Branding cows or branding business? Neither is easy.

We’re talking about brand strategy here.  Not advertising, and certainly not an easy grasp for amateur marketers.  So how developed is your company’s brand?  Is your message clear, concise and consistent?

There is a process used by professionals to get to clear messaging.  It starts with “discovery,” the process of finding the strengths of the company in the minds of all stakeholders.  That requires careful questioning, accumulation of results, and then the creation of a strategy for making a message reflect these advantages.

Branding a cow seems so much easier.

We start with our intended audience, asking ourselves who we are talking to, what we need brandingto say, and how we are going to say it.  We want our audience to know what we stand for in the fewest, most memorable words.

[Email readers, continue here…]  Think of this as our core message.  We define (clearly) what we give (our core attributes) and then why it matters, or what our audience gets (the benefits).

A good brand strategy then lists supporting arguments for both the give and the get.

Once we have done this, we should be ready to create our audience–facing message, which we know as advertising.

Very few of us have conducted a brand strategy effort, and much of our advertising reflects this, with wasted ad dollars spent as we nibble around the core message and miss targeting the primary “get” message in our ads.

You can follow the steps outlined above and attempt to define your core message, or seek help from a professional.  It seems that most often, this extra effort to define brand message would be cheaper and much more effective than our present attempts at “spray and pray” advertising today.

Or you can hope your present advertising is effective – and concentrate on learning a new skill at the ranch.

Posted in Finding your ideal niche, Positioning | Leave a comment

Your customers are telling you “Wiw Wiw Wiw!”

Customer empowerment is moving so fast nowadays that many of us are running to just catch up.  Yet if we don’t or can’t, it is a sure thing that someone else will.

Blame the Internet for this rise in customer expectations.  But don’t close your eyes to the fact that your customers have grown to expect your products or services in the form of…

‘WHAT I want, WHEN I want, and WHERE I want.’

Especially for those of us producing forms of media for consumption, from books to movies to music to games and more, our customers expect delivery in the form of bits over the Internet upon demand, usable on a multitude of devices, and sometimes stored in the cloud at no additional cost.

For those producing physical products (atoms, not bits), Amazon and a few others have set the bar of expectation that already includes one–hour delivery at a cost and for certain items in many urban areas.  At the very least, two–day delivery has become the minimum expectation to virtually anywhere.

What I want[Email readers, continue here…]   If you provide services rather than products (neither bits nor atoms), consider offering discounted rates for remote phone or video appointments if applicable, for open appointment times if not possible, and for early booking of time if neither works.

As to selection (WHAT I want), do not be surprised to see your customers moving you to find ways to use 3D printing and other mass customization tools to create unique products without inventory cost to you – and certainly moving you to consider “additive manufacturing” (3–D printing) as a new norm for some or many of your products.  Be ready:  remote 3–D printers may soon make “WHERE I want” common for some products produced locally on demand.

If you are not considering these demands and your responses already, surely someone else is.  Be an adaptive business leader.  Create strategies to lead in areas where new technologies can give you a competitive edge.

Posted in Finding your ideal niche, Positioning | 1 Comment

Good, cheap, fast. Pick any two.

This one is attributed to Rod Adair, the famous oil and gas fire suppressing expert.  And boy, does it apply to most of us and our offerings.

“Quality” products and services should not be positioned as “cheap,” or your potential customers will question your message from the start, and will be more critical of the goodfastcheap1 (1)delivered product than if offered as one or the other, but not both.

“Fast” applies to either service speed (including delivery) or product manufacturing time.  If you as a supplier have plenty of spare resources available, you might temporarily get away with adding “fast” to both of the other two attributes of good and cheap.

[Email readers, continue here…]  But beware.  Being fast usually requires having inefficient links or spare resources in the supply chain that can be stretched at comparatively low cost in terms of your overhead cash and offering quality.  If it becomes a part of your long term sales message, there is risk that you will set expectations you cannot achieve.  And a disappointment based on missed delivery or completion is as great as one based upon trounced quality or price expectations.

And if you are an Internet seller, “fast” becomes difficult to offer if you know that Amazon (and perhaps others) offer two–day delivery at no charge – and at least Amazon is now providing two–hour day delivery of many items in some metro areas.

So consider this:  Make “fast” a tool for use as an inducement for particularly important customers or orders, or at times when resources are underutilized.  Offer “fast” when it works for you to close a sale that would not have been likely otherwise.

Red Adair said, “…pick any two.”  I think it more appropriate for most of us to concentrate upon “good” (quality) or “cheap” (price) and add “fast” as needed to close the sale or fill the resource cup.

Our good friend Adam Miller, CEO of Cornerstone on Demand, uses words appropriate for software development when describing his version of this “pick any two” quandary.   He describes his choice as “cost, quality or scope. Pick two. “


It is an excellent variation on the theme – selecting from a limited menu of the use of resources.  Note that the only difference in Adam’s shortlist is that he substitutes “scope” for “fast” – but we could just add “scope” to the three we dealt with above to demonstrate yet again that we all have limited resources from which to select our best path.

For software–related tech businesses, scope always creeps, increasing the complexity, disturbing the planned progress, and increasing costs – sometimes dramatically, as projects fall further behind.

The lesson then is that resources are always going to be limited, and that management always must select the most important of the competing outcomes.  It would be worth spending time with your team with someone volunteering to take the unpopular position just to explore the edges of this with speakers for each of the alternatives actively bringing the alternative views to the discussion.

Posted in Finding your ideal niche, Growth!, Positioning | 3 Comments

How is your corporate and personal credibility?

A friend of mine recently told me his story of how his very career rests on his credibility with his major supplier–partners.  He stated that everything rides upon his credibility when he declares that he can produce a quality product on time, especially when his competition has faltered attempting to do so.

There’s little news in that statement.  Until you hear of the stories of those who destroyed a Trust-Megood thing with one badly executed promise, or one lie, or one slip in quality or delivery.

We often hear that our best asset is our reputation.  With the number and range of competitors easily available to our potential and actual customers today through a simple Internet search, we cannot afford to waste a single customer because of a missed promise or failure to rise to an expected level of service.  Combine that with the ease of posting reviews, both good and bad, and we find ourselves in a microscopic ecosystem where small individual failures are often rewarded with massive negative blow-back.

[Email readers, continue here…]  And we all know that once posted, a bad comment or review cannot be erased and remains forever.

You represent your corporation with every promise you make, whether as small as a date–certain for delivery or as large as a significant contract based upon expected quality and service.

Think of your competitors.  If yours is a B–to–B relationship, you will have sales people from the other side of the fence watching your every move, anxious to exploit every misstep.

It isn’t human nature to think of your personal and corporate credibility whenever you offer any sort of terms for price, delivery, quality or service.   But in this world of rapid communication and persistent information, you should do just that.

Posted in Protecting the business, Surrounding yourself with talent | 4 Comments

Your business: Grow it and hold it?

Taking money from professional investors such as angels or VCs usually requires that you agree to seek an exit for those investors in your plan, often targeting five to seven years as the ideal period for growth before a liquidity event.

Of course, even though that is your contract with the investors, way over half of those implied contracts never work out that way.

It is perfectly OK for you to want to grow your company and plan to keep control for you and your offspring, with no intention to sell.  There’s a name for this.  We say that you are growing an evergreen enterprise, one in which outside money is to be taken in the form of loans or royalty agreements, not shares of stock or ownership.

[Email readers, continue here…] If you have no intention of giving up ownership or even control over time, state that early and plan accordingly.  Assume that your sources of growfunding will be limited, but that one hundred percent of less is perhaps more attractive than fifty percent of more, given the restrictions usually placed upon management of companies using outside investment funds.

One thing that becomes obvious when there are no investors looking over your shoulder is that you can plan for a pacing of your    growth, focusing upon long term strategies that might be very comfortable for you but not so much for outside investors.  (You may recall my story of the company that was forced to grow to death by a famous venture capital investor expecting massive profit or nothing, with no expectations in between.)

Evergreen companies can focus upon profit as more important than rapid growth, upon customer service above immediate profit, and upon people first before all of these.  For some, that comfort is worth forgoing building high equity value.

In fact, sometimes entrepreneurs will do better financially just taking profits over the long run that they might have building equity for an ultimate sale.


Posted in General, Growth! | 2 Comments

Raise money on good news

The first rule for raising money is to do it on good news – right when sales are increasing at an increasing rate.  Or when a major customer signs a significant deal.  Or when something happens that makes an investor think this company is about to break out.

Unfortunately, the longer you wait without significant upward news, the harder it is to get attention.  It’s human nature for investors to want to buy into a fast growing future, proven by some event in the immediate past.

That’s the rub.  Raising too much too early dilutes the founder interest to unacceptable money1levels.  So in recent years, I have counseled founders to raise enough to accelerate to a significant milestone that is over a year away, and to scale the business to find breakeven with two early rounds if possible.  Once at breakeven, the rush to raise more is over, and there are far more options available.  Tech businesses today can do this much more easily than a decade ago, with cheaper development costs – as one example.  Another is to take in consulting work to pay some of the costs during the early stage of a company.

If you have been in business for a while and don’t have significant good news to tell, I would make a list of possible strategic investors, people or companies that would benefit from your product or service.  They will be immune to the disinterest shown by financial investors.

Posted in Raising money | Leave a comment

The best advice startups will never follow

Let me tell you a few short hair-raising stories of entrepreneurs who have raised money and regretted it later.  Here are some rules that entrepreneurs almost always ignore to their future peril.

Don’t take money from relatives who can’t afford to walk away without remorse.   Do take money from experienced family members only after you ask them if they are sure three or more separate times.  By the third time you can be sure that they aren’t being overly emotional or feel they can’t say no.  Also, if things go south, they are more likely to remember that you weren’t pushy and that you gave them three or more separate opportunities to say no.

image1444688646There’s a common expectation among entrepreneurs that seed money from family is great – letting close relatives in at the ground floor.  The problem, of course, comes if the business fails.   Some relatives believe that a family bond is an insurance policy, and that all investments or notes will always be repaid, no matter what the circumstance.  Consider whether the family member being asked to invest has the capacity to walk away “happily” from a lost cause.


[Email readers, continue here…]  Don’t take money, especially start-up loans, from unsophisticated investors.   I was a co-lender and assumed the chairmanship of a young startup where the entrepreneur’s cousin also loaned money under the same terms.  When the business failed, the cousin sued his own relative, me, my wife (who didn’t even know the names of the players), and even my family trust (an estate planning vehicle with no separate assets.)  It took several times the value of the cousin’s loan in legal fees and settlement just to extradite my interests from a suit that had no merit – but would have cost hundreds of thousands more just to get to trial.

Do take loans from sophisticated investors only after you have tried everything to get them to purchase equity and always with clear wording on automatic loan extension if you are making progress but need additional time to meet the full set of goals.

Don’t talk yourself into a high valuation for the first round of financing for any reason, even if your hair is on fire and the idea is worth billions.   This lesson is one that is not only hard to teach, but ignored by entrepreneurs on a regular basis.  Early investors who don’t have the experience to compare value or ask tough questions accept the word of their entrepreneur as to valuation.  Later investors will enter that picture only after insuring that valuation is reasonable and comparable to other opportunities for their money, but often will walk form a deal if the valuation for earlier investments was so high as to cause pain for that cohort.   It’s just not worth the effort to argue with early investors when there are so many other deals calling for the sophisticated investor’s money.

Try not to take “dumb money” where the investor or lender supplies nothing other than cash.   There are five attributes of a great investor (see my book, “Extending the Runway,”) the money they offer at reasonable terms, their ability to guide you with advice about the context of your business plan in relation to the marketplace, their experience in the process of growing a company, their knowledge of how to best use corporate resource time, and finally, access to their extended relationships with others who can help speed growth.  Those four additional assets are worth as much or more than the cash offered.

Don’t walk away from rejection by experienced investors thinking that they are stupid or just don’t get it.  Most of us in this world of early stage investing have seen thousands of proposals, good and bad.  Even if we don’t seem to get your brilliant idea and buy into its value, we may be comparing it to previous lost investments or industry experiences far beyond yours.

Do ask three sets of progressively deeper questions to get down to the heart of why they didn’t invest.   Every contact should be a learning experience. And those with sophisticated investors are doubly valuable.  A well-phrased ‘no’ could well be a step toward a correction of course and a later ‘yes.’

Posted in Ignition! Starting up, Raising money | 5 Comments

Entrepreneurs: Take the time to celebrate your exit.

We come to the end of this cycle of insights with a thought about how you might view your successful exit from the company you have spent so much effort to build.

You’ve worked hard for years to reach the payoff, and the money sure looks good as you contemplate the wire transfer to come, and then watch your bank account fill to a level you Success-exitonly dreamed of during those rough cash flow years.  You might even allow yourself to admit that you almost lost it all several times during this long run, and that only you knew how close you came to the abyss.   But you did make it, and that’s what counts.

Whether the exit was as large as you hoped, or whether your goals of taking care of all the people who helped you get to this point were realized, the exit itself generates a complex set of emotions in all of us.

[Email readers, continue here…]  First there comes a sense of relief, knowing that you no longer need to worry over daily cash or threats to your net worth.  Then you experience a feeling of guilt when you realize that not all of your early associates share the same outcome, either financially or perhaps with their continued employment with the buyer.

Then you focus on the money in your bank account, smiling at the accomplishment of accumulating assets that are tangible and can be valued, perhaps for the first time.

But what most entrepreneurs fail dramatically at is to celebrate the moment.  To celebrate with those who took the journey with you, with those closest to you who sacrificed as you spent those long hours away. To celebrate with your suppliers who helped you, especially during the rough times.  To celebrate with your customers, who worry over continuity and look to you for assurances that the transition will not negatively affect them.  And to celebrate for yourself, for making it all the way to the finish line.

Not many founders or entrepreneurs do experience the success of a favorable sale of the business they dreamed would make them rich.  Many fail multiple times.  Some fail in the first year of the attempt.  Others are diluted by subsequent investors to the point where there was nothing for them to celebrate at all in a sale.

So as you prepare to turn over the reins to another; to separate from a business that has become a part of your being,  it is time to think of nothing but the good done, the examples set, the positive company culture you leave behind.

As you begin to focus upon the future, remember the emotions, the lessons, the lasting friendships from the past.  I often advise managers, CEOs and entrepreneurs always to part on a positive note and never burn the bridges of any past relationship.  You’ll never guess whom you’ll meet in your next act, and how they will be able to contribute positively to your next success.

So celebrate your exit by reaching out to as many of those who’ve helped along the way as you can.  Close this chapter of your life on the highest note possible.  Take a long breath.  The do as all good entrepreneurs do.  Start dreaming of the next big idea.  Take with you the best wishes from those in your past, and build upon the education you received with this effort.

Write a book; I did.  Write a long hand letter to someone who helped you make it to the finish line. That extra effort will shock and please them.  Call an early key employee and take that person to dinner as a thank you for those hard times.

Hit the beach.  Pay attention to your family.  Think about investments and tax efficiency.  Go into a mental dark room and dream about your next act.  Take a long breath, or weeks of long breaths. Exhale slowly.  This is what a moment of reduced pressure and responsibility feels like.  Savor that moment.

Then if it strikes you as right, start the process all over again.  May you have only the greatest success in your next act, whatever that is and wherever it takes you.

Posted in The liquidity event and beyond | 1 Comment

Angels and VCs: Don’t be greedy even if you can.

Sometimes the end game or sale of the company is not a happy event for the early investors, including the entrepreneur or the founders.  Especially when outside investors, venture capitalists or angels have put in substantial money, and the sales price is not enough to give them a reasonable return for the time and money invested, these investors can be – in a word – greedy.

Most sophisticated investors will take either a promissory note or preferred stock, both of which come before founder or management stock in a sale or liquidation.  Promissory notes come before any equity, and most late equity investments come before early equity investments, even of the same class of security.  This makes for some head-rubbing when greedyattempting to calculate the return on investment with a proposed sale.  Further, preferred stock holders can be recipient of accrued dividends in a sale or liquidation.  A rather common but small dividend rate of six percent becomes a massive amount after seven years, almost half again the value of the original investment.  And some preferred investors have participation rights, where they take all of the above amounts, and then also convert their shares into common stock and participate again alongside the founders and option holders.

[Email readers, continue here…]  It is in this combination of possible methods of amassing a return that greed can become a significant factor, so much so that the courts are sometimes stepping in to void some of the most onerous terms of investment agreements when challenged by those locked out of payment in a sale.

Take a situation where the VC investors finally see the chance of a return after ten years, with participating preferred and fifty percent of the ownership after several rounds.  A marginal sale at twice their original  invested amount could yield a starting value of eighty percent of the sales price to the VCs (fifty percent invested plus accumulated dividends for ten years at six percent which equals thirty percent of the sale price) and then fifty percent of the remaining twenty percent after participation. The result is that the preferred shareholders would receive ninety percent of a sales price that was double their investment, compared to ten percent shared by the founders and all others, including option holder-employees.

No-one complains if the sales price is ten times the investment, since there is plenty to go around.  It is in these marginal sales that the formula distorts returns so badly in favor of the investors.

Fortunately, and perhaps because the courts have not looked favorably upon these outcomes, many VCs will voluntarily forgive either accumulated dividends or participation in a marginal sale, especially if the sale is cultivated, planned and carried out by the efforts of the common shareholders including the founders.

Although many VCs are openly against allocating a “cutout” for management in marginal sales, practically speaking, management must be taken care of in marginal sales, or the sale might not happen at all.  In a cutout, some percentage, usually fifteen or twenty percent of the total sale, is allocated to management in order to continue operations through the closing period and help in closing the sale.  That further reduces the amount available to founders if not still in the ranks of management.

So this advice is directed to the investors.  Don’t be greedy even if you can.  You will not be moving your IRR needle enough by grabbing a few extra dollars in a marginal sale, but you will incur the wrath of a number of stakeholders who would be more than willing to spread the word far and wide about your greedy ways.  And that reputation will last for a long time in the entrepreneurial community.

Conversely, I have praised and seen others praise VCs who volunteer to eliminate participation clauses even before knowing the ultimate sales price in a deal.  It is those who receive the loudest accolades since they have given up a right for the good of the rest of the investor and management community.

Posted in The liquidity event and beyond | 2 Comments

Sell when growth is high, even if cash flow is low.

Dave’s note:  Our guest author this week is John Huston,  founder of the 300+ member Ohio TechAngel Funds and a past Chairman of both the Angel Capital Association and the Angel Resource Institute.   Time-to-sell

By John Huston

There are only two types of companies -those which have achieved positive cash flow and those which have not.  (Earnings before Interest, Taxes, Depreciation and Amortization, or EBITDA is the most commonly used definition of cash flow.)

While it is easy to divide all companies into just these two groups, this simplification ignores whether management has made a conscious, strategic choice about their growth.  Perhaps you have decided to continue growing top line revenues at the expense of cash flow (EBITDA.)  For high growth ventures being groomed for a lucrative liquidity event, this is usually a wise choice, presuming additional growth capital can be successfully raised on agreeable terms.

The issue is whether your company could pare back expenses and live within the cash it is currently generating – if you had to do so.  This should be a major milestone goal of all start-ups.  Until it is reached, survival still hinges on the kindness of outside funding sources.

[Email readers, continue here…]  But this too is an overly simplistic view.  Usually leading up to the time positive cash flow is initially reached, the management team is not taking a market wage, payables are stretched, and any slowing of receivables collections would likely cause layoffs.  The team knows their current expenses are being so closely managed, that at some point they would be unable to continue in this mode.  They have achieved a level of cash generation which enables “survival” – but it is not sustainable.

Now that you are more mature as a business, management can decide how to balance building revenues versus building cash flow.  There is a point at which building cash flow above revenues yields diminishing investor returns considering the amount of capital and time it consumes.  Furthermore, having substantial positive cash flow may sub-optimize investor returns at the exit.  This is because potential acquirers often act like mere financial buyers when they see a significant positive cash flow stream.  This prompts them to merely apply a multiple (often 5 – 8X) to the EBITDA or cash flow of the business, always a smaller number than when pricing an acquisition for strategic reasons.  So, rarely will this strategy or outcome enable investors to reap their target in a sale.

Ventures which have negative EBITDA, but could turn it positive if they chose to do so, are exhibiting the growth which attracts more bidders.  Those which generate high returns at the exit are often not sporting positive cash flow when sold, but they could dial back to be positive if required.  They are demonstrating by their actions that bidders cannot bid low, because by bidding low buyers would be assuming that a sale is necessary due to the company’s negative cash flow.

The bottom line: Looking at best example companies in a sale, their acquisition strategy was to avoid growing their cash flow before the exit.  Counterintuitive perhaps, but demonstrated to be effective.

Posted in The liquidity event and beyond | Leave a comment