OnlyOnce

Wait - A Closed Environment Isn't the Be All End All?

Wait - A Closed Environment Isn't the Be All End All?

Today's announcement that AOL will be improving its web-based email access for members and opening a free version of the service for non-members in 2005 is a quiet cry of "uncle."  What's amazing isn't the announcement so much as how long it took for AOL to get there. 

What will this do to the email landscape?  Not much, in my view.  It's too little, too late, to mean much of anything.

How to Negotiate a Term Sheet with a VC, Part II

How to Negotiate a Term Sheet with a VC, Part II

The original posting (probably one of my top two or three in terms of comments and trackbacks) talked about HOW to negotiate a term sheet with a VC.  I just received a question from a reader today about WHEN to start looking for VC money.  The answer, of course, depends on your stage of business.

The general rule is that the best time to start looking for money is when you don't need it -- but not so early that a potential investor can watch your business closely for too long a period of time before the deal (since all startups have hiccups along the way). 

If you're looking for seed capital, you may not have too many options in terms of timing, but best to do everything you can to keep bootstrapping things along with consulting or one-off projects.  Why?  At the proof-of-concept stage, the value of your company increases sharply with every new customer or new release, so best not to take capital too early as long as you can live without it.

If you've got a business going (say $1-3mm run rate), with a cash balance and a predictable burn rate, and you've never taken in institutional capital before, you should probably start talking to VCs 4-6 months before you run out of cash.  While you don't want VCs to anchor a valuation in their mind too early, the reality is that it takes time to get these your first institutional deal done since it usually involves broader changes to corporate documents, and you definitely want to talk to several different firms, so a little more lead time is better.  This is especially true if your window of time interferes with August or the holiday season, when not much new business gets done at VCs unless you have a super hot deal.

If you're looking for expansion capital and are near or at profitability, deals will probably take less time to get done, and valuations are likely to fluctuate less.  In these cases, I'd say less lead time is required, although if you're in a volatile industry, you may need the capital sooner than you think!

But again, the best time to look for money is when you don't need it.  Investors (even the nicest ones) aren't afraid to "market price" a deal lower if they sense desperation or, more important, a lack of alternatives.  To that end, of every piece of advice in the original posting, the most important one, which affects timing, is #3 -- get more than one VC interested in your deal!

The Gift of Insight

The Gift of Insight

Jonathan Schwartz has a great post entitled "Every Customer Visit is a Lesson."  It's so true...if you want to give yourself a gift this holiday season, give yourself the gift of insight and spend some time in the market with a few of your top customers or prospects.  I've always found that to be one of the most valuable ways to shape the business, both strategically and operationally.

One of the most vivid memories I have to illustrate this concept is a meeting that I had with Crate and Barrel, a prospect, in the very early days of Return Path, back in 2000 or 2001.  I went in with my colleague Sophie Miller, and with a number of product sales specialists from our reseller, DoubleClick, for an all-day session with C&B's online marketing team.  We collectively were pitching everything, possibly including the kitchen sink -- ad serving through DART, buying online media through the DoubleClick Network, using Abacus to expand the reach of their catalog, sending email through DARTMail, renting email lists through DoubleClick's email list business, oh yes, and using Return Path's ECOA service to keep their email database clean.

The meeting was a mess, and as far as I can tell, it didn't really lead to any meaningful business, either for us or for DoubleClick.  I learned two things in this call the hard way, but both were incredibly valuable lessons that continue to shape our business today.

First, we created massive confusion by bringing multiple sales people in to each present a specific product to the customer, rather than sending in one senior, consultative sales person to present a holistic digital marketing solution.  Picture yourself as the head of e-commerce for a major retailer, expecting an insightful day with the leading vendor in the space...then walking into the meeting and seeing that vendor's SEVEN different sales people introducing themselves to each other!  It was a mess.  Since then, we have tried hard (and I think DoubleClick has as well) to run with a single sales force organized around the customer, not organized around our own products.

Second, we discovered that the original version of our flagship ECOA product (which was still in beta at the time) had a couple of flaws in the business model that were probably going to make it a non-starter in the retail/catalog vertical.  We also learned, happily, that the client loved the concept, but there were some details in the original product that had to be fixed if we were ever going to get traction with key customers in that key segment.  We fixed these problems and were able to successfully re-launch ECOA later that year, but more important, we now stay much closer to our customers as we develop new products and features so we make sure concepts are more firmly market tested before they head into development.

There are many more examples of this Gift of Insight, which I'll share in future posts.  Happy Holidays!

Holiday Card Anon

Holiday Card Anon

'Tis the season of the business holiday card.  This is a nice enough tradition, but I received two cards this week that baffled me because I couldn't tell who sent them to me.  Really, if you're going to send out holiday cards, the only requirement is to make sure the recipients know that YOU sent them!  And not just by putting your name or company on the envelope (although that's a help), as sometimes cards get opened and separated from their envelopes.  Include a business card inside the card, or make sure your name is printed on the card itself, or make sure your signature is legible, or at the very least make sure your company name is on the inside of the card.  Otherwise, all credit for the holiday greeting will just go straight to the North Pole!

The Hiring Challenge

The Hiring Challenge

 

Fred had a great posting a couple weeks back called The Talent Economy.  In it, he writes:

The CEOs who survived the downturn with their companies intact proved that they were tenacious, creative, hard nosed, and financially savvy. Now they are waking up to find out that the game has changed. They have to start focusing on the people side of the business a lot more. Hiring, managing, and retaining the talent is back at the top of the priority list.

Retaining good people has always been at the top of my list, even in the dark days.  But hiring and managing in an environment that's once-stagnant-now-growing presents some real challenges.  Many of these aren't unique to startups -- it's always tough to find A players -- but there are three things I've observed that are uniquely tough about hiring in an entrepreneurial environment:

 

1. Defining the job properly.  Most open positions in growth companies are for newly created positions, and even jobs that are open for replacements have usually changed since the original job was created.  A newly-written, clear, crisp job definition is an essential first step in the recruiting process.  But more than just spending the time to write out bullet points for key responsibilities, hiring managers in startups need to do two important things.  First, they should recognize that today's job definition may evolve over time, try to think about how it might evolve given the nature of the business, and make a determination about what level of generalist vs. specialist makes the most sense for the position.  Second, and the is the one I've seen more people get wrong than right, is to vet the job description with anyone inside the company with whom the new employee will interact, in order to get everyone on the same page with the roles, responsibilities, and the inevitable changes to existing roles and processes caused by the addition of someone new into the mix.

 

2. Finding the time to do it right.  Most managers in small companies are at least a little overworked (sometimes a lot!).  And most cash-sensitive small companies don't want to hire new people until it's absolutely necessary, or more specifically, until it was absolutely necessary about a month ago.  This mismatch means that by the time the organization has decided to add someone, the hiring manager is even more overworked than usual -- and can't find the time to go through the whole process of job definition, recruiting, interviewing, and training.  This is one of the biggest traps I've seen startups fall prey to, and the only way to break the cycle is for hiring managers to make the new hire process their #1 priority, recognizing short term pain in the form of less output (prepare your colleagues for this with good communication) in exchange for longer term gains of leverage and increased responsibility.

 

3. Remembering that the hiring process doesn't end on the employee's first day.  I always think about the employee's first day as the mid-point of the hiring process.  The things that come after the first day -- orientation (where's the bathroom?), context-setting (here's our mission, here's how your job furthers it), specific skill training, goal setting (what's your 90-day plan?), and a formal check-in 90 days later -- are all make-or-break in terms of integrating a new employee into the organization, making sure they're a good hire, and of course making them as productive as possible.

UPDATE:  Joe Kraus has a great post on this topic as well.

Being the Client

Being the Client

My friend and colleague Sophie Miller, a long-time sales executive in the direct marketing industry, once said, "In my next life, I want to come back as a client."  She didn't mean it this way (I think she meant it as "I want to be in the driver's seat next time 'round"), but this is great advice for any member of an entrepreneurial team in a software or services business that serves other businesses.  The good news is, it doesn't require the afterlife to achieve it!

Mariquita and I have done some work in our spare time the past two years for two different organizations to help them out with their technology.  One is our golf course, and the other is our cousins' wine store upstate.  Both experiences have had us defining business requirements, working with vendors from selection through contract, and then working with the vendor and the organization on deployment and process change.  Both have been directly useful for me to take lessons back and apply them to our processes and work with clients at Return Path. 

I highly recommend looking for some way to "be the client" for any entrepreneur or vendor.  Whether it's helping out a friend, family member, or any organization with which you're involved, the learnings from the other side of the table are incredibly valuable.

Now Selling Wit, Charm...Even Your Own Opinions

Now Selling Wit, Charm...Even Your Own Opinions

Full credit to Jonathan Schwartz from Sun for spotting this gem of an offer on eBay.  Come on, people.  Please.