Growthink Blog

Why NOT to Invest in VC – backed Companies


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The typical wisdom regarding the appropriate financing course for a new company goes as follows:

1. An entrepreneur starts a company in classic "bootstrap" fashion - with a combination of sweat equity and their own financial resources. This usually consists of personal savings, credit cards, and small loans from relatives (Mom, Dad, Uncle Bob, etc.).

2. Through connections, or through a chance meeting at a networking or social event, an angel investor hears the entrepreneur's story, likes them and their technology, and on the spot, writes a check to provide the company with its first outside financing.

The angel then introduces the entrepreneur to his or her wealthy friends and business connections who, based on the good reputation of the referring angel, also invest.

3. With this seed capital – more often than not totaling between $100,000 and $1,000,000 - the company accomplishes a number of key technical milestones, gets a beta customer or two, and then goes on a "road show" to venture capitalists around the country for capital to “scale” the business.

This venture capital financing - usually between $3 and $10 million - is the first of a number of rounds of outside investment over a period of three to five years. With this capital, the company propels itself to $50 million+ in revenues, and to either a sale to a strategic acquirer or to an initial public offering.

4. With the exit, the entrepreneur and the original angel investors become fantastically rich and are lauded far and wide.

5. The cycle is then repeated - with the original angel investors now joined in their investing by the once impoverished but now wealthy entrepreneur.

6. All live happily ever after.

It all sounds wonderful and it is. The only problem is that it almost always a fairy tale.

What really happens is more like the following:

A. The entrepreneur pours their lives, their fortunes, and their sacred honor into their company- at great personal sacrifice to them, their families, and everyone connected to the enterprise.

B. A "black swan" investor appears out of the blue and backs the company - less impressed by the technology than by the talent, desire, and grit of the entrepreneur.

Technical progress and market traction are much slower and cost a lot more than anticipated. There are a lot of dark, hard days.

C. There is considerable internal debate around whether or not to solicit and/or accept outside venture capital. For most companies, it is simply a non-starter. Management has the wrong pedigree, is geographically undesirable, competes in the wrong industry, and/or has a business model that lacks "scalability credibility" with the venture community.

D. Usually unbeknownst to all, the decision around pursuing or accepting a venture capital round will be the most important factor in determining the investment return for the founder and the original angel investors in the company.

But here is the key – contrary to popular wisdom it is negatively correlated.

Yes, you heard me right – multiple research studies, including from the Kauffman Foundation, have shown that when you remove a follow-on venture capital round from a founder or angel investor-funded company, that expected returns skyrocket.

This is very counter-intuitive but critical insight for emerging company entrepreneurs and those that back them to grasp. It is driven by the following:

•    The Best Metric for the Health of a Company is Cash Flow. By definition, companies that receive venture capital cannot fund their businesses from operations, and thus need to seek outside capital.

This leads to a lot of negative selection with venture capital - backed companies – whereby the sample of companies that need venture monies are by definition weaker companies.

•    Venture capitalists Have Very Different Objectives than Angel Investors. Venture capital funds are usually 7 - 10 year partnerships whereby the general partners - the “VC” - manage the capital of the limited partners, usually institutions (endowments, pension funds, etc.).

At the end of the period, all profits and proceeds are distributed to the various partners on a pre-determined split. These splits are normally such that the VC needs to obtain a “highwater” return for their limited partners before they, as the general partners, see any return.

In practice, this creates a significant incentive for the general partners to hold on for an extremely large investment return, and to be reasonably indifferent regarding smaller (less than 3x returns).

As a result, the VC will often block a portfolio company from harvesting a very attractive, but not home run, return.

•    Venture capitalists Cut Tough Deals. Venture capitalists for the most part are very nice guys and passionate about entrepreneurship, but they are not shrinking violets. And they hire very aggressive securities attorneys to represent their interests.

This combo all too often leads to various forms of deal unpleasantness, like cram-down rounds, liquidation preferences, and change of control provisions, which in turn, often lead to unhappy founders and angel investors even in somewhat successful exits.

My suggestions for the investors seeking emerging companies to back?

First, look for "one and done" financings - companies that need just one round of outside capital to propel them to positive cash flow.

Second, look for companies that have short and realistic liquidity (exit, IPO) timelines.

And third, don’t get star-struck by big venture capital interest in a deal. It is often a double-edged and very sharp sword. 


What We Can Learn from One of the Greatest Investors of All Time


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On the cover of this week’s Fortune Magazine is PayPal founder and famed technology investor Peter Thiel. Within is an awesome 4,000+ word opus on Thiel’s views on technology, investing, education and innovation.

Thiel’s career and successes span almost the entirety of the Internet Age - in 1998 he co-founded PayPal, sold to eBay in 2002 for $1.5 billion.

More impressively, the managers and engineers that Thiel attracted to PayPal went on to become some of the most famous entrepreneurs of our era – including at least seven that went on to build companies valued at more than $1 billion: Tesla and SpaceX (Elon Musk), LinkedIn, (Reid Hoffman), YouTube (Steve Chen, Chad Hurley, and Jawed Karim), Yelp (Jeremy Stoppelman and Russel Simmons), Yammer (David O. Sacks), and the data-mining company Palantir (co-founded by Thiel himself).

This recognition for entrepreneurial talent has also made Thiel one of the greatest investors of all time.

His prescience is of course best highlighted by his most famous investment, when in 2004 he gave the 20-year-old Mark Zuckerberg, a Harvard sophomore at the time who had never held a steady job, $500,000 in exchange for 10.2% of the company then called “Thefacebook.”

That investment has so far netted Thiel more than $1 billion in cash, and is the highest profile of a string of amazingly lucrative stock picks, a list that includes the aforementioned LinkedIn and SpaceX, but also tech high-flyers like Spotify and Airbnb.

While lately Thiel has become somewhat infamous for his controversial views on anti-aging (Sens Institute), Libertarianism (Seasteading Institute), and education (20 under 20), let this not distract from the fact that we can all learn a lot from his astoundingly successful approach to investing, technology and entrepreneurship.

A few of my favorites are:

1. Run With the Right Crowd.  Starting with the PayPal Mafia, with his teaching of a famed Stanford Computer Science course, and his ongoing writing, speaking, and networking in Silicon Valley and beyond, Thiel travels in the rarefied air of next generation technology ideas and technologies. And because of this, he meets great technologists and entrepreneurs and sees deals.  Many are duds of course, but a few are world-beaters like the list above.

2. Think AND Act.  As PayPal, Facebook, LinkedIn, Airbnb and so many others so aptly demonstrate, Thiel “gets” key technology and investing precepts like scalability, switching costs, double feedback loops, customer acquisition costs, minimum viable paid options, lifetime value, and many more.

And he acts on what he thinks – through founding and investing in companies with these concepts inherent to their business models.

3.  Get Lucky. In so many ways, Peter Thiel’s successes are emblematic of the business religion of our technology age: LUCK

Books like Outliers, the Black Swan, Fooled by Randomness, and the Age of the Unthinkable profess on it.  Successful technocratics like the PayPal mafia toast to it.  Aspiring entrepreneurs who seek their name in lights pray to it.

And the average man unwilling to step outside of his box gets none of it.

Peter Thiel, from his earliest days, has stepped out of the box and has thought for himself and challenged others do the same.

He has acted on those thoughts and beliefs through founding and investing in companies that in retrospect might look like easy calls, but at the time were shrouded in considerable doubt and passed over by almost everyone else.

With this way of thinking and doing, Peter Thiel has channeled the Romans and their famous ode to luck - "Fortes Fortuna Adiuvat", "Fortune Favors the Bold."

The question, of course, is will you?

P.S. Looking for Opportunities Now? Each year, Growthink reviews hundreds of emerging company opportunities and selects those with the best management teams, market opportunities, and financial prospects. 

To learn more about opportunities we are following now, Click Here.


The Paradox of Fear


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Michael Raynor’s great book - "The Strategy Paradox" - should be required reading for any investor or executive seriously interested in understanding the real connection between risk and return in the modern economy.

Raynor’s basic premise is that almost everyone - because of how human beings are fundamentally wired – over-rate the consequences of “things going bad” and consequently default to seemingly safe strategies way too often.

Raynor goes on to make the point that while this may be perfectly fine from a personal health and safety perspective, it is disastrous business and investment strategy.

The reasons, he cites, are both subtle and obvious.

The obvious reasons revolve around classic “agency” challenges - namely that there are a different set of incentives in place for operators versus owners of businesses.

The owners - i.e. the shareholders - main goal is investment return. As such, they usually evaluate strategic decisions through the dispassionate prism of expected return.

The operators of businesses, in contrast, usually act as who they are - namely highly emotional, emphatic, and personal-safety focused human beings.

And while, as professionally trained managers, they are of course aware and focused on expected value and shareholder return, their analysis of those rational probabilities often get overshadowed by more "human" concerns.

Like friendship.

Like the stable, comfortable routine of a job. Of co-workers. Of a daily, comfortable work rhythm.

And the result of this natural human bias toward more of the comfortable same is executive decision-making that defaults way too often to the seemingly (that word again) conservative option.

Now as for why this conservatism is a huge strategic problem, Raynor delves into the concept of survivor bias and how it pertains to traditional studies of what factors separate successful companies from the unsuccessful ones.

Survivor bias can be best illustrated by all of those statistics that too many of us unfortunately know by heart regarding the abysmally low percentage of companies that make it through their first year of business, the number that make it to five years, to 10 years, to a Million, Ten Million, a Hundred Million in revenues and so on.

Now most of us naturally interpret these statistics as to mean that the leaders of these failed businesses were too aggressive, that they took too many risks, made too many big bets that didn’t pan out.

But Raynor's research actually demonstrated the opposite.

As opposed to Jim Collins’ famous (and famously flawed) Good to Great analysis, Raynor found that when the full universe of companies were surveyed – not just those that survived – that there was a direct negative correlation between those that didn't make it and the relative conservatism of their leaders and their pursued business strategies.

Or from the other perspective, the successful businesses were led and managed far more so by leaders who could be described in those seemingly pejorative terms - "aggressive," "risk taker," "bet the house" types.

So what should the entrepreneur interested in building a big business do? And what should the investor looking for executives to back look for?

Well, to quote the title of a famous self-help book from many years ago, "Feel the Fear…but Do It Anyway."

Accept that as human beings, we are wired to be afraid.

BUT to prosper in in our modern age we must step out and into the brave new world of modern possibility, opportunity, and wealth.
 
And leave fear in the hunter - gatherer caves from which it came and where it belongs.


For Emerging Companies, Do Financial Projections Even Matter?


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As any venture capitalist worth his salt will tell you, there is a chasm of difference between the mostly grounded-in-reality financial forecasts offered by public companies, and the almost never to come true "rosy scenario" projections offered as a matter of course by startups and small businesses.

And while large public company CEOs and CFOs are judged as a matter of the highest honor on their ability to deliver on projections, exceedingly rare is the entrepreneurial executive that comes anywhere close to meeting forecasted results.

For a sense of the extent of how bad this problem is, a partner I know at a prominent venture capital firm estimates that of the 30+ companies that his firm has invested in, only two have consistently met or exceeded their financial projections.

And let me add that it isn’t like the inmates are running the asylum at my friend’s fund - as a prerequisite of having them as an investor, each of their portfolio company CEOs are required to undertake and report on a vigorous, quarterly budgeting and forecasting cycle.

And also let’s not assume that my friend is just a lousy investor. Lack of consistent financial performance is pretty much par for the course for startups and small businesses.

So what is going on?

Are the entrepreneurs just not ready for prime time? Are their managerial skill levels that many levels below their big company brethren?

I’ll say this - it is certainly not for lack of trying.

Most small technology company executives work longer hours than businesspeople have at any time in history.

If you doubt this, pick up Ron Chernow’s masterful biography of John Rockefeller.

In it, we read enviously of Mr. Rockefeller's daily 9:15am visits to his barber, his afternoon naps, and his unwavering commitment to always leave the office each day, no matter the season, so he could be home before dark.

And it is not for a lack of know how.

Modern entrepreneurs - with their always-on, “click of a button” best practice knowledge and connections base - are a better informed and more globally networked lot than at any time in history.

So if they aren’t the problem, is it modern business itself?

Has it just become - with all of its technological bells and whistles, all its globalization and pricing pressures, all of its customer unpredictability and fickleness - just too unwieldy a beast for any small company to ever consistently ride?

And concurrently, has accurate financial forecasting become equivalent to throwing dice?

Or more disturbingly - is it not even worth doing as even when they do turn out to be accurate it just falls into the category of the blind mouse getting some cheese every now and then?

For better or for worse, modern business demands that we take a more “balanced scorecard” approach in judging managerial effectiveness and entrepreneurial progress.

Factors like intellectual property development speed, organizational design, and client satisfaction as measured by a companies’ net promoter score are proving to be just as important predictors of a business’ value creation as is its forecasted-to-plan accuracy.

Please let me be clear: on their own these factors do NOT make a business valuable. 

Rather, the right matrix of them, properly prioritized, IS highly correlated with businesses that attain high profit exit and investment outcomes.

As an added bonus, these non-financial key performance indicators (KPIs) can be designed to be far more consistently predictable than traditional projections.

As such, they are usually far better measures of executive effectiveness than budgeting and forecasting “gap analysis.”

You just have to have the guts to forget about the numbers for a quarter or two.

Or, if you are really get good at defining, tracking, and accomplishing the right non-financial KPIs, to forget about them permanently as they will just take care of themselves.

Now wouldn’t that be nice.

To Your Success,

 


RISK…and what to do about it


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The four letter word in all conversations between entrepreneurs and investors is risk.

Investors are always interested in getting ownership stakes in high potential companies but are also always weary of the considerable risk-taking necessary to actually do so. 

The most successful investors and entrepreneurs I know take a dispassionate and detached approach. 

They don’t get caught up in all of the “drama” around thinking and talking about risk.

Rather, they view it for what it actually is - simply a measurement of the likelihood of a set of future outcomes.

In the context of evaluating whether or not a business will grow and be successful, risk has three main drivers:

1.  Technology Risk. Can the entrepreneur actually bring-to-market a product or service and on what timeframe?

2.    Market Risk. Once the product is in the market, will anyone care?

3.    Execution Risk. Can that entrepreneur lead and manage a growing enterprise?

Critically, this risk calculation is done not by adding, but rather by multiplying, these factors together.

As such, poor grades on any one of these factor has an exponential impact on the business' overall risk profile, and thus its overall attractiveness.

And as should be obvious, better led and better managed companies simply have better answers when queried regarding the above - their technology plans are better thought out, they understand their market and customers more deeply, and their people have better resumes and track records. 

But it goes deeper than that. 

Human beings – conservative by default - are disproportionately prejudiced against higher risk undertakings and strategies, even when their expected returns more than compensates for their higher risk.

As a result, higher risk deals are normally underpriced while the lower risk ones are usually over-priced. 

That is good knowledge for investors seeking alpha (and who isn’t?), but what about the entrepreneur?

Well, it should be to always remember that the real dialogue going through the mind of an investor when considering a deal is not really about technology, or market, or management, even when that is what they want to talk about…

No, it is almost always about risk - both its reality and its perception.

Address this concern above all others, head-on, thoughtfully, confidently, and candidly. 

And then risk will be put back where it belongs - as a factor to consider - and not something that just automatically stops a deal.

To Your Success,


What Do Wal-Mart, McDonalds, and Starbucks have in common?


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Wal-Mart.McDonalds. Starbucks.

What do they have in common? Well, for one, they are businesses that were not started and grown from scratch by their original founders.

Rather, they were all started by others and then bought by ambitious and talented entrepreneurs (i.e. Sam Walton, Ray Croc, and Howard Schultz) who propelled them to a new stratosphere of growth.

And while high profile, statistically they are not atypical.

Census Bureau statistics show that a purchased business is eleven times more likely to still be in business 5 years from time of purchase as compared to those started from scratch.

However, for most business owners and investors, the business “transaction” path is far too often overlooked.

The main reason is lack of know-how.

You see, the vast majority of business owners and investors have never even attempted to buy or invest in a business other than their own.

As such, they have big knowledge gaps – ranging from the strategic, such as in how to identify the right kinds of companies to target for purchase…

…to the tactical, such as in how to best review and evaluate historical and projected financial statements prepared by sellers.

And bridging these gaps can only be accomplished experientially – i.e. by actually trying to buy or invest in a business.

Please let me emphasize try because the majority of attempted business purchases and sales do not consummate.

This is just fine, however, because the attempt itself always leads to unique wisdoms being gained.
 
These include being forced to really think about the evolving industry and competitive conditions in a given market.

And to getting real as to the level of expertise, effort and resources necessary to translate a business’ potential into actual results and profits.

Now, even in those rare circumstances when a business is bought, for cash, on a "straight from the treasury" basis, the deal maker still must make a strong financial and strategic case to justify a deal’s opportunity cost.
 
Of course, for deals requiring outside capital, this case must be made that much more thoroughly.

Again, there is no substitute for experience.

Only by going through the exercise of actually building and defending a financial projections model can one acquire the knowledge base and savoir-faire to effectively deal make.

Let me close with a few words about deal advisors - management consultants, business brokers and investment bankers.

In spite of the mystique these sometimes fine folks like to maintain around themselves, when one cuts through the haze the best of them offer three critical value-adds.

First, as intermediaries, they massage and facilitate the naturally combative negotiating process of a one-off transaction that is a business purchase and sale.

Second, they act as accountability coaches.

Like other undertakings that require great proactivity - such as committing to a fitness or diet regimen - having an outside agent who is paid to keep you doing what you say you want to do has enormous and tangible value.

Now, on their own, these two value-adds are usually more than enough to justify the expense of an advisor.

It is a third value, however, that the best advisors offer that creates the really high ROI.

And that is working with an entrepreneurial and executive team to envision and articulate a business’ future value.

And then, helping to create and maintain existence structures that translate this visioning into day-to-day business reality and results.

THIS is the highest form of business work.

And the highest ROI.

So whether you decide to go it alone, or to work with a talented and ethical advisor, the business purchase and sale process is one that all serious business owners and investors should engage in regularly.

Because yes, even when a deal is NOT consummated, the return on time and investment will be VERY high.

And when a deal DOES get done then the stars align…

…well it is THE fastest and most predictable path to business wealth and success known to humankind.

Just ask Sam Walton, Ray Croc, and Howard Schultz if you have any doubt about that.

To Your Success,


What Unifies All Great Businesses?


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The fundamental challenge of modern business is finding that right balance between tactics and strategy, between execution and innovation, between management and entrepreneurship.

Typically, as companies grow and age, they naturally become more tactical, more execution - focused.

In contrast, the “tabula rasa” of startups has traditionally been the best milieu for out-of-the-box strategy and innovation to thrive.

Now in the old days, businesses could do ok by being very good at just one of these.

Big businesses could sustain profitable franchises for years by leveraging their resource advantages to keep smaller competitors out and margins high.

As for startups, it was easy to stay in the “idea bubble.”

Investors were more patient and it often just wasn’t that obvious if your team and technology had the right stuff.  You had time on your side.

But no longer - businesses must now be either good at both or they perish.

This is extremely stressful for most entrepreneurs and business owners, and especially for investors working to determine which of them to back.  

Luckily, there is an easy shorthand to separate the superstar company wheat from the chaff.

It is the simple idea that super business PEOPLE must be all of these things too.

And superstar companies are really just ones where lots and lots of superstar people work.

So, find the superstar people, and the money will follow.

In his excellent book “The Global Achievement Gap,” author Tony Wagner flags seven crucial and “superstar” skills to look for:

1.    Critical thinking and problem solving
2.    Collaboration across networks and leading by influence
3.    Agility and adaptability
4.    Initiative and entrepreneurship
5.    Effective oral and written communication
6.    Accessing and analyzing information
7.    Curiosity and imagination

To this, let me add one more: Ambition.

Now I am not talking about the garden variety get good grades, got to a nice college, start a small business, complain about taxes and regulation and how hard it all is type ambition.

In this multi-billion person, highly educated, hard-working world of ours, that just doesn’t cut it.

No, the ambition I am talking about is one that burns so deep and hot that it is deeply dysfunctional.
An ambition that usually translates for sure into an insane, other-worldly work ethic, but one that goes beyond that.

It is an ambition that is channeled daily into ongoing personal and professional improvement and learning.

An ambition that leads to goals beyond the realistically possible.

Like Steve Jobs leading Apple into the music business, or Richard Branson Virgin into airlines, or Tony Hsieh with Zappos putting his life and considerable fortune on the line, for of all things, to sell shoes online.

This kind of ambition is the unifying force. It demands that everything be done right – strategy, tactics, innovation, execution, entrepreneurship, management.

Find this kind of ambition – channeled to ethical, capitalistic ends – and back it.

And you and the world will be better for it.

To Your Success,

 


The Power of Failure


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“Success is not final, failure is not fatal: it is the courage to continue that counts.”
                                                                                        - Winston Churchill

At the very heart of entrepreneurship, small business, and investing sits FAILURE.

The statistics are only debated to their degree but not their overall thrust - a small percentage of businesses ever become meaningfully profitable and a smaller percentage still are ever sold for a meaningful price.

In other words, the vast majority of businesses - by objective, financial measures - fail.

Even worse, a lot them fail badly - never achieving even one dollar in revenue and / or go so deeply in the hole that they have significant and negative financial spillover effects.

Like business and personal bankruptcies and investors losing all of their money. 

In a word, business failure is traumatic.

Now it is not the kind of trauma that survivors of war and natural disasters experience, but in the world of work it can be about as bad as it gets.

Yet Americans today are starting businesses at a greater rate than at any time in the last 15 years…3% of the U.S. adult population annually start one, and a multiple of that contemplate  doing so.

And investors make more money investing in startups and small businesses than in any other asset class.

So what gives?

Well, there is the financial view, namely that the rewards of a business sale are so great and life-changing that having any probability of its occurrence make the grave financial risks of business - building more than worth taking.

But this at best only explains half of the story. 

No, there is something else going on here, and research regarding of all things - Post Traumatic Stress Syndrome - points to what it is.

Research done by among others Dr. Richard Tedeschi of the University of North Carolina shows that strong, negative experiences like war and natural disasters are NOT as scarring as once thought.

In fact, the opposite is true.

Statistically, most survivors of traumatic experiences - like prisoners-of-war and victims of natural disasters - come out of them stronger and on most measures, out-perform those in their peer groups unaffected by the awful events.

Now everyday all of us should count our blessings dozens of times as “there but for fortune go I’ and offer nothing but great compassion and empathy for those suffering trauma, especially when it comes through no fault of their own.

But we also should take significant solace and inspiration from the rest of the story.

Life, as it does, goes on.

And according to the latest research, the old adage is true of that which does not kill you REALLY does make you stronger.

Now it would not be proper to equate a business failure with the physical and emotional traumas experienced by survivors of war and disaster, but entrepreneurs and executives can and should draw important wisdom from them.

Such as if you “fail” at this particular business, you won’t be broken and scarred forever.

And that professional and entrepreneurial growth is a participatory sport – learned only by doing and trying and striving and not by watching and fretting and waiting.

And then there are the related ideas of diversification and iteration. 

Such as, in business, it is almost always far better to have four business “failures” and ONE success than it is to go zero for zero.

For the entrepreneur this does not necessarily mean running multiple businesses concurrently, but it does mean that the business strategy should be iterative and testing based.

Successful Internet companies get this intuitively - see Amazon and eBay and thousands of others - and you should too.

As for investors, they should take advantage of the incredible opportunity that the modern financial system offers to back multiple entrepreneurial companies, and not just one or a handful.

With the average return of the startup company asset class being 2.5X in a mean time of about four years, the odds are strongly in your favor if you both invest right and diversify properly.

So entrepreneurs and investors get in the game!

Failure is no way near as bad as advertised and if approached with the right spirit and strategy, it can truly be the ultimate blessing in disguise.

To Your Success,



Chief Executives and Chief Shareholders: Never the Twain Shall Meet?


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Small business owners lead the most efficient and effective organizations ever designed by human hands - profit-seeking businesses where the Chief Executive Officer also happens to be the Chief (as in largest) Shareholder, too.

Among many benefits, this business form fully addresses the Agency Problem - so often found in larger companies - where the interests of the professional managers do not always sync and align with those of the shareholders.

This can cause various (and nefarious!) effects like:

•    Managers seeking to maximize their shorter term "cash-out" - high salaries, bonuses and the like -  irrespective of their effect on / benefit to the organization as a whole

•    Managers not pursuing potentially high returns, but also higher risk strategies as the personal benefits to them when successful (i.e. a pat on the back) are far less than the penalties when not (i.e. getting fired)

•    In worst cases, managers committing out-and-out fraud, treating the companies they are entrusted to lead as personal piggy banks (see Enron), with their only strategic calculus being whether or not they will get caught

In contrast, in most circumstances, what is best for the managers of a small business is what is best for its shareholders, as they are normally one and the same.

But there are three scenarios where this is decidedly NOT the case:

1.    When Contemplating Raising Outside Capital. For far too many small business owners, when they think about raising capital, they think too much about "control."

As in "I don't want anyone looking over my shoulder." Or "telling me what to do."

When I hear comments like this, the first thought I usually have is that it might be a very good thing to have someone looking over your shoulder and telling you what to do!
 
Why? Because usually the advice given is in the interest of the businesses’ shareholders…which to reiterate the largest one of these is usually the entrepreneur resisting “control!”

2.    When Contemplating Selling a Business. More often than not owners of businesses capable of attracting a buyer and being sold LOVE what they do, and they especially love being the BOSS.

So the prospect of selling out and no longer being the BOSS can be emotionally difficult.

Now, from the perspective of the Chief Shareholder, the right response to this should be, “Who Cares!”

With the risk of sounding harsh, this decision should be made solely on the strategic and financial merits - lifestyle and heartstrings considerations be darned!

3.    Contemplating Investing More of One’s Own Money in One’s Own Business. When one is lucky enough to have capital to invest, the Chief Shareholder “Hat” needs to be worn far more tightly than the Chief Executive one.

Because as the Chief Executive, it is just too easy to overlook portfolio diversification considerations, as it is not possible to “diversify” from the huge time and energy investments necessary to be an effective CEO of a growing company.

From this perspective, the right decision is to almost always try to invest as much as one possibly can away from and outside of one's own business.

I know, this is extremely hard to do as more often than not every instinct screams out to just pour more time, energy and treasure into it to the exclusion of everything else.

That is the Chief Executive talking and is the kind of “irrational” commitment to success that is at the heart of what makes being a small business and an entrepreneur so intoxicating (and admirable)!

BUT when the three scenarios and opportunities above present themselves, take a pause and listen to Mr. and Ms. Chief Shareholder, too.

If nothing else, your wallet will thank you.

To Your Success,



This post is a based on a thought piece I wrote for Entrepreneur Magazine last year. The original article can be viewed here.


Today’s B2B: Go Mobile or Go Home


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How are the best business-to-business (B2B) companies and brands getting past the noise and the online clutter and connecting with their clients and customers?

Well, marketing research firm Motista recently surveyed 3,000 purchasers of 36 B2B brands to find out.

I encourage any executive whose business sells primarily to other businesses to read the full report here. It is chock full of fascinating and very high ROI B2B marketing and sales nuggets.

In it, I found three particularly prescient ideas as to the Mobile Internet Revolution we are all currently living through, and how smart entrepreneurs and investors are playing and winning with it. They are:

1. Mobile, Mobile, Mobile. Mobile browsing, shopping and buying is growing at such a rapid rate that it has become now virtually indistinguishable from the traditional, desktop-driven Internet.

This is obviously having a dramatic impact on not just consumer markets (i.e. tweeting and texting Millennials), but on B2B markets and interactions as well.

Which leads to takeaway number two…

2. Personalization. As well demonstrated by this awesome Grainger ad, even older line industrial companies and brands selling to other old line companies are now connecting their brands and messaging to the personalized needs, wants, fears, and aspirations of individual buyers.

In other words, it is no longer enough to just demonstrate business value (i.e. functional benefits and business outcomes), but personal benefits must be communicated as well.

Things like promotion, popularity, influence, and confidence.

AND do so in a way “that delights, inspires, and surprises…and makes a person want to own it, riff on it, and share with others…”

Yes, this is hard.

But when done right, the rewards can be the kind of word-of-mouth viral campaign effects that to date have only been available to consumer brands and marketing campaigns (see Old Spice, DollarShaveClub).

3. Multiple, Digital Touchpoints. From personalization of message follows multiplication of medium.

With B2B buyers porting their iPhones and Galaxies-trained “always on, at my fingertips” sensibilities to the work place, B2B sales cycles are now increasingly “multi-dimensional.”

These cycles involve not just in-person and on the telephone analog selling, but also multiple digital touchpoints and nudges - texts, tweets, LinkedIn connects, YouTube favorites, Facebook likes, Instragrams, and more.

These are the new rules of the B2B marketing and sales game.

And we either learn to play by them hard and well…

…or we consign ourselves to being left behind in our mobile, so very personalized, sometimes annoying, but also so often delightful and always opportunity-filled world.

To Your Success,


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