Early Market Signals and Later Pivots

At a lunch last week (yes, I believe in never eating alone) the entrepreneur and I were talking about places to eat. He offered up three nearby places for us and mentioned that one place was always empty at lunch time. After I asked why, he said that when they first opened they were dinner only and didn’t serve lunch. The restaurant’s early market signal that they weren’t open for lunch made it exceptionally difficult to later pivot and get into the minds of the local business people that they were an option. My friend’s guess is that the restaurant will be closed within six months.

My recommendation is to pay special attention to market signals, especially at the launch of a new business. Some signals include:

  • Hours of operation
  • Pricing
  • Target customer
  • Brand / design

I’m a fan of making decisions quickly and constantly iterating based on new information. The one caveat: take more time on decisions that aren’t reversible.

Why do Successful Entrepreneurs Raise Money for Subsequent Ventures

Two weeks ago I was having lunch with an entrepreneur in town and we were talking about another startup that had just closed a nice sized Series A round of VC funding. The founder of the other startup had been super successful at his previous venture and had plenty of money to fund the new venture. The question then arose: why raise professional money for a new venture if you can easily fund it yourself?

Here are a few of the reasons we came up with:

  • The professional money could have come from previous investors where the team had a solid relationship
  • The founder likely didn’t want to invest a chunk of money in the new venture since he didn’t have to (that comes with being successful — investors are much more likely to back you the next time around)
  • The founder could be employing the Nassim Nicholas Taleb’s Black Swan investor theory where he puts 90%+ of his money in ultra conservative bonds or Treasury bills and then puts the remainder in highly risky investments

What else? What are some other reasons previously successful entrepreneurs with money bring in investors for their next venture?

Strategies for Identifying Recent College Grads to Hire

One of the reasons we’ve been successful is that Atlanta is a great city for young professionals and we’ve developed a methodology for identifying recent college grads that can immediately start adding value to our company. Many companies are leery of hiring recent college grads as they are unproven, require training, and might not work out. Well, looking at most people’s resumes, regardless of being a recent college grad, you could say the same thing. Some benefits of recent college grads include that they are more Internet savy, social media active, and energetic, on average. Plus, they are eager to learn and prove themselves.

Here’s how we identify recent college grads to hire that do a great job and fit with our corporate culture:

  • Determine if they have a strong work ethic demonstrated by a good GPA or challenging extra curricular activity like varsity sports or a full-time job
  • Give a written portion during the interview process in the form of essay questions about your industry that require research and writing skills
  • Have the candidate use your product and produce a deliverable that shows some competence after self-paced teaching
  • Look for professional and personality traits that fit your organization — one of my favorites is receiving a handwritten thank you note in the mail after interviewing a candidate

These steps have worked for us and I encourage you to try them out.

What else? What are some other strategies you use to determine if a recent college grad will be successful in your organization?

#1 Startup Tip for Negotiating Office Space

Over the past 10 years I’ve done one direct lease and four subleases for office space. Needless to say we’ve moved every couple years as we would inevitably grow out of our space. It wasn’t until the past two subleases that I came across the number one tip I want all entrepreneurs to know when negotiating a lease/sublease: ask to pay for only the space you need now and grow into the space financially by paying for more over the life of the lease.

As a startup, when looking for office space, I recommend getting the amount of space you expect to need by the last 6-12 months of the lease. So, if you’re doing a three year lease and you have five employees now, but expect to have 20 employees by the end, it becomes tricky to find the right space. Here’s an example of growing into space:

  • You find 5,000 square feet office but only need 1,500 sq ft at $18/yr/ft for a three year term but can’t afford that much space now and don’t need that much
  • Offer to pay for 1,500 sq ft for the first six months, followed by paying for 2,500 the next six months, and add another 1,000 sq ft to the bill every six months thereafter until you’re paying for the entire 5,000 sq ft
  • The $18/yr/ft would stay constant or increase 3% per year such that by the end of the lease you’re paying the standard asking price

Naturally, your effective rate per square foot over the life of the lease would be significantly less than $18 sq ft but you get the benefit of the space you’re going to need at a price that meets your respective company size. Plus, landlords like to develop relationships with growing companies and people like to see startups succeed as it helps the economy.

GPA: Growth Plan Assets

One of the serious challenges with a bootstrapped startup is determining when to expand. There’s a fine balance between having sufficient reserves in the bank and being aggressive with new hires and initiatives. About four years ago, after struggling with this issue for over a year and experimenting with different ideas, I settled on an approach I’ve been using ever since: growth plan assets (GPA).

The GPA, much like a GPA in college, is a simple number that quickly summarizes the ratio of current assets to average monthly operating costs over the previous 90 days. Here’s how I calculate it:

  • Add up current assets including cash in the bank and accounts receivables that are not overdue
  • Calculate the average monthly costs to operate the business over the past 90 days (every single penny spent that wasn’t a one-time cost)
  • Divide the current assets by average monthly cost to get the GPA

What else? How do you decide when it is time to invest in growth?

Participating on a Panel Discussion

Last week I participated as a panelist on a Technology Executive Roundtable discussion on mobile apps in the enterprise and this week I participated as a panelist at the Executive Sales & Marketing Association discussion on lead nurturing for revenue growth. Participating on a panel is a great way to meet new people, establish yourself as a domain expert, and learn from others.

Here are some tips for participating on a panel:

  • Come prepared with 5 – 10 talking points that you want get across
  • Think of several stories or anecdotes in advance that will resonate with the audience
  • Have a call to action at the end of the panal discussion to get people to give you their business cards (I offered to give a copy of my marketing automation book for free to anyone who gave me a card)
  • Don’t always take the easy, agreeable positions on panel questions when you have a more memorable and debatable stance (people love to hear opposing view points)

Panels are a great way to get involved and I recommend taking advantage of invitations to participate.

Dialogue with Enterprise Software End Users

One of the challenges with product management and certain enterprise software products is creating a dialogue with end users. Often the product purchase and management is driven by the IT department, which also administers the application. Administrators then become the contact points, but don’t use the product in the same way as their end users.

Here are some ideas to address this issue:

  • Include a prominent link in the application requesting feedback
  • Have an idea exchange for users to submit ideas
  • Do quarterly check-in calls with customers and ask to speak with end users
  • Invite admins and end user to a user conference

My recommendation is to work hard and create relationships with the different types of product end users.