Archive for category Execution
The difference between sales and business development
People love to talk about business development and say they are business development experts instead of sales experts. Only problem is that most entreneurs need both but mostly sales. Why? The answer is cash flow.
Sales is immediate. You get somebody to buy your companies products and services, typically for cash in a specific amount of time. Sales helps cash flow now.
Business development is long term. You get somebody to forge an alliance that will sell products of your company in the future. Either the other person’s company will buy your products or their efforts will cause your products to sell in the marketplace. Business development keeps your cash flowing going in the future.
For most entrepreneurs, the reality is that they should spend most of their time on sales and only a small part of their time on business development. If they only spend all their time on sales, they may not be able to find opportunities that will help them grow. If they spend less time on sales, they can easily run out of cash.
Investors want to see some aspects of both; and there is really no recommended balance. The best ratio is one where there are enough sales to keep the cash flow high enough to afford growth and enough business development to identify where and how the company will grow. Each company is different and it’s the job of management to find that balance.
First Ascent Ventures final say on Microseed accelerators
I really suggest this website, especially for these three articles on microseed accelerators. In their last article on the subject, they look at the success rate. Without going into the detail I recommend you read the article; they recommend that you seek out the accelerators if that fits your business model.
The only drawbacks they point out is the unwillingness of some entrepreneurs to part with 6% of stock for 25k. The reality is that this is not a tremendous amount of money, but at the same time, you are more likely to get this funding, which in turn will make you more likely to get later funding through their contacts. This investment typically values a company at $416,000. However, with the next level of investment you can value a company between $2,000,000 and $8,000,000; meaning that another 25% to 50% stake can get you $500,000 to $4,000,000 in more working capital.
Until you have been through the rounds trying to get money or working with VCs considering money you do not realize how hard it is to get investment. By lowering the barriers to getting investment (smaller dollars, willingness to take on higher risk) microseed accelerators could be opening the doors to a lot more entrepreneurs to get investors. At the same time the accelerators are providing tangible benefits of training and contacts. Translate contacts into future sales.
My only concern is on the investor side: is the risk to return ratio good enough for the microseed accelerators to make money. Right now, its too early to tell, but I hope to address this at least theoretically in a future post about this subject.
The reason behind Microseed Accelerators
Yesterday, I wrote about James St. Jean’s January article about New Venture Capital Models. He also wrote a part 2, addressing why these new business models are cropping up. Go read his article.
In summary, he said that it was first started by Paul Graham in 2005. Graham was new to the investing scene, a creative thinker and not tainted by the old ways. Sound familiar? This is how most entrepreneurs start when they break off from a large company. Unwilling to say “because that is how we always do it” entrepreneurs are willing to take a look at new ways that may offer advantages. Graham did this to investing.
Furthermore, it seems that NOW is almost a “perfect storm” for investing in small startups. You have products becoming cheaper to build and launch, a shift in traditional venture capital funds to larger investments leaving a vacancy for small investors, and the role of the internet in providing services (and products) to niche markets in a profitable manner. This leaves an opportunity for these microseed accelerators to fill.
The conclusion that St. Jean draws is since smaller capital is at risk the penalty for failure is a lot lower and so this fosters more creative and risky ideas. I agree that this is probably the governing reason for the idea of investing in smaller amounts but not that this is the reason behind providing the extra support.
My supposition is that certain people see a value in a skunkworks: A small team of dedicated developers focused on one goal with little or no distractions of a large bureaucracy but with the support and the skills that a major corporation provides. These certain people came from large companies and business schools where these skills and situations were studied and fine tuned. Realizing they could duplicate this in a skunkworks scenario it is just a matter of finding funding and the right entrepreneurs to make this work.
What makes the right entrepreneurs is THE discussion for this blog. Ultimately, it will not be just skills and experience, but also the entrepreneurs’ willingness to learn and grow into the role of a successful company.
The microseed accelerator model
Posted by Steve in Capitalization, Execution on September 14, 2009
A couple of weeks ago I had the opportunity to interview the founder of a new venture in Dallas, a microseed accelerator. This is a relatively new business model for venture capitalists.
Originally, there were incubators, which were venues that provide office space and a variety of business office and infrastructure back office services to startups. The idea was that by providing these specialized needs to startups they could focus the startup on what they do best, create and sell a product. The result would be rapid growth.
The biggest weakness of incubators was that while they treated all startups the same and did not provide them much in training, mentoring, and/or coaching. Also, the startups themselves did not necessarily recognize they needed anything other than a place and support. The reality is that startups have a different mix of skill sets and experience levels. Some need more help than others in their core competency: creating and selling a product.
In comes the accelerator. Accelerators took the incubator idea one step further. Accelerators would also provide two key elements: some funding and a lot of coaching/mentoring to the startups. The startups joining would take the money and be receptive to the idea of being coached.
More recently, the microseed accelerator is emerging. These companies or portfolio management firms differentiate themselves by invest a small amount of money, focus on idea/prototype stages, focus on specific niches, and provide very customized support to a small team. Some of them, such as the one I interviewed, have a program that puts the startup through a “boot camp”. The boot camp helps them complete out the rationalization of their business plan: make it even more focused on what customers need (not just want) and put them in touch with prospective customers. Rather than “hope and pray” as the earlier incubators, they stack the odds in their favor by fostering growth and success proactively.
To read more about check out the article at www.firstascentventures.com titled: New Venture Capital Models – The Rise of Business Accelerator Seed Funds (Part 1) – 01/13/2009. Check in later this week to learn more about one starting in Dallas: Tech Wildcatters.
Getting it Free
Yesterday, I wrote about how entrepreneurs have a problem when they try to get something for free. The problem stems from the fact that the buyer never really thinks about what the seller may want. Typically, the buyer says that the seller is getting the opportunity or the experience, without stating anything specific. The problem is that without some specific reward it is difficult to follow up and enforce the seller completing their task or delivering their goods.
Therefore, the challenge is for the buyer to find something specific other than cash to pay the seller. The obvious solution is trade, but often the buyer really does not have any goods or services that the seller wants or that will have the effect that the seller needs. For example, a sign store might need people to hand out flyers on the street offering them free signs. What is the sellers (the people handing out signs) do not need any signs? How would the buyer get the seller to perform the task? If the buyer was a restaurant they could offer free food.
What if the buyer had a friend who ran a restaurant they could offer free food there? It does become more complex with a third party, but the buyer is now thinking along the lines of what seller may need and get out of the relationship.
What if the seller needs to show on their resume they have a done a good job in their industry? Furthermore, what if they need introductions and recommendations to others in their chosen field? This is a great way to get entry level personnel to work for short periods of time for free. I did this several years ago with a small team of workers. One of them was able to use it to get their start in their profession where they have since moved on to bigger and better things. In the end, the client remarked they were amazed how many people I got to work for free and how well they worked.
Just saying it is an “opportunity”, is giving them a lot of nothing. In return, you will get nothing. It is not a simple solution. It takes work and some creativity, but if you can imagine what the seller would get out of your opportunity and help them get that tangible, then you have a chance of getting them for free.
Free Can Cost Too much
Entrepreneurs often look at doing it themselves, trade, or even getting it for free to save them cash. The only benefit is to preserve cash while the disadvantages can be large:
- Quality is often lower.
- Lower in priority for service (late delivery, missed deadlines, longer timelines, etc.)
- Harder to find someone to do it.
- More time spent on starting task and managing task where that time can be spent elsewhere.
The end result is less value, less productivity, and less sales. Whether you decide whether to do it yourself, get it for free, trade, or hire someone depends on the urgency, complexity, your ability, and availability of others.
Two solutions are either to master these issues or to hire someone. As Seth Godin puts in his blog yesterday, “Pay for Stuff“, sometimes it is best to avoid getting it for free and to pay for it. The value of more productivity, faster, better quality, leads to more sales and more profitability.
How appropriate to say this on Labor Day (the ironic day of doing no work celebrating those that do work): The objective is to develop the ability to determine to pay or not to pay. If you do not want to pay for things, the next challenge is to manage getting it for free, trade, or doing it yourself so you do not suffer the drawbacks.
Otherwise, it can only cost you quality, service, and your time. Ultimately, this leads to lower sales and profits. Sometimes its best to spend some money to make some money.
Three ways to motivation
Last week I read in a book (Path of the Just, Moshe Chaim) about the three ways people are motivated and how to deal with them. In summary, they are:
1. Those that want to achieve perfection.
2. Those that want to just do enough to be better than most.
3. Those that want to what it takes to get rewards and avoid those actions that get punished.
You need to recognize that there are these three types of people, and most people fall in group three. While the book is not about business, I want to address this idea in business terms. The rewards in business are money, promotions (power), honors (fame), and more interesting (and fun) jobs (roles).
What is group 1 and group 2?
Group 2 is those that want to just live better and improve their lot. Maybe they want to live better than their parents, or the peers they grew up with? Maybe they want to move out of their neighborhood? The idea is that they want to do some improvement that makes their lives better.
Group 1 is to improve the world through your actions. Do the best, and you achieve the goals of helping those customers. The rest will follow.
Are any of these groups right or wrong? No. Although you might think that group 1 is altruistic and when compared to groups two and three they are the only “right” group, the reality is that all these groups are okay. It is just what merely motivates people to do something. As a leader, you can recognize these motivations and use them to achieve your goals.
Your motivation can be very different from someone else. You might be group 3 and they are group 1. Or you are all group 2. When you have to motivate someone, think about what motivates them. There is nothing wrong with them if their motivation is different, but you do need to recognize it is different.
In the end though, everyone can achieve success and their goals. As a leader, the challenge is to find the motivation; but it does not stop there. You must help them focus and carry out their tasks. Just because their motivation is different does not excuse them or you from success. There are no excuses.
Setting Expectations
Customer dissatisfaction comes primarily from missed expectations. You expect hot coffee but it is cold. You expect stocks to go up but they fall. You expect the car to run but it dies.
The answer is to set expectations; but there has to be a balance between giving the customer the most likely outcome and preparing them for the worst possible outcome. Also, it is in our nature to exaggerate what we hear, because we expect that we are being told lies. If someone says two days, you think four days. Someone says it will only cost 1000 dollars, then you think 2000 because cost overruns typically double.
What if you ship something overseas and it typically takes four days but could take four weeks? Do you tell the customer to expect it in four weeks? Obviously, if 99% of the time it gets there in four days you say four days.
My philosophy is that you strive to set expectations based only on facts. If you do not know how long it will take to make something do not give a date based on a wild guess. Make it an educated guess. The moment facts are revealed that will change that expectation from truth to fiction then you should inform the customer…but only if it truly will most likely change the outcome from the expectation.
As an example, let us decide to build a house in eight weeks. In week two, there are delays that will most likely cause the house to be delayed by a week. However, you know that this could be made up by available slack time in the next few weeks. Do you tell the customer now or wait?
What will be the impact to the customer?
The best way to set the expectation is to do it in an objective manner offering a solution immediately leaving the customer no room to imagine a disaster. For example, you could say, “In week two we had delays that caused us to halt construction for five days. We are confident we can get back on schedule in weeks 2 and 3 and we will keep you informed of our progress so you can plan.”
You could also not say anything because you built in the slack for this eventuality and while the project is behind schedule, you are not certain that the deadline will be missed. You still plan to be on track. The moment the deadline will most likely be missed, then that is the time you must set the proper expectation in the customer’s mind.
People need the safety of information. They do not want surprises and need the opportunity to make alternative plans. Set expectations and your customers will appreciate it. They have a tendency to be more forgiving and this builds trust.
Is Multi-tasking the Antithesis of Productivity?
An article on yesterday’s CNN discusses the findings that multi-tasking is dangerous. The premise is that those that multitask are easily distracted by minor pieces of information. People lose focus and become less effective. In some cases this can be dangerous (eg. driving).
A book titled Fast Innovation by The George Group presents the idea that people that switch between projects take longer to get all the projects done than those that focus on one project at a time. The typical switching cost is about 20 minutes every time you switch. Going from project A to project B takes up 20 minutes of time refocusing on a new project.
Why do people multitask?
- Is it a lack of being able to prioritize which should get done first?
- Is it a lack of getting buyin from others as to which projects should get priority?
- Is it a sign of ADHD/ADD that is becoming more prevalent in our society?
- Is it because people look more at how many things you get done rather than the quality of the finished work or the timeliness?
I think it is a combination of all three. This definitely affects a startup in how they get things done. Investors look at the momentum of a startup not the number of things they get done. If a startup does one thing that makes them a million dollars, its better than four things that got them a million dollars (or typically four things that got them a half a million).
Do you multitask? Why? What is your answer to my questions? Is this multitasking really helping you? Can you try to cut down on the multitasking and focus more?
One thing to try: Turn off your email program and open it only four times a day. You might be surprised by the results (more productivity).
Multitasking has gotten out of control and we are losing productivity because of it. Get it under control and increase your productivity.
Innovation Is the Fourth Arena of Excellence
The general arenas of where a business may excel is lowest price, best quality or best service. Typically, they start with one, and then as they grow they move into the other areas. What happens though when the level of quality gets to the commonly acceptable level and they cannot be even cheaper? What if they are at a level of customer service that meets the current needs and the price cannot be lowered any further?
The answer is innovation. Those companies that are better innovators and provide newer and smarter products to their customers have the advantage. The reason is that this allows their customers to now become better in one of the three categories: price, quality or service.
When you are looking for the next critical component to develop your company, think about how you change your offering. How do you develop new products and services? Where do the ideas come from? How are they validated? How is an idea moved from thought to reality? What are your launch, learning, and growth processes on that product? Furthermore, how can you adapt to the changing market in mid-launch?
Adapting to the changing market environment is part of being a leader in innovation; and furthermore, enabling your customers to adapt through your innovation will help keep them as your customers.