Stephen King on Startups

Right now I’m in the middle of famous horror writer Stephen King’s memoir On Writing. He tells a funny and entertaining background of his life followed by thoughts on how to be a good writer. When asked the question “what does it take to be a great writer” he offers up the following advice:

  • Be a voracious reader and writer (he believes reading other books is incredibly important)
  • Specifically, he recommends reading and writing four to six hours each day
  • For the writing, he suggests writing 2,000 words per day, which is about 10 pages (he says to start with 1,000 words per day and then work up to 2,000)

He’s blunt when it comes to those who balk at the time commitment: if you can’t do it, you won’t be successful.

How does this pertain to startups? Easy, startups take a serious time commitment to be successful – both studying other best practices (reading) and devoting time to JFDI (writing).

Monthly CEO Letter

A couple months ago we reached a point where we had too many employees to fit in our large conference room for the monthly all-hands meeting. Now, we do weekly team meetings with smaller teams and make sure the meetings have a good, quick pace. Yes, it is more meetings. The good part is that the meetings are faster, making them more enjoyable as people go around celebrating their accomplishments for the week.

Because we’re no longer together once a month, I now do a simple monthly CEO letter. In the letter I talk about each product and hit on the major metrics for the month. Some of the metrics include:

  • New customers
  • Lost customers
  • Customer upgrades
  • Website traffic

As a team, we still have our quarterly celebrations outside the office, which provides a rhythm for all employees to get together regularly and social. Communications and alignment are some of the most difficult tasks of scaling a company and we’ve found this works well for us.

Debt Financing as a VC-Backed Benefit

One benefit of venture capital financing that isn’t talked about too often is the ability to raise a substantial additional amount of capital through debt financing. For example, Clearleap is a fast growing Atlanta technology company that raised $9 million in their Series A. Clearly raising that kind of money in their first round shows that the investors are making a big bet on the business.

Because of the backing of the high quality investors, Clearleap was then able to raise $3.3 million in debt funding, presumably co-signed by their VCs. Debt financing is typically negligibly dilutive to shareholders as the bank will receive some warrants as part of the deal, but those would represent a tiny amount of the company.

Remember that raising VC money makes no sense in most cases, but if you are going to, also remember that with debt after the VC financing, you can actually get access to a fair amount of additional capital without more dilution.

Richard Branson Entrepreneurial Iterations

Late last week I finished the Richard Branson autobiography Losing My Virginity. The book is an entertaining read that provides a great number of stories around the personal and professional life of one of the world’s great entrepreneurs. The name Virgin, as most of Richard’s companies start with, came when they were working on the name for the first company and one of his friends suggested it since they didn’t have any business experience.

One of the more interesting aspects of his story is the continual iterations of businesses he had early on. Here are some of those:

  • Magazine called Student targeted towards the college-age student, popular on many UK campuses, even though Richard never went to college
  • Mail order record business designed to undercut store prices after Student went under due to not being profitable
  • Record stores started after the UK postal service went on strike for many months and there was no other way for the mail order business to survive
  • Record label with a recording studio as a way to capture more from the value chain of the recording industry
  • Airline after a US lawyer sent him a letter saying that since British Airways had acquired the only other UK competitor that flew to the US there was a law that another company could come in and gain access to the routes

Now the Virgin group has over 150 companies doing everything from rail services to vacations to cola. It is pretty amazing the scale and success he’s achieved by bringing a fun, irreverent brand to a variety of otherwise boring industries. I’d recommend this book to get a glimpse into the life of a fascinating entrepreneur.

Entrepreneurs and Families – Have a Place to Go

A couple years ago I was at lunch with one of the most prominent software CEOs in Atlanta. I mentioned I had a baby at home at the time and we were talking about raising kids. He then went on to tell me a story of an entrepreneur that he really respected who he thought raised great kids. This CEO posed the question to the gentleman he respected: what was the best thing you did to have your kids turn out the way they did?

The answer was that his family had a place to go, in this case a little farm they owned two hours away, and spent many weekends there each year as a family. Here are some of the reasons he cited that having a place to go was so important:

  • The kids were removed from their typical surroundings so they did more things together as a family instead of the typical hanging out with friends
  • There was no Internet at the farm so most work had to be left behind for the CEO
  • The family always had a few projects going on like fixing the barn or working on a garden, which brought the family closer together

Looking at the benefits, it is many of the same reasons companies hold off-site retreats for the management team.

This story from two years was brought back to me as I finished the Richard Branson autobiography last week. In it he mentions Necker Island, the private island he owns, as one of the best things he ever did for his family. My recommendation is to consider having a place to go on a regular basis to take the family and get away from the normal routine of daily life.

Track Competitor Displacements

Earlier today we had a good conversation about the recent trend we’ve seen where new customers were already vended and came over to us from a competitor. Traditionally we haven’t seen too much competitor displacement as our market is small but growing fast. This might be a sign that our market is maturing but I wouldn’t give it too much credit. Rather, enough companies have had a chance to use our competitors and we’ve come in with the right value proposition at the right time.

New customers, once they’re smiling and satisfied, are a font of information about their previous vendor. Here are a few reasons why it is important to track competitor displacements:

  • Understand if there are any trends e.g. a certain competitor’s customers seem to be switching so you should focus on reaching out to more of that competitor’s customers
  • Learn what the competitor doesn’t do well and exploit it as a weakness
  • Figure out what the competitor does do well and incorporate it into your strategy, if applicable
  • Inquire if there’s anything about the customer experience you provide that was better or worse about their experience with your competitor

My recommendation is to track competitor displacements and spend time understanding the nuances of the deal as it will provide significant intelligence for your company.

Dividends and Private Equity with Angel Investors

A few days ago Dave Walters published a TechDrawl piece about the state of angel investment in the Atlanta startup community. Dave made a strong call to action for investors to step up and fill the void that is being created as the most prominent angel investor in town, Sig Mosley, stops making new investments at the of this month. Lance Weatherby followed up with a good post arguing that Dave was asking the wrong questions and that entrepreneurs in Atlanta need to take their companies further without angel investors.

Two areas I haven’t seen mentioned in the blog posts and ensuing comments are that of dividends and private equity (PE) firms. Here’s how they play a role with angel investors:

  • Dividends – I know of two examples where angel investors put in money, haven’t had an exit, but have had dividends that paid back the initial investment within five years, and the companies are still doing well. In one case, the company is doing north of $10 million a year in revenue, paying out an annual $1 million dividend, and is still growing 10%+ per year, but feels that investing the dividend amount back into the company doesn’t have an ROI, hence the annual payout.
  • Private Equity – I know an investor that put $200,000 into an early stage company several years ago and exited the investment recently when a private equity firm bought out his stake for $650,000 as part of a recapitalization. My understanding is that private equity firms are still sitting on a ton of money, and even though the acquisition and IPO market are soft, my belief is that we’ll see more angels make money from PE firms buying out investors in good, profitable companies.

Granted, these aren’t homeruns, but angels making money helps the community in that the angels have more of an appetite for future deals.

What do you think? Should dividends and private equity firms be talked about more in conjunction with angel investors?