Great Missed Expectations

Several times in my career, I’ve excitedly joined up with a partner — usually technically adroit, often visionary, always inexperienced. Each time, it seemed a natural fit. We were complementary — I brought a wide variety of tech-marketing and business skills, and most important, experience. And we got along really well. So why didn’t it work out?

The simple answer is . . . missed expectations.

Rushing to the altar (startup/wedding analogies are cliché, but true), partners rarely take the time to share their vision, sort out their roles, and agree to a process. (What, you haven’t discussed your childrens religion? How about whether you even want to have children?)

Here are a few missed expectations I’ve experienced:

I had raised more than $30M over the course of several companies. Co-founder’s expectations: I would make a few calls, and funding would come flooding in.

It never works that way — even entrepreneurs that generate home-run returns to VCs will walk a hard path to funding their next idea. Money-raising takes dozens (if not hundreds) of pitches, six to twelve months at best, and more likely, years. Especially these days. But we never talked about it. I wrongly assumed that the founder understood the game. In fact, I thought we were cruising along just fine.

Great Expectations Book.jpg

The co-founder had several successful products under his belt. My expectations: He would deliver the product on time and under budget.

Well, that would be great. Truth is, it hardly ever works that way. (Why am I always surprised by this?) In fairness, fashioning great technology that has never been done before is hard. Often, it depends on invention. Ever try to plan an invention? But even taking into consideration all the Laws of Software Development, things go wrong. They take longer. They need to be redone. Meanwhile, I’m making commitments to customers, or investors, or the media. And, I’m embarrassed.

But it became such a touchy subject, we couldn’t talk about it. (You know, just ignore it and pretend it doesn’t exist — like that Giant Squid in the Kitchen.) The lesson again: communicate. Doesn’t matter if your company is just two people, meet weekly — formally, same time each week — and revisit the schedules and goals. Above all, be honest.

I’ve served in Bus Dev, Marketing, and Corporate Development roles. Co-founder’s expectations: I would do all the things the co-founder didn’t want to do.

This actually wouldn’t be bad — I’m not the coder, or the chip designer, and it’s always better, IMO, when founders are sufficiently complementary that they stay out of each others’ sandboxes. But it can easily erode when there’s insufficient trust. In the course of going my about the “˜mundane’ business and corporate-development activities, co-founders invariably leapt into my sandbox. And when founders start to second-guess each other is when things can deteriorate.

Which is why I emphasize putting together a Business Plan. It’s not so much about crafting a document, as articulating exactly what we’re going to do. Technical founders are especially good at hand-waving how to make money, because “˜great products always do.’ But working on The Plan forces the conversation, and the drill-down.

Typical issues surround the business/revenue model, IP protection, partnering strategy, and the pyrophoric distribution of equity (Investors are going to get how much? Why are we giving this new hire 10%?). I’m not suggesting that my view was the only view — chances are, the founder knew his/her space well, and had some pre-conceived notions about go-to-market strategy, and what partnerships/alliances to forge. I only point out that it’s imperative to devote time — early on — to these potentially explosive topics, to avoid a breakdown in your relationship.

Much as I’ve sworn to avoid these and other missteps, it still gets down to a question of “˜fit.’ The right roles at the right times, a healthy, collaborative working partnership, shared passion and dedication to the project and the vision. Isn’t that what we all want out of entrepreneurial life?

Which is why I continue the quest — for the partner, gig, and team that needs me as much as I need them.

Read More

Do you really want to work in Venture Capital?

I have heard this from many people I have met “I really want to be a VC”. First, why are you asking me when I am not one and don’t have a desire to be one? Let me direct you to some people in the industry and a few who left it to get a good perspective on the business. So I went ahead and asked the question “do you think people should really become VC’s”. Surprisingly, many said no. Why? I will tell you.

The origins of this post were motivated by Seth Levine’s post today How to get a job in Venture Capital revisited his earlier post, How to become a VC and it seems to hit on the same advice that I got from my VC friends in the business.

The gist of it seems to revolve around either going to a top B-school, being a banker or consultant, working in a startup or starting one of your own.

So instead of telling you how to become a VC, let me take a different angle and tell you why you don’t want to be one.

Everyone acts like they want to be your friend but all they really want is your money

When you are an entrepreneur you go to networking events in the hope of meeting investors, you leverage VC networked lawyers and accounting firms to get you introductions. What are you there for? To get money. As a VC you are just on the other side of the table and now when you go to dinner parties you are faced with the “Doctor’s dilemma”. That is when they find out you are a doctor and then they tell you something hurts them and expect a free diagnosis and prescription write up. As a VC you might suffer through people with “hey, I have this business looking funding” or “I have a really great idea, would you fund it?” crap. Just tell them you sell insurance and they will stay away from you.

You get stuck in board meeting hell

As a VC you will sit on boards to meet with the company on a regular basis to see if they are meeting their milestones and vote on critical issues (i.e. stock options, new key hires). The only problem is that this most of your interaction with a company and as a former entrepreneur you will have a tendency to want to be more involved. You can’t. You must keep the deal flow coming through for the firm to make the investments that will create good exits for great payoff to the fund’s limited partners. Yeah, I think that kinda sucks too.

You only really work day-to-day with a startup when it is having trouble

As I mentioned above, you are really only working with them in a board capacity when things are going well. When things start to go bad you have to spend more time and usually have to be the bad guy. You might have to kick out the founder, recommend budget cutting strategies, etc. Yep, that sucks too.

You have to read the most insane business plans

The average VC firm sees about 2000, that’s right 2000 business plans a year. Do the math. If you are an associate you have read around 50-100 per week depending on the size of your firm as an associate. You have to filter the crap from the interesting and then further find the fundable in the interesting ones. Many people blindly send plans that don’t fit the investment size or focus of the firm so they are immediately tossed. Still, you have to find the ones that are good and then have a phone conversation with them. If the chat goes well, they will come and pitch you so can report to the partners about the ones that they should really sit in on. If they end up sucking it reflects badly on you.

Do you like Excel?

When you join a firm as an associate you are analyzing deals from every perspective tearing apart an entrepreneur’s business model to see if it is actually not full of shit. You are also looking at it from various bad-to-great scenarios to understand the risk exposure the firm would be taking in the deal. I hate excel and the thought of living in it just makes me shudder.

You have to work insane hours to close a deal

You work insane hours as an entrepreneur but there is a long term payoff that can be huge. To get a deal done especially if it is syndicated or there is competition from other firms means you have to work insane hours to get it closed. If you don’t you risk losing the opportunity and looking like a lazy idiot to the partners. What is the upside? Maybe a bonus when the fund exits? Maybe. At least as an entrepreneur you can have a little more control over getting a big pay day.

Limited Partners are worse than investors

Investors in a startup expect risk and are betting on you to succeed. They hedge their bets and usually 7 out of 10 deals funded crash and burn. The remaining 2 get a good exit and the remaining one you hope will be the next google. Limited Partners have a long term outlook (7-10 years) for a fund to complete. But boy do they expect results. You might return a solid 20-30% return which is fantastic for any other investments but they might just bitch. Especially if the previous fund had better returns. Yeah…I would love to have that to deal with.

Are there any VC’s in the house?

Many people read the blog and hopefully there are some who are VC’s and could comment. It would be especially great if there are a few out there that have been in the business and left it.

Read More

Business Plan Series: Part 10 – Appendicies

We have reached the end of our Business Plan series with this final entry on “Appendicies”. Our next series will dive into the marketing plan for your business so be on the lookout for that next week.

So what exactly is in the appendix section of the business plan?

In short, it is the kitchen sink of things that are relevant to your business plan that add value for the reader. Here is a short list:

  • Photographs of products, equipment, facilities, etc.
  • Patent/Copyright/Trademark Documents
  • Legal Agreements
  • Marketing Materials
  • Research and/or studies
  • Operation Schedules
  • Organization Charts
  • Job Descriptions
  • Resumes of Key Personnel
  • Additional Financial Documentation

Photographs of products, equipment, facilities, etc

Here you want to include scanned photos of your physical products (if you have them), equipment you have that is important to the function of the business and the facilities you have your company. Facilities include production plants, corporate headquarters and any branch offices.

Patent/Copyright/Trademark Documents

In your business plan you discuss the value of your IP and this is where you include supporting documentation including patent applications and any copyright/trademark filings that support your statements in the business plan.

Legal Agreements

There are many legal documents you have for the business, but the most important would be your operating agreements, shareholder agreements, stock option plans and critical contracts that you mention in the business plan.

Marketing Materials

This is essentially your collateral materials that you use to sell your products/services. It should also include screenshots of your web site.

Research and/or studies

Here you can include any white papers you have written to cover research you have conducted, grant studies you have completed and any additional marketing research you have completed to support the case for your business.

Operation Schedules

Whatever you are creating there must be a schedule behind it to complete the product and/or roadmap it out. If you are building hard goods there are facilities operation schedules to meet production forecasts. If you are building software products you will have development schedules to bring the product from prototype to beta to production. That will be critical to match the forecasts in your business plan that you have projected for launch and subsequent customers coming online with the system.

Organization Charts

You might have put a small chart in the management section of the plan but this is where you can expand on the entire corporate structure including identification of key hires throughout your business plan’s timeline.

Job Descriptions

Linking to your organization chart, you will need to write job descriptions for all of the staff, current and future, in your company. This will help you identify any overlap that might be there but it will also show the reader that you have thoroughly thought out who needs to be working for the company and what they will be doing for your business.

Resumes of Key Personnel

Since you put smaller bios of your management team in the management section, this is the place to put the full resumes of the team to back up their bios and allow readers to get the full background of the team to feel confident in their inclusion in the business.

Additional Financial Documentation

Beyond the standard documents in the financial section (cash flow, balance sheet, income statement) you might want to include tax returns for the business for the last three years (if you have them). This should also include key elements in your financial model like the revenue sheet to show how you will met the projections you set out. You should also include expenses and salary costs so that readers know you are market competitive but not going crazy (as in too high or too low) to support the numbers you have projected.

Starting our next series – The Marketing Plan

Our next series will dive into a good supporting document for your business plan but it is much more internal. This is a critical document that will guide your sales and marketing function to create the right materials and identify the best campaigns for maximum customer acquisition. We will also discuss setting up your sales processes and sales organization to be the most effective.
If any of you out there have written a marketing plan I would love your thoughts, opinions and war stories to help our readers looking for advice and guidance in this area. Please e-mail me at steven_fisher at yahoo dot com.

Read More