The Blade

Thoughts for entrepreneurs from someone who's been in the trenches.

The 6 Reasons I Kept My Startup Going

This is a follow-up from last week’s post, “Doing Things Badly,” which recounts the first year of starting First Research, my first company, which was eventually sold to Dun & Bradstreet for $26.5 million.

chess board_credit mconnorsFirst Research struggled during that first year. On paper, it was failing. Year-end 1999 revenue was just shy of $4,000. We had $399 in cash, $899 in accounts receivable, and a $20,150 loan payable to me. So even nine months into the venture, we had almost nothing to show for it. I was approaching that crossroads many people experience after a year of starting a new business: Should I keep going with First Research? Since I was unable to answer that question, I kept fighting with no stopping-point in mind. The six reasons I kept on were as much psychological as they were empirical.

First, First Research was about so much more than a business – it was a crutch to buoy my emotions after three crushing failures: My long-time girlfriend had just dumped me; before starting my business, I had been passed over for a bank manager job; and I found myself sitting on the bench while playing soccer for a local semi-professional team.  In a frustrated state of near wall-to-wall failure, I wasn’t interested in failing again. And I was not a rational investor–a $500 check made me feel rich. Thus, my desire to keep First Research going was more emotional than logical.

Second – I was motivated by a “me-against-the-world” mentality. I enjoyed playing the underdog because it confirmed my belief that I wasn’t supposed to be successful; therefore, I had nothing to lose. So why not give it everything I had? Managers holding me accountable or requiring that I do something had hardly motivated me. Instead, I was motivated by my own “inner manager” daring me: “This is a big challenge, Bobby; can you figure it out?”

Third – I loved trying to make something work that had never been done before. Somewhere in my DNA is the microchip, “Wants to build new concepts.” When I woke up every morning, creating something gave me a sense of wonder. My cofounder, Ingo Winzer, later told me, “After a year, we still didn’t know if we had a business. That didn’t matter to me. By then I was pretty confident something good would happen, mainly because you were so excited about what we were doing. I think every new business needs that–infectious enthusiasm. Just having a good idea isn’t enough.”

Fourth – my sixth-sense confidence told me that my idea was a good one. Common sense told me that a salesperson needed to understand a customer’s business before a meeting. Almost every sales guru in the country was preaching sales-call preparation and understanding the customer’s business. And from my own first-hand experience as a banker, I was confident that First Research was an effective new tool. I only needed patience and execution to convince others.

Fifth – I wanted to finish the puzzle. Parts of the puzzle, like product enhancements and reaching new customers, were yet to be pieced together. You can’t start a puzzle and not finish it. Putting its pieces together was fun and absorbing. Every time Ingo and I matched a puzzle piece, we created that wonderful feeling of accomplishment for ourselves.

And last – Ingo and I never defined failure. For example, we never decided that $4,000 in sales during the first year was an indication of how we had performed. We never talked about when or why we would quit because it wasn’t an option. We felt successful because we were in the game.

So Ingo and I just buckled down and did our thing. I woke every day and asked myself, “How can I convince someone to buy our amazing product?” And Ingo woke up every day and asked himself, “How can I write an industry profile that will blow the socks off our customers?” And that became our fight:  it was simple, precise, restricted in scope, energetic, and elegant.

Not taking outside investors enabled Ingo and me to have this simple mentality. An outside investor would have likely become impatient and frustrated by our inability to meet our business plan goals. Spending only the money we needed to get the product going kept us focused. Without investors, Ingo and I didn’t need to continuously satisfy someone else or waste our time explaining our failures—we simply recalibrated and fixed the mistakes. My lack of business experience was never a question because we were stuck with me—no hiring/firing quandaries there!

And so the fight went on.

Doing Things Badly

“If a thing is worth doing, it is worth doing badly.” G. K. Chesterton

I learned the hard way just exactly what this weird quote means. In 2007, my salesperson-friendly industry research company, First Research, was sold to Dun & Bradstreet for $26.5 million. But early on in the life of First Research, my fledgling company was in a sad state.

kayak on beachWhen First Research was initially formed in 1999, I was a burned-out 29-year old banker with little business experience. What I did have was a novel idea for an online product that would help salespeople quickly prepare for calls by researching their prospect’s industry, and on April 15, 1999, after quitting my day job, First Research opened for business. Eight months later, our progress was as follows:

  • First Research had one customer, far from the 25 customers I had forecasted in my plan.
  • First Research had produced 40 Industry Profiles, far from the 170 I had anticipated.
  • I had no concrete evidence that anyone wanted our product. While several bankers thought our product was interesting and helpful, I was at a stalemate in terms of their commitment and willingness to sign on the line which is dotted.
  • I hadn’t pinpointed a market for prospective buyers. I had planned to sell to banks, but limited success with them had me experimenting with other types of buyers, who also were not interested.
  • Maintaining our product had become more work than originally planned. We hired a part-time MBA student to help. The first two students didn’t work out – one quit and one I had to let go. I thought, “If I can’t hire and manage for this simple job, how will I one day hire and manage dozens of employees?
  • To find some personal income and make ends meet, I was spending precious time completing one-off research projects for companies instead of selling First Research. This wasn’t in my business plan.
  • Some people were not taking my idea seriously. One banker told me, in a deep Southern accent, “Bobby, we’re the bank; this is already what we do. I don’t want to see you get in too deep with this sil-lee thing, son.” (Calling me “son” was almost more than I could take.)

I truly believed that my company had tremendous potential, but despite my best efforts–as G.K. Chesterton summarized in his quote–until I learned from trial and error, I was doing things badly.

The lowest point in the early days of First Research was the result of a simple mishap. I worked out of a home office, and I had this a 8 ½ x 11 sheet of paper hung on the wall with a handwritten reminder: “Thousands will Pay a Thousand Dollars for First Research.” The mini-poster actually meant a lot to me because it was my source for hope. But when a friend was visiting, he noticed, laughing hysterically, that I had made an error and spelled it ReRearch. I thought that mistake was symbolic that perhaps it was time to throw in the towel.

But I didn’t. I hung in there and made a few decent sales the next year and managed to eventually build a real business–a $26.5 million business.

So if you’re starting out doing things badly, and living through some of these startup challenges, hang in there.TweetTweet this

From my own experience as well as talking to hundreds of other successful founders, I’ve found these “badly done things” are often par for the course.

Three Ginormous Industries Ripe for Disruption

idea imageDo you want start a high-growth company that puts it to “the man”? Consider taking on a huge industry that has holes in its current business model. Uber shell-shocked the taxi industry. Netflix flattened the video rental business. Airbnb is creeping in on hotels. Now, it’s your turn. Consider these behemoth dinosaurs.

>> Financial Advisory ($32 billion revenue, 13,000 firms, 180,000 workers)

Helping people plan for their financial future and manage their investments has already been disrupted (Wealthfront, Betterment, Motif Investing), but the vast majority of industry revenue is still generated by charging clients 1 to 3 percent of their investments …everysingleyear.  Think about it: if you invest $500,000 with an advisor, you’re charged as much as $10,000 per year for their advice. Really? Insane. And the reality is that your “advisor” focuses most of his or her time looking for new clients. Think about it. Learn more in this report from Deloitte.

>> Residential Real Estate Brokerage ($115 billion revenue, 106,600 firms, 690,000 workers)

The book Freakonomics (2010) pointed out that, in order to maximize their profits, real estate agents leave their own houses on the market much longer than their clients’ houses. Surprised? I’m not. Most firms charge 6 percent for each transaction—a lucrative business model—so agents sell your house quickly in order to pocket that commission money. That is also why there are so many regulations and licenses in the industry. Of course, the exclusive “agent-only” database, MLS, helps the industry hang on, but eventually, someone will disrupt in a noticeable way. Keep your eye on London-based Yopa, a startup that is cost-effectively brokering property online.

>> Banking ($684 billion revenue, 5,477 firms, 1.5 million workers)

The number of banks is shrinking due to the cost of regulation, but the real challenge banks have is their enormous cost structures due to legacy systems built in the 1970s, 80s, 90s, and 2000s. Not to mention, many banks own or rent skyscrapers in pricy locations and have old-fashioned brick and mortar branches badly in need of renovation. “Fintech” firms have already started disrupting banks, but their efforts are just the beginning. Live Oak Bank is an example of a new bank with a fresh approach. Using modern technology, it built a bank exclusively for dentists—and has since added new target industries. If you can raise $20 million and create an imaginative business model with conservative lending practices, the sky is the limit.

Shake things up

To get started, I recommend you get a fire in your belly and dig into the great book Business Model Generation in order to figure out your game plan. Happy disrupting!

Why My Publisher Cut “What it Really Takes” From My Entrepreneurship Book

Photo: FreeDigitalPhotos.net_pakornMy publisher cut Chapter 2, “What it Really Takes,” from my upcoming book The Hockey Stick Principles and offered the following candid advice: “This is about entrepreneurship in general and doesn’t interest me as much.”

A central theme of the chapter was five “commonalities” I’d discovered about the successful entrepreneurs I’d interviewed while researching the book, such as:

  • An undying curiosity and sense of joy in the knotty challenges of problem-solving
  • A tough skin and resilience when encountering failure, which enables them to bounce back and persevere
  • A flexibility of mind about their plans, both for themselves and for their company, which allows and even welcomes the inevitable changes the plan will require over time
  • The combination of an inventor’s heart and skills with a good mind for management, or the good sense to recognize that they don’t have a business-management mind and must partner with someone who does
  • An attitude of hope, which is not blind to the obstacles or delusional about setbacks, but which fortifies them with a persistently positive outlook about their ultimate success

Experts in entrepreneurship have devised many lists of the five, eight, 10 or more personality traits of successful entrepreneurs; you can find reams of them with a simple web search. One well-researched list is the subject of Stanford lecturer Amy Wilkinson’s book The Creator’s Code, which offers six attributes of extraordinary entrepreneurs…they:

  • “…spot opportunities that others don’t see”
  • “…focus on the future”
  • “…continuously update their assumptions”
  • “…hone the skill to turn setbacks into successes”
  • “…bring together the brainpower of diverse individuals”
  • “…unleash generosity by helping others”

Amy’s list and my list partially match up. I’ve seen other lists saying entrepreneurs are risk-takers, competitive, leaders, and believe in themselves. Bill Aulet, senior lecturer on entrepreneurship at MIT’s Sloan School of Management, when asked in a CNBC interview what the stereotypical entrepreneur is like, also highlighted how iconoclastic and headstrong entrepreneurs are: “First of all, they have the spirit of a pirate. ‘We’re doing things differently!’ They disrespect the existing authority. And this is what we at MIT call ‘creative irreverence’ or ‘taking on the man.’”[i] I would agree that some do this, but not all.

The point is: you can drive yourself crazy trying to see how well you line-up with all these lists; it’s like reading the symptoms for an illness on WebMD. But the fact is that there is no one definitive list. Forget the lists!

I think all of the characterization of the traits of entrepreneurs misses the central truth. If there is one key thing about successful entrepreneurship I have observed and that arises clearly out of my research, it is that success comes down to the doing; it’s not primarily about fitting a personality profile in some silly checklist, it’s about taking action.

I’m just glad my publisher knows what it really takes to write a successful book!

[i] CNBC video interview online: “Entrepreneurship guru: ‘Need the spirit of a pirate’ Thu, 8 Aug ’13 | 6:35 AM ET

In Love With Lean Startup? There Are Other Fish in the Entrepreneurial Sea

The Lean Startup methods are hot; I’m talking, “You can’t touch this” hot, a la M.C. Hammer. At least that’s how it felt to me while attending last month’s Lean Startup Conference where more than 1,500 gathered to pay homage to Lean methods (Lean). It’s spreading like wildfire across the globe with workshops and follow-up books.

LeanLean methods are not off-base. I know a few entrepreneurs who have successfully launched using Lean. If you aren’t familiar with Lean methods, they were originally attributed to Toyota for its manufacturing process to eliminate waste and build only what the customer wants. Professor and entrepreneur Steve Blank smartly applied Toyota’s ideas to start-ups. Then, Blank’s student, Eric Ries built upon his ideas from his own experiences and wrote the bestselling book The Lean Startup because the ideas worked so brilliantly. Much of the basis for Lean is rapidly validating or invalidating assumptions you made about your proposed business model by interviewing people and collecting data. Lean advocates for rapid prototyping and market testing.

But what rubs me wrong is the intimation that any process other than Lean is waaaaay off-base. For example, an attendee at the Lean Startup Conference who runs a university entrepreneurship center said to a group: “If university entrepreneurial centers aren’t deploying Lean methods, I’m to the point of calling it malpractice.” Malpractice? Really? For something as artful as starting an innovative company?

One speaker was explaining that if you don’t receive positive feedback during your first interviews, then you should pivot and try other business models. But when I told him that upon starting my own business, First Research I didn’t pivot (despite some less than stellar feedback) but instead stuck with my original plan until I landed paying customers, his response was that I was “perhaps lucky” and that I probably did pivot as I went along. (Partially true; I tweaked and improved my approaches.) He said Lean would have improved my chances of success. But would it have?

Please don’t misunderstand me. Lean is terrific, and if you’re starting a business, you should become aware of its methods and read Eric’s book. But there are Achilles’ heels you should also be aware of. Here are a few:

  1. Customers are not visionaries: Lean heavily relies upon asking potential customers what they really want, and then changing based upon their feedback. Yet Steve Jobs famously said, “We built [the Mac] for ourselves. We were the group of people who were going to judge whether it was great or not. We weren’t going to go out and do market research. We just wanted to build the best thing we could build.”[i] Jobs isn’t alone. Henry Ford once said, “If I had asked people what they wanted, they would have said faster horses.” The best-of-the-best entrepreneurs are visionaries and have good insight (or instinct) into what business models will work and which ones won’t. This is the “sixth sense” for business. So sometimes good ideas require your own intuition (not a future customer’s intuition) and most of all, the persistence to see them through to success.
  1. Giving up too soon may be a mistake: Lean relies upon “rapid” discovery and avoiding pouring good time and money after bad ideas. Yet the truth about when to give up on your idea or aspects of your business model may rest somewhere in between. Sometimes persistence is the trait that makes founders successful, and I can validate that from my own startup experiences. The key is knowing the difference between when your idea is a good one…despite poor feedback…versus when you should punt because the idea simply won’t work.
  1. “Early adopter” customers are hard to find: Lean heavily relies upon conversations to validate or invalidate your assumptions. But “early adopters” or “innovators”– those who are quick to try a new idea– are rare. Some studies show that only 2.5 percent of people fit into this category. So when you try interviewing the other 97.5 percent, how capable are they of validating your assumptions? Often times, you have to educate the market that it has a problem and that your product will fix it. This process requires lots of time and finding a few early adopters who are willing to be on the leading edge of change.
  1. There are no set formulas for starting a business: Many aspects of Lean rely upon data accumulation and scientific-type methods. Yet start-ups are more like art projects than science experiments; they are fluid, and each one is created subtly or profoundly different from another. Any founder must apply multiple experiences and thought processes to make it successful. Lean methods are good, but so are other strategies such as persistence or releasing a finished product.
  1. You’ll learn the most from your early selling efforts: Lean advocates for lots of interviews and conversations before you invest much money into a prototype. This is a fine idea, but you can only learn so much from talking to people because, as I’ve discovered, each person will say something completely different from another. Maybe I’m old-school, but the best way to learn is through trying to sell your product or idea. When you ask for people’s money, that’s when you get true objections and honest feedback.

At the conference, an executive form GE articulated how Lean greatly improved the speed and efficiency by which that company introduces new products. I have no doubt. But what’s good for GE may or may not be good for you if you’re starting your own business. There are many ways to go about it. I’m not saying that Lean isn’t a good way to build a start-up… but it definitely isn’t the only way. And while Lean may be hot, it can be touched. Stop. Hammertime. Oh. Oh-oh. Oh. Oh.

 

[i] “Playboy Interview: Steve Jobs, by David Sheff, Playboy,” Longform.org, August 28, 2015, http://longform.org/stories/playboy-interview-steve-jobs

Why Entrepreneurs & Bigwigs Just Don’t Gee-Haw (Google it)

“Between stimulus and response, there is a space. In that space is our power to choose our response. In our response lies our growth and our freedom.”

–Viktor Frankl, Man’s Search for Meaning

 

Perhaps I’m the one with the problem, but I just need to get this off my chest…

In September, venture capitalist Jim Goetz spoke before more than a thousand curious people at the CED Tech Conference in Raleigh. Goetz is a partner with Silicon Valley-based Sequoia Capital and for two years running has been voted Forbes Magazine’s “Midas List” top VC investor. In the start-up world, he has rock star status. Goetz has invested in some big-time winners like WhatsApp, Hubspot, and Jive. But after his talk, I was left feeling a bit disgusted. It wasn’t because of his comments, and it wasn’t the conference itself. Goetz’s advice was thoughtful, useful, smart, candid, and thoroughly interesting. The conference itself was amazingly beneficial.

What rubbed me wrong was how it all went down while Goetz was on stage. Let me set the scene. The “fireside chat”-style Q&A speech format turned into a “corporate and political-gain session.” Barf. Only dignitaries were granted the privilege to ask questions. There was the governor, the state’s treasurer, the divisional president a Blue Cross and Blue Shield, the head of the 16-campus North Carolina university system, the chancellor of UNC Chapel Hill. Shall I go? Oh, oh, sorry—there was one token student who’d earned her way to the stage for a question. Each dignitary was formally introduced, their rear end was dutifully kissed, and then they waltzed onto the stage. Once on the podium, each read their sycophantic remarks, bragging upon whomever they were representing, and then they finally asked their well-phrased, pre-written questions—clearly scripted by their PR staffs. Norovirus-caliber barf.

What’s my point? you might be wondering. My point is the irony arising from the spectacle. Many entrepreneurs’ primary motivation to start a business is to escape big-business mentality, arrogantly-bragging-upon-their-organization mentality, contradictions between what they say and what they do, over-the-topness in general, and their sickening overuse of clichés and platitudes (e.g., “Innovation is at the core of who we are as an organization”—could a’ fooled me).

deerMany (not all) entrepreneurs’ main inspiration for starting their business isn’t because they want to change the world, or because they have discovered some wiz-bang idea; it’s because they saw the corporate bullshit wherever they previously worked and wanted to get the hell out. That was one of my top motivations in starting First Research, and I’ve interviewed plenty of other founders who had a similar stimulus. One, Wes Aiken, who started hugely successful Schedulefly, was motivated because he was sick of the BS at First Research (i.e., management team meetings, corporate retreats, HR policies, etc.) and wanted to escape. It’s difficult to escape the BS cycle unless you have the chutzpah to strike out on your own and determine your own career destiny.

Researchers have investigated what it is about founders that makes them do it. Some have concluded, throwing up their hands, that what makes entrepreneurs tick is simply a mystery. Management guru Peter Drucker points out: “Classic economists …including the Keynesians, the Friedmanites, and the Supply-siders… cannot handle the entrepreneur, but consign him to the shadowy realm of ‘external forces,’ together with climate and weather, government and politics, pestilence and war, but also [with] technology.”[i]

Others have identified what they believe are the “essential qualities” of entrepreneurs. One of the most respected investigators, Manfred E.R. Kets de Vries, clinical professor of leadership at INSEAD, one of the world’s finest business schools, is the author, co-author, or editor of more than thirty books and 300 papers on the psychology of entrepreneurship. In his influential 1977 paper, “The Entrepreneurial Personality: A Person at the Crossroads,” de Vries writes that entrepreneurs often struggle to succeed in mainstream business and have defiant, odd-man-out personalities: “He is perceived by other people as a ‘deviant,’ a person out of place, frequently provocative and irritating because of his seemingly irrational, non-conformist actions and provocative ideas.”

Bill Aulet, senior lecturer on entrepreneurship at MIT’s Sloan School of Management, when asked in a CNBC interview what the stereotypical entrepreneur is like, also highlighted how iconoclastic and headstrong entrepreneurs are: “First of all, they have the spirit of a pirate. ‘We’re doing things differently!’ They disrespect the existing authority. And this is what we at MIT call ‘creative irreverence’ or ‘taking on the man.’”[ii]

I’ve found this to be true of many entrepreneurs, and I myself struggled with the constraints of corporate management described by Kets de Vries. So next time you see some corporate-gaining pundit on a stage, channel your frustrations by starting a company. Everyone wins!

Oh, and what’s an alternative to having the dignitaries parade up on stage and ask Jim Goetz questions? Crazy idea here: just let real entrepreneurs causally ask Goetz whatever they want. I’d be very surprised if they opened each question with a PR announcement bragging about how innovative they are. That would save us all a bunch of time AND make the session something much more than an eye-rolling/snore-fest.

[i] (Drucker 1985)

[ii] CNBC video interview online: “Entrepreneurship guru: ‘Need the spirit of a pirate’ Thu, 8 Aug ’13 | 6:35 AM ET

 

 

How Madonna, Teddy Roosevelt & Kenny Rogers Bolstered My Start-up Mojo

Starting a new company rarely goes as planned. The trial and error process of finding anyone who cares about your new product can be embarrassing, lonely, and downright disastrous. My first six months of starting First Research in 1999, which was sold eight years later to publicly traded firm Dun & Bradstreet for $26 million, began just that way….

The brutal honesty of youth

The asphalt radiated a fierce sun as I lugged my electronics back to the car. Sweat pouring, I felt as desperate as Jerry Maguire, Tommy Boy, or Willy Loman in Death of a Salesman. Wearing my best suit and well-prepared to make a presentation, at age 30, I had gotten myself laughed at by high school kids. Something felt as inevitable as death here, but I was confused about where I’d gone wrong.

Six months earlier, though, I felt like I’d invented the light bulb. Dubbed First Research, my fledgling company developed easy-to-comprehend industry reports designed for salespersons to use as background before approaching a client in a particular industry. I was certain this would be the next big thing.

So in 1999, I quit my job selling for a bank and convinced a partner to write these sales-friendly industry reports. Though I was originally confident I would soon be raking in the dough, reality set in, and I saw my plan going nowhere. For more than six months, potential buyers of my industry reports rejected the product: “Our salespeople are experienced and already know about the industries they sell to.”

What? No, they don’t—that’s the problem! I knew I had the solution, but denial and universal rejection were making me frustrated—and then scared.

Yet I pressed on and regrouped, figuring at least I was trying to turn my idea into a real company. If my original plan of selling to salespeople didn’t work, fine; other markets would appreciate my valuable industry reports. Somebody told me that high school business classes might need them. That seemed a reasonable market—our reports were easy-to-read and certainly educational.

Hours spent making phone calls and writing letters led me to the business curriculum director at the Board of Education. His drab office was small and stuffy with paper files stacked on every flat surface, even the windowsills. I explained the relevance of First Research industry reports to his classes’ work.

“Well, you know we have limited budgets just now,” he said. He was telling me this rabbit hole was a dead end, but I had a one-track mind: I would make this work. Through force of will, I convinced him to allow a class of students to pilot First Research.

Hoggard High School, in the relaxed coastal town of Wilmington, North Carolina, is a brick pillbox surrounded by treeless, sandy soil and a trackless parking lot. On this day, the place simmered in an early-autumn sun. Two thousand students were changing classes when I got out of my car. Almost twice their age, I was dressed for success in a dark blue suit, pressed white shirt, and red power tie. I chose a likely teen and asked her the way to the principal’s office.

After signing the visitor log, I found the Intro to Business classroom—a trailer stuck out in the parking lot. Stumbling into these cramped quarters, I introduced myself to the teacher, Mrs. McAllen, a heavy-set woman in her mid-40s. “So you’re the salesman I’ve heard about,” she said with a wry grin. “Okay, come on in—you’ll get your chance in a couple of minutes.”

I took a seat in the back. For 10 minutes, she talked about assignments. Every so often, a student’s eye grazed my way, then moved off. Finally, Mrs. McAllen introduced me.

“Attention, class. CLASS! Listen up! We have a guest speaker today. . . . What was your name again?”

“I’m Bobby Martin from First Research.”

“Class, Mr. Martin is going to tell us about his software.”

Software? Oh boy; this may be a tougher sell than I anticipated.

I fumbled around connecting cords from my laptop to my portable projector. Mousing and snickering, the students didn’t sound at all ready to listen up. I looked out at the group, but no Mrs. McAllen—she was long-gone, probably to the teachers’ break room.

“Hi, everybody. As your teacher said, I’m Bobby Martin from a new company, First Research, and I’m here to show you something exciting.”

I broke into a 15-page PowerPoint deck with slides more suited to a trade event, even though I’d titled one of my slides, “Benefits for Students.” Apathetic to these benefits, the students talked throughout my presentation. Periodically, one or two looked up, confused– “Why are we doing this?” on their faces. Perhaps worse, a couple of them appeared to feel sorry for me.

The trailer was hot and airless. My mouth was dry. In the back, an all-American in a polo shirt and khakis asked, “Excuse me, sir. What are you talking about?” Laughing and slouching in a chair, his buddy jabbed him on the arm.

I chuckled and shook my head. Sweat had officially saturated my shirt.

“Hey, everybody! I’m telling you, YOU NEED THESE REPORTS…AND THEY DON’T EXIST ANYWHERE ELSE!”

After 15 minutes of awkward, borderline abusive, interaction with the students, game over. They didn’t want my industry reports and wouldn’t use them to learn about the various industries in our economy. I disconnected my cords, packed up, and slunk out, my pride bruised and my enthusiasm squelched. No one seemed to notice.

After several months of experimenting with product and selling choices, some good ones and some bad ones (like attempting to sell First Research to high school students as a cooler kind of textbook), a few early adopters purchased my industry reports. As I originally had suspected, my product WAS a viable idea!

Surviving a maelstrom of criticism & self-doubt

From speaking with dozens of other successful founders, this type of story is all par for the course. You may have your own similar stories. Here is some fitting advice for surviving–mentally, physically, and financially– while you experiment.

  1. From Madonna: “I laugh at myself. I don’t take myself completely seriously. I think that’s another quality that people have to hold on to … you have to laugh, especially at yourself.” A study in the journal Emotion says that people who are able to laugh at themselves are more cheerful and healthier. These early start-up disasters are badges of honor and make for great stories (and blog posts) down the road. I love this story from Hoggard High School because today, with the benefit of hindsight, it was a valuable lesson learned, and it’s pretty damn funny to picture a sweat-soaked 30 year-old man in a suit getting laughed off the stage by a bunch of teenagers.
  2. From Teddy Roosevelt: “It’s not the critic that counts… The credit belongs to the man who is actually in the arena, whose face is marred by dust and sweat and blood.” So know this is what it takes –learn to mop your sweaty brow and brush off that dust.
  3. From Kenny Rogers: “You’ve got to know when to hold ‘em, know when to fold ‘em, know when to walk away, know when to run…” Trial and error is part of the game, but so is knowing when to stick it out and try harder on your current path versus quitting and trying something else. I gave up on selling to high schools right then and there. Trust your gut instinct.

Gut Check: Should You Accept Startup Money From Friends & Family?

cash

In an Entrepreneur Magazine article “Why Friends and Family are Your Worst Business Enemies,” CPA and attorney Mark J. Kohler advises, “…I typically recommend my clients not invest with close friends and family.”  Entrepreneur Michael Hess’ article in CBS Money Watch entitled “5 Dangers of Doing Business With Family and Friends” offers good reasons to avoid it as well: “The business comes to the family picnic,” or, “There’s collateral damage.”

I won’t refute this advice. Yes, founders should ideally avoid raising money from friends and family (f&f), but starting a company is rarely an idealistic journey.  Raising money to start a company is insanely challenging. Plenty of successful founders I’ve interviewed raised cash from f&f to get started. Moreover, what if f&f are your only viable funding option? What if your f&f have offered to invest, and it feels ok? Is it ok then?

That choice is up to you. I’ve made four f&f investments myself, one with my family and three with friends. I’ve interviewed dozens of successful founders who have raised money from f&f. If you decide to go for it and ask your f&f network to literally buy into your startup, here are some tips and best practices:

  • The best investment type is “love money”: Bob Young used love money to launch $1.8 billion Red Hat Software and describes it this way: “Love money is precisely what it says, which is that people are investing in your business, not because they know anything about your business, or because they think you’re clever; they’re investing because they love you.” By accepting “love money,” you have to treat it like receiving a gift because they aren’t betting on you or your proposed business—but instead they’re hoping you’ll succeed because they love you. There’s absolutely nothing wrong with taking love money if you follow these other tips and best practices as well.
  • Mention the investment request upfront: Never request a meeting with a friend or family member in order “tell them” about your business idea, and then at the meeting, ask that they invest. It puts them in an uncomfortable spot. Instead, I recommend communicating something like this: “Hi Friend/Family: I’m starting a new company and raising money. I would rather have a great friend/family than an investment, so please feel no pressure. Would you be willing to meet with me to learn more about it? If you’d rather not get involved in my business ventures—I’d totally understand.”
  • Invest a majority of your own money first: Make sure you tell friends and family members how much of your own money and sweat equity you’re investing. Also, make sure they know that their investment isn’t paying your salary. Take a night job before you accept f&f dollars to pay your salary during startup.
  • Never accept large amounts from f&f: Professional golfer Michelle Wie once told ESPN, “If someone wants to give you, like, $100 million, it’s hard to say no. But I don’t want to accept that kind of money right now. I’d feel burdened by it.” Michelle’s sentiment is quite wise – you don’t want the pressure of having to return investment money to those you love. The perfect f&f investment amount could be landing $15,000 from five relatively financially well-off individuals, $75,000 total. Each would invest with the caveat that the money can easily be gone forever, and without any ramifications that would impact their savings, retirement, or spending in any significant manner. You don’t want f&f to feel their potential investment loss is a financial hardship.
  • Decide upfront about “follow on” investing: The trouble with f&f startup investing is that rarely is the first round of investment enough. No seriously—like almost everyone predicts they’ll need, for example $75,000 to start but then wind up needing $200,000. Who do founders beg from when they run out? The initial investors. I actually believe that deciding upfront about how to handle the next round is more important than avoiding f&f investing. For most situations, I recommend you decide upfront that you won’t come back to f&f looking for more money because if you do, their “love money” may easily evolve into something other than love (resentment or frustration, to name a few).
  • Give f&f a fair deal: If you’re selling f&f shares in your business, give them a fair deal without them having to negotiate with you. In other words, don’t value your “idea” at a huge premium. Instead, keep your valuation realistic based on the amount of time and money you’re investing. Sure, your idea is worth something, but probably not $3 million! Also, ask a qualified corporate attorney to protect their interests by way of a shareholder agreement—and always make sure you have one in place before accepting f&f funds so there’s an understanding of how the business’ governance works.
  • Keep f&f off your board of directors: Make sure f&f don’t join your board because that could put them in the awkward position of taking sides or, in a worst case scenario, having to vote to fire you. Better to make the only “business” you do with them be accepting the money, and having conversations about your journey over coffee, lunch, or dinner.

The most important tip is to trust your gut. Before ever mentioning to a friend or family member a potential startup investment, you’ll probably instinctively know whether or not it’s a good idea or not. Trust that judgment before any of my or anyone else’s advice. But starting a business is tough – so never completely nix any funding strategy.

3 Tips for Navigating Your Start-up Without a Compass

plane
I recently spent two days hiking, fly-fishing, and talking business in North Carolina’s Blue Ridge Mountains with Lee Demby, successful co-founder of Boardroom Insiders, which provides sales professionals with high-quality profiles on more than 8,500 executives. While trekking up and over 6,000-foot Grandfather Mountain, near the summit, we stumbled upon eerie wreckage of a 1978 single-engine plane that killed its pilot. The pilot was flying in whiteout conditions, didn’t have proper instruments to navigate, became disoriented, and smashed into the mountain. The wreckage is a cruel reminder of the difficulty of navigating when you can’t see what’s ahead.

A journey with no roadmap

One of the most difficult aspects of starting a new business is navigating blindly – feeling as if you’re in whiteout conditions. With little data and history to help you, you’re forced to make educated guesses about which processes will work well, and which ones won’t. You want to avoid crashing into the side of a mountain.

During our trip, Lee and I were facing this dilemma ourselves. We were trying to answer the simple question: What’s the most efficient, effective method for Boardroom Insiders to get new customers? Boardroom Insiders already names Citrix, Microsoft, and Cisco as a few of its marquee customers. But how can Boardroom Insiders grow even faster? We contemplated trade shows, partnerships, cold calling, marketing campaigns, and an array of other ideas. Trouble was, as a new firm, Boardroom Insiders has only so much evidence as to what has worked in the past. Mind you, Lee’s one of the sharpest, most calculating founders I’ve known, so the process is clearly difficult.

Here are some tips for navigating your own start-up in whiteout conditions:

  • Don’t shy away from the challenging conversations: Finding the best answer to problems isn’t supposed to be easy, so devote the time and energy needed to dig in with your partners and advisers and figure it out.
  • Seek out and “calibrate” the advice of experts: I wasn’t the only person from whom Lee sought advice. He’s chatting with dozens of experts. “I calibrate each conversation based on what I know about the person’s background, experiences, and biases,” Lee told me.
  • Measure, measure, and measure: Right from the start, measure and document as much as you can because the data will be useful later. Use CRM systems or other sales automation tools to track key performance indicators (KPIs) such as sources of leads, costs per lead, conversion rates, cost of sales, and other applicable stats.

Taking these three steps opens up the clouds and provides you some instruments to better see where you’re going.

Fellow Entrepreneurs: Don’t Drive Past the Lemonade Stand

stand

My kids, ages 7 and 10, have become lemonade stand entrepreneurs on beautiful spring days. They paint creative signs, scream at passing cars, and learn what it takes to earn 25-cents a cup. But I’m amazed at how many cars wiz right by—hardly turning their necks to look, much less stop. These busy drivers are missing out—there’s a positive vibe when you stop at lemonade stands. The process only takes a second, yet you gotta adore seeing the sparkle in a young child’s eyes when their customers tell them, “Your lemonade is AMAZING!”

The same positive energy is created when meeting with a new, aspiring entrepreneur. Never ignore a would-be entrepreneur’s request for a meeting. Give them a shot. Hear them out. Help them discover the positives in what they’re trying to do. Give their free trial a whirl. Offer them advice. Spread the word. Encourage them.

Goodness knows, we all need the help when starting out. I certainly did when I started First Research, a provider of industry profiles for call preparation. I’ll never, ever, ever forget where I was standing on Front Street in Wilmington, North Carolina in 1999 when CPA Steve Johnson became First Research’s very first customer. “Sounds like a great idea,” he said. “Do you have one on food distributors? Send it to me; I’ll give it a shot.” And he did. The rest is history. Steve’s encouragement got me through some dark weeks. Steve, thanks for your support.

We should all strive to be more like Steve Johnson and agree to hear out new entrepreneurs, and also go out of our way to help them. Doing so is not only good for them—it could be good for you as well. When that entrepreneur’s idea makes it big, wouldn’t it be a great feeling to say, “I was the first person to try out this product!” or, “I was an early adopter.”

Don’t drive by the lemonade stand. You never know what might happen. Plus, who couldn’t use some liquid refreshment (and good karma) on a warm day?