A Friday series exploring Startups and the people who make them go. Read all If the Shoe Fits posts here

Whether your goal is to be a horse or a unicorn, raising round after round of funding for a higher and higher valuation may do nothing more than give you a false sense of success and security.

Y Combinator’s Sam Altman summed it up in an article focused on the $1M-plus burn rate that is getting more and more common.

…it’s never good to be at the mercy of investors.

If you’re a founder, you shouldn’t want that,” he says. “If a company is profitable, the founder is in control. If it’s not, investors are in control.”

One tip he often offers Y Combinator founders: Treat every round of financing like it’s your last.

There’s a reason that popular wisdom, the kind that comes from experience claims that companies that start in moderate-to-cool and even bust economies fare better in the long-term.
As do hundreds of startups that aren’t on the receiving end of current largesse because their founders aren’t connected.

Bootstrapping or working with minimal funding forces founders, especially young ones to

• be savvy money managers;
• put financial controls in place;
• focus on productivity (not perks);
• monitor and constantly reduce customer acquisition cost (CAC); and
• become profitable or, at the least, breakeven as quickly as possible.

The founders who will be best positioned when the startup eco-system cools, as it always does, and funding is restricted are those who master the first four points and whose companies have embraced the fifth.

Image credit: HikingArtist

A Friday series exploring startups and the people who make them go. Read all If the Shoe Fits posts here.

If anything has changed in the 21^st Century it’s the recognition that culture is everything — the true “make or break” for any company.

Knowing that, founders, of all people, should know better than to do anything that undermines their culture.

And yet they do it all the time.

One of the worst is also one of the commonest — having two teams

• the one to which they pay lip-service and talk about in public; and
• the one that has their ear, takes priority and stays front and center in all decisions.

Founders constantly refer to their “team” and it’s taken to mean all the company’s employees.

But, for those the shoe fits, it actually refers to their stars, their pets and all (most?) of their direct reports.

This was a common attitude in larger companies, but at least it was honest; bosses were ‘us’, workers were ‘them’ and everybody knew where they stood.

The changes started when Volvo focused the world on the power of teams, research showed that productivity increased when people were more invested and engaged in their work and terminology was introduced that is inclusive and empowering.

Fast forward to now and that language is in common use, but, as with most things, it can be distorted and perverted.

Founders, like other bosses, fall in two categories.

• Those who buy it, own it, use it and mean it;
• and those who use it to keep everyone in line who’s not on the ‘real’ team.

Which are you?

And before you claim the first bullet take a good look at your past actions.

In fact, get some feedback from someone you know will tell you the truth, as opposed to what you already “know” or want to hear.

Image credit: HikingArtist

Entrepreneurs are notorious for ignoring security — black hat hackers are a myth — until something bad happens, which, sooner or later, always does.

They go their merry way, tying all manner of things to the internet, even contraceptives and cars, and inventing search engines like Shodan to find them, with nary a thought or worry about hacking.

Concerns are pooh-poohed by the digerati and those voicing them are considered Luddites, anti-progress or worse.

Now Edith Ramirez, chairwoman of the Federal Trade Commission, voiced those concerns at CES, the biggest Internet of Things showcase.

“Any device that is connected to the Internet is at risk of being hijacked,” said Ms. Ramirez, who added that the large number of Internet-connected devices would “increase the number of access points” for hackers.

Interesting when you think about the millions of baby monitors, fitness trackers, glucose monitors, thermostats and dozens of other common items available and the hundreds being dreamed up daily by both startups and enterprise.

She also confronted tech’s (led by Google and Facebook) self-serving attitude towards collecting and keeping huge amounts of personal data was the basis of future innovation.

“I question the notion that we must put sensitive consumer data at risk on the off chance a company might someday discover a valuable use for the information.”

At least someone in a responsible position has finally voiced these concerns — but whether or not she can do anything against tech’s growing political clout/money/lobbying power remains to be seen.

Image credit: centralasian

A Friday series exploring Startups and the people who make them go. Read all If the Shoe Fits posts here

What is failure?

Is it having a startup/project/marriage go left instead of right?

How many times can a person fail?

Once/twice/several/more?

Failure in the startup world has essentially become a non-event, since that outcome is more likely than success.

According to research by Shikhar Ghosh, a senior lecturer in the entrepreneurial management unit at Harvard Business School, 30 to 40 percent of venture-backed start-ups blow through most or all of their investors’ money, and 70 to 80 percent do not deliver their projected return on investment.

However, I believe that you can only fail once.

That’s because the only failure I recognize is that of not trying again.

Also known as quitting.

Image credit: HikingArtist
Image credit: BK

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.

As any founder knows, the course of business isn’t smooth and even the most successful startups hit bumps along the way.

Your people know it, too.

In fact, they often foresee trouble more clearly than you’d like and are quick to act — walking next door to another startup. And they do this whether their information is accurate or not.

That means you need to learn how much, when and how to communicate to your team, but keep in mind that there are no absolute answers, because it depends on the specific subject and situation.

That said, there are general guidelines that will help you with the question.

• How much to share? You should discuss with one or more trusted advisors who have substantial experience rather than with peers.

• When to share? Most crucial is to talk to your people before the rumors start. Rumors are like genies, once out of the bottle they are impossible to put back. Worse, in addition to growing with every telling and spreading through the company, they tend to spread throughout the entire venture ecosystem.
• How to share? Clearly, honestly, no games, no half truths. You hired smart people and they’ll see right through anything else.

Unfortunately, many founders tend to clamp down, say nothing, run scared, freeze, bluster, or some combination thereof.

There are very few things that are guaranteed in a startup, but watching your people walk out the door because you hunkered down, shut up, and hoped no on would notice is one of them.

Flickr image credit: Michael Coghlan

I was reading Mark Suster’s Both Sides of the Table about how Seriously came to be funded.

It’s a good read, as most of them are, but towards the end he says something that is both a fact and a fault in funding.

So I hope that offers you insights into how companies move through the VC system. Intros. Vision. Domain Knowledge. Clear path to execution. Ability to build without a massive budget. Execute.

The bold emphasis on ‘intros’ is mine, because they are why many valid, worthwhile, game-changing startups will not get funding.

No matter how brilliant, the founders are outsiders and/or don’t fit the accepted profile.

In short, they don’t fit investor bias.

But mostly, they don’t have the connections who are able to pick up the phone and evangelize to someone like Suster.

All of which means that the pool of fundable startups keeps shrinking.

Flickr image credit: Andrew Basterfield

Entrepreneurs come in all forms, but most aren’t from the golden circle—right race, right gender, right families, right schools, right friends—although that’s who the media tends to focus on.

I don’t know what the actual breakdown is, but for convenience I’ll call it 10% golden circle and 90% the rest (probably not far off).

While the 90% are just as creative and talented as the 10% they usually have a very different entrepreneurial experience.

One that is far more difficult and fraught and, as a result, more often fails and with more catastrophic repercussions.

An article in The Economist takes an unbiased look at entrepreneurship in terms of the effort and cost, not just in money, but in physical and mental health, sans the magic of the golden circle.

I’ve known entrepreneurs from both groups and although the words used to describe the experience are similar the actuality is not.

It is one thing to work 80 hour weeks in a well-resourced environment with similarly-minded people and another to spend those 80 hours alone, using a café internet connection, living on ramen and peanut butter, with no support network or cheering section rooting for you.

Yes, people from the 90% succeed and some of the 10% fail.

The importance of the article is to debunk the stupid, inaccurate romanticism with which popular culture has imbued and colored the startup world and those who dwell there.

Flickr image credit: John Martinez Pavliga

$97 million doesn’t sound like much today, but it was a lot 15 years ago when Microsoft lost a lawsuit and was forced to reclassify it’s contractors as employees.

Back then Microsoft called them “permatemps.”

These days startups of all kinds are relying on freelancers to drive their growth, so many that a new term was coined.

They’re called 1099 contractors and the over-all approach is termed the 1099 economy.

“The most famous examples of 1099 companies are on-demand car providers like Uber and Lyft, but there are dozens of others: Homejoy, Handy, Postmates, Spoonrocket, TaskRabbit, DoorDash, Washio.”

The Feds, in the person of the IRS, are very particular when it comes to classifying employees as independent contractors or freelance.

Behavioral control refers to facts that show whether there is a right to direct or control how the worker does the work. A worker is an employee when the business has the right to direct and control the worker. The business does not have to actually direct or control the way the work is done – as long as the employer has the right to direct and control the work.

The financial control factors fall into the categories of:

• Significant investment
• Unreimbursed expenses
• Opportunity for profit or loss
• Services available to the market
• Method of payment

I’m a long way from being an expert, but after reading through the IRS information at least some of these companies are going to be in trouble.

Uber sets prices, discounts, doesn’t reimburse expenses and terminates drivers who also work for any of the competition.

That’s a lot of control in the light of the IRS rules.

Obviously, any company that can eliminate payroll, taxes and benefits is going to be super profitable—at least until they have to follow the rules like everybody else.

Flickr image credit: 401kcalculator.org

A Friday series exploring Startups and the people who make them go. Read all If the Shoe Fits posts here

Founders constantly talk about their need for ‘self-starters’ and ‘independent workers’.

They look for people who will ‘take the ball and run with it’.

They want high initiative and creative problem-solving.

What they really crave is a self-managing workforce or as close as they can get.

The disconnect results from the differences between what they say and their MAP.

If MAP fears any of the following then there is no way the walk can live up to the talk.

And while the answers to these questions require being brutally honest with yourself, they do not require being made public.

• Does letting go/delegating equal loss of control?
• Is your self esteem tied to methodology or accomplishments (AKA, your way or the highway)?
• Do you believe it’s more important that work is done well, than where or how it happens?
• Does your self-esteem equate control to power?
• Do you believe that people are intelligent, motivated and really care about their company’s success, OR that they are that you need to watch them every minute if anything is going to get done?
• How much of a micromanager are you?

Once you identify attitudes that need to change it’s up to you to modify your MAP as needed.

MAP can be changed, but those changes must originate internally—they can’t be forced by circumstances or other people, although either can be motivators.

Image credit: HikingArtist