TiEcon has become a huge event for entrepreneurs all over the world. It helps educate the entrepreneurs and connect them to clients, mentors and capital.
They have many good programs for entrepreneurs like Mentor Connect, where people meet potential Mentors who are people with a lot of experience starting companies. They also have a Founder Connect program where people speak of their ideas and look for either founders or capital.
I met people and reporters from Australia, Japan, Nigeria and Brazil, apart from the usual countries. This has become a global event, because TiE serves a big need.
Saying “TiE is for South Asians” (Indians/Pakistanis) is like saying “the US is for Europeans”. The successes TiE and the US have accomplished require being open and inclusive.

Just like the underlying value of the US is the preservation of freedoms, TiE’s value is to nurture entrepreneurs and grow its community.

TiE’s organizers realize the value of being well connected to achieve its goals. They have succeeded in attracting large volumes of the right kind of attention.

At Mentor Connect, I met Seshan Rammohan and Siren Dutia, both veterans of the field. Typically Mentor Connect puts a single mentor with 5 founders looking for advice. Fortunately I got two mentors’ time and minds for the price of one.

The discussion was interesting because we heard about the problems that different founders face. The advice was very useful.

I went to a few talks, but I’ll cover three to keep it short.

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One superstar at TiEcon was Steve Blank, who originated the methodology that launched the Lean Startup movement as described in Eric Ries’ “The Lean Startup.” The core message is to start small, get out and talk to your market and build what customers actually need and want.

Startups are not small versions of large companies. They are in search of business models that work. Large business on the other hand execute strategies.

Steve mentioned a book with pictures called “Business Model Generation” for people who want to build a startup. I’m curious.

In a startup you build things that get you the maximum learning. Before you fire execs, it is a good idea to fire the plan and try another.

Startups are under a lot of pressure. They think in terms of their burn rate and their runway.

Startups should ideally plan on discovering a businesses that works. An exit should be the last thing on their mind.
The reasons people acquire a startup are:

• An existing product, e.g., whatsapp
• P&L and good cash flow.
• Technology: Oclulus
• Acquahire — when they want the developers, but for something different.

Startups have a different culture. Assimilation into an existing business can wash out the productivity because the processes in place for execution are different from innovation, i.e., Key Performance Indicators (KPIs)

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A panel discussion: How not to mess up the cap table

The cap table is the definition of who owns the company and their rights. It typically defines the stock holders, the debt holders and the liquidation preferences (who gets cash before whom).

A VC mentioned an interesting incident where he killed a company by asking who owned it. The founders got into a fight and decided not to form the company!

It is also a good idea to have a vesting schedule so that one of the founders doesn’t “… go to Brazil with his wife with his share of the company while the others work for their equity.”

20% of allocation of stock is usually based on role of people in past; the rest is about future.

Standard vesting for employees is 4 years.

Investors get preferred stock, because they want to get their money back first. This is changing with Y-Combinator’s SAFE and Founder Institute’s Convertible Equity ideas. Another reason to be careful is that option pricing would be set by investors if they take preferred.

The things to worry about in a funding round are:

Valuation: No one forgets this. Clearly, the higher the better.

Control: Who controls the board seats and voting rights. This is tricky because rights and seniority affect the way people think.

Rights: What special right do investors get, such as a board seat.

Seniority: Who gets their money first.

Founder rights: How can founders be removed from power? Typical statement is a felony., but you could ask for “willful and persistent gross negligence.” It is also important to negotiate severance as a part of this deal.

There is a difference between preferred and non-preferred stock. Preferred allows double dipping. Investors get their money back and then some more of the stock.

Usually investors own 25% after first round.

The difference between negotiation and begging is leverage. Get a few investors to land at the same time and you are in a much better negotiating spot.

An important decision is to file the 83b election within 30 days of getting equity. The founder will be required to pay taxes on the portion of equity that vests if this is not filed. This likely involves a cash flow mismatch because the founder may not have liquid cash when the equity vests. 

For more information read Founder’s Workbench 83 (b) Election

Other common mistakes startups make include:

… not having a clear focus.

… compensating people and getting clear ownership of code written for the company.

There are two options: the pain of disappointment or the pain of discipline.

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EXITS

The best time to plan to exit is as early as possible.

Early thought can include, Are there going to be a lot of companies that will be interested. Is it a good IPO idea?

Ashmeet Sidana says there are two exit scenarios.

… Approached for an exit.

… Or things don’t work out.
A banker or a business relationship usually leads to an intro for these.

Lots of teams are typically involved in exits. The deal team will work on the deal. CPAs, lawyers and wealth managers are usually involved.

Then there is the question of what happens to the cash. Typically people use trusts to allow continued investment and avoid a steep tax. This also allows for a tax shelter for money designated for charity.

Exits are most intense periods. Cases where board meetings happen every 3 hours are common.

Think also of what to do next after the vacation at the end of the deal.

Where does the money get wired?
At the time the M&A term sheet is signed the probability of acquisition is 40%.
In contrast the probability of funding is 80% in VC rounds.

Time can kill deals in M&A. However clarity is important as well. A CEO once took time to work out every detail and the final deal was very close to the term sheet.

Ask what is the reason people are acquiring the company? Alignment is important. Avoid conflicts of interest at this critical time. Try to create a separation from noise in the markets.

Founders should negotiate to get some liquidity early to pay for costs.

Image credit: Alpha Sangha

You know that old saying, ‘do not run mouth unless brain is engaged’?

These days there should be a rule about not posting to social media unless brain is engaged.

Better yet, some kind of hardware similar to the gadget that prevents a car from starting if the driver can’t pass a breathalyzer test.

Media is full of stories about people who were fired for what they tweeted.

The rationalization I hear from various people is that it won’t happen to them because “I’m different.” They say that “they (those fired) were nobodies, i.e., low-level workers or unemployed, while they are “professionals,” i.e., they have clout.

Once I stop laughing I remind them of all those with clout who sent stupid tweet that cost them their jobs.

Now I just send them a link listing 13 Twitter-savvy somebodys fired for their tweets.

Whether you’re a somebody or a nobody, read the list.

Then be sure your brain is engaged before you post a tweet — every time.

Flickr image credit: Bernard Goldbach

John Doerr of Kleiner Perkins believes that “the most successful tech entrepreneurs are “white, male, nerds.”

“That correlates more with any other success factor that I’ve seen in the world’s greatest entrepreneurs. If you look at [Amazon founder Jeff] Bezos, or [Netscape founder Marc] Andreessen, [Yahoo co-founder] David Filo, the founders of Google, they all seem to be white, male, nerds who’ve dropped out of Harvard or Stanford and they absolutely have no social life.”

If you dissect it, is an ignorant, short-sighted statement, especially from such a  prominent star in the tech firmament.

Let’s take the words separately in their reverse order to see why.

In the tech world, nerds are typically consumed by the bleeding edge of technology, socially challenged and will doggedly pursue their ideas come Hell or high water.
Of course there are more male nerds. Starting in elementary school, girls are discouraged from STEM, whether it’s Barbie saying, “Math is tough!” to the unconscious bias that permeates our classrooms and companies.

As to white, nerds actually come in many shapes, sizes, genders, colors, faiths and from across the socio-economic spectrum. but anyone who follows the current state of tech culture shouldn’t be surprised.

The real reason that that white, male nerds are successful is that they get funded.

They get funded because they are connected — by family, friends, school friends, ex colleagues, etc. — which means they get into the right accelerators (just as Harvard and Stanford are the right schools) or are personally introduced to investors.

The end result is that if you take a superficial look at the stats Doerr’s comment seems to be true—but it is not.

Image credit: TechCrunch

It’s Valentine’s Day and I’m in deep fundraising mode.  In essence, I’m the guy at the dance trying my best to land the pretty girl, and experiencing the challenges, rejection and hard work that this entails.

The process and preparation has made me reflect on a number of dearly held “truths” among startup founders.  Most consider fundraising highly distracting and grueling; preventing them from doing the real work founders should be focusing on.  Add to this the perception that investors and VCs often come across as assholes, and it becomes a chore worse than scrubbing public bathrooms.

I view it very differently.  To me it is a real test of whether the Kool-Aid I’m drinking is actually as tasty as I believe it is.  The fundraising process is an opportunity to interact with smart people (some are truly great people) who see a lot of deals and problems and have a very difficult challenge — putting themselves in the customer’s shoes without having their experience or being in their situation.  As a consequence, they have to try to imagine themselves as someone they are not and ascribe value to problems they are not dealing with personally.  If you try it, you’ll see that it’s virtually impossible.

This causes the constant delays, increased information search, desire for proof points, and the follower behavior that looks so ridiculous from the outside.  But we who are starting companies don’t have to deal with problems as difficult as this; we just have to understand the customer’s problem and deepen our knowledge of them.  And we’re usually not dealing with 15 different customer types, products and industries in a single day.  Just one product, one customer and one industry everyday for an extended period of time.  So let’s be a little more humble about the significantly more difficult work of making investing decisions.

Beyond that, investors often provide introductions (in their search for proof points) to knowledgeable and interesting people from whom I can learn.  I usually don’t have the time to seek them out (or even know who they are) unless I encounter them in a fundraising situation.  So I’m grateful for the investors that seem so frustrating — they make me more knowledgeable and professional every step of the way.

But the most important thing is my perception of My Baby — the product and company I’m creating.  As a parent, I believe my baby is the most beautiful and important thing that has happened to the world in recent history, and I expect others to agree with this.  It is so easy for me to believe that when people don’t see this, it’s because they are blind, stupid or narrow-minded.  Sometimes it can be the case, but I remind myself of how often I visit new parents who proudly show me their new baby, expecting me to offer compliments on its cuteness and how often I’m amazed that something so ugly can actually be called human.  Yes, I’m being extreme, but I’m sure that this is how investors feel when they sit through hours upon hours of meetings every day with delusional founders.  Or maybe they are just pointing out a blemish on the cheek of the baby and we react as if it’s a mortal challenge, rather than take it as good feedback and a learning experience.

Ultimately, we need to have humility and compassion for investors.  Making money this way is really difficult.  And if we mix in the politics of being part of an institution I’m amazed that they actually manage to keep going every day.  We have passion for solving a problem or seeing a market opportunity.  They are just trying to maximize returns and hope to be able to work with great founders to accomplish this. 

There is no question that we founders have the better deal.  More fun, more learning, more challenges, more passion.  And for this we have to pay a price – the risk of loss and temporary poverty, much heartburn and far too much work. 

I enjoy what I do.  In fact I love it.  And investors help me to accomplish my vision in so many ways, even when they reject My Baby or me.  I’m grateful each time they invest and each time they don’t – they are putting me in a stronger position to succeed whatever they do.  Thank you.

Image credit: Quarrio

I love watching Shark Tank, whether the current season on ABC or reruns on CNBC.

My favorite sharks in order are Robert Herjavec, Barbara Corcoran and Daymond John.

My almost-least favorite shark is Mark Cuban, but it is Kevin O’Leary who I really can’t stand.

I have no problem with a shark saying no, but to listen to O’Leary tear down not only ideas, but also the entrepreneurs themselves makes me slightly ill. His criticism is rarely constructive and sometimes it is downright destructive — especially to women founders, or so it seems.

So you can imagine my amazement when I read an article in Entrepreneur Magazine where O’Leary said he preferred women CEOs.

“Women make better CEOs. All things being equal, given the choice between a woman and a man, I would pick the woman every time.” (…) “If I want high returns with low volatility, that equals a woman.”

Like I said, amazing; not original, but amazing.

There are reams of statistics and dozens of studies that prove having women in senior management roles and on the board positively affects the bottom line.

Companies that have more women on their boards and in their senior management teams aren’t just opening doors to gender equality. They’re reaping greater financial rewards.

Kevin O’Leary is emphatic that his only interest is making money. He has no interest in furthering diversity or leveling the playing field for women — but he prefers to invest in them.

That should provide a lot of creditability to the studies that are so often shrugged off or rationalized into oblivion.

Image credit: ABC Shark Tank

Yesterday’s post focused on the difference between mindful and mindless social media usage as private individuals.

The problem is more far-reaching when the person speaking heads or publicly represents the company, whether as an employee or celebrity spokesperson.

Foot-in-mouth disease isn’t anything new.

What is new is its global reach and immortal status.

The problem is best summed up in a comment from Lee Rainie, a Pew Research Center specialist in the social influence of digital technologies.

“Despite all of the warnings, all of the evidence to the contrary and all the material floating around proving otherwise, people still think that when they’re sitting alone typing something out, they know exactly who their audience is. But the specific character of digital information is that it’s replicable, repeatable, and there are lots of outlets now that are interested in these stories.”

One further warning.

The “outlets” mentioned above — old and new media, pundits, individuals and trolls — like nothing better than to take that private email, joking tweet or casual image and spin it into something that supports or illustrates their own viewpoint — no matter how badly they distort it or how warped the application.

Image credit: US Geological Survey

Procter and Gamble is known as a marketing powerhouse and no novice when it comes to social media.

So it makes you wonder how one of its divisions could have stuck its foot so deeply into its mouth on Twitter.

Vicks, maker of NyQuil, DayQuil and ZzzQuil tweeted the following

SLEEP LIKE he finally proposed. And you have been dating for a decade. #SleepLike #engaged #shesaidyes pic.twitter.com/r3MQNNjZM6

— ZzzQuil (@ZzzQuil) January 23, 2015

and was lambasted for 19 hours by women and men alike.

While the tweet sucks as an attempt at humor, it is right in line with two TV ads currently running.

In case you aren’t familiar, one is for dads and one is for moms.

The dads take NyQuil so they can go to work, while the moms take DayQuil so they can stay home and chauffeur the kids around.

Seems like all three would play better in the 1950s than now.

I suppose you could blame Vicks advertising agency for them, but Vicks marketing must have signed off on them.

It just goes to show that even the savviest companies can trip if they lose site of who their customers are, as opposed to who they were.

Image credit: theimpulsivebuy

I’ve written many times describing the value of benefits and their effects on worker productivity.

Last year we looked at Amazon as a poster child for treating lower-level employees as expendable, replaceable ciphers.

However, some companies are eschewing Wall Street’s demand for short-term profit in favor of treating their employees and the environment better in the name of long-term profits and sustainability.

… a new type of business called a benefit corporation, which means its mission is to consider the needs of society and the environment, in addition to profit. There are 27 states that have passed legislation allowing companies to incorporate as benefit corporations…

Companies not located in one of those 27 states can apply as Certified B-Corporations.

The companies pledge to think about people and the planet in addition to profit, and an outside nonprofit inspects them and makes sure they’re doing so.

The premise is more back to the future than original — it’s called “stakeholder capitalism” and dates back more than 60 years.

Economists like Robert Reich, the one-time Labor Secretary, wondered if the Market Basket saga was a sign that the country was “witnessing the beginning of a return to a form of capitalism that was taken for granted in America sixty years ago.” He wrote that he hoped it was a return to “stakeholder capitalism,” in which employees and customers are also part of a company’s decision-making, as opposed to the “shareholder capitalism” of the last few decades that has focused on maximizing shareholder value.

While it’s Wall Street’s short-term, investor-as-god thinking that’s behind the minimization of workers and customers, it’s those same people, i.e., workers and customers, who are driving the change in attitude — along with multiple studies that prove treating all stakeholders well pays off.

More proof that, as I and others have said multiple times, business is like a three-legged stool — customers, investors and employees. When one or two legs are wildly out-of-whack with the third the stool falls over.

Maybe not immediately, but sooner than you think.

Wall Street and investors don’t care; they just go their merry, destructive way.

Flickr image credit: Gábor Kovács

KG Charles-Harris is once again attending the Lean Startup Conference and sharing his impressions and what he’s learning with you.

Tuesday

Metrics: The Data That Will Make or Break Your Business

Alistair Croll, Solve for Interesting, @Acroll

The first day at the Lean Startup Conference 2014 has been excellent!  I’ve been at an all-day seminar by Alistair Croll – the author of the book Lean Analytics.  A very boring sounding name, but really the essence of how to create a sustainable product market fit and scalable business.  How do I know that I’m on the right path with my products?  How do I know that the pricing is correct?  How do I find the factors that are influencing the growth of the company?  Etc.

I must say that every minute spent in the seminar (from 10 am to 5:30 pm) was worthwhile, even the time spent on the larger organizations, as he made it very useful by comparing to startups in every single part of the process.  Even for a startup guy from a tech startup, the part of the session that focused on innovation within large enterprise companies was fascinating.  Understanding the difficulties those intrapreneurs experience almost made the travails startups go through seem simple.  Alistair’s suggestions and advice for how to think around these issues and attain success.

The room was filled all day and I noticed that I wasn’t the only participant with rapt attention on the presentation – everyone else was very focused on what he was saying.  The sessions were very interactive with people feeling comfortable to ask questions and Alistair encouraging discussion.  Everyone I spoke with during lunch said they were captivated and that his lectures were transforming their thinking.

I am lucky to have been able to participate in this seminar – it is clear that it will have a strong effect on how I execute within my startup as we begin interacting with customers on a broader scale.

Over the holiday weekend “Eric” canceled his email subscription and the reason given made me smile.

He said my post about the potential for hacking the “Internet of Things” was more fear-mongering than fact, so he was, as I always recommend, “voting with his feet” and unsubscribing.

Granted, I should have referenced my proof, but it’s hard to remember every article I read and this one dates back 15 months.

It’s an article about a search engine called Shodan — the Internet of Things’ worst nightmare.

Shodan crawls the Internet looking for devices, many of which are programmed to answer. It has found cars, fetal heart monitors, office building heating-control systems, water treatment facilities, power plant controls, traffic lights and glucose meters. (…) “Google crawls for websites. I crawl for devices,” says John Matherly, the tall, goateed 29-year-old who released Shodan in 2009.

Shodan wasn’t built for nefarious purposes, but intent has very little to do with actual usage.

Currently, Shodan is the only device search engine with public search results, which is, obviously, a boon to hackers.

However, I agree with Matherly, because if he hadn’t built it someone else would have.

“I don’t consider my search engine scary. It’s scary that there are power plants connected to the Internet.”

And, in case you are wondering, yes, I sent the article URL to Eric.

Flickr image credit: centralasian