SOPHISTICATED FINANCE

VCs Think of Themselves as Mentors

It is well recognized by both academics and practitioners that there are three keys to early stage company success:

1. Pick the right market opportunity
2. Mentoring
3. Access to capital

Through a tweet today from @vcwatch I found a very interesting survey by Dow Jones Venture Source---A Study of Venture-backed Company Boards. The slides are here. The most interesting slides are 22-29, but if you are not familiar with venture capital read all the slides.

Based on the survey, venture capitalists see their value to their early stage companies (ranked by the percentage of respondents) as follows:

1. Network of contacts
2. Mentoring
3. Follow on financing
4. Exit strategy

Remember the VCs already confirmed the market opportunity (in their mind) when they made the initial investment.

Early stage entrepreneurs backed by VCs see the value of the VCs as follows:

1. Network of contacts
2. Follow on financing (tied with 1.)
3. Exit strategy
4. Mentoring

Maybe if the entrepreneurs saw more value in mentoring 7 out of 10 VC investments would not be a total write off. One could always argue if the VCs were better mentors, they would have fewer write offs. I am inclined to think that the entrepreneurs are typically at fault in the mentoring relationship given my 30+ years of dealing with entrepreneurs, my thousands of hours spent with entrepreneurship students and my clients over the last five years, but I could be wrong ;)

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Miami, FL

Why Entrepreneurs Lack Focus

My Twitter reading this morning of Spanish posts on entrepreneurship highlighted a post on Loogic (SP)-- "The Difficulties of Entrepreneurs to Focus" (Spanish language post is here). Lack of focus or the inability to focus by the founder/CEO is one of the biggest reasons that early stage companies fail. I may not have enough evidence for a journal article in academia, but I see the focus problem almost everyday.

The writer cited three reasons that explain the lack of focus:

1. To focus requires clear goals
2. To focus requires faith in the strategy being pursued
3. To focus requires the ability to say no to offers of deals, partnerships and other "home run" opportunities

My thoughts on the lack of focus of entrepreneurs are very similar to the writer, but what caught my attention was the concept of faith.

By "faith" what we are really talking about is self-confidence. Many entrepreneurs lack confidence in the strategies they thoughtfully prepared for their new business, especially after one or two setbacks. An example may illustrate the point.

The founder of a website that sells a specialized piece of software budgets $20 for customer acquisition on a product selling for less than $50. When I asked why such a high budget, the founder told me "I am not confident about my marketing strategy so I added a cushion".

Rather than having confidence in the original plan or re-thinking the marketing plan, the entrepreneur changes the whole marketing approach by changing the spending levels. A lack of focus is brought about by a lack of confidence.

To improve self-confidence in business decisions, three tips follow:

1. Bounce important plans and decisions off your mentor(s)
2. Research competitors for how they executed similar projects
3. Look for analysis of similar issues on blogs (VC blogs are particularly useful)

How do you know when to use these techniques. As any sailor will tell you, "when in doubt--reef the mainsail". When in doubt about a major decision, use the three techniques above. For those of you who believe that entrepreneurs must use their intuition or gut instinct, always remember that intuition is just "facts that you can not articulate". The facts will come from 1-3 above.

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Miami, FL

BOLD THINKING--CINCINNATI

Please feel free to send this post to 1000 of your closest friends living within 300 miles of Cincinnati, OH. Alternatively, you could rent a plane and thrown out hundreds of copies of this post anywhere in Ohio. Suitable pictures of you and the plane will be posted on SF.

Previous thoughts on Bold Thinking are here.

Entrepreneurship Weekend Workshop  CINCINNATI October 24 & 25 Which win do you want for YOUR company? Traditional Thinking Most workshops equip you with checklists and a on-size fits all approach.  The result - you leave all revved up to go, but after attending, what real changes or impact have you really been able to create?  BOLD Thinking A Bold Thinking Live! Workshop is framed in a context that reveals the vital decisions you, the entrepreneur, must make to achieve true advantage in your marketplace. We believe entrepreneurship is the essence of advantage. The Bold Thinking Live! Workshop Basics Value Creation Understanding your company concept on a deep value creation level and translating it into a value capturing business model that makes your company truly competitive. Value Capture Breaking down your business model into an actual and usable financial model that will reveal your company's true revenue drivers, hidden costs, and new opportunities in your market. Value Proposition Harnessing the power of the your company's marketing message so that you are selling benefits that your customers not only  understand and want, but will actually pay for. The Bold Thinking Live! Workshop Team Dr. Jeffrey Stamp, Bold Thinking Founder Dr. Stamp has brought together a nationally renowned team of entrepreneurial mentors with over 70 years of collected experience, both doing and teaching business.  Dr. Stamp himself is a world recognized author, professor, inventor, entrepreneur, and creative guru.  He has worked in over over 300 markets, holds multiple patents, and founded over seven companies.  Some of his innovations include: Baked Lays Potato Crisps, Merwin Business Simulation Model, OPERA Method for Discovery Thinking, Syllabets - Syllable-Based Reading Method, and many more. Robert Hacker, GH Capital Founder Robert Hacker is the founder of GH Capital Partners, headquartered in Miami, but serving clients worldwide. Through GH Capital he creates the strategies to grow large companies and raises the capital to support these strategies.  In addition strategy and funding, Hacker has also earned a reputation for his experience in the operational execution of strategies (much of it in emerging markets).He also teaches entrepreneurship at Florida International University and serves on the Board of the Pino Entrepreneurship Center at FIU. Much of his thinking and teaching material on business development can be found on his blog: Sophisticated Finance. Colleen Post, Bold Thinking Managing Partner Colleen Post has worked within the university education system for nearly ten years.  As part of the nationwide Kauffman Campus Initiative, she coached over 250 student business start-up teams and over 100 professional start-up teams.  Her background is a mix of business, theatre, generational dynamicsand perfecting the art of communication.  Many of her thoughts and 'tough love' advice for entrepreneurs can be found on her blog: Millennialland .  Elizabeth Edwards, InOneWeekend Founder  At Neyer Holdings, Elizabeth finds, evaluates, and funds start-up companies in the consumer and technology sectors.  Prior to Neyer Holdings, Elizabeth was a strategy consultant with the Strategy & Innovation group at Deloitte Consulting, focused on innovation, commercialization, and strategic marketing for Fortune 500 companies, mostly in the life sciences sector.  Elizabeth is also the founder of InOneWeekend and Cincinnati Innovates.Learn more about InOneWeekend, Cincinnati Innovates, and Elizabeth at her blog: InOneWeekend. The Bold Thinking Live! Workshop Details We take care of every detail - nutritious food and beverages available all day long, tools, materials, parking, and gourmet meals. Hosted at Cincinnati's newest innovation space: 538 Reading Road - Downtown Cincinnati Saturday, October 24 and Sunday, October 25 8:00 a.m. to 6:00 p.m. Click here for more information or to register. Special Bonus: As our pioneer group in Cincinnati, you will also receive a full-year membership (a $750 value) to our Online Bold Thinking Institute.  This is our gift to you for making the decision to invest in yourself and your business. For more information, please visit our website: www.boldthinking.com or send us an e-mail: info@boldthinking.com

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Robert Tuchman: Determination is Not Enough

 

Robert Tuchman is the founder of a successful sports marketing company, TSE, that was acquired by a private equity firm. He is also a columnist for Entrepreneur magazine, a writer for a series on ESPN and the author of Young Guns. I will be reviewing Young Guns, Robert's new guide to becoming an entrepreneur, in an upcoming post. Robert's guest post follows.

The decision to change my life and my career path gave me much more to work with than I realized at the time. It gave me a personal stake in a life built around doing something that I loved doing. And it made all the difference. Suddenly, I was building something for me. Something big. Out of this came my tenacity for studying sports marketing which eventually helped me create my own company. However, as determined as I was in the process. It just is not enough these days, you have to have detailed knowledge of the company you want to build, imagine it succeeding, take charge of your idea, and be confident that it will succeed.            

My love and passion for sports as well as my knowledge of the business world helped me continue to see a future in the company I was building, and now I still see the ongoing success we have today. Determination is very important in succeeding as an entrepreneur, but today with technology the way it is and new businesses popping up each day, it is just not enough. You have to have the knowledge, a set plan, goals, as well as outlets and other people to advise you along the way.

If you love something invest time in it each day, look at all the possibilities and make it work for you. Take one task on every day and let it be the building blocks for laying a foundation for your company. Make your goals measurable, don’t expect to always accomplish big goals in a small amount of time; take on as much as you can, when you can. Also make sure the environment you are working in is comfortable for you, and that support your goals. Mine was the sports packaging idea, I was comfortable, confident, and knew that I had struck on something big and that it was going to connect me to the world of sports, which I loved.  I was excited to see where it would go because I knew it was positively right for me. This is the question you need to ask yourself, what’s right for me? So while being determined continue to do, and invest time in what you love, because if you don’t wake up ready everyday to make your business succeed, you will just sit back and watch it falter; don’t let that happen to your dream.

If you would like to submit a guest post on Sophisticated Finance, contact me.

Entrepreneurial Opportunity

Israel Kirzner

A tweet this morning caught my attention--"Do entrepreneurial opportunities (business ideas) exist before discovery or are they created by the entrepreneur?" I will resist the urge to do another epistemology post and instead will discuss how to find entrepreneurial opportunities. Much of my thinking on the subject comes from Israel Kirzner, who criticized traditional micro-economic theory because it failed to take into account entrepreneurs and their asymetry of information. (I discussed Kirzner previously in a post on New Business Ideas.) To find entrepreneurial opportunities, requires a four step process:

1. Passion  You need to be passionate about a subject to maintain the determination to understand something in-depth
2. Information Collection  With a field of interest identified, one then must learn as much as possible about the field...but information collection is not an end
3. Analysis   Information needs to be systematically analyzed to arrive at knowledge, such as through my four (now five) step process to develop a new business concept.
4. Asymetry  In the course of the analysis one should discover a market anomaly, an opprtunity for arbitrage, an asymetry of information--the unique insight about the customer or the industry that forms the basis of the entrepreneurial opportunity

"To do the impossible you need to see the invisible" Marcel Prevost

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Miami, FL

Ohio Entrepreneurship Workshop

I am taking my show on the road. I am joining the folks at Bold Thinking to do a two day advanced workshop on entrepreneurship in Cincinnati on October 24-25. The "advanced" workshop is for company founders who are already in business but are probably struggling with their growth strategy or value creation. Bold Thinking's approach is summarized in this quote:

"The most important tool that today’s entrepreneur must possess is the ability to make value sustaining decisions that directly relate to their enterprise’s ability to remain competitive.  The Bold Thinking methodology provides a proven framework for decision-making designed to enhance the creation of value and strengthen competitive advantage." 

The workshop will combine lectures with case studies to improve business owner decision making. Also, each attendee will be able to work one-on-one with each of the workshop presenters to refine their business model and value creation strategy.

Bold Thinking was founded by Dr. Jeff Stamp and Colleen Post. Jeff is a widely recognized expert on innovation and creativity. He has worked with companies such as Pepsi and American Express on new product development and consulted to large companies around the world. He has also started four or five companies. Colleen and I worked together at the Pino Entrepreneuraship Center at FIU and she was instrumental in encouraging me to develop my workshop series on business model and financial planning. Colleen's area of expertise is in helping companies understand how their customers see them, a valuable but rarely discussed subject.

For more information on the workshop, send an email to post@boldthinking.com or contact me.

Business Opportunities in Cloud Computing

Chip Hazard, a partner at Flybridge Capital in Boston (VC firm), has a new blog which focuses on IT. His first post is about opportunities in cloud computing, a topic which I have discussed as recently as yesterday (and here and here.) Hazard identifies four major types of new business opportunities from cloud computing:

1. Enable enterprise data centers to be more cloud like (enterprise IT will operate using a cloud computing model)
2. Bridge the cloud and enterprise boundary (enterprise computing will use cloud computing to handle peak loads)
3. Provide tools to better manage cloud environments (self-explanatory)
4. Develop SaaS applications for vertical markets (Hazard believes that horizontal SAAS (CRM, ERP, etc.) is closed but industry specific applications are wide open

Hazard's last point is perhaps the most important for entrepreneurs--create companies enabled by the cloud.

"One of the aspects of cloud computing that excites us the most is that it is a huge enabler of innovation.  Cloud computing makes it so easy to develop and deploy applications that it levels the playing field for start-ups versus large, well capitalized, competitors.  As an entrepreneur, I can now buy access to world-class data center infrastructure for dollars an hour that would have previously cost me millions to purchase and deploy.  As a result, savvy start-up executives can look to create companies that would have previously been too capital intensive to contemplate."

Think about the perfect business model from a financial/economic perspective. It would have three characteristics:

1. Low initial capital requirement
2. Low fixed costs
3. Marginal cost to scale the business

Cloud computing allows the entrepreneur to meet all three requirements. As additional technology is added to cloud computing (e.g. Oracle, Calais, etc.) it will only get easier and more attractive to start new businesses.

I found Chip Hazard's blog through a tweet by @bussgang, his partner at Flybridge who writes a terrific blog.

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Miami, FL

Open Calais on Oracle

Much coverage is given to semantic search but few of the examples cited have much merit so far. One technology that is increasingly getting more attention is Thompson-Reuters' Calais, which I first wrote about in February 2008.

"The Calais Web service enables publishers, bloggers and sites of all kinds to automatically metatag the people, places, facts and events in their content to increase its search relevance and accessibility on the Web. It also lets content consumers, such as search engines, news portals, bookmarking services and RSS readers, submit content for automatic semantic metatagging that is performed in well under a second." (Thompson-Reuters)

Last week Oracle announced that it was integrating Calais into its database products to provide "semantic document indexing". As Oracle looks to build more functionality at the database product level, it's interesting to me that they chose Calais. Now combine this with Oracle available on Amazon Web Services and you have some powerful technology to start exploiting for new businesses.

If you are not following Calais, I think you should.

I found this story on Semanticweb.com

FIU Fall Entrepreneurship Workshop Series

The Pino Entrepreneurship Center at FIU has a full series of entrepreneurship workshops planned for this fall (see below). A new workshop on the Venture Capital Process by Nick Robbins should be particularly interesting. For additional information click here. All proceeds go to Pino.

Knight Foundation Business Competition

The Knight Foundation is perhaps the largest philanthropic organization based in Miami. They have been a long time supporter of the Pino Entrepreneurship Center at FIU, which as a Board member I very much appreciate.

The Knight Foundation has just announced the 2010 Knight News Challenge, which awards up to $5 million for the development of the most innovative business concept using digital technology for community news. If anybody is interested to form a team from south Florida to win this competition, please contact me or leave a comment below.

I found the announcement on ReadWriteWeb.

Miami, FL

Entrepreneurship Class II--Identifying Customer Need

I believe that the hardest part of the new business development process is to identify and understand the customer need (and then to determine if it is a large market opportunity). I teach my students a number of techniques or processes to use to find the customer need. One of my favorite techniques is Gerald Zeitman's seven metaphors, which I discussed in this post from June 2008. Another technique I like is what I call the Nintendo Approach, which I discussed in this post. This weekend I came across another technique--Abundance Scarcity (link).

If you are looking for a new business idea, first look at what is abundant. Automobiles are everywhere in the U.S. so let's use automobiles. Now let's look for the scarcity. Auto sales people have the lowest integrity rating of any profession in the U.S. according to several polls. People hate the process of negotiating to buy a car. The scarcity is an enjoyable, honest process to buy a car. Voila! Auto Nation! Auto Nation provides high quality used cars at a fixed price (no negotiating) and is the market leader in their industry. The customer experience at Auto Nation is much more than just "no negotiating" but the entire process reinforces an enjoyable, honest car purchase. Google might be another example. An abundance of information but a scarcity of what you wanted...until Google. This logic is still valid as evidenced by all the companies focusing on content aggregation.

Some people start entrepreneurship courses by focusing on creativity. Dr. Jeff Stamp is a good example. He has a new venture called Bold Thinking which combines his extensive experience in creativity with the value creation process in a new business concept. (More on Bold Thinking in a future post.) I prefer to start the course with techniques or processes, which I call "originality". Originality might be defined as taking existing things and putting them together differently (think Auto Nation). Few of us are going to discover penicillin or the theory of relativity, which would clearly be examples of creativity. Many of us have the ability to take things we understand and re-organize them into new concepts, particularly if one tries the techniques discussed above.

Whether you focus on creativity or originality, Marcel Prevost's quote is still true.

"You have to see the invisible to do the impossible"

If you do not understand Prevost, read about Israel Kirzner's "asymetry of information", the special skill that separates entrepreneurs from the rest of us.

Entrepreneurship Class 1

Yesterday was the start of a new semester at FIU. I have about 65 entrepreneurship students including 15 students participating remotely by video from another school. All the video will be archived, so I am thinking I may be able to do a video series of my entrepreneurship lectures.

I begin the semester by trying to dispel the illusions the students have about entrepreneurship. First, I explain the difference between self-employment and entrepreneurship. Entrepreneurship is about company building and ideally large companies.

Then I explain that entrepreneurship is not about epiphany moments but rather based on a rigorous analytical process, which is the five step process I teach and that forms the core of the course. I quote Peter Drucker, as follows:

“Entrepreneurial management is not natural, creative, or spontaneous but instead is based on a systematic, thoughtful approach….”

I then develop the theme that financial reward is a bi-product of entrepreneurship and executing one's passion should be the focus. Consistent with this theme is the idea that entrepreneurs should be building companies that are socially responsible and not just focused on profitability. The quote to illustrate this point comes from Eric Ries, a Venture Advisor at Kleiner Perkins (a world renown venture capital firm).

"Every startup has a chance to change the world, by bringing not just a new product, but an entirely new institution into existence. That institution will touch many people in its life: customers, investors, employees, and everyone they touch as well. I believe we have an obligation to ensure the resulting impact is worthy of the energies we invest in bringing it to life."

To conclude the first lecture, I show the TED video of Richard St. John on the "8 Secrets of Success". Richard's eight factors are recurring themes through out the semester. Just watch this very entertaining video to discover the 8 key factors.

Corporate Culture Understood

I will admit that I have never understood all the academic and professional interest in corporate culture. In my naive view of the world I always believed in five simple concepts:

1. Always be ethical
2. Always act in the best interest of the company
3. Work really hard
4. Hire the smartest people
5. Promote from within and develop your people

I always knew that many companies just paid lip service to culture and values. Until yesterday maybe I had seen one believable description of a culture or value system (Chase Manhattan Bank circa 1977). Yesterday on the NetSetter I read a presentation on the corporate culture at Netflix, a successful, publicly traded company. The thought that went into this presentation makes the culture believable. The clarity of thought actually makes it an incredible tool to understand what is meant by "corporate culture". The value system espoused is spot on correct. I would probably not change a word in this presentation. This presentation will become a classic in the teaching of corporate culture. Read all 128 slides, then study it.

The presentation is also an excellent introduction to human resource management. Reading it from that perspective should also be beneficial to any start up.

Miami, FL

Guest Post: Who is Managing The Business of Your Business?

With so much success from the Rickert Warnelid guest posts (here and here) on project finance and financial modeling, I have been actively seeking out new guest bloggers for here at SF. I met Deborah Koch, Senior Vice President of Gibraltar Bank in Miami, at a breakfast networking event. Gibraltar Bank focuses on serving small and middle market private companies and entrepreneurs. Deborah's understanding of entrepreneurs impressed me so I asked her to do a guest post, which follows.

Remember your first and probably second years in business?  You wore many hats --- CEO, Sales Manager, HR Director, Operations Coordinator, Purchasing Associate, and Receptionist, just to name a few.  You took on these diverse roles to efficiently launch your dream; either you couldn’t afford to hire professionals for these jobs, or just wanted to do it your way.

 

In short, you ran the business of your business.  Somehow, you carried this off in addition to delivering the special skill that drove you to start your company, whether it be as an inventor, consultant, writer, plumber, or chef.  

 

This is a common entrepreneurial dilemma…how do you maintain and grow your business and deliver your unique value proposition?  Can you be adept at both?  

 

We all know success stories that make the answer to this question a resounding YES; however, these people are not successful by accident.  A close friend who runs a CPA firm told me it was years before he trusted anyone else to make business decisions, but eventually he was so busy being a CPA that he had to hire a professional manager for the firm. In those early years, he spent many late hours tending to routine responsibilities necessary to keep the firm on the right path --- everything from ordering office supplies to paying the bills and hiring staff. 

 

When you are ready to share your dream, here are a few tips to help you grow into your role.

Trust.  Hire smart people whom you trust.  Letting go is much easier when your staff is empowered to perform.

 

Delegate.   If you trust your team, let them do what you hired them to do.  They may do it a little differently than you would have, but you never know, it just may turn out better.

 

Plan.   At least once annually, take time away from the office to plan for the next year, next five years, next ten years.  Include your management team however large or small the group.

I like the clarity and elegance of Deborah's advice. Maybe we can have her back for more guest posts.

Social Media Correlates with Faster Revenue Growth

ReadWriteWeb reported on a study that documents a correlation between faster revenue growth and increasing use of social media by the top 100 international brands. "Those brands that were the most engaged saw their revenue grow over the past year by 18% while the least engaged brands saw losses of negative 6%."

The companies in the study are both consumer and business oriented and include Starbucks, Dell and SAP. "The study grouped the brands into one of four engagement profiles that related to the number of channels they're involved in and how deep that involvement is", as shown below.

The study includes detailed case studies on some of the companies with the greatest use of social media, such as Dell and Toyota. There is a link where you can rate your company's use of social media. You also have the option to enter your company information in the database and become part of future studies.

If the big companies are using social media effectively, then they will be training customers to expect customer service responses from Twitter complaints, forums to discuss new product feature wishes and many informal channels of communications between employees and customers. Startups will need to come out of beta stage with these customer services in place or they may not get the traction they are expecting.

The full report is here. Download ENGAGEMENTdb_Report_2009

Make Things Simple

Howard Lindzon, hedge fund manager, investor in Twitter, constant critic (deservedly) of CNBC and blogger, had one of his usual market analysis posts this morning. In each of Mr. Lindzon's opinionated posts there is always a single gem of wisdom, unless you are actually interested in understanding the stock market (which he discusses thoroughly and insightfully on an almost daily basis). Today's gem was the following quote:

"People love to make things difficult."

If you have read this blog for awhile, you have hopefully come to realize that I am a simple (simpleton?) thinker. I do not have the kind of mind that can analyze problems in sixteen dimensions. In fact, more than two or three dimensions to a problem and I get short tempered and a bit surly. Complexity drives me crazy. My startup and early stage clients, on the other hand, seem to heartily embrace complexity. Two examples will illustrate my point.

1. A struggling, very cash flow negative client has decided to pursue a joint venture in Japan as the means to turn around the business. I worked in Japan for ten years and arranged five joint ventures there. As one of my staff used to say, "there is no technology yet invented that can measure that complexity of doing business in Japan". Should only take 12-18 months to get a joint venture signed, if it ever does get signed. Not a realistic turnaround strategy.
2. Another client is a desktop software company with about 22 free users and no real plan for how to get more users except "raise a big round of VC money". The product development strategy showcases their love of complexity. Launch download version of desktop product, build and launch SAAS version, offer in-the-cloud storage for clients (think Google Docs) and physically distribute software in Europe. And this is just the 12-18 month plan. Maybe they are going to outsource company management to Google or Microsoft.

Two sure ways to tell you have over complicated your early stage business:

1. Have an international expansion strategy
2. Have multiple product (not feature set) launches in the same year

There are probably sixteen other ways to tell if your business model is over complicated, but let's keep this post simple.

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Miami, FL

Multi-tasking is Over Rated

With the proliferation of technology multi-tasking has become the accepted norm. I have never been a multi-tasker. I prefer to focus on a single project and complete it as early as possible. In fact my ability to focus is such that I have always had to train my assistants to make sure I was paying attention to them when they spoke to me. This singular focus has always helped me to produce quicker, well thought out results.

I also set aside time every day just to think. Usually I ponder complex client problems or intellectual issues (and the occasional blog post). I once spent two whole days thinking about how to build a financial model with 20 operating units. I have found over the years that conclusions can improve with about a two day dormant period where you consider a problem only sub-consciously. Don't be so quick to come to a conclusion on a complex problem.

I have also found that good solutions are simple. Complicated solutions usually signal a problem that is not well thought out or an unrealistic conclusion. The three billionaires I worked for were all very simple in their approach and the best CFO I know treats even a complex international tax problem in a simple 2-3 step approach.

Most of the entrepreneurs I meet glory in their ability to multi-task, rarely just sit and think about a problem for a few hours and invariably have the most complex, totally unrealistic solutions I have ever seen. The lessons that need to be learned are:

1. Focus on one important project at a time and ignore everything else; if it will not put you out of business it is not really important
2. Make time everyday without distraction just to think; for example, 5-7 am is a great time to do it because you are fresh and nobody is in the office
3. Force yourself to articulate a solution simply; 2-3 bullet points will usually explain anything adequately and let staff fill in the blanks (trusting the staff also motivates them)
4. Hire staff that are self-directed, independent thinkers so they are less likely to interfere with 1-3 above

Hopefully these tips will lead to better execution, which is half the battle in any start up.

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Miami, FL

Florida Growth Fund Launches

According to Silicon Alley Insider, the Florida Growth Fund has launched with $250 million in capital earmarked for venture capital investments in Florida. Funding was provided by the State of Florida Retirement Pension Fund under special legislation. This is a good decision by the State of Florida given the scarcity of venture money in Florida and something I have been advocating for the last ten years. In my plan I always thought the fund should be managed by a first class VC who would set up operations in Florida. Think Kleiner Perkins, Sequoia, etc.

The State of Florida appointed Hamilton Lane (who ?), an institutional money manager based in Pennsylvania, to run the fund. Hamilton Lane is an institutional money manager that specializes in the private equity asset class and offers discretionary and non-discretionary services. In other words, they pick private equity firms to put client money with or make the decision to co-invest client monies in PE firm deals. The good news is the State of Florida did not pick a three man firm in Boca Raton to manage the firm.

A few concerns:

1. How much Florida deal flow will a firm near Philadelphia have? Hope they are not relying on Florida politicians to send them deals.
2. If Hamilton Lane specializes in private equity then they are likely to fund late stage, near IPO venture deals; Florida does not lack for late stage funding and Hamilton Lane will just be another source of capital in a market that is already robust.
3. Hamilton Lane does not appear to have significant experience in seed and early stage investing, which is where Florida badly needs capital.

Let me not be too negative. I applaud the state government for organizing the fund. Let's follow developments and see what kind of deals this new fund will do. Wonder if they would be interested in a medical device company I am representing?

Note: The Florida Growth Fund website is currently just a placeholder.

Miami, FL

5 Things to Know Before a Startup

Tech Vibes has a good post today on startups entitled "5 Things I learnt from Year One in My Startup". Three of the points are themes which I have discussed here at Sophisticated Finance.

1. Solve a customer problem
2. Focus, focus, focus
3. Attract the best and pay them what they are worth

The other two points made in the post I would have stated differently.

Hire those with the best attitude and a willingness to learn over those with experience.

I would have said "hire those with experience and the ability to learn". Typically in a startup learning comes from mistakes and mistakes use up capital--the scarce resource. Experience may reduce the number of mistakes. Hire experienced people who have been in successful previous startups. The startup environment is a learning environment and a person willing to return to a startup situation has both experience and usually a willingness to learn. Another indicator of a willingness to learn is someone who has worked on a lot of successful projects. Also, remember that it is the CEO's responsibility to lead the team. If your experienced team members are reluctant to follow in a new direction, it could be a reflection on your maturity as a CEO.

A "Strategy Guy" should not be hired in a Startup

I agree that a strategy guy should not be in a startup. First, that should be a role played by the CEO. Second, a strategy guy is too expensive and too low value-added for a startup budget. Just like a marketing guy. However, I find that most startups can not articulate the basic parts of a strategy, which is why they have trouble raising capital. The CEO has to have the ability to articulate a strategy and take the responsibility to communicate, implement and update it.

Read the post for a good re-statement of the three points I agree with completely.

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SECInfo.com-A Different Business Model

One of the hardest parts of working with early stage companies and teaching entrepreneurship is to get people to reconsider their revenue model. It appears to be baked into the genetic code as the default setting that we sell a product or service for cash. One of the most effective ways to change this way of thinking is to show creative examples of doing revenue models differently.

SECInfo.com provides information filed with the SEC by publicly traded companies. This SEC info is a bountiful store of information not only on a particular company but also on industry trends, comparative analysis, KPIs, acquisition valuations, etc. SECInfo is my preferred site when I want to review a company's 10-K, 10-Q or S-1 filings. (SEC filings are explained in this file that can be downloaded. Download Edgform.)

I received the following email yesterday from SECInfo, which showcases an interesting example of a revenue model.

 Dear Robert Hacker:

Thank you for using our http://www.secinfo.com service.  In return for the free access you are currently receiving, we ask that you recommend SEC Info to all your friends and associates.  This will benefit you, because, by increasing our user base, there will be less of a chance that we will someday ask you to pay us to continue using our site.

How does this work?  The revenue to maintain and improve our site comes from our very-most-frequent users.  If and when your usage pattern puts you in that category, we will ask you to subscribe.  Because we measure your usage against that of all users, the more people that you can help us attract, the less the probability will be that we will consider you a frequent user and ask you to pay.  But even if we don't grow fast enough and do ask you to pay, our subscription rates are less than our competitors ($10/month for individuals, and less per-user for groups).

We think this is a very fair deal, and thank you for your support.

SEC Info - Registrar
http://www.secinfo.com

If I promote the site I do not have to pay. I like this model because my incentives are aligned with the company's. I also like the clear message to explain their logic and the fact that the email was automatically generated based on my usage yesterday.

As an aside, please visit SECInfo and check out the site. If you are not familiar with SEC filings, send me an email and I will do a series of posts on the information contained in each of the major SEC filings.

Miami, FL