"Those who cannot remember the past are condemned to repeat it" - George Santayana
The financial panic of 1873, which set off a severe nationwide economic depression that lasted for 6 years, included The New York Stock Exchange closing for 10 days, 89 of the country's 364 railroads going bankrupt, and unemployment as high as 14%. During this extremely challenging time, a gentleman by the name of Thomas Edison started a company called General Electric. You may have heard of both of them.
The Great Depression of the 1930's is even scarier in statistics than in legend. Industrial production fell by 45% between 1929 and 1932. Homebuilding dropped by 80%. 1,000 of the nation's 25,000 banks failed. US GDP fell by 30%.
And during these dark days, DuPont created new products and indsutries including rayon, enamels, and cellulose film. RCA invented television. And a little company called IBM started pouring research dollars into something called the computer.
The 1970's are commonly remembered as a dark period for American finance and business - stagflation, negative stock market returns for the decade, and hits to the national psyche including Vietnam, Watergate, and the Hostage Crisis. It was also the era that 2 ambitious and visionary young men named Bill Gates and Steve Jobs got their start.
My 20 years in angel investing, small business and entrepreneurship have taught me to separate the world into two kinds of people: Those that comment and complain on how things are and those that do something about it.
Unluckily for all of us, television and the always on Internet give those that comment and complain bigger megaphones than ever to spread their false prophesies of doom. It is only human nature to be affected, depressed, and even scared by their strident negativity.
Very, very luckily for all of us, however, there always be budding Bill Gates and Steve Jobs and Thomas Edisons and Thomas J. Watsons amongst us. And where are these future shining stars devoting their prodigious energies to these days? I promise you that most of them aren't working at General Motors, nor are they drawn to politics or working in the public sector, nor to non-profits.
No, they are capitalists. They are entrepreneurs. They start and work at Internet companies, they research alternative energy technologies they discover new drugs to make us all live longer and healthier lives. They are and they discover Black Swans. They - in the words of Voltaire - make "life throb to a swifter, stronger beat."
And you know what else? They're in it for the money. They want to build companies like Pure Digital (makers of the FlipCam) did and sell out to Cisco Systems for $590 million. Or Facebook, on the verge of a public offering that will make its early investors billions. Or Integreon, whose business plan was perfected in a small Growthink conference room 10 years ago, and is now the largest legal outsourcing firm in the world (and saving a lot of folks a lot of money on their legal bills).
With apologies to Doris Day, the future is in fact ours to see. As long as little boys and girls are raised to grow up to do something great with their lives, progress will march on. Technologies will be commercialized. New industries will arise. Companies will be born and will grow and grow and grow. Fortunes will be made.
The question, of course, is what will be in it for you? Will you be on the couch with the critics? Or will you be in the game with the builders and the doers?
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:
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.
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:
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:
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:
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.
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:
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:
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):
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:
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: