Showing posts with label venture capital. Show all posts
Showing posts with label venture capital. Show all posts

Wednesday, August 1, 2012

What Kind of Entrepreneur Are You Going to Be?

I was talking to a serial tech entrepreneur and venture capitalist in the Bay Area recently and he had an interesting take on entrepreneurship.  This was his comment:

There are three types of successful entrepreneurs:
  1. The young and dumb kind who work tirelessly and fearlessly until they find something that sticks
  2. The technical experts who solve a specific problem that only a handful of people know exists and how to fix
  3. The authentic kind who have domain expertise, industry experience and the infrastructure needed (relationships, etc.) within a market to exploit its inefficiencies
Barring you being a technical expert, what kind of entrepreneur are you going to be?

When I look at my career, we were definitely in the “young and dumb” category when launching and building TGA Premier Junior Golf.  But, thankfully, we succeeded due to a great concept and a decent amount of luck.

When we launched GLinks in 2010, we were sort-of authentic entrepreneurs.  We knew through our experience in the golf industry that there’s a real pain point for young professionals to learn golf in a fun, convenient and cost-effective way.  However, we came to realize that GLinks is mostly a marketing company and this is not where our expertise lies.  With TGA, the marketing is easy because our partnerships with the schools give us direct and open communication channels with our customers.  With GLinks, we had to get word out to the broader community…. A task that requires a greater investment in time, resources and capital.  We ultimately decided that it wasn’t worth it (right now) when our main focus is on building TGA.

Last year, we launched TGA Premier Youth Tennis again as sort-of authentic entrepreneurs.  Through TGA, we knew the youth sports market and franchising industries well, but we lacked experience in the tennis industry.  This concerned us.  So, we formed a founding partnership with the governing body of the tennis industry, the USTA.  The combination of our expertise with the USTA’s gives us all of the tools we should need to be successful.  If we could go back and redo GLinks, we would’ve used the same strategy and added a promotions guru to the founding team or partnered with a marketing/promotions group before launching.

The lesson in my friend's comment is that most entrepreneurs are either the young and dumb kind or the authentic kind, and you definitely have a better chance at success if you're in the authentic camp.  As my MBA professors used to say, always entrench yourself in an industry before trying to start a company in it.

This advice provided me with clarity and I hope it gives you food for thought as you put your ideas through the feasibility funnel.  And, for those of you aspiring entrepreneurs who don’t want to worry about such matters, the franchise industry has thousands of proven business models for you to explore.

Thursday, April 19, 2012

Don't Drive Into a Storm on Bald Tires

I started to write this post about National Golf Day after seeing my Twitter feed held hostage for most of yesterday, but then, thankfully, I received an email about a more relevant topic for golf entrepreneurs so I switched directions.

In short, you can learn about National Golf Day here and read an account of the day's festivities here.

Which leaves me with this note that just crossed my inbox from an entrepreneur I met at StartEngine about his search for seed-stage investors:

"In retrospect, it would've been good to understand early on how important "traction" is.  It's more important than many of the other elements we spent so much time working on (pitch, slides, due diligence, projections, even much of the networking).  We'd have re-prioritized."

That's great feedback for me as a Mentor and great advice for all aspiring entrepreneurs.  He's absolutely correct.  "Traction" is proof that a market and customer exist.  That is more important to investors than anything else.  And it should be the top priority of entrepreneurs as well.  What does a great pitch, deck, business plan, etc. matter if there isn't a market or customer?

The chicken/egg question that then arises is - how do you get "traction" when you have no money but investors want traction before giving you money?

The answer is to bootstrap.  One of my most influential MBA professors wrote a great article and created a great slide show on this topic that I encourage you to read.

Bootstrapping requires acquiring customers early and often.  It's a constant focus on sales.  It's minimizing your start-up costs by generating revenue and churning cash flow quickly.   If your product or service is really that good, you may even be able to get PO's before the product/service is built - which, in essence, would make your customers your financiers.  Bootstrapping works especially well when manufacturing is involved.

But bootstrapping for a length of time isn't financially feasible for many tech entrepreneurs who don't have a clear and immediate revenue model.  Too many of these folks are, in my opinion, focused on the astonishing success of the Instagram's of the world ($1 billion for a team of 13 with no revenue?!?!) and not mindful enough of the reality that 1,000s of companies with this model fail for every one Instagram that succeeds.  TechCrunch et al just don't publish the failures (understandably) so the picture you see of easy start-up glory painted in the news does not reflect reality.

If I could do it all over again, I'd advise my friend at StartEngine (who has a mobile app company) to bootstrap, get a Minimal Viable Product (MVP) into the App Store, and then spend a minimum of 50% of his time thereafter focused on user/customer acquisition.  If the product solves a major pain, people will use it even if it's not perfect.  The bigger the pain-point, the more users you'll get.  And that provides the traction you need to convince the investment community that you're worth the risk of their capital to see what the proverbial "flop" holds for your company.  Add a revenue model to that equation - which I believe every start-up should have from the outset - and you're ready to put the pedal to the metal.

Equally as important for you the entrepreneur, "traction" let's you know whether you're spending time on a real business with a viable market and customer-base.  With it, you know to endure the valleys because the peaks could be spectacular.  Without it, you know (hopefully) that you're driving into a storm with bald tires and life is too short for such nonsense.

Thursday, February 2, 2012

Clarity Within the Noise

I was recently invited to be a mentor for an incubator called StartEngine, which is a 90 day program for very early stage technology companies to get their startups off the ground.  I’ve met with several companies since and I’m noticing a recurring theme – the entrepreneurs are getting conflicting information from the various mentors/investors/advisors around them, and they’re having trouble making sense of it. 

Here was an exchange I had last week:

Entrepreneur with a social media / mobile app company – “Last week we had an investor come in and say that we had to have a business/revenue model from the outset.  Then one of our mentors told us that we don’t need to worry about a business model right now and instead just need to build product.  Then a separate person told us that it’s all about users.  Which is it?”

Me – “It depends.  What do you ultimately want the company to be?”

Entrepreneur – “(insert standard 30 second pitch)”

Me – “Doesn’t answer the question.  Let’s try it this way – why did you get into this business?"

Entrepreneur – “To make life easier for my market of users.”

Me – “Ok, then answer me this – one year from now, would you rather have 100,000 free users and be dependent on outside funding or have 10,000 paying users who each pay a couple of bucks and have you on the road to sustainability?”

Entrepreneur – “Not sure, which one would investors look more favorably upon?

Me – “That depends on what you ultimately want your company to be.”

This discussion is typical of several conversations I’ve had with other entrepreneurs about the unique challenges and decisions they face with their business.  It’s not too different from the process I go through daily with folks interested in starting a TGA franchise.  With all of the noise out there offering business advice and guidance – blogs, books, Twitter, advisors, mentors, investors, etc. – it is understandable why many young entrepreneurs find themselves with spinning heads.

When it comes to big decisions, my advice is simple – always remember why you got into the business (vision) and know what your long-term goals are (strategic plan).  Then make decisions that align accordingly.  It works because the vision is set in stone at a period in time, and thus will keep you grounded, while your long-term goals are malleable and thus will allow you to adjust and pivot. 

I was discussing these thoughts yesterday with our Curriculum Consultant at TGA who has a doctorate and 25 years in education, and she told me about a book called “The Element” by Sir Ken Robinson.  She described it as a book that identifies four conditions for achievement – aptitude, passion, attitude and opportunity.  The two features of being in one’s “element” are aptitude and passion, and the conditions for it are attitude and opportunity.  Basically, you’ll be successful if you do something you’re good at and passion about, so long as you have a positive attitude and the right opportunity.  I ordered the book last night and I look forward to diving deeper into the concept as I think it aligns with the advice I’ve been giving to the entrepreneurs.

I make a concerted effort to constantly read, learn and surround myself with people smarter and more experienced than me.  I certainly encourage all entrepreneurs to do the same.  But when it comes to big decisions with your business, the focus shouldn’t be on what others are telling you but rather on what aligns with your reasons for getting into the business and what you ultimately want it to be.

Thursday, December 22, 2011

Where Do Entrepreneurs Find Their Money?

In my experience talking to aspiring entrepreneurs on a daily basis, access to start-up capital is one of (if not the) overarching factor preventing them from pursuing their entrepreneurial aspirations.

I recently came across a video thanks to Brad Feld that was created by the Kauffman Foundation and is titled “Where Do Entrepreneurs Get their Money.”  I’ve embedded it below and it provides a great overview of your financing options as an entrepreneur.  The key points are:

1.    More than half of young companies get all their funding from founder savings and cash flow derived from the business.

2.    Credit cards are the second largest source of capital for startups after founder savings. 

3.    Friends and family are the third largest source of capital.

4.    Banks are the fourth largest source of capital.  The difficulty with banks is that they want to lend against secured assets, which most young companies don’t have.

5.    Venture capital is available to high growth companies, but interestingly, less than 20% of the fastest growing companies in the U.S. received venture funding thanks to #’s 1-4.

6.    In the last few years, new sources of capital have arisen such as Angel investors (Tech Coast Angels, AngelList) and peer-to-peer crowdsourced fundraising (Kickstarter, Lending Club, etc).

Here's the video.  Until next time, have a happy holiday season and cheers to a great 2012!


Thursday, March 31, 2011

Your Sources of Information & Inspiration

Ben Horowitz, co-founder of the awesome VC firm Andressen Horowitz (investments include Twitter, Facebook, FourSquare and Zynga), often has thought-provoking comments on his blog and Twitter page.  Today, he got my mind working with two separate ones…

The first, from Twitter – “@bhorowitz: I definitely listen to other genres, but hip hop is the only popular music that is pro business and deals with business as a topic."

I enjoyed that comment because I love many types of music and had never thought of it in that context before.  If you follow Mr. Horowitz, you’ll note that he starts all posts with a quote from a song.  I used to do the same thing when I was an editorial writer for my college newspaper, albeit I never pulled from hip hop.

Horowitz’s second comment is much more relevant to this blog and came from his guest-appearance on TechCrunch.  The assertion is that the most difficult CEO skill is “managing your own psychology” and the post offers techniques for doing so.  I found it insightful and you can read it here.

I share Horowitz’s comments partly because I found them interesting and partly to make a bigger point: 

As an entrepreneur, my encouragement is to have vast horizons for where you search for and find your information (and inspiration).

Followers of this blog know that I often draw from TechCrunch, VC blogs and so forth.  I’ve been asked about it.  On the surface, the world of tech entrepreneurship has little relevance to being a golf entrepreneur.  However, the qualities that make a great entrepreneur are not industry specific – and venture capitalists are THE experts on entrepreneurship.  Thus, I read and learn from them.  They give me gems like this Horowitz post on a daily basis, whereas you’ll be hard pressed to find this type of information in a Golf Digest.

In my opinion, the road to happy entrepreneuring includes daily detours from our industry tunnel.  I wish you the best of luck finding your information and inspiration down these unpaved paths.

Friday, March 4, 2011

What Does All the Angel/VC Noise Mean?

AngelList has been all the rage in the venture capital / angel investor world over the last week.  It started when well-known VC Bryce Roberts publicly deleted his AngelList accountThe "kerfuffle" that followed was described well by Mark Suster (another well known VC) in this blog.

AngelList is a website where entrepreneurs can connect with angel investors who are looking to provide seed money for start-up companies.

This is just the latest chapter in a growing trend within the angel/VC world.

First, we heard about the huge valuations for social media companies – Facebook at $67 billion (33x revenue), Groupon at $15 billion, Twitter at $10 billion, LinkedIn at $3 billion.

Then, Yuri Milner and Ron Conway, two prominent Silicon Valley angel investors, announced that they would provide every Y Combinator company with $150,000 of seed capital.

Now, AngelList.  The result is that most experts agree we’re in the midst of a bubble in the start-up investment world.  The result is too much money chasing too few good investments, with higher valuations, shorter due diligence periods and riskier investments.  Fred Wilson described this environment really well a few months ago.

All of this can have a dizzying effect on entrepreneurs.  What does it mean?  Whether you're in the golf industry or any other, my view is that there are a few universal lessons.

The first is a reality check.  We're still seeing maybe 1% of the applications getting funded at the angel investment group I help.  Thus, don't get the idea that you can start up any old company and get funded.  For every success story you read on Tech Crunch there are 100 non-success stories.

Secondly, I don’t think angels can or will ever replace VC’s, which has been a main discussion point in the post-AngelList vs. Bryce Roberts break-up.  There are several reasons for this:
  • Generally speaking, angels have far less personal money to invest than pension/hedge/etc. funds do, and the latter need VC firms. 
  • Even at my well-respected angel group, most angels do this part-time.  Thus, it's nearly impossible for them to have extensive knowledge of all the industries, ecosystems and companies they encounter.  Thus, their reach cannot be as wide or deep as VC's who live and breathe this stuff 24/7. 
  • In my experience, it's been very difficult for angels to raise more than $500k for any one company, so they have to go to their syndicate VC partners when the raise is higher.  Angels are good for seed money but not the $2-$5MM expansionary capital that almost all fast-rising hotshot companies need.
Thus, if you’re an entrepreneur, my belief is that you need to view most of the news coming out of the VC/angel world as noise. 
What does it mean?  In my opinion, absolutely nothing.  Focus on your company like always and the rest will work out.
Why?  Because if you build a business that has a disruptive product in a growing market with strong IP, distinct competitive advantages, a scalable revenue model and a strong management team … you’ll be farther than most down the road to happy entrepreneuring.  And I promise, angels and VC’s will be standing on the sidewalk with their checkbooks hoping to take that journey with you, regardless of the investment environment.