Clinkle was supposed to be what Apple Pay is today.
In what is termed a “party round” 22 year-old Duplan raised $25 million dollars, mostly in convertible notes, from high profile investors, including Richard Branson, Peter Thiel and Marc Benioff, as well as VCs Accel Partners, Index Ventures and Andreessen Horowitz.
“In a typical party round, no single investor cares enough to think about the company multiple times a day,” wrote Y Combinator President Sam Altman in a June 2013 blog post.“Each investor assumes that at least 1 of the N other investors will be closely involved, but in fact no one is, and the companies sometimes wander off into a very unfocused wilderness.”
However, in the 5 years since founding, 3 since funding, the company has done nothing, gone nowhere and in an almost unheard of action investors are asking for their money back.
Clinkle had a polished demo that came before things like Apple Pay, said one former employee, who declined to be named. But most importantly that person added, Duplan “was charismatic when he wanted to be” and could “raise money in absurd abundance.”
“It was his one skill,” they said. (Emphasis mine.)
The takeaway is beware of great stories, charm and party rounds where the person at the helm has never sailed a boat.
Knowing the correct names of the equipment doesn’t mean a person knows how to use it in the real world or in what order.
You hear it all the time, “build a product that solves your own problem.”
That’s exactly what JT Marino and Daehee Park, both software engineers, did when they quit their jobs to create mattress company Tuft & Needle, seeding it with $3000 from each each of them.
They didn’t take venture money because they wanted to build the company for the long term and borrowed the money they needed to grow.
“The reason why we turned them down all those times is because we figured it would change the way we operate as a company.”
Instead, Marino, 30, and Park, 27, took out a $500,000 loan, at a rate of 10%, from Bond Street, one of the new breed of alternative lenders, in order to keep control of the company and continue doing things their own way.
They built the business online — no showrooms and no salespeople.
No hassles returning a mattress you hate. And, perhaps most important, no gimmicks on prices, which range from $350 for a twin to $750 for a king.
They’ve considered other products, even developed a few, but with no investors to force them to expand, they are focusing on the mattress business.
Is it paying off? Absolutely, so no problem meeting their loan payments.
By its first year in business, Tuft & Needle had reached $1 million in revenues. And then it just kept growing, hitting $9 million in 2014, then $42 million in 2015. This year, Marino and Park expect revenues to reach between $125 million and $225 million, a three- to five-fold increase over last year. And, yes, it’s profitable.
However, recognizing that not everyone, especially older buyers, are comfortable buying a mattress online, they are opening their first retail store at 637 King Street in San Francisco (where else?) — first and possibly last.
“It could very well be our first and last store, or it could be the first of many,” Marino says.
That’s the priceless reward for bootstrapping.
Call your own shots, experiment as you choose and stay true to your values.
CSR or Corporate Social Responsibility has gone global, with companies across the spectrum.
But increasingly, it is what investors, customers, employees and other stakeholders have come to expect and demand. Millennials — industry’s new and future customers — cast a particularly keen eye on companies’ commitment to social impact.
Microsoft, Disney, Gap, JP Morgan Chase, Mattel, Coke, Pepsi, India’s Tata Group and Suzlon Energy, Chinese battery maker BYD, Brazil’s Natura Cosmeticos.
“The better CSR programs, either in emerging multinationals or developed-country multinationals … are not just philanthropy, they’re strategic.”
Internally CSR attracts customers and investors, can be used as a recruiting tool and beefs up retention.
And keep in mind that corporate social responsibility isn’t just for big, wealthy companies. SMB and even solopreneurs are in a position to make a difference, especially in their own local community.
Read the article for ideas.
Look around for a project that excites you and all your stakeholders.
1. Raising money at high valuations is equivalent to a successful business
2. Going public is a way for founders to cash out and ease up on intensity
His thoughts echo what Salesforce CEO Marc Benioff said at the Fortune Global Forum.
“They are being drawn in by these venture capitalists and private equity to take these huge amounts of money at these huge valuations. They cash out early, they buy these penthouses in the sky and then all of a sudden they’re trapped. They can’t go public because their last valuation would be higher than their public valuation.”
And Benihof sees value in an IPO that has nothing to do with losing intensity.
“Public markets are great for CEOs. You have to answer to the public market. You have to listen. You have to pay attention.”
Plank also offers a solution for cheap capital to fund growth.
“I think that the cheapest capital in the world is probably sitting in your inventory racks or the product you are trying to sell because, No. 1, it doesn’t require a board seat and doesn’t have an opinion to weigh in on what you are trying to do with your business. So use that as your capital. Go sell what you have, and go raise money.”
Granted, it’s a mundane solution, with no glitz and is unlikely to garner headlines in techland, but it works.
Kind of like getting your medical or law degree without student loans.
Money is only part of what you want from an investor.
Active interest, mentoring and contacts are what your investors should bring.
These are especially important with early-stage investors.
Just as important is a synergy between your values and the values of your initial investors, since values are what underlie your startup’s culture.
For example, if your values include a focus fairness, diversity and social give-back a la Salesforce and your investor’s values are strictly focused on minimizing costs to increase profits the relationship will be rocky, to say the least.
How do you know?
Smart founders do lots of due diligence and talking with founders of previously funded startups, whether they succeeded or failed.
Yes, it’s hard to say ‘no’ when the money is on the table.
But easier if you remember that while refusing funding may slow you down, taking it from the wrong person can kill you.
Investing in startups is like bird-watching, (…) For venture capitalists, Moritz advises not to look at the flock, but at each individual startup. “Each one is different, and I try to find an interestingly complected bird in a flock rather than try to make an observation about an entire flock,” Moritz has said.
That said, some trends appear when the looking at the group as a whole.
Moritz is also the PayPal board member whose penny-pinching advice saved the company in 2008 and every founder should be following it now.
“That focus was instrumental in PayPal’s survival,” Roelof Botha said. “We could have been spending money willy-nilly and fallen by the wayside by accident.”
Tenacity is lauded in the startup world; the idea is that passion and never quitting are the hallmark of successful founders, but the story of François Reichelt proves that Kenny Rogers offers a more common sense approach.
“Know when to hold ’em and know when to fold ’em.”
Last are two links that provide useful tools for you.
If so, you aren’t doing your company, your people, your investors or yourself any favors.
In a 2012 post I quoted Paul Graham, co-founder of Y Combinator, regarding the need for financial controls and frugality during good times in order to survive the bad ones.
The number of leaders, investors, academics and others who have recognized the impact culture has on success is as diverse as it is numerous — ‘culture eats strategy for lunch’ didn’t become a catchphrase by accident.
“The single largest issue that causes the most emotional heartache in a startup is people challenges. Every organization has them. If you put best HR practices into place in the earliest days and are doing the right things right, you’ll have fewer and fewer issues and blowups.”
If you want to build a successful company you need a solid base that includes a consciously designed culture based on your values, financial controls/accountability that engender frugality and best HR practices that enhance growth, while protecting the company.