Startup Advice

How to join a startup if you can’t code. My 3 Secrets.

salesmen-coder-startupI was reading Kyle Wong’s post on LinkedIn titled, “Making An Impact At An Early-Stage Startup If You’re Inexperienced And Don’t Code“. His points are good, but I think he is missing the real point. If you want to join a startup these days you need to do one of two things:

  1. learn how to code
  2. learn how to sell

I’ll tell you my first secret, learning how to sell is MUCH harder than learning how to code. Many developers will likely argue with me, but I can let you in on my second little secret – my 13 year old learned how to code in two languages by the time he was 10. Coding isn’t rocket science – it is something you can learn over the summer. There are scores of online learning resources and with new languages like Apple’s Swift there are more and more opportunities to become an expert within months. My advice? Learn how to code iPhone apps using Swift and start your own company or join a startup. It will be a lot easier than starting a company as a non-technical founder or joining a startup as – well whatever inexperienced non-coders call themselves.

My third little secret is that people who know how to sell make a LOT more money than people who only code. The people who had sales skills at each of the startups I founded got paid more than me – a lot more than me. Selling is a LOT of work, but its a lot of fun. And you CAN learn how to sell. Selling skills translate throughout a startup. For example, when you are recruiting new employees or raising money from investors you’re really just selling them on the vision of the company.

The best place to learn how to sell? The BIGGEST company you can find. They will invest tens of thousands of dollars in you in an attempt to teach you how to sell. Some of the biggest telecom and internet companies in the world spent hundreds of thousands of dollars teaching me to sell. They made HUGE investments in me and I sold millions of dollars of stuff before I left to start my own companies. Take three years and REALLY learn how to sell. It is a BIG investment of your time, but along the way you’ll make a lot of money AND obtain a skill that is very hard to learn.

Most VCs look to hire a CEO who can sell when looking for your replacement. Be that guy/girl from the start. Selling makes everything else possible. Good luck!

Startup Quandary: Quitting or Pivoting

startup-pivot-quittingThe other morning I had a heart to heart with one of the entrepreneurs I advise about whether or not he should pivot or quit. His startup had raised a few hundred thousand dollars and managed to build an MVP, but struggled to secure customers and additional investment. His investors weren’t impressed by his inability to get customers to sign up for their service and were unwilling to invest additional capital. The question? Should he come up with a new idea and pivot the company or should he shut the company down and come up with a new idea and start over with a clean capitalization table?

What do you think? What would you do? Have you ever faced this sort of quandary? Love your comments. If I get a few comments I’ll share my own experience with this issue and the advice I shared with the entrepreneur. Cheers!

Focusing is the hardest part of being an entrepreneur

pieter-levels-startup-focusYou know you’re an entrepreneur if everything you hear or read makes you want to start a new company. If you’re not careful you’ll end up starting a new startup every month like Pieter Levels. Ten months ago he declared to the world that he was going to start 12 startups over the next 12 months. In my experience the hardest trait, but most important trait in an entrepreneur, is the ability to say NO to ideas. Instead, I believe, commitment to a single idea for at least 13 months is key to achieving any level of success.

I have a new idea for a startup almost every morning while I’m in the shower. For example this morning I was listening to NPR and was shocked to hear that the demand for rescue dogs is outstripping supply. Shelters are having to import ‘rescue dogs’ from other states including Puerto Rico. It occurred to me that I could build an online service for shelters to list all of their available dogs. The underlying rescue dog search engine could be embedded in the shelter’s website in an iFrame allowing for a more perfect way to match potential owners and pets all over the country. I went so far as to actually talk about the idea several times today until I realized that I was ‘stealing’ mental energy from my BIG idea – ViewMarket.

Startup ideas are fragile. They need 100% of your mental and physical energy to come to life. Pieter’s idea to start 12 startups in a year is ‘cool’ but it is unlikely to create a ‘hit’. I’d love to do ‘a’ deal with Pieter, but I’d be hard pressed to commit my time to working with him if I knew he was ‘cheating’ on me with 11 other startups. Commit. Pick. Focus.

Update: Pieter reached out via Twitter and suggested that “you need market validation before focus”. I agree completely. You need to validate your ideas before spending the next 13 months of your life trying to bring them to life. BUT, make sure you’ve invalidated your first startup before starting the second startup.

Startup Bridge Loans Suck

startup-bridge-loanIn the startup world S.O.S. means ‘save our startup‘ and the most common life saving device is a bridge loan. Typically a current investor will pony up just enough capital to get the company to either breakeven or the next funding event. But more often than not bridges are simply a way to allow a CEO to stay in a state of denial hoping that a magical solution will present itself. Worse yet, bridge loans send a VERY bad signal to future investors. Fred Wilson explains it:

“So bridge loans are often bad investments made defensively. And so they are red flags to other investors. When a new investor looks at a company and sees a bridge loan in place, they will understand that all is not well… And it will make closing a financing more challenging.”

It takes a startup about six months to raise a major investment round. If you haven’t made significant headway during the first ninety days it is time to take a good hard look at your burn. Your most important job as CEO is to save the company. It may be painful, but you must start cutting costs – renegotiating agreements with employees and vendors – whatever it takes. You need to get your burn rate down so that you can cut it completely if you end up running out of runway.

Of course, most CEOs (including me) don’t start cutting deep or fast enough to prevent the need for a bridge loan. Ironically, VCs know that the bridge loan is almost ALWAYS a bad idea a ‘bridge to no where’, but they can’t help themselves. So if you need to take that bridge loan make sure can find a way to ensure that it buys you the time you need to save your company. Oh, and start looking for a new role within the company or a new job because your days are numbered. The best way to explain the need for a bridge to a new investor is to introduce him to you – the soon to be former CEO – they will only consider the investment if they can convince themselves that you were the problem.

How to maintain control of your startup

maintaining-control-of-your-startupWhen you launch your first startup and raise your first round of venture capital you should simply feel lucky. Only 1% of companies seeking venture capital actually receive any funding at all. But by the time you’re raising capital for your second startup you should really start thinking about securing control. Far too many of us have raised venture capital only to be encouraged or forced to make silly decisions by our boards or investors. You don’t have to believe me, take it from my of my current investors, Dave McClure who suggests,

“Most VCs Are Stupid, Insufferable, Arrogant And Terrible At Making Money.”

Once you have one or two or three startups under your belt you’re FAR more experienced than most venture capitalists at running an early stage startup. Don’t let them ruin your company. Find a way to stay in control. If they don’t want you running the company FOREVER they shouldn’t invest and you shouldn’t regret not taking their money.

The very best way to maintain control is to issue the founders Class F shares. These common shares possess some powerful rights. First, they should allow you to keep board control by offering 2 votes for every director appointed by the class. Second, they should magnify your shareholder voting power by 100:1 or 10:1 depending on the number of shares issued. Finally, you should consider adding provisions to your employment agreement that outline the minimum fully diluted share percentage you’re willing to accept – in the event your ownership drops below, say, 15%, the board is required to gross you up. There are a million ways to keep control. The goal is to keep you in control so you can execute on your vision without worrying about getting fired or replaced.

At the end of the day, if your investor accepts the fact that you’re in control for better or worse you know you have a great partner.

The last 30 days has been crazy. You won’t believe what the DBJ wrote about it!

30-days-of-insanityThe last 30 days have been crazy. Seriously, crazy. First, the Dallas Business Journal reached out and asked me if we had acquired CultureMap. I was under a confidentiality agreement so all I could say was that we had NOT acquired the company as was being reported by other outlets.

Report: Muse’s ViewMarket in talks to buy CultureMap; serial entrepreneur says no deal yet.

Of course, we were working on the deal, but it was taking forever as I explained in this post. Of course when we finally did close on the acquisition on April 8th I reached out to Danielle Abril and gave her the scoop. She wrote about the deal in a story that was picked up by the Houston and Austin Business Journals.

Exclusive: ViewMarket buys CultureMap in deal valued at $15M.

Just a couple of weeks later the news began to leak that we were working on a deal that would put CultureMap retail stores in each of the major Texas airports. The Dallas Business Journal was all over the story.

Exclusive: CultureMap to take over Hudson News, shops at Houston airports.

Then just this week we were closing on another round of venture capital lead by 500Startups and the Dallas Business Journal profiled one of our investors in a story titled:

Dallas angel Terry Kearns: Why I’m investing in ViewMarket/CultureMap for a third time.

Since then I’ve been making a statewide tour of each of our Tastemaker Awards – first in Austin on Tuesday, then in Houston yesterday and Dallas today – more than 1,500 of our readers getting together to celebrate the best chefs and restaurants in each city – truly an inspiring event series, but exhausting. Who knows what is in store next month, but hopefully I’ll be able to read about it in the Dallas Business Journal! 😉

 

Startup Acquisitions in 17 Easy Steps

aquiring-startupsLast month we completed the acquisition of CultureMap and the process was harder and took longer than I ever imagined. I thought it might make sense to outline the steps of an acquisition.

  • Step One: Determine whether or not you want to grow your business organically or through acquisition. Spend a lot of time answering this question. Acquisitions really are disruptive and sometimes detrimental to your business.
  • Step Two: Find a target. Most targets are private companies and reveal very little about themselves publicly so it takes a lot of work to find an acceptable target. You can use a broker or investment bank to help you, but usually you’ll uncover the best opportunities in your own space on your own.
  • Step Three: Approach management and/or the investors of the target to determine if they are interested in selling. More often than not most targets will be VERY reluctant to admit they would be interested in selling even if they really are. More often than not it is best to take a soft approach indicating you might be interested in making an investment or some sort of partnership (ironically, these two options might be a better idea than the acquisition). This process will likely take a few weeks.
  • Step Four: Meet the target. Once you’ve managed to pique the interest of the target’s management team and/or investors it is time to meet. Your goal is to get the target almost as excited about you as you are about them. You’re building confidence that a) you can get a deal done, b) the transaction will be lucrative and c) it is worth their time to work with you. Expect this process to take a week or two.
  • Step Five: Execute an NDA. You’re going to ask for some basic financial and business information for use in the crafting of your offer. Usually an NDA will also include a confidentiality agreement that precludes you from talking to anyone about the fact that you’re in preliminary talks to buy the company.
  • Step Six: Determine the value of the target and its value to you. You will likely have to pay some number in between these two values.
  • Step Seven: Secure financing. Unless you’re going to use your stock as a currency or you’re flush with cash you’re going to need to raise debt or equity to fund your purchase. Expect to spend two or three weeks putting together a deal.
  • Step Eight: Deliver draft Letter Of Intent (LOI) to the target. This letter will serve as your term sheet outlining what you’re willing to buy and how much you’re willing to pay.
  • Step Nine: Negotiate the LOI price and other terms. More often than not your target will have a lawyer and his job is to markup the document. Additionally the target will likely want you to pay more than you’ve offered. It should take a week or two to negotiate the LOI.
  • Step Ten: Execute the LOI. You need to set a deadline and stick to it.
  • Step Eleven: Begin financial and legal diligence. This can take a lot longer than you might think. Expect at least a month depending on deal size. You’re going to need to budget a few thousand dollars for the legal diligence. The real costs come in when you begin drafting the Purchase Agreement.
  • Step Twelve: Retrade the deal. In all likelihood you’ll uncover things you didn’t know when you made your original offer. Take the new information into account and determine if you should lower your offer. The target is NOT going to like this process. Don’t be greedy. The retrade will likely take a week.
  • Step Thirteen: Begin drafting the Purchase Agreement. You’re going to start incurring a lot of legal expenses here – around $20K depending on the size of the target. The deal points should be settled before you meet with your lawyer. Your lawyer should be able to finish the PA in a couple of days.
  • Step Fourteen: Deliver and Negotiate the Purchase Agreement. Once you deliver the Purchase Agreement to the target his lawyer will want to negotiate the language, but hopefully not the terms. This process could take a a week or two so be prepared for the delay.
  • Step Fifteen: Complete the various schedules to the Purchase Agreement. This process could take a couple of weeks.
  • Step Sixteen: Execute the Purchase Agreement.
  • Step Seventeen: Fund and Close.

In my experience it will take about four months from your first conversation to close. Of course it isn’t unusual for a deal to fall apart for a number of reasons at various stages of the process. Remember a deal is never done until it’s done. There is no such thing as ‘late stage negotiations’ – either there is or isn’t a deal.

This three slide VC pitch deck will scare you to death. But what happens after will astonish you.

VC-funding-in-three-no-seven-slidesJean-Louis Gassée, three-slide-vc-pitch-decka silicon valley venture capitalist, has a great post on why entrepreneurs should only have three slides in their pitch deck when presenting to VCs. Here are the three slides:

  1. Who we are: The founding team’s resume, its technical, business, and academic background.
  2. A nice, sharp dichotomy: The world before us, the world after us. Show a substantial, practical impact, not just a marginal improvement of something that’s already in place. The more impossible or unthinkable the better — it will become retroactively obvious once understood. The mouse is a good example.
  3. The Money Pump. Your business plan. I like the Money Pump image, the pipes that allow the cash that’s temporarily residing in customers’ pockets to flow into the company’s coffers – legally, willingly, and repeatedly.

I’ve given more than a hundred pitches to VCs and I can’t imagine only having three slides. It is a ballsy move to be certain and I think he’s onto something. Can you imagine standing up and talking through just three slides and then waiting for questions? Even Jean-Louis agrees, “The silence will be unbearable.” But he points out that 10-15 seconds later the questions will commence and the awkwardness will end. Of course if there are no questions you will know they aren’t interested and you’ve saved everyone a lot of time.

Of course when I first read his three slide post I was excited because I’d only have to make THREE slides, but sadly that isn’t the case at all. You still need all of those other slides in your back pocket. The competitor slide, the market slide, the financial projection slide and so on – Jean jokes that you could have 253 additional slides ready and waiting for your inquisitive audience. He concludes, “The goal of the presentation is to start a conversation, the sooner the better.” I totally agree. Take a look at his post and the follow-up post:

Three Slides Then Shut Up – The Art Of The Pitch

The formula to go from zero to VC-funded in seven slides

Oh, and how did you like my title? It is a little trick I learned from Scott DeLong called “Promise and Withhold”.

 

A person’s success in life can be measured by the number of uncomfortable conversations he or she is willing to have.

— Tim Ferriss

How to sell your startup in 5 simple steps

how-to-sell-your-startupYou may have heard the old saying “companies are bought, not sold” and I tend to agree even if Bruce Milne doesn’t. There comes a time in almost every successful entrepreneur’s life when she will receive an unsolicited offer to buy her startup. This is the moment of truth. Should you take a bird in the hand or let it ride to see if you can build that billion dollar company your investors expect? In this post I’ll assume you’ve decided to sell and give you the benefit of a few of my experiences.

First, you need to realize that there is a very real possibility that at the end of the sale process you’ll still own your company. Most deals fall through for a number of reasons, most of which are out of your control. Especially in hot sectors, there are lots of companies who will want to conduct ‘undue’ diligence to better understand how you’re able to succeed where they’ve struggled.

Second, get ready to put your life and company on hold for months. Depending on how you decide to conduct your sale process it could easily take 4-6 months to conclude. During that time don’t expect to get anything done. Your metrics will likely go flat as the entire organization focuses on the exit and not the business.

Third, protect your interests as much as possible. In early stage startup sales breakup fees are unusual, but that doesn’t mean that you shouldn’t ask for one. You can run the sales process however you see fit and you alone can make the rules (assuming you’re being bought and not sold). Here is the process I recommend:

  • Courting period. Exchange of basic information to determine interest on both sides. Get a basic understanding of ballpark value of the transaction. I recommend this period lasting no more than 2 weeks. Cut the buyer off after this point. They need to make an offer or move on to another target.
  • Letter of Intent. The buyer will deliver you an LOI outlining the terms of the transaction. Assuming the consideration is acceptable you should put some teeth into the LOI. I’d recommend having the buyer pay any and all legal and accounting bills you will incur during the diligence process – usually around $10-20K – if he ultimately decides not to move forward with the transaction. This is a tiny sum and will weed out almost all tire kickers. I recommend negotiating the LOI for a period last no more than 1 week.
  • Due Diligence. The buyer will conduct extensive legal and financial diligence. Give the buyer no more than 4 weeks to complete his diligence.
  • Firm Deal Term Sheet. You should have the buyer reiterate the deal terms he outlined in the LOI and get him to agree to cover your legal and accounting costs as well as a small breakup fee ($100K for early stage startups) if they fail to close within a reasonable amount of time. I would recommend setting a 30 day time limit.
  • Purchase Agreement and Close. Negotiation of the PA and subsequent close should only take 30 days.

This schedule is very aggressive, but very doable. If you’re in a hot space and have a great startup you should demand/expect this sort of timeline and process – 3 months is completely reasonable. The consideration of $100K plus costs is STILL a horrible deal for you if the buyer fails to close. You’ve surrendered 3 months of progress – $100K won’t come close to covering your costs, but may save you from wasting time with a non-serious buyer. Good luck!

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