Many software companies these days are built using some form of venture capital. But the VC industry has been hurting lately. A lot of investments in dot-coms turned out to be spectacular flame outs. As a result, VCs are becoming ever more selective about where to put their money. To get funded these days, it's not enough to be a pet shop on the web. Nope! You have to be a pet shop on the web with 802.11b wireless hotspots, or your business plan is going right in the dumpster.
The formerly secretive world of VC has become a bit more transparent, of late. VCs like Joi Ito, Andrew Anker, David Hornik, and Naval Ravikant has created weblogs that are a great source of insight into their thought process. That dotcom thing resulted in three great books by company founders that look deep inside the process of early-stage financing (see footnote). But as I read this stuff, as a founder of a company, I can't help but think that there's something...
What gets most early-stage companies in trouble is the areas that they just don't understand, that they don't know enough about. In other words, the biggest problem is that they don't know what they don't know. Nearly every failed company will say they ran out of cash, couldn't raise enough capital, or just did not get the sales they expected quickly enough. But these situations are generally the effect, not the cause. Generally speaking, other problems that the company or entrepreneur does not understand very well are usually the root cause. This situation is actually far more dangerous than just not knowing because you cannot tackle a problem that you do not even know exists. The best entrepreneurs and CEOs are learning machines and understand what they do not know. I call this the Prudent CEO or person that appreciates the fact that the last Renaissance man, or woman, existed hundreds of years ago. In this day and age, there is just way too much...
Note: This article was written in 2004 and has been updated, though the evolution of the market has continued traditional expectations in 2013 still seem to have faded.
The financing landscape today has changed radically. Everything you learned in the last 5 years is obsolete. We are back to looking like the early 1990s again as everyone has "moved up the food chain" one to two levels. True Series A financings with money designed to develop the product are very rare and most first institutional investments are in companies with proven "traction", this means lots of sales completed. In the past there were usually TWO rounds of financing before this was required, one to develop the product and another to accomplish the first several sales by testing the sales and marketing processes. This means you need to get much further on much less money. This can mean adding a service component to your market entry strategy, corporate partners, or many other strategies, but unfortunately,...
You can't be all things to all people
Ever notice how that last 10% of almost any job takes half the time or more? This is a simple fact of life in most tasks because the more detail you try to finish the further you get up that exponential cost/time curve to perfection. Even painting your house perfectly is an unachievable and ridiculously expensive goal. In fact, an excellent job will cost twice as much as a very good job, and that will cost twice as much as a "good" job, which will cost twice as much as an OK job. That means an excellent job can cost about sixteen times more (2 X 2 X 2 X 2 =16) than a good job! Think about that next time you get a fixed price quote! So you need to decide where you want to be on that quality curve, which is also exponential. How close will you want to look at that paint job to feel good about it? How much will customers want to pay? This fact of life applies to most products and services in some way.
Unlike large companies, where thousands of...
Early-stage companies are the most fragile, have the least resources and the biggest challenges ahead of them. Developing a new business is one of the biggest challenges in life and generally requires experience in at least five key disciplines (product/service development, finance, sales, marketing, and operations) to do well. For a founder or entrepreneur and their team to be successful, they must have not only industry domain experience but all these skills available to design the business at both the strategic and tactical levels (a vision). Taking all these disciplines into account and then allocating resources appropriately for the specific situation among these areas requires much experience and entails many trade-offs and judgment calls. The only experience can be our guide here. Identifying and managing risks is also something only experience and knowledge can conquer. For very early-stage businesses, hiring a full-time,...
Where Are Your Company's Customers Now? Only in the top right "Loyalty" is a sustainable business, everywhere else is living on borrowed time.
Examples of Poor Customer Service
Customer service seems to be going down the drain today at more companies than not. It is difficult to have a remote customer experience or transaction with any significant size company without several problems along the way. It is much less of a problem where there is face-to-face contact than on the phone, so I am confining this to telephone service issues.
I recently wanted to add a second satellite dish to my house and also upgrade to a high definition dish with a large, well-known company that provides satellite signals directly to your home TV (who shall remain nameless). Although I am still working on this, I have now spent over two and one-half hours talking to people on the phone and being stood up three times in a row...
What are TODAY'S real top priorities for both you and your company? They may have changed since you last looked.
If you're busy slaying daily dragons, priorities can change without warning. And you may not even notice -- until it's too late to do something about it. Instead of dragons setting the agenda for you and your company, invest ten minutes on this pop quiz.
Because either you or your daily dragons WILL control your Agenda for the Future.
It won't take long to review which of these thirteen major issues are the most critical ones to your future. It's not complicated. Either print out this page using your web browser software and circle them -- or just jot down on a sheet of paper which ones are top priorities for you.
Biggest Problems Currently:
Almost by definition, your five biggest problems are those that are specific to you and...
This table compares the two extremes that should be considered when selecting a management model or style for your company. Any company using an inappropriate management mode will be a significant disadvantage and could easily fail.
|Hires ahead of the curve, against quarterly and annual plans||Hires just-in-time or even too late when the pain reaches an intolerable level, or some sales target is met.|
|Does everything "right", spending whatever it takes to produce a high-quality result.||Does an 80-90% job at less than ½ the cost, knowing that we will have to do it over soon when we learn more (next month!). Always attempting to build a flexible platform to build on. Remaining fast and flexible to alter course on a dime.|
|Job descriptions are narrow and the phrase "not my job" is heard a lot||EVERYONE wears several hats with very broad job descriptions. People with "not my job" attitudes or the...|
Definition: A startup is a company without any revenue and 50 or fewer people, which must deliver a product to the market shortly.
Easy access to capital and not adjusting to the new world after leaving a big company or another industry are some major reasons for "big company disease". This was very common in the bubble, when huge Series A and B venture capital rounds were easy to get without a real business plan or vision that showed how a company would make a profit. Many companies would have survived easily on so much capital if they did not contract this disease.
Unfortunately, it was common to see a large company CEO placed in startups and look like fish out of water. It was also common to see recent college grads acting as CEO. Some investors made quick money this way, flipping the "companies" to IPO that had no real or sustainable revenue stream before anyone realized there was no path to profitability. Some knew this and therefore were acting unethically, others got sucked in...
The lack of a good business design process is the number one reason why most businesses fail today. Almost everything else, like poor market, running out of capital, unexpected risks and poor sales, is just a symptom of this root problem.
Consider for a moment all the things we as individuals do not know! It is pretty sure that today no one can even keep one-tenth of one percent of the knowledge available to mankind in their head! Scholars say the last Renaissance Man existed in the early sixteen hundreds sometime. This was the last century in which anyone alone could claim to be an authority on everything. Today, four hundred years of collecting knowledge later, we now double human knowledge every few years! How can anyone be silly enough to think they can know enough across a whole industry plus management, sales, finance, marketing, technology, and operations to actually design a business...