How Much is Enough

 

From a sign on the wall at a Jimmy John’s comes a great little tale titled How Much Is Enough:

The American investment banker was at the pier of a small coastal Mexican village when a small boat with just one fisherman docked. Inside the small boat were several large fin tuna. The American complimented the Mexican on the quality of his fish and asked how long it took to catch them.

The Mexican replied, “only a little while.”

The American then asked why he didn’t stay out longer and catch more fish?

The Mexican said he had enough to support his family’s immediate needs.

The American then asked, “but what do you do with the rest of your time?”

The Mexican fisherman said, “I sleep late, fish a little, play with my children, take siesta with my wife, Maria, stroll into the village each evening where I sip wine and play guitar with my amigos, I have a full and busy life.”

The American scoffed, “I am a Harvard MBA and could help you. You should spend more time fishing and with the proceeds, buy a bigger boat, and with the proceeds from the bigger boat you could buy several boats. Eventually, you would have a fleet of fishing boats. Instead of selling your catch to a middleman you would sell directly to the processor, eventually opening your own cannery. You would control the product, processing and distribution. You would need to leave this small coastal fishing village and move to Mexico City, then LA and eventually NYC where you will run your expanding enterprise.”

The Mexican fisherman asked, “But, how long will this take?”

To which the American replied, “15-20 years.”

“But what then?”

The American laughed and said that’s the best part. “When the time is right you would announce an IPO and sell your company stock to the public and become very rich, you would make millions.”

“Millions?” asked the fisherman, “Then what?”

The American said, “Then you would retire. Move to a small coastal fishing village where you would sleep late, fish a little, play with your kids, take siesta with your wife, stroll to the village in the evening, sip wine and play your guitar with your amigos!”

(Author Unknown)

Video of the Week: Patrick Lencioni – The Four Traits of Healthy Teams

Patrick Lencioni, one of my favorite authors, talks about The Four Traits of Healthy Teams in our video of the week. Enjoy!

From YouTube: IESE Prof. Marta Elvira recently spoke with Patrick Lencioni, an expert on building teams and healthy organizations, at the World Business Forum in New York. In their discussion, Lencioni points out that healthy teams have the following four characteristics in common: 1) cohesive leadership 2) intellectual vibrance 3) the ability to communicate clearly and 4) structure, without being overly bureaucratic.

6 Funding Questions from a First-Time Entrepreneur

Recently an entrepreneur reached out asking for help around raising money for his startup. I obliged and requested a list of questions. Here are the questions and my answers:

  1. What is the deal structure normally put in place?
    Investors typically want preferred equity where they get their money back first in the event of a sale along with protective provisions (more on common vs preferred stocklearning startup investor speak, and the current market for liquidity preferences and dividends).
  2. How much equity should we expect to give up?
    Startups typically sell between 20 and 35% of the company in each funding round (I’m a fan of selling less and minimizing dilution). Also, you’re selling an asset, not giving it up.
  3. What are acceptable funding targets in this day and age (it’s a B2C social app)?
    There’s very little appetite for consumers apps unless they have traction. On the consumer side, investors want to see at least 100,000 active users (see five categories of initial traction milestones for startups). If you raise money, it’ll be from friends and family that believe in you, not your idea.
  4. How much influence do investors have over the product or is that still pretty much ours?
    None. Investors will offer up advice but have no influence.
  5. Is there care and feeding of investors involved, and what form does that take – a newsletter/group email about progress, etc.?
    Yes, you’re potentially taking large sums of money from people. They should be updated at least monthly on your progress via email and a few times per year via a meeting.
  6. Is there anything I should be looking out for in terms of red flags in deal structures or people?
    Yes, understand what’s common in a term sheet and what’s not. Stay away from the uncommon stuff. On the people front, check references and only do business with people that you like working with and see a long-term future of collaboration.

Raising money is a serious endeavor. Treat fundraising like an important milestone and learn as much as you can about it. Read Both Sides of the Table, Venture Hacks, and The Macro.

What else? What other advice do you have for a first-time entrepreneur raising money?

5 Choice Quotes in From Impossible to Inevitable

Aaron Ross and Jason Lemkin have a great book out titled From Impossible to Inevitable: How Hyper-Growth Companies Create Predictable Revenue. Now, it’s a mixture of the good stuff from the book Predictable Revenue and the site SaaStr, which are both must-reads for entrepreneurs.

Here are five choice quotes from the book:

  1. It’s always better to “show” rather than “tell” (stop talking and prove it).
  2. It takes three to six months to go from scratch to consistent pipeline generation — and longer for revenue. Stick it out!
  3. When you do something new, hire two. With one person, you can’t tell if what is working is due to the person or to the process.
  4. You’ll fail in SaaS if you don’t commit to spending 24 months to achieve initial traction.
  5. When you’re pursuing anything vitally important to you, you can figure it out when you embrace the challenge and growth rather than avoid it.

Haven’t read the book? Head over to Amazon.com and purchase From Impossible to Inevitable: How Hyper-Growth Companies Create Predictable Revenue.

What else? What are some more great quotes from the book?

More Accurate Sales Forecasting

One of the areas that becomes critical as a startup hits the scalable business model phase is sales forecasting. Early on, it’s easy to build a bottom-up sales forecast using inputs like number of quota-bearing sales reps, size of quota, and estimated quota attainment. Only, as the business gets bigger, and has more current and historical sales data, forecasting needs to become more scientific.

Here are a few metrics to incorporate for more accurate sales forecasting:

  • Higher in the Y-funnel metrics like number of SDR demos/appointments required for a sales accepted lead (SAL) and number of SALs to win a deal
  • Historical win rate by sales rep and deal type (size, account type, etc.)
  • Average sales cycle by sales rep and deal type (to be able to flag deals that are at risk due to falling outside the norms)
  • Projected bookings based on statistical models of historical data
  • Best case/worst case scenario planning

Sales forecasting becomes more critical as the business grows and is a key part of high performing companies. Consider reporting and analytics systems to make sales forecasting more accurate.

What else? What are some more thoughts on improving the accuracy of sales forecasting?

Validating a Startup Idea

Continuing with yesterday’s post Make a List of Startup Ideas, the next logical step is taking an idea that resonates and validating it in the market. The key is validating it with a potential customer, not someone who’s opinion you value. Of course, this is hard because the default human instinct is to go to the most successful entrepreneur or person you know and ask them their thoughts. Most friends and acquaintances want to be supportive and will say it sounds like a good idea — fight going this route.

Here are a few ways to validate a startup idea:

  • Go ask 10 friends for referrals to people or companies that might be a good prospect
  • Search LinkedIn for 100 potential customers and send them InMail Messages (a higher response rate shows a higher need)
  • Cold call 100 people and pitch them on the idea
  • Put up a landing page and buy Google AdWords to drive leads to talk to potential prospects
  • Pick the top three potential partners for this new company and reach out to the appropriate people there to assess interest

Be resourceful. Figure out if there’s a real opportunity here. Work hard to validate the idea. Finally, remember that nothing happens until something is sold.

What else? What are some more ways to validate a startup idea?

Make a List of Startup Ideas

One of the common refrains I hear is “I want to be an entrepreneur but I don’t have a good idea.” My response to that statement is “Great, what’s on your list of ideas?” Now, most of the time there’s no list. Aspiring entrepreneurs need to keep a list of ideas.

Here are a few thoughts on making a list of startup ideas:

  • Use Evernote or a Google Doc
  • Write down all the ideas you’ve had historically
  • Ask three close friends what ideas you’ve mentioned to them in the past that they remember and write them down
  • Whenever you encounter a problem, headache, or poor experience, write it down (personally, my best ideas have come from solving personal problems or challenges)
  • Set a goal for writing down a certain number of new ideas per week (e.g. make a target of one new idea per week)
  • Don’t be selective about the ideas written down — make it exhaustive

With this living list of startup ideas, review them the 1st day of every month and think about which ones continue to stay top-of-mind. Use this process to build a list of startup ideas and put yourself in a position to come up with an idea you want to pursue.

What else? What are some more thoughts on making a list of startup ideas?