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No Plan Survives First Contact With Customers.

— Steve Blank

Sharing your startup idea can be dangerous!

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keep-your-startup-ideas-secretSo my advice is to NOT share it with anyone, unless, of course, you want to succeed. You’ve got an idea for the next big thing, a new iPhone application that could change the world, and you’re looking for developers and/or looking to raise capital. You are not entirely certain where to turn so you reach out to local entrepreneurs who have ‘been there and done that’. I get calls like these all of the time. Prior to 2008 most entrepreneurs here in North Texas were scared to share their ideas without getting an NDA in place beforehand. This put them at a HUGE disadvantage over their peers on the West Coast where collaboration and community have a long and distinguished history. Slowly but surely, the startup community in North Texas has morphed and has become very collaborative and supportive. But, every once in a while you’ll run into someone who is still clinging to the old, secretive ways of the past.

In fact, just yesterday I got a message from an acquaintance who told me he was working on a an app and asked me to put him in touch with local investors. I suggested he send me his deck and I’d make a few introductions. His response? He wouldn’t send it unless I signed an NDA (he obviously doesn’t read my blog). He explained that someone with experience could steal the idea in a second. I’m not sure why, but I felt really offended at the time – it felt weird to have someone asking for a favor AND at the same time explain that he didn’t trust me.

At the end of the day ideas are worthless – execution is priceless. When you’re starting a company you need as much help as possible. You need mentors, advisers, peers, partners, investors, vendors and friends. If you keep your ideas a secret it will be impossible for anyone to actually help you. Could someone steal your idea? Of course, but as I’ve said before your potential competitors are more likely to become partners. You’re far more passionate about your idea that anyone else – and most people want to partner with people with passion. Additionally, keeping your idea a secret may actually create more competitors. I explained my thinking in a post a few years ago, but Chris Dixon does a much better job explaining it than I did in his post, “Why you shouldn’t keep your startup idea secret.

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Levi Strauss came to San Francisco in 1853 selling denim tent material that no one wanted. Then he pivoted to make pants.

— Some dude on Twitter

Use Scarcity to Sell your Startup’s Product

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startup-selling-scarcityWhen you are selling a product or service the most powerful thing you can create is scarcity. Scarcity can cause customers to assume your product or service is more valuable and of a higher quality. Most importantly it generates an increased desire or need for whatever you are selling. Scarcity can even create that reason your customer needs to sign on the line that is dotted. For example, when we startedArchitel, our managed services company, we had lots of prospects who had agreed they wanted and needed our service, but we were having a hard time getting them to close. Changing technology providers is VERY disruptive and there are a million reasons to wait until next week or next month to sign our services contract. We needed a REASON to get them to sign now instead of later and that reason turned out to be scarcity.

At the time we could barely turn up one new client per week. The reality was that we could likely only turn up one new client every two weeks with our available staff. So we drew a 3 month calendar on a whiteboard in our office and listed all of the upcoming turn-ups, marking up a full week as unavailable for each. We then greyed out 50% of the remaining available weeks, marking them as unavailable as well. Next we listed all of the prospective clients next to the calendar and we realized that if we sold ALL of the prospects it would take MORE than 3 months to turn them all up using our new ‘turn-up availability calendar’.

We had just created ‘scarcity’. We couldn’t accommodate everyone that wanted our service. We then began calling our prospects and explained to them the available dates and that we had several other prospects who might take those dates if they didn’t act fast. Half of the clients went ahead and secured a turn-up date. They realized that if they delayed they might have to wait four months or more to get turned up. The truth was that our turn-up dates ARE a scarce resource we just didn’t market them as such before we invented the ‘turn-up availability calendar’.

Scarcity is usually pretty easy for a startup – as ALL resources tend to be scarce when you’re just starting out, but big companies use scarcity too – think Apple and the new iPhone. There are STILL lines out the door at Apple stores here in Dallas. Google did it with Gmail – you had to be invited by someone to get an email account. There are a million ways to create scarcity – it can be a VERY powerful sales tool for startups. Give it a try.

Only you can make your CEO look good.

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startup-ceo-supportPreviously, a Quora user asked me if it would be appropriate for an employee to let his CEO know that he thought he was a bad CEO. The question made me laugh, so uncharacteristically I answered it. It occurred to me that all CEOs are bad, but some seem good because they’re supported by great teams. I contend that if your CEO either is or seems like an idiot you suck as an employee, but I am getting ahead of myself.

When I was in my twenties and started working for other people it never took much time for me to realize that everyone I worked for was completely out of touch. The problems we faced were so obvious I knew that if I were in charge I could easily fix everything. It made me realize I couldn’t work for other people. I knew that I needed to start my own company. Of course the moment I did I realized how much of an idiot I had been. Being a CEO is perhaps the hardest job you can imagine. If everyone would simply do exactly what the CEO you told them to do everything would work splendidly. The problem is that you aren’t hiring robots, you’re hiring humans who have their own agendas.

Startup CEOs have three primary jobs. The first is to ensure that there is enough money in the account each month to make payroll. The second is to recruit the best and brightest employees to join his company. The third is to enunciate a vision and SOMEHOW convince his team to help him execute that vision. The third is by far the hardest.

Assuming you are not the CEO, your job is to help the CEO execute on his vision. Agree or disagree as long as you accept a salary from the company you owe the CEO and the company 100% loyalty. Seriously. If you don’t respect the CEO or aren’t willing to help him be successful you need to leave the company ASAP. It is up to the board of directors and shareholders to fire the CEO – not you. Instead of taking the time to complain about him, work with your peers to find ways to help him be more successful. He IS an idiot unless you can help him win. You’re an idiot if you can’t help him be successful. Help him win and you’ll win. Or quit already. But don’t, please don’t, keep complaining about how your CEO sucks.

Raising Money from an Angel Investor

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My son is a huge fan of Khan Academy. If you’re new to the startup world these videos from Khan on raising money for your startup are actually really good. You’d be surprised how few entrepreneurs really understand these basic concepts:

Raising money for a startup: Raising money from an angel investor. Pre-money and post-money valuation.

Termsheet No-Shop Clause Negotiation

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no-shop-clause-termsheet-negotiationOne of the entrepreneurs I mentor got a termsheet from a local investor and expects to get another one shortly. The termsheet has an expiration date and includes a no-shop clause. For those of you unfamiliar with the term, a ‘no-shop’ is clause in a termsheet between an entrepreneur and a potential investor that bars the entrepreneur from soliciting termsheets from other investors. In other words, the entrepreneur cannot “shop” the deal around once he executes the termsheet. I recommended he attempt to remove the clause from the agreement.

In most cases the no-shop clause is VERY expensive for a startup and costs the investor nothing. Most startups begin raising money about six months before they’ll actually need the money. If you sign a termsheet with a 60 day no-shop on the third month of your fund raising process you’ll be out of money before you’re allowed to start raising money again. You can’t blame him for asking for it, but I’d recommend you attempt to negotiate its removal. If you can’t get it removed you should attempt to modify it to include a ‘cost’ for the investor.

On several occasions I’ve been successful modifying a ‘no-shop clause’ in two specific ways. First, I’ve asked that the no-shop begin only AFTER the other party had begun third-party legal or accounting diligence (i.e. engaged outside lawyer or accountant) incurring fees. Once an investor has gone ‘hard’ on a deal and has real skin in the game it isn’t unreasonable for them to ask for a no-shop. Second, I’ve asked for a break-up fee equal to my third party legal or accounting costs incurred as a result of the transaction in exchange for a no-shop provision. Again, if an investor wants me to take my company off of the market so he can evaluate the deal all I’m asking is that he have some skin in the game. Alternatively, he can elect NOT to ask for a no-shop provision – usually the best option. Finally, you should make the no-shop provision as short as possible. You need to keep raising money until you close. Never stop shopping your deal (unless of course you’ve agreed to stop for a period of time).

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Unless you are a fortune-teller, long-term business planning is a fantasy.

— Jason Fried, Basecamp

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Everything around you that you call life was made up by people that were no smarter than you and you can change it, you can influence it, you can build your own things that other people can use.

— Steve Jobs

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One key to entrepreneurial success is to get a great group of people around you who believe in your idea.

— Richard Branson

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