Author Archives: Alexander Muse

Negotiating the No-Shop Clause

noshopOne of the entrepreneurs I mentor got a termsheet from a local investor and expects to get another one before Christmas. 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).

Yes, the CEO of your startup is an idiot.

imagesEarlier today 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 when you told them everything would work splendidly. The problem is that you aren’t hiring robots, you’re hiring humans who have their own agendas.

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.

 

 

Finding a Co-Founder: Fadi Bishara CofounderNetwork, Part 3

Over the past few weeks I’ve been reaching out to services that help entrepreneurs find co-founders to conduct interviews with their founders for another project. Here is my third interview:

143dd12Name: Fadi Bishara
Title: Co-founder and CEO
Company: Blackbox.vc formerly CofounderNetwork

Q: Why did you start Blackbox.vc/CofounderNetwork?
A: I started the network because I knew many founders with successful track record who were interested in launching new ventures but did now have the mean and network to find and engage ideal cofounders. I thought with my experience in the talent search and selection for startup, I could connect members in an efficient way based on knowing the persons and making the connection (manually) based on that.  Such match is difficult to be automated and based on keywords and data algorithm.

Q: Why are co-founders important?
A: Cofounders are crucial in getting any project off the ground, no matter how talented an entrepreneur is, s/he still needs to have another person who joins their mission.  Several reasons could be listed:
a) if a founder has a difficult time convincing another founder to join a project, the viability of such project/idea is questionable and would make it much harder to convince investors to take capital risk and support the project.
b) investors have a ‘hit by a bus’ theory, so they are concerned if they invest in one person, what might happen if the person is no longer able to fulfill the promise for personal of health issues in order to build a team and carry on the vision.
c) often founders have bold and daring visions, where the line between genius and insanity is blurred, to validate a basic test of reality, two or three cofounders are more likely to be in agreement on a vision that is real and possible although big and ambitious yet still grounded in reality.

Q: What is your single best piece of advice for founders looking for co-founders? 
A: My advise to founder when looking for cofounders is to never view cofounder as someone they can “hire”. The choice must based on the following 3 criteria in the order:

  1. cofounders must have full trust and respect for the other founder(s)
  2. cofounders must have common motivating value (build to flip, or build awesome product, or build to make an impact and change the world)
  3. cofounders complementary personalities and skills

Once you’ve convinced yourself you’re onto something compelling enough to quit your job it is time to convince someone else to quit their job and join you as a co-founder. First, realizing there are very few successful startups that started with a single founder is important. Starting a company is a lot of work and your going to need a lot of help, but more importantly if you can’t convince your friends to join your team you might take a step back and take a good hard look at your plan.

Finding a Co-Founder: Shahab Kaviani of CoFoundersLab, Part 2

Over the past few weeks I’ve been reaching out to services that help entrepreneurs find co-founders to conduct interviews with their founders for another project. Here is my second interview:

22959f1Name: Shahab Kaviani
Title: Co-founder and CEO
Company: CoFoundersLab
Description: CoFoundersLab is a Maryland-based startup focused on bringing together entrepreneurs with the aim of launching a startup together.

Q: Why did you start CoFoundersLab?
A: I saw how popular startups were becoming in around 2010, and noticed how many new accelerators were sprouting up, along with the increasing in early stage investing. I thought to myself, how can this work if the failure rate for startups is so high -estimates are 75-90% failure rates. When I studied why startups were failing, I learned from Dr. Noam Wasserman at Harvard in his book, Founders Dilemma, that the biggest culprit of failed startups are founder related. If I could just help people find a better matched co-founder we could really create value for startups, investors, and the jobs that would follow.

Q: Why are co-founders important?
A: Co-founders help get you through your tough days, they also compliment you by bringing skills you’re lacking in. I think the moral support is so important. If you are raising outside capital, most investors want to see teams as compared to single founder companies.

Q: What is your single best piece of advice for founders looking for co-founders? 
A: Take this decision very seriously, and be pragmatic about. CoFoundersLab will help you take personality assessments, skills inventory, etc. to inform your decision so you make your choice more with your head and less with your heart. I would add that finding someone respects your craft and there’s a very high level of mutual respect is essential to a healthy partnership.

Once you’ve convinced yourself you’re onto something compelling enough to quit your job it is time to convince someone else to quit their job and join you as a co-founder. First, realizing there are very few successful startups that started with a single founder is important. Starting a company is a lot of work and your going to need a lot of help, but more importantly if you can’t convince your friends to join your team you might take a step back and take a good hard look at your plan.

Finding a Co-Founder: Oliver Bremer of Founder2be, Part 1

1401776Over the past few weeks I’ve been reaching out to services that help entrepreneurs find co-founders to conduct interviews with their founders for another project. Here is my first interview:

Name: Oliver Bremer, @iguero
Title: Co-founder and CEO
Company: Founder2be
Description: Founder2be is an entrepreneurship-related social networking website for co-founders. A match making service for prospective entrepreneurs, it enables individuals with different skill sets to connect and work on ideas to launch startups together.

Q: Why did you start Founder2be?
A: I started Founder2be because I was looking for a co-founder myself idea. I realized how difficult this really is and while there are a lot of people interested in startups, there simply was no good way of bringing them together.

Q: Why are co-founders important?
A: Having a co-founder is important because starting a startup is hard enough all by yourself, because you need someone you to challenge you and you can challenge him or her, because the discussions you will have is what turns your initial idea into what will ultimately become successful and many more.

Q: What is your single best piece of advice for founders looking for co-founders? 
A: Finding a co-founder is probably the hardest part of starting a start-up. Never give up, always keep looking, and don’t wait with turning your ideas into reality until you find a co-founder. Instead keep pushing ahead, keep your eyes open at the same time, and your co-founder is much more likely to find you.

Once you’ve convinced yourself you’re onto something compelling enough to quit your job it is time to convince someone else to quit their job and join you as a co-founder. First, realizing there are very few successful startups that started with a single founder is important. Starting a company is a lot of work and your going to need a lot of help, but more importantly if you can’t convince your friends to join your team you might take a step back and take a good hard look at your plan.

Startup Selling 101: Scarcity

3006366-poster-jonah-berger-day5

When 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 started Architel, 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.

Scarcity or Abundance? You Get to Pick.

51SK0E70V4L._SS500_The other day a friend was telling me about a book she is reading called “The Power of Intention.” She was explaining how the book described that many people have a scarcity-driven world view. The idea that there just isn’t enough to go around, i.e. the world is zero sum.

Many of our ancestors here in the U.S. just didn’t accept the idea that scarcity had to rule their lives, instead they decided that they could live lives of abundance. The old world view was that the pie was finite, the new world view was that the pie could get bigger or was infinite (and I am not talking about zero-point energy).
For me this has been proven through our experience with open source software. Architel needed a trouble ticket system to run it’s business. We didn’t want to spend $50,000 to $100,000 on a boxed solution that would require a yearly investment of $10,000 to $30,000 per year for software licensing and support. Instead we decided to build a software program specifically tailored to meet Architel’s needs. If we had a scarcity-driven view of the world we would have locked the software up on our servers and used it to competitive advantage. Instead, viewing the world from abundance, we released the software to anyone interested enough to download it. Over 100 people/companies per day downloaded the software over the course of six months. Since then hundreds of companies have requested that we customize it, host it or manage it for them resulting in a completely new line of business we call SimpleTicket.

Since many people and much of the world lives in a zero sum world of scarcity it is important to realize how they play. The most popular method of play is called minimax, i.e. the idea that one should minimize the maximum possible loss. (remember War Games?) Wikipedia explains better than I can:

\sup_\theta R(\theta,\tilde{\delta}) = \inf_\delta \sup_\theta R(\theta,\delta)A simple version of the algorithm deals with games such as tic-tac-toe, where each player can win, lose, or draw. If player A can win in one move, his best move is that winning move. If player B knows that one move will lead to the situation where player A can win in one move, while another move will lead to the situation where player A can, at best, draw, then player B’s best move is the one leading to a draw. Late in the game, it’s easy to see what the “best” move is. The Minimax algorithm helps find the best move, by working backwards from the end of the game. At each step it assumes that player A is trying to maximize the chances of A winning when he plays, while on the next turn player B is trying to minimize the chances of A winning (i.e., to maximize B’s own chances of winning).

Minimax doesn’t even allow for the concept that two people could win.  If you don’t have a framework to allow for abundance you will continue to “work backward” from the result you assume most likely.  Isn’t this crazy?  Win, lose or draw?  Thats it? I don’t think so.  If you were to take a look at my office library you would find more than 20 titles on game theory. Only one of them even comes close to explaining why abundance works – it is called the Bible (John 6:5-15)…

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SlideShare Reveals Our Pivots

Pivots

Startup Pivots are super common, but often times they are done under the cover of obscurity. I was taking a look at my SlideShare account and realized it revealed just how much our startup had pivoted over the past year. Here is our first presentation when the company was called HAUL:

Fast forward a few months and the model AND name have been changed. Here is our second presentation for the company:

We are about to pivot a little more. You can look forward to a new SlideShare in the coming weeks. Should be fairly interesting.