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Setting the Max Authorized Amount on Your Convertible Note

setting the max authorized amount on your convertible noteLet’s assume you have already determined $500K is the ideal amount of money to raise in your current fundraising round (see related blog article titled “How Much Should You Raise”) and you’ve also decided a convertible note is the right instrument to use (see related blog article titled “Convertible Note Basics”). Most convertible note templates have a statement/clause that mentions how much you are authorized to raise in that round (as a series of individual notes with multiple investors). $500K is the amount you should show as the maximum authorized amount, right? Not so quick. There are reasons you might want to set the amount lower or higher. Let’s explore the dynamics and trade-offs using $500K as the amount you truly think you need.

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Documenting Your Sales Compensation Plan

sales compensation planI can’t tell you how many startups go through the effort to think through the best method to compensate their sales team but don’t take the next step to document it so that it can be clearly communicated.  Deciding about the metric(s) on which to pay the sales team and the right split of base compensation versus sales commission is absolutely fundamental to any sales compensation plan.  But that’s not enough.  If you read my other sales-related blog articles titled 5 Golden Rules for Setting Sales Compensation and Is Your Sales Incentive Plan Driving Bad Behavior, you know there are several other factors that must be included in the full plan.  Two of my mantras are that it must be simple and it must be clear.  This blog article will describe what should be in the documented plan that you deliver to each commissioned sales rep and have them sign in acknowledgement.  I have even included a template for you to use.  So no excuses.

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Pricing Your Stock in the Early Days

The latest version of this article has to moved to a new site.  You can find it here.

I get this question all the time from US-based startups: how should we price our Common stock?  It’s a very simple question with a not-so-simple answer.  The reason is that in the very early days of a startup’s evolution, the methods used to price the company’s stock involve more art than science.  Let’s explore further.
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10 Tips for Controlling Legal Costs

controlling legal costsIt’s amazing how quickly legal costs can add up. If you’re running a startup, it’s possible that your legal costs are second or third highest amongst all of your expenses. And just like medical bills, they always seem to be higher than you imagined possible. Even if you don’t like the lawyer you are using, you know you can’t do without one. So what can you do to control your legal costs? Here are 10 ideas to try.

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Extending Your Convertible Note

convertible note extensionYou didn’t plan for it to happen this way but you’re reaching the maturity date (end of term) on your convertible note and didn’t raise money in an equity round to cause a natural conversion (called a “qualifying transaction”).  Your options are somewhat limited.  You could try to complete the qualifying transaction, even if the terms are terrible.  Yikes.  You could talk to your attorney about offering to convert the note holders to equity using the Valuation Cap as the pre-money valuation.  Not bad.  Or you could request that your note holders give you more time by approving an extension to the maturity date.  Yuck.  It’s the last option that I want to explore further in this article so that you can see the investor’s point of view and decide how to best handle.

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Cool Code Names

The latest version of this article has to moved to a new site.  You can find it here.

How cool is it to use a code name for an important project rather thtop-secretan “version 2.5” or “next gen”?  Same for a game-changing initiative that will fundamentally change the landscape and trajectory for the company.  This article includes a list of more than 300 code names to consider for your project.  In fact, one column includes code names grouped by a particular theme (can you figure out the theme for the last group in the list?) and another column just lists a bunch of cool words and phrases to consider for code names.  I’ve used many of these code words over the years and hope you enjoy using them too.

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Prioritizing Your Product Roadmap

product roadmap prioritizationIf you already have an experienced product manager on your team, they are probably/hopefully following some well-established product management process. But what about the early days of company formation before you have such expertise on staff? There are always more ideas (features/capabilities, new products, etc) than can be implemented in the desired timeframe. How do you prioritize the ideas to figure out which to focus on first? There’s a simple method I’ve used in the past that at least maps the ideas to various aspects of your business strategy.  Let’s explore further.

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When Offered Help, Be Ready

how can I helpThroughout your startup’s evolution you’ll find that you do a lot of networking with others that can potentially help you.  This includes potential business partners, employees, advisors, angel investors and VC’s.  Regardless of who you’re meeting with, it’s not uncommon for them to finish the meeting by offering help. They’ll ask a simple question like “Is there anything I can do to help you?” When this happens, you must have a ready response. In fact, you should have 2-3 things to request without apology.

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Visualizing the Interactions Between CAC, Churn and LTV

The latest version of this article has to moved to a new site.  You can find it here.

Anyone that has taken an accounting class or learned basic business financials knows the interaction between key elements of a P&L (revenue, cost, expense) and a balance sheet (assets, liabilities, equity).  But it’s surprising to me how many companies with recurring/subscription revenue don’t understand the interactions between the elements that make up customer acquisition cost (CAC), churn and lifetime value (LTV).  There are other important operational metrics to help steer your company (see related article titled “You Never Know What Operational Metrics You’ll Need – So Instrument Everything“) but these are some of the first to start with.

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Tools for Maintaining Focus

tools for maintaining focusRegardless of a company’s size and stage, maintaining focus is often a critical success factor.  This doesn’t suggest nimbleness and flexibility are bad.  Quite the opposite, as focus and flexibility can live in harmony with the right management system – one that spends enough time planning and visualizing the future while also looking for signals that indicate a shift or adjustment is needed.  I’ve previously written about how nimbleness and flexibility are a key unfair advantage all startups have against large companies.  But if flexibility isn’t balanced with focus, then chaos often follows.

At Apple’s Worldwide Developers Conference in 1997, co-founder Steve Jobs reportedly said “People think focus means saying yes to the thing you’ve got to focus on.  But that’s not what it means at all.  It means saying no to the hundred other good ideas that there are.  You have to pick carefully.  I’m actually as proud of the things we haven’t done as the things we have done.  Innovation is saying no to 1,000 things.”

In this blog article I’ll describe a few tools I’ve used to help maintain focus.

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Two Variants of the Straight Line Sales Commission Plan

The latest version of this article has to moved to a new site.  You can find it here.

In the spirit of keeping a sales commission plan simple, many business owners or sales executives choose to use a straight-line methodology.  In other words, 88% achievement of the sales goal equates to 88% commission payout when compared to the “at plan” (or “on target”) amount.  Seems fair, right?  It’s definitely simple.  But it leaves out features that some sales reps and sales managers are probably looking for.  Let’s explore further while introducing two variants to the straight-line sales commission methodology.  I’ve also included a sales commission calculator for these two variants.

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Absolute Versus Relative Sales Commission Plans

Compensating a sales team is a tricky and sensitive endeavor that requires a lot of advanced planning.  I previously wrote about my 5 Golden Rules of Sales Compensation.  But even if you follow those rules you’ll need to decide about the underlying structure of the sales commission plan.  And while there are almost infinite number of ways to compensate a sales team, most of them fall into two categories: absolute or relative.  This blog article will explain the fundamental differences between these two methods to help you decide which is best to use for your sales team.

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MBOs Demystified

The latest version of this article has to moved to a new site.  You can find it here.

Certain roles in the company call for a bonus as part of the total compensation plan.  But what criteria should be used for determining the bonus payout?  Common choices include company-level, department-level, individual or some combination of these.  These are different from sales commission plans (see related article titled “5 Golden Rules for Setting Sales Compensation Plans“) and are commonly called Management By Objectives (MBOs).  The original concept of the MBO was introduced by Peter Drucker decades ago.  And although the way MBO bonus plans are administered has evolved over time, it is still is an important part of many management systems today.  This blog article will explain the basic components of an MBO bonus plan and some tips for administering them.  I’ve also included an MBO template for you to use.

Since company-level targets are (hopefully) highly scrutinized and well thought out by the management team, they’ve already been well vetted before you find yourself needing to incorporate them into bonus plans.  But the closer you get to setting targets on individual performance, the harder it gets and the wider the possible under/over-achievement.  So you’ve really got to be careful.  Below are some key rules of thumb to keep in mind:

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Answering the “Exit Strategy” Question

exit strategyYou’ve just completed a great investor pitch with heads nodding and good interaction.  You’re about to ask “Does this opportunity interest you enough to explore an investment?” when instead you get a final question: “One final question.  What is your exit strategy?”.

Oops, the last two times you got this question you were met with a sour look.  The first time you wanted to show you aren’t looking for a quick-flip and so you answered something like, “We’re not even thinking about selling the company or doing anything crazy like an IPO”.  The next time you decided to show the investor you want everyone to get a payday and so you answered something like, “We’ve already identified six companies that surely will want to acquire us as soon as we’ve reached $5M in revenue.  They are A, B, C, D, E and F”.  In this article I’ll explain why you got the sour looks and suggest a different response that aligns nicely with both company and investor interests.

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Comparing Yourself Publicly to the Market Leader

I'm better than youMarket leaders almost never compare themselves to competitors publicly because it gives their competitors legitimacy and potentially shows nervousness about them.  But what if you’re #2, #3 or worse in your market in terms of market share or some other important attribute?  Is it OK to compare yourself publicly to the market leader?  If so, how direct or inflammatory should you be?  Let’s explore further.

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The “Yeah, Right” Rule

yeah rightSimilar to the “So What” rule, every time you make a claim, prediction or forecast, imagine your audience is thinking to themselves “yeah, right!” in skeptical fashion immediately after seeing/hearing your claim.  Make sure you aren’t asking them to make a huge leap of faith without supporting your claim.  There are a variety of ways to do this.  I’ll start with some examples and then dive a little deeper.

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Reviewing the SAFE Investment Instrument

The latest version of this article has to moved to a new site.  You can find it here.

Made available by Y Combinator in 2013, the SAFE investment instrument was intended to improve on the highly popular convertible note used by startups during the seed stage or as a short-term bridge between equity funding rounds.  SAFE stands for “simple agreement for future equity” and it is still most popular in California.  However, over the years since it’s release it has started to show up in other parts of the country.

The purpose of this article is to review the elements that make up a SAFE investment, compare them to a convertible note and generally help both entrepreneurs and investors decide which is more appropriate for their situation.

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Optimize Free Trial Conversions via Nurturing

The latest version of this article has to moved to a new site.  You can find it here.free trial conversions

Are you a SaaS company that has an icon like this on your website to promote a free trial offer to interested prospects?  If so, once they start the free trial do you do anything specific during the trial period to “nurture” the prospect to increase the odds they convert to a paid customer?  If not, this article is for you.

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Defending Valuation Before Revenue Traction

boosting valuationOnce you have a product in the market with an increasing number of paying customers, your valuation will increasingly be driven based on financial and operational metrics.  Don’t get me wrong, establishing a financial valuation for any early stage company is part art and part science.  So it is true that things like meaningful strategic partnerships, a robust product roadmap, and other non-financial items can help drive valuation.  But the more you have an established track record of revenue/profit, the more your valuation is based on financial and operational results.  What about establishing and defending your suggested valuation before you have revenue traction?  Let’s explore.

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Revealing Company Info Before Getting an Acquisition LOI

When an interested acquirer approaches you, they will naturally ask for as much information as you are willing to give them.  But how much and what type of information should you provide before you know the terms of their proposed offer?  The answer is, it depends.  Also realize I’m always initially skeptical when another company approaches with the desire to talk about potential acquisition.  My experience suggests that 30% of the time the interest is mostly a fishing expedition and 95% of the time no LOI is reached.  Let’s explore further.

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An Unfair Advantage All Startups Have Against Big Companies

It’s not innovation or company culture or a desire to win.  Those are important but successful big companies have at least some of those things too.  It’s nimbleness (aka – agility).  Startups have a “turning radius” measured in inches whereas really big companies can barely turn around in a football stadium.  Tucked away in this glaring contrast is a unfair advantage for the startups.  Let’s explore further.

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Selecting an Advisor

selecting a startup advisorThe title of this blog article suggests you’ve already decided that you need an advisor.  But spend time with your co-founders discussing this to make sure you agree it is something you want and need.  In many cases, a really good startup advisor is worth their weight in gold and can demonstrably increase your odds of survival/success versus executing on your own.  Let’s explore the secrets to success.

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Compensating an Advisor

startup advisor compensationHow much equity should you give an advisor?  Should the shares carry any special provisions like anti-dilution or change-of-control acceleration?  What about giving the advisor cash compensation?  Tough questions for a startup founding team that’s doing it for the first time and faced with an advisor they desperately want to bring on board (see related article titled “Selecting an Advisor”).

The short answer is there is no universally-agreed market rate for advisors.  And if you want a superstar, you’ll need to pay whatever they demand or be forced to go with one of your other options.  But I realize that doesn’t give any guidance so for purposes of this article let’s take superstar advisors out of the equation and just deal with “normal” scenarios.

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Maximizing Value From Your Advisor

Startups commonly give 0.5% equity or more to attract an experienced advisor (see related article titled “Compensating an Advisor”).  Sometimes after a few months they find themselves wondering if they are getting the value they expected for the amount of compensation provided.  This blog article focuses on things you can do to ensure you are extracting maximum value from your advisor throughout the duration of their engagement.

First and foremost, you must realize that it’s your obligation to extract the maximum value.  In other words, don’t expect your advisor to send you an email that says “Hey, we haven’t talked in a long time.  Is there anything I can do for you?”  Instead, you will need to be proactive about engaging your advisor.  Let’s dissect this a little further into specific things you can do.

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Your Elevator Pitch Only Needs to Accomplish One Thing

elevator pitchThere’s a reason it’s referred to as an “elevator pitch” – it must be expressed in a couple of sentences and no more than 10 seconds.  And that might even be a little generous.  Psychologist Michael Formica reported that the average non-task-oriented attention span of a human being is about 8 seconds.  What you must realize is the only thing your elevator pitch needs to accomplish is to cause enough interest on the part of the recipient to ask you any question that lets you expand a little further.  But also be careful about abusing the permission you’ve been given to continue.  Now you have 2-5 minutes to generate enough interest for a full-blown conversation, either then or separately scheduled.

I mention this because I see a lot of startups way over thinking the elevator pitch.  Start with two sentences that answer the following questions:

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When is Achieving a Nice Round Number of Customers a Meaningful Milestone?

The answer is, it depends on how you derive the number and how you communicate it.  I’m wearing my angel investor hat as I write this blog article.  I hear a common response when I ask a startup what milestones they are trying to reach in ___ months.  Included in the response will often be a statement like “We want to get to 100 customers within that timeframe.”  Or I might ask why $____ is the right amount of money to raise (see related article titled “How Much Should Your Raise?”).  The response will commonly include “That amount allows us to acquire our first 100 customers.”  I love the focus on outcomes rather than activities (see related article titled “Investors Write Checks for Outcomes, Not Activities“).  The problem I have with these responses is they are nice round numbers that are obviously being used because they are nice round numbers.  For some companies the magic number might be 1,000 or 10,000 but my reaction is the same: so what, why do I care about that nice round number?  (see related article titled The “So What” Rule)  In other words, why is that a meaningful milestone to an interested investor?  I have a few suggestions.

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Investors’ Research Varies Widely Before Making a Decision

researchIt stands to reason that each investor is different in the way they go about making their investment decisions, both in terms of time spent and the type of research conducted.  One thing you want to figure out early in the courtship with an investor is how they go about making their investment decision.  This best enables you to align your interactions with a broad group of investors to create proper momentum and a crescendo effect (see related article titled The Domino Effect of Fundraising).  It sucks when you think you’ve got several investors lined up together only later to realize some of them were only half-way through their process.

As mentioned previously, the two key dimensions to understand are time and research.  Let’s break them down:

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Evolution of Marketing Roles in the New Era

Wow has the world of marketing changed with the introduction of social media, marketing automation and other digital capabilities.  Not only is the way we “do” marketing different but the organizational structure and roles are different.  Just a decade ago, mid-sized and larger companies organized their marketing department along the lines of advertising, PR, partner marketing and product marketing.  Now we see Internet marketing, inbound marketing, social media marketing, content marketing and marketing automation functions.  Is PR dead, by the way? (see related article titled “PR is Dead – Or Is It?”).

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Get the Strategic Alliance Partner to Come After You

BeggingThe courtship almost always starts with the small company approaching the HQ of the big company they desire as a strategic partner.  Usually, the big company is too distracted or the joint value from a partnership isn’t perceived as significant.  If very lucky, a successful pitch is followed by numerous conference calls, lab trials, partner program paperwork and accompany payment.  Eventually, the new partnership is revealed to the big company’s sales team and the pitching starts all over again.  After all, if this sales team doesn’t take interest in the offering then all the work leading up to that point was wasted.  So why not reverse the sequence of events?

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Increasing Webinar Attendance

Business prospects are now accustomed to taking themselves through 60% of the sales journey (see related article titled “Prospects Take Themselves Through 60% of the Sales Journey“) but at some point they commonly need a legitimate interaction with the company.  Videos are more personal and engaging than white papers and case studies and they are certainly are an important asset for customer acquisition.  But what else can you do for those prospects that want more interaction than a video but less than a phone call.  Invite them to a webinar (aka webcast).

Webinars are very easy to host using one of many online web services and invitations can be sent via email blast (you do have a database of prospect emails, right?) and promoted via social media (you do have a social media community, right?.  The problem that is most commonly encountered is low attendance.  Hosting the webinar involves mostly fixed costs, which means you will spend roughly the same whether you have 5 attendees or 105.  Said a different way, your resulting cost per lead for each event is directly affected by the number of attendees you can gain.

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Try Strategy Horizons Versus a Timeline

Here’s the scenario.  You’ve got people asking you to express your strategy as a set of milestones extending through a certain amount of time.  This puts you in the mindset of building out a timeline and dropping in various important strategic events you see happening in the future.  But even if you try to limit yourself to the next 6 months you struggle with the perceived precision of showing things happening on certain dates or even in certain months.

Instead of a timeline, show your strategic milestones in what are referred to as “strategy horizons”.  It’s as simple as breaking the timeline into three horizons.  Two is minimal but I tend to prefer three.  A one year projection might be broken into next 3 months, 3-6 months and 6-12 months.  Now all you need to do is decide which horizon to drop your various strategic milestone events into.  MUCH easier and yet something that conveys your strategy in a way that investors (or investor prospects), board members, strategic partners or candidates for executive employment positions can digest with solid understanding.

Here’s an example of a way you might graphically depict the exercise:

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Exclusivity – Run Away or Embrace?

exclusivityIt finally happened.  You’ve been trying to get the attention of a huge strategic partner and finally they gave you a chance to explain the value you can bring them.  In fact, maybe you were fortunate enough to have them come after you (see related blog article titled “Get the Strategic Alliance Partner to Come After You“).  Not only do they get the value you can offer but after a couple of subsequent meetings they utter the “exclusivity” word.  You’ve heard from your advisors and read in books to avoid exclusive relationships if at all possible.  But you don’t want to bring the positive momentum to a grinding halt by immediately saying “no”.  Where do you go from here?

First, getting a request for an exclusive relationship can be far more of a blessing than a curse, as long as you play your cards right.  Your strategic partner might have just showed you their cards.  They possibly see so much value from what you are doing that they don’t want their competitors to enjoy the same benefit.  But it is possible they are playing a small game with you and are just asking for exclusivity because they’re big and you’re small.  Let’s explore further so that you can hopefully turn this into a great thing.

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Justifying the Cap Amount in Your Convertible Note

 

The latest version of this article has to moved to a new site.  You can find it here.

 

In a previous blog article I explained what convertible notes are and when they are commonly used (see article titled Convertible Note Basics).  Now I’d like to dive into one of the most controversial terms in many convertible notes – the valuation cap (aka – “the cap”).  I say “controversial” in the context of leading to debate/negotiation between the startup and the investors.  Rarely is the interest rate or term length debated.  But a cap always seems to get attention.  You’ll want to understand the basics about caps before reading the rest of this article (see article titled Convertible Note Basics).

Some convertible notes don’t have a cap at all, which means the sky is the limit on future valuation when the note converts.  Startups that are super hot and have a lot of demand for their investment round might be able to get away with this.  But that’s the exception, not the rule.  So how should you set your cap amount?  The answer involves much more art than science because the real answer is, whatever you are able to convince enough investors to agree to.

Similar to selling a house, you can fixate on what the appraisals and marketing reports suggest but the truth is that your house is worth whatever the highest bidder is willing to pay for it.  So let’s look at the issue of a convertible note cap through the eyes of the two stakeholders:

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How Much Should You Raise?

The latest version of this article has to moved to a new site.  You can find it here.

Hopefully you are reading this before you decide how much to raise.  I’m referring less to very early seed funding just to get your minimum viable product (MVP) built, which in many cases costs little or nothing, and more thinking about raising money after your product is built and/or your initial validation is completed.  But the basic concepts outlined in this article apply to later stages as well.  This article doesn’t describe the best fundraising vehicles and associated terms to use for seed-stage funding but two common ones are described in related articles: “Convertible Note Basics” and “Reviewing the New SAFE Investment Instrument“.

If you’ve already decided and communicated how much you are raising, you might be getting the obvious follow-up question: “Why is that the right amount?”  It’s a very simple and justifiable question for the investor to ask but it is commonly met with either puzzled looks or unacceptable responses.  Don’t worry, I have some suggestions that might help.

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Use Storytelling to Describe the Problem You Solve

storytellingIn a previous blog article I suggested the proper flow and order of topics for your pitch deck (see article here).  Now I’d like to dive into the Problem section with a suggestion on how to describe the actual problem you solve.  Many startups use industry statistics and other factoids to do this.  For example, “65% of small businesses in the US report struggling with _____”.  These factoids are commonly strung together in succession to support each other and help demonstrate a clearly recognized problem.

While it’s absolutely helpful to use statistics and factoids to justify your problem statement, it shouldn’t be the only way to describe it.  Instead, start with a story that explains the problem.  The subject of the story can be a real customer or a hypothetical one.  Telling a story about a specific person/company that experienced a specific problem with specific attributes is much more effective than just statistics.  Here are some examples of how to start the story:

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Pitch Deck Flow (Topic Order)

The latest version of this article has to moved to a new site.  You can find it here.

Your pitch deck will become the single most valuable communications tool to use with external audiences of all types.  You will use it for multiple purposes.  If you ever decide to pitch at a pitching event, you’ll obviously need one (see related article titled “Why Participate in a Pitching Event” ).  And instead of writing a 30-50 page business plan, let your pitch deck serve as the starting point for an expanded version that essentially becomes your business plan (see related article titled ‘Don’t Waste Your Time on a Business Plan’ Doesn’t Mean Don’t Plan).

There are a few different philosophies about this but the flow I prefer to use/see and what I encounter most often is outlined below.  For each section I’ve provided a couple of tidbits or things to consider.  But I could write a blog article on each section by itself, so don’t limit yourself to the things I’ve mentioned.

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Build Out a Channel By Swimming Upstream From Your Deals

build out a channelYou have a product that is ideally suited for a channel-based distribution strategy.  But every time you approach a prospective channel partner, they expect you to already have landed some customers and already have an opportunity pipeline of deals to hand them.  In other words, they are looking for traction and they probably also perceive risk with your value proposition, possibly because you’re at such an early stage or maybe because you’ve never done business in their country.  So now you’re sort of stuck and don’t know where to go next to start building out your channel.  I have an idea to try.

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“Don’t Waste Time on a Business Plan” Doesn’t Mean Don’t Plan

I’m afraid the current “don’t waste time creating a business plan” mantra is doing unintended damage.  It’s leaving the impression on first-time entrepreneurs that they don’t need a plan of any sort.  What I think advisors and investors are trying to tell them is that the 30-50 page written business plans of yesteryear that include long-range financial projections, exit strategies and extensive market research aren’t going to be taken seriously, so don’t waste your time creating such a document.  They are also trying to tell entrepreneurs that they barely know if they’re going to make it another 9 months, so why spend too much time thinking about 3-5 years from now?  The investors are right but the entrepreneurs aren’t hearing it that way.

Here’s my opinion on the subject.  In order to get funded you’re going to have to come up with your “story”, which includes all of the typical content that’s included in a pitch deck and more.  The pitch deck is in presentation format but it essentially follows an abbreviated outline of the old-day business plans (see related article titled “Pitch Deck Flow“).  So if you have a solid pitch deck you’re already half way there and you do need a plan.

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The Difference Between Growth and Scalability

Experiencing rapid growth is different from having scalability.  Growth is an aspiration or end result while scalability is a capability that may or may not get exercised.  Growth can come in spurts and is most commonly thought of in terms of sales and marketing attributes.  Scalability is architected in and is commonly reflected in the “back office” or the technical architecture of the product solution.  In other words, not the sexy stuff but rather the “plumbing”.

It’s true that having genuine scalability can dramatically affect how your company is able to handle sustained periods of growth.  In fact, this is probably the right way to think about scalability – what is needed so that we can fully exploit sustained periods of growth with minimal risk and disruption to our company?  Going into an “all hands on deck” mode is one way of getting through periods of excessive growth but it comes at a cost of disrupting all sorts of things that are surely strategic and you can’t live in this mode for very long.

Here are some examples to help convert the concept into specific actions:

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Co-Marketing Explained

Thanks to HubSpot for this valuable explanation of what co-marketing is and what some of the common forms are (article here).  One of my blog categories is devoted to business development (BD).  BD relationships can take on many different forms but often involve some form of co-marketing as part of the partnership.  Startups and early stage companies often don’t have the budget, brand recognition and marketing capabilities of their new-found strategic alliance partners.  In these cases, co-marketing can be one of the best value drivers of the relationship.

Here are some of my personal recommendations for optimizing co-marketing opportunities:

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Convertible Note Basics

The latest version of this article has to moved to a new site.  You can find it here.

This article isn’t intended to get into every detail of convertible no

convertible note

te mechanics. But I get enough questions about when to use them and what the basic components are that I thought a basic primer was in order.  I’ve also included a FAQ at the very end to help you answer common questions from investors that aren’t familiar with convertible notes.  And for those interested in the seed-stage SAFE investment instrument made available by Y Combinator in December 2013, ready my review and comparison to convertible notes here.

Continue reading “Convertible Note Basics”

Why Isn’t a Marketing Professional One of Your First 10 Employees?

If you’ve seen my bio or LinkedIn profile, you’ll know I’ve served three stints as a CMO and roughly half of my professional career has been spent in a marketing role.  But even with my admitted biases towards the marketing trade, I still must push on this one.  I find a lot of startups that only want to initially load up on developers and maybe a couple of sales reps.  But I contend that a marketing professional absolutely, positively should be one of your first 10 employees.  You don’t need to start with a VP but you also shouldn’t cop out with a marketing intern or junior rookie with only 2 years of experience.

Continue reading “Why Isn’t a Marketing Professional One of Your First 10 Employees?”

Common Tax Mistakes Startups Make

I love this blog post from Upstart Business Journal with 7 common tax mistakes US-based startups make.  And even though the post was from December 2012, the concepts and recommendations are so fundamental that I doubt they would change much year to year.  You can find the post here.  Their list includes the following:

  1. Choosing the wrong legal entity
  2. Not understanding your tax obligations
  3. Not asking for professional tax help
  4. Blending business and personal finances
  5. Not deducting business expenses
  6. Not using the right tools
  7. Not paying quarterly taxes

Get some good advice from a professional in the beginning.  Unwinding or correcting for some financial-related or tax-related mistakes can be a serious distraction and even risk your odds of fundraising.

Wait, there’s much more!!!

If you enjoyed this article, you’ll love what I cover in my video library called Founders Academy, which includes all of the key concepts and insights to help you dramatically increase your odds of success using topic-specific streaming video modules.  Click Here to Learn More

“Founders Academy is a must!  Gordon unlocked new value in concepts I thought I was already familiar with.” (startup founder)

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PR is Dead – Or Is It?

tombstoneThe PR industry that is focused on high tech has been going through a continual transformation since the early 2000’s when the Internet started taking center stage for publicity.  I find a lot of startups concluding they don’t really need it since they can use social media channels instead.  When they answer my questions about what they are using social media for, I usually tell them “that’s PR”.  But there’s more to it than that.  Let’s explore further.

Continue reading “PR is Dead – Or Is It?”

Thought About Raising Your Prices Lately?

raising pricesPricing is part art and part science.  But it’s not a “set it and forget it” aspect of your business plan.  Once you start getting some traction for your paid offering, it’s time to experiment with pricing.  The obvious forms of experimentation included premium offerings or value offerings at different price points or maybe volume-based pricing.  But what about simply increasing your price(s)?

Regardless of whether you have competition in your space, it’s something you should serious consider – especially if you have a transactional product (rather than one that requires a consultative sale).  Raise your price 10% and compare the results.  The length of time needed for your test varies based on your volume.  In some cases you might be able to run the test for a day or two and in other cases maybe a month.  If the volume/profit trade-off worked out well with the increase, try it again.

Continue reading “Thought About Raising Your Prices Lately?”

When Prospective Investors are Looking for Predictability

If you’re fundraising during the very early formation of your company, your ability to predict the future will be very difficult.  Of course, you can imagine and dream what might happen.  But many agree that it’s a waste of time to project your financials 3+ years into the future.  I’ve already written that not spending the time to create a traditional business plan doesn’t mean you shouldn’t plan (see related article titled ‘Don’t Waste Time on a Business Plan’ Doesn’t Mean Don’t Plan).  But what do you do when faced with an investor prospect that is specifically looking for predictability?  You can either drop them from your list (at times the right thing to do) or you can share the following things with them in hopes they will serve as a substitute.

Continue reading “When Prospective Investors are Looking for Predictability”