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Written by Dave Lavinsky on Thursday, May 14, 2009
If you haven't yet launched your new business, I have some advice for you.
It's actually not my advice. As I'm a little conflicted about it. Let me explain.
The advice is to start your new business as a project. What that means is that you don't quit your day job. You don't raise capital. You don't focus 100% of your effort on it.
Rather, you work on it as much as you can in your spare time until it either becomes something, or it doesn't.
The advice comes from Bambi Francisco, the co-founder and CEO of Vator.tv
who I spoke with earlier this week. It's not only her advice having founded a company, but the advice given to her by Mark Pincus.
Pincus is the serial entrepreneur who founded Tribe in 2003 and sold it to Cisco Systems in 2007, and is now the founder and CEO of Zynga, a large social gaming company. You can watch Francisco's brief but informative interview of Pincus here
So, the point is to start your new business as a project. Obviously, this depends on your choice of business. If it's a restaurant, there's not much of a project to be had. But if it's software, for example, you can start developing it and see if you are able to start creating features that people want.
And once you can prove that the project is developing into a viable business, you create a real company for it.
This "project" concept also reared its head when I recently spoke with Eytan Elbaz, co-founder of Oingo, the company which later would be purchased by Google and renamed as Google AdSense.
Elbaz and his co-founders were developing their novel software while still holding full-time jobs. After a little while, they were able to develop a working prototype. And then, Elbaz showed it to an angel investor (who interestingly was a client of his at his current job). It was only upon the angel investor writing them a check that they decided to leave their full-time jobs and really launch the company.
So why am I conflicted about this advice? Well, there's definitely something to be said for the entrepreneur that is so passionate about their business that they're willing to fully launch it from the get go.
To leave the comfort of their current job and take all the risk. In these cases, I like that the entrepreneur can't blame their current job for limiting their time. They fully immerse themselves in their business, and give it their best possible shot. And in many cases, this total commitment is what drives success.
The key here is probably that everyone's situation is different. The young entrepreneur might have an advantage in that it may be easier to leave their current position and jump 100% into their business. Conversely, the older entrepreneur with the family and mortgage may be less able to shoulder the risk of foregoing their current salary.
The choice is yours - take the leap fully or partially. Each can result in success.
The only choice that I truly hate is doing nothing. Too many people sit with great ideas in their heads but fail to act on them. And then, when someone else successfully executes on their idea, they say, "Hey, that was my idea."
To them I unfortunately say, "Who cares - it's the entrepreneur's willingness to commit and execute on the idea that really matters!"
Written by Jay Turo on Tuesday, May 12, 2009
Scott Shane, one of the world's most respected statisticians regarding entrepreneurship and angel investing, has a new book out - "Fools Gold? The Truth Behind Angel Investing in America." It is without question the finest compilation of statistics and cold, hard facts regarding the REALITIES - as opposed to the myths - of the keys to successful angel and emerging company investing. Some amazing statistical nuggets from Scott's book:
- The book's 12 chapters have a combined 692 source references! Compare this to the average "this is what I think with absolutely no basis in numbers" opinions that pass for wisdom on CNBC, on the world of Internet financial blogs, and from your friendly neighborhood financial advisor
- Average portfolio return for angel investors participating in organized angel groups: 27% annual return (quoting this study)
- Return expectation per deal for investments by successful angels: 30x
- Proportion of business angels that expect a 10 times or better return: 45.4% (what they actually get is another matter...)
- Number of companies founded each year that achieve $10 million or more in sales in 6 years: 3,608
- Number of companies founded each year that achieve $100 million or more in sales in 6 years: 175
- Share of drug start-ups that go public: 20.3%
- Portion of venture capital dollars invested in the top five industries for venture capital: computer hardware, software/Internet, semiconductors and other electronics, communication (including mobile) and biotechnology - 81%
- Top reasons why people invest in private companies: To make money (obviously), to learn new things, to pay it forward
- Number of companies financed by business angels in a typical year: 50,700-57,300
- Amount invested by business angels in a typical year: $23 billion
- % of Angel Investors with net worths of LESS than $1 million: 66.7% (really an amazing statistic as the SEC definition of an accredited investor is a person with a net worth of greater than $1 million)
- 45 to 54 - Age range with the highest odds of making angel investments - disputes the myth that most angel investor are retired
- Proportion of angel investments that involve co-investment with VCs - less than 1.1 percent
- Proportion of angel investments made in retail and personal service businesses - 37.5 percent. (Note: If you just make a rule to NOT invest in these 2 areas, your probability of emerging company investing success goes up dramatically)
As working with and investing in entrepreneurial companies is my life's work, I read this book extremely closely and found it both invigorating and challenging. Invigorating in that it confirmed, with statistics, the superiority of private company investment returns vis a vis all other investment classes. And frustrating in that it starkly outlines the very basic mistakes that most private company investors make over and over again that prevent them from being a successful investor in this asset class.
My overall takeaway: If you want to invest in private company deals, only do so via one of two avenues: 1) Via a GOOD angel investment group like The Band of Angels or the Tech Coast Angels (if you can get in) or via a managed portfolio approach such as a private equity or venture capital fund targeted toward the space or via a hybrid, operational approach like Growthink.
Written by Dave Lavinsky on Tuesday, May 12, 2009
Have you ever heard of ZipSkinny.com?
If you go to the homepage of their site, you'll see a box that asks you to "enter your zip code to see U.S. Census data and comparisons with neighboring ZIPs."
Unless you're one of those people who gets excited about miscellaneous facts and figures, at first glance this might seem like an uneventful site.
But for those of you who provide products or services to local customers, the information available is *invaluable* in conducting market research for your business.
Once you type in your zip code and press enter, you'll see tons of great data on your local market. Such as the percentage of local residents who have graduate degrees or who are married. And, you’ll see economic indicators such as household income, and demographic information on race, age, and gender.
As an example, I've just typed in 10549, the zip code of our office here in Mount Kisco, a suburban town just outside of NYC. One fact that stands out to me right away is that 62.3% of residents have lived in the same home for 5+ years. Another is that the median household income is $75,761. Put these two statistics together, and you can deduce that this town is a fertile location for a business where both an affluent demographic and high customer retention are essential, such as a landscaping or cleaning business.
Whether you're looking to conduct preliminary market research before delving into a business, or examining markets into which you can expand your current venture, ZipSkinny is one of many tools that can help you with the process.
And in our recent report, "How to Quickly, Easily, & Expertly Conduct ZERO-COST Market Research For Your Business" I lay out this and several other tools to help you conduct the market research online at a level that is comparable the way it's done by experts with decades of experience.
As you might recall, I released this report at a STEEPLY discounted rate of one cent for each year of my wife's age, in honor of her birthday in March. And that discount is about to disappear forever.
On Thursday at midnight, the price is going up more than 100x, so as the subject of this blog post suggests, this is your last chance to get the information of market research experts for literally pennies.
If you are a Growthink University member, you can click here to grab your free copy of the report if you haven't done so already.
Otherwise to order now, click here. Or for more information, you can watch the brief video below:
Written by Dave Lavinsky on Thursday, May 7, 2009
Yesterday I had the opportunity to interview Brad Feld, who is considered among the elite investors in privately held companies.
For those of you who are not familiar with Brad, his background includes starting and selling his own software company, investing as an angel in 40 to 50 companies, and founding or co-founding three venture capital firms: Intensity Ventures, Mobius Venture Capital and Foundry Group, where he currently serves as Managing Director.
While there were several invaluable points for entrepreneurs seeking capital in the interview, I found the following to be most interesting:
1. Your VC firm is your partner.
Many first-time entrepreneurs view VCs simply as providers of capital. In actuality, VCs are partners. They exert control over your company. They have experience in product development or scaling companies, or both, and can provide significant value beyond the money they infuse in companies.
Because VCs are partners that exert control, you need to assess them much like you would other partners. Mainly, you need to make sure that there is a really good fit.
2. Angel investors are the friend of the first-time entrepreneur.
First time entrepreneurs should strongly consider angel investments prior to venture capital. Angel investors often have financing experience which can help entrepreneurs navigate the VC waters when they are ready (there are a ton of terms and issues involved with venture capital that most first-time entrepreneurs don't know about).
Angel investors also tend to have relationships with VCs. Also, angels often have the operational experience to help grow the entrepreneur's company. And finally, the angels' funding can help the company grow to a point where it is more suitable for venture capital.
However, when structuring angel deals, it is imperative to keep the pricing/valuation fair and the deal terms as simple as possible. If not, raising subsequent venture capital rounds becomes more challenging.
3. Don't look for investors who are not a good fit
Brad mentioned the 80/20 or even the 99/1 rule. Essentially, entrepreneurs should spend a ton of time on the 1% of investors who are a great fit. And not waste their effort on the other investors.
Two key aspects that Brad mentioned for ensuring a good fit are 1) geography (many VCs will only invest in certain geographic regions) and 2) sector (Foundry Group simply doesn't invest in Clean Tech; no matter how exciting the company looks). I would also add "stage" to this list as many VCs focus on companies at specific stages (e.g., some only want post-revenue companies, etc.)
You can listen to the full 30-minute interview by clicking the blue triangle on the audio player below:
Are you an entrepreneur looking to find angel investors for your deal? Gain all the tips and advice you need with our Growthink's Angel Investor Guide.
Written by Dave Lavinsky on Wednesday, May 6, 2009
My recent interview with PR expert Richard Harris was enlightening. You may know that I owe a lot of Growthink's success to PR. A decade ago, I pitched the Los Angeles Times and they published a story on us. That day I received about a hundred phone calls, and at least that volume in emails. So, I focused the interview on figuring out how to replicate that success.
Richard serves as the founder and CEO of Momentum, which provides communications, strategy and placement agent services to private equity funds, investment banks, and selected early stage and non-profit companies. A 20+ year veteran of the public relations industry, Richard has not only an impressive client list (that includes The Girl Scouts of America, Polaris Venture Partners and Star Jones), but also a wealth of knowledge on this subject.
Some of the areas the Richard covered were:
Four ways to make your press release "newsworthy"
The three press release distribution sites that are worth using (and why you shouldn't use the other ones)
The different people you need to pitch if you are targeting websites and print publications versus television or radio media
The best time and day of the week to pitch journalists
What NOT to do if a journalist picks up your story
And many, many other critical points that every entrepreneur needs to know about if they want publicity for their businesses.
The full interview is available for members of Growthink University.
For non-members, you can listen to the first five minutes of the interview by clicking on the blue triangle on the player below.
Written by Dave Lavinsky on Wednesday, May 6, 2009
All entrepreneurs must be well-versed in sales.
We are always selling: Selling to employees as well as customers, investors as well as partners, etc. And those who excel at selling have a major competitive advantage.
To make sure that both you and I are in fact not only great at selling, but building an effective sales team, I recently interviewed sales whiz Adam Shaivitz.
If you're not familiar with Adam, Adam is the co-author of a best-selling book on selling called “Selling is Everyone's Business: What it Takes to Create a Great Salesperson.
” He is also a sales consultant with Accelerate Performance who has consulted for Google, ADP, Pimco, Morgan Stanley, and many others.
Adam conveyed tons of great information. Two points that I especially liked were the following:
1. Make sure that you are properly motivating and solving the problems of your buyers.
The best salespeople are problem solvers who are able to sell the benefits of their offerings tailored to one or more of the six basic fundamentals that all of us as humans want:
- Desire for gain
- Fear of loss
- Security and protection
- Comfort and convenience
- Pride of ownership
- Satisfaction of some emotion like love or hate or ego
Great sales people understand which of these six motivators are most important to their prospects, and sell into them.
2. Spending time with your best sales performers.
Adam told us that too many business owners neglect their top sales performers. Rather, they tend to focus on improving their lowest performers.
There are two problems with this approach. First, working with and improving the performance of your best sales performers by only 10% may be easier and more beneficial than improving the performance of your lower sales performers by 25%. Secondly, your top sales performers are the ones that will be targeted by headhunters and other firms, and you can't afford to lose them.
A few of the other areas we covered were:
- The keys to building a successful sales team
- Adam's favorite ways to motivate a sales team
- At what point can the entrepreneur or founder still run the sales organization and at what point should they bring in a dedicated sales manager
- How to provide feedback, motivation, and inspiration for team members
- How to transfer the skills of top performers to everyone else in the organization
- How to create an environment that encourages improvement and performance
The full interview is available for members of Growthink University
To listen to the first few minutes of the interview, please click the blue triangle in the player below.
Written by Jay Turo on Monday, May 4, 2009
Why am I an angel investor? I have been very, very, very lucky in my life to have both a) come from a family history of entrepreneurs and b) as a young man had as teachers and role models men and women who deeply understood that the blessings of the American way of life are mostly dependent on our thriving free enterprise system. And who understood that that system is wholly dependent on our vibrant spirit and culture of entrepreneurship.
Written by Jacklyn Rome on Tuesday, April 28, 2009
While you probably have heard about the Stimulus Package and President Barack Obama’s push toward increased usage of renewable energies, you may not be aware of how this initiative can help your business and where the money is in fact going. The following information will explore the specific allocations of the Energy Stimulus and how you, as a business or as a consumer, can take advantage of this unique opportunity.
One of the most significant components of the $787.2 billion stimulus package signed into effect by President Obama in February 2009 is the initiative to spur development of “Clean, Efficient, American Energy”. Of the total sum, more than $30 billion will be allocated to transforming the nation’s energy transmission, distribution, and production systems by improving grid design and investing in renewable energy and another $5 billion will be spent on home weatherization. The energy component of the initiative is aimed at reducing the country’s dependence on fossil fuels, spurring innovation, and creating jobs nationwide.
The following outlines the specific initiatives the energy stimulus money will be dispersed to:
- Improvement of Electricity Grid Design - $11 billion to build new power lines and deliver renewable energy
- Grants for Local Governments - $6.3 billion to state and local governments to reduce carbon emissions in their localities
- Renewable Energy Loans - $6 billion for funding renewable energy projects
- Home Weatherization – Weatherization is the process of protecting a structure’s interior from the exterior elements and improving interior energy consumption efficiency through highly effective insulation. The government has allotted $5 billion to lower income housing
- Eco-Friendly Government Buildings - $4.5 billion to make government buildings more energy efficient
- Fossil Energy Cleanup - $3.4 billion for carbon capture technology development
- Green Research – $2.5 billion in grants for universities, companies, and national laboratories that will demonstrate advancements in technology to foster energy independence
- Advanced Battery Grants - $2 billion to spur development of advanced vehicle and other battery systems
- Green Job Training - $500 million to train workers in the green energy sector
- Electric Transportation - $400 million in grants to develop electric vehicles
- Smart Appliances - $300 million in customer rebates for the purchase of energy efficient appliances
- Federal Vehicles - $300 million to replace or retrofit government vehicles to use renewable energies
- Department of Defense - $300 million to develop more energy efficient military equipment and bases
- Local Transportation - $300 million to local governments to purchase buses and trucks that use alternative fuels, and $300 million to replace or retrofit vehicles that use diesel fuels
- Energy Efficient Housing - $250 million to increase energy efficiency in homes, particularly low-income housing
Historically, companies have been reluctant to invest in renewable and clean energy technologies, because they require tremendous economies of scale to be profitable. Since these systems require large capital outlays upfront, it takes a long time to see return on investment. The Stimulus Package aims to combat these hesitations toward switching to renewable energy systems. The initiative will benefit various members of the energy sector from large utility companies upgrading energy grids to small businesses installing solar panels. It also benefits end consumers striving to make their homes more energy efficient through tax breaks and government subsidies.
Federal Involvement will Spur Investment, Growth, and Job Creation
The influence of government grants, loans, and tax breaks, will help encourage progress for both the supply and demand side of this sector. On the supply side, the government will provide research grants and funds for investing in promising existing and new technologies. On the demand side, the Stimulus Package will help companies and homeowners purchase new green energy systems by making them more affordable. The Stimulus Package will also create thousands of new jobs across the nation fulfilling these initiatives, helping to fuel unemployment and the overall status of the economy. According to Nancy Pelosi, investment in the green sector will create close to 500,000 jobs in 2009, 67,000 of which will be in the solar and wind power installation sector. Ultimately, the energy portion of the stimulus package will reduce American reliance on foreign nations for fossil fuels, generate domestic jobs, and promote innovation and adoption of new renewable energy technologies nationwide.
Access to the Allotted Funds
Whereas other areas of the stimulus package will be distributed through company applications and competitions to receive the funds, the money attributed to the energy sector will be primarily dispersed through tax credits and purchase incentives. For example, within solar and wind energy, the government is now offering a 30% tax credit to offset the cost of installing a solar energy system or wind farm, whereas previously the tax credits had a cap of $2,000 and $4,000, respectively. Some additional credits include up to $7,500 for buying a plug-in hybrid electric car or a 50% tax credit for gas stations or other businesses that install alternative fueling pumps. For more information on the specific types of grants or tax credits offered, please find more information at the following website: http://www.greentechmedia.com/articles/obama-signs-stimulus-package-5736.html.
So What Does This Mean for You?
If you are involved in the clean energy sector, Growthink recommends additional research into the specific provisions of the stimulus to see if your business will qualify for federal subsidies or research grants. Additionally, Growthink suggests putting together a strong marketing campaign that highlights government support and tax credits for purchasing your products. This will educate the many unaware businesses and consumers that believe switching to alternative energies is outside of their affordability. Additionally, it is a wonderful way to draw positive publicity for your business. Growthink is happy to provide you with complimentary feedback on your current marketing program. We can also assist you by utilizing our expert group of marketing professionals to work with you on creating a Marketing Plan to target your customers in the most effective way possible.
Contracting, Construction, Eco-Friendly Transportation, and Electrical Infrastructure Companies
If you own a contracting, construction, eco-friendly transportation, or electrical infrastructure company, Growthink recommends seeking additional information on how you may bid for funds allocated to electricity grid design, weatherization, environmentally friendly transportation development, energy efficient housing, and building renovations. Growthink can help you with conducting this research and help articulate how your business is the most suited to perform the specified work or receive a government grant.
As a consumer, you can reap the benefits of the energy sector stimulus by utilizing the tax incentives to switch to renewable energy systems, such as installation of a solar or wind energy system in your home. The government is also offering customer rebates for those who purchase energy efficient appliances for their homes.
The Obama Stimulus Plan is an unprecedented program that has created unique opportunities for tremendous innovation and growth within energy efficiency. Please contact Growthink for more information on how we can help you position your company to benefit from the billions of dollars allocated to this sector and within your reach.
Written by Dave Lavinsky on Tuesday, April 28, 2009
Yesterday I had the privilege of interviewing Matt Ocken, one of the founders of Kindred Partners.
Kindred Partners might be the best at recruiting executives for high-growth technology companies. In fact, some of the top venture capital firms continuously use Kindred to find executives for the companies they fund.
If that’s not enough, consider that Kindred was responsible for placing CEO Meg Whitman at eBay as well as key executives at Google, Amazon and Facebook.
So, Matt was obviously uniquely qualified to answer my questions about how to expertly build your company’s management team.
Matt started by going through the four tactics for building a great management team. Surprisingly, the first tactic was pretty simple and should be used by virtually all entrepreneurs.
The tactic? Figuring out who you already know that could be a good addition to your team. As Matt pointed out, there is a proven correlation between success and a team having worked together in the past. So, if you have successfully worked with someone in the past, your chances of successfully working together again are high. And investors know this and are keen to fund companies led by teams with history of successfully working together.
So, a first step is for the entrepreneur to do an audit of who they have worked with successfully in the past. You could have worked with them in school, at a job or at an organization. Create this list and then narrow it down to include the individuals you truly respect and would like to work with again in the future. Then, contact these individuals to see if they are interested in joining your team.
Note, Jay Turo, Growthink’s other co-founder, and I met at business school. We worked together successfully on a couple of projects during school and were friends. So, Jay was the first person I approached after I had the idea for Growthink. We’ve now run Growthink together for 10 years, so I can personally vouch to Matt’s approach!
Click here to download the interview as an MP3 file and the PDF transcript.
And here is a preview of the first few minutes of the interview (click the blue triangle to play):
Written by Jay Turo on Monday, April 27, 2009
Adobe. Akamai. Amazon. Amgen. Apple. Baidu. Bed Bath & Beyond. Biogen. Broadcom. Check Point. Cintas. Cisco. Citrix Systems. Dell. eBay. Electronic Arts. First Solar. Flextronics. Garmin. Genzyme. Gilead Sciences. Google. Hansen Natural. Infosys Technologies. Intuit. Juniper Networks. Logitech. Maxim Integrated Products. Microsoft. NVIDIA. Oracle. Paychex. QUALCOMM. Research in Motion. Seagate Technology. Sigma-Aldrich. Starbucks. Symantec. Urban Outfitters. VeriSign. Xilinx. Yahoo!
What do these companies have in common? Their stocks are all components of the NASDAQ 100 – the “biggest and the best” of the mostly technology-focused companies that make up the overall NASDAQ Composite Index.
Quite simply, this is a list of some of the most dynamic, most innovative, most technological, most forward-thinking, highest “IQ” companies on the face of the earth.
And know what else? If you had been invested in any relevant basket of these stocks in the last ten years, your investment returns would have been HORRIFIC. Here are some sample returns:
In the period from January 1st, 1999 to December 31, 2008, the overall NASDAQ composite index went from 2,192.69 to 1,577.03, or a 10-year return of MINUS 28.1%. Microsoft, down -45%, Yahoo down 71%, Akamai down 86%. Even the winners haven’t down all that hot – Starbucks up only 18% for the decade. Electronic Arts – riding the global gaming wave – up a pretty mediocre 52% for the whole decade.
So the obvious question is - what is going on here? The companies on this list have certainly been innovating and growing these last 10 years. And the #’s here are not overly distorted by the bubble of 1999-2000 and the great crash of 2008. If you normalize for these two factors, the numbers are somewhat better, but still no way NEAR the mid-teens annualized returns that the mutual fund and insurance industries would like you to believe you will get via a standard basket of public stocks investment approach.
Like Mickey Rourke’s character in “The Wrestler,” the stock-picking industry can’t keep themselves from talking about their glory days of the 1980’s and 1990’s. These two decades saw consistent double-digit broad public stock market returns. In those days, making good, and sometimes great returns, was as simple and easy as buying virtually any index or broad-based market index fund. To illustrate this, let’s look at the NASDAQ return by decade:
- In the period from January 1st, 1979 to December 31, 1988, the NASDAQ returned 223%. And in 6 years during this 10-year period, the index returned greater than 14% annual returns.
- In the period from January 1st, 1989 to December 31, 1998, the NASDAQ returned a whopping 475%. And in 8 years during this 10-year period, the index returned greater than 14% annual returns.
- In the period from January 1st, 1999 to December 31, 2008, again the index returned a depressing -28.1%, with only 2 years (1999 – with a whopping 85.1% and 2003 with 50.01%) returning greater than 14%.
What is interesting, however, was that the last 10 years – the “00’s” – were far, far from a lost decade for the professionals. In fact, while the Main Street investors were left holding the bag, the hedge fund and private equity businesses boomed. Little and sometimes well-known money managers like Bruce Kovner, Edward Lampert, Eric Mindich, George Soros, James Simons, Louis Bacon, Marc Lasry, Paul Tudor Jones, Ray Dalio, Stephen Feinberg, Stephen Schwarzman, Steve Cohen, Steve Mandel, T. Boone Pickens and William Browder earned personal compensation packages that regularly exceeded 10 figures – as in billions of dollars of earnings. And to make it even more of a kick, when the bottom fell out these last 6 months, they didn’t have to give back all of the money they had personally earned over those years. No, conveniently those losses were born by a combination of their investors and the American taxpayer. Nice gig if you can get it.
So what does this all ad up to? A few action points:
- NASDAQ market investing is NOT emerging company investing. By the time these companies earn the kind of attention, trading volume, and brand to be NASDAQ-listed, it is simply too late to make breakout returns investing in them. 20 years ago, maybe. But today the combination of free-flowing information sharing in these stocks and having to compete with huge hedge fund players like the above, you don’t stand a chance.
- As the famed batsmen Wee Willie Keeler once said about his hitting prowess, I just “hit ’em where they aint.” To make any investment return beyond the averages, you have to fish where the sharks above aren’t. You won’t beat them and unless you have $10 million liquid, you don’t have enough money to join them.
- Luckily there is a MASSIVE investing arena where a) the big guys aren’t and b) where market efficiencies haven’t sucked out all of the opportunity for alpha return. It is, of course, the emerging and distressed private company sector. Most of the deal sizes here are simply too small for the big institutional players (hard to put a $1 billion to work in an owner-operated private company). And if you work hard and know where to look, you can exploit a LOT of market inefficiency and find those wrinkles of alpha return that will transform your portfolio.