment, at the time, looked great: big market opportunity, strong (supposedly) sales pipeline, $3 million+ already invested with a pre-money valuation less than invested, and strong investor downside protection for the bridge round. Quickly, after making the investment, the wheels started coming off the pre-revenue company with the sales pipeline proving to be much too optimistic, the burn rate not getting any better, and management not making the hard decisions.
After he recounted the experience, I asked him how much the CEO made at time of investment: $175k. I asked about the CEO’s salary at the time of the major cuts post bridge round: $175k. At that point I mentioned the Peter Thiel opinion:
The lower the CEO salary, the more likely the startup is to succeed.
The angel investor said in retrospect that the CEO salary, especially after lack of progress and being pre-revenue, was a huge red flag. Moving forward he’s not going to make that same mistake twice.
What else? What do you think of CEO salary as the best indicator of startup success?
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At last week’s EO Accelerator education day on finance, the CPA put up a slide showing how a $3.5 million/year revenue consulting business could be exactly the same financially as a $20 million/year construction company (imagine the construction company flows through most of its revenues to sub-contractors). From a technology startup point of view, a similar story can be painted for a $10M revenue ecommerce business and a $5M revenue software company. It comes down to the cost of goods sold and the gross margins of the business.
Here’s how a $5M revenue software company and a $10M revenue ecommerce company might look similar financially:
- Ecommerce business – $10M revenue, $5M spent on inventory, $1M spent on outsourced warehouse and shipping, $4M left (margin)
- Software business – $5M revenue, $1M spent on customer acquisition (cost of goods sold), $4M left (margin)
Entrepreneurs enjoy talking about the number of employees they have as it’s a decent proxy for company size. Employee count and revenue are two very different things. The next time someone volunteers revenue size, consider their gross margins in making a comparison to other types of businesses.
What else? Do you consider gross margins when thinking about the size of a company?