Category Archives: Startups

Startups

Use The 1–50 Rule to Make Money Within the Next 24 Hours

By

Danny Forest, VNP in Entrepreneur’s Handbook

A fast and profitable way to launch new projects

I stopped counting how many products and services I’ve built that have made money from day one.I’m not talking huge money, but money nonetheless. What I’ve learned will change your mindset forever on how to approach new projects to test their viability.Here’s the method:

The 1–50 Rule

For any new project you’re thinking about starting, ask yourself:How can I build and launch this in ONE day and still deliver 50% of the results?We all have big ideas. Ideas that would take weeks, months, or even years to build. I have those at least once a week and, obviously, I can’t build them all.For example, I know a few people who want to start coaching other people but take months before they release their services. I did that in an hour or two using Magnifi.io.It takes only a few minutes and you can start coaching others right way. You set the price per minute. People can call you during your available hours or can book online appointments with you.What’s important in a coaching business? Bringing results for your clients. That’s it. That’s more than 50% of the results in less than a day’s work.You can charge any amount of money you want per minute. I was charging $5/minute, which amounts to $300/hour if fully booked for the hour.I’ll mention other examples below.

What makes the 1–50 Rule work?

1. It forces you to think outside the box

Are you scared of starting a project because it’s too ambitious?We’ve all been there.Maybe you decided to start with a Minimum Viable Product (MVP) but you really couldn’t figure out where to cut the development costs. If you’re thinking “development,” you’re already thinking too far.Start thinking about how can you cut the development of the product to one day. Stop saying it’s impossible and get ready to think differently.

2. You can actually fit the 1–50 Rule into your schedule

I hear so many people say that they don’t have the time to implement their big ideas. Well, it’s likely true. Their ideas are too big to be accomplished by traditional methods.When you figure out a way to build your idea in one day and yield 50% of the results, suddenly the schedule doesn’t seem so tight anymore.

3. You can bring immense value to people with just 50% of the results

I’m a software engineer by trade. I do appreciate a well-crafted, bug-free software. But you know what I appreciate more? Helping as many people as efficiently as possible, and sometimes that comes at the cost of imperfection.

4. You can be profitable much faster than you think

When you launch a product in one day, you save a tremendous amount on development cost and can start generating money right away.Most of my 1–50 products have been profitable from day 1 without much marketing effort. In the coaching app mentioned above, Magnifi.io, they feature your profile in the categories you should be in. People who use the app are already looking for coaching, like people search for books on Amazon.

How you can apply the 1–50 Rule for your projects

Here’s a 5-step process for using the rule for your next ambitious project.

Step 1: Define what 100% of the results mean for your project

Be as clear as possible on that. Use quantifiable metrics:I want my users to make at least $100/month writing one hour a day five times a week.I want my users to learn one new skill every month.I want my users to achieve 80% of the goals they set for themselves every month.I want my users to get 50% more views on their articles.Try to limit it to one or two quantifiable metrics at most. What is the real value you bring to your users with the product or service?

Step 2: Define what tasks and actions need to be done to get to 100% of the results

How is the product or service going to get built? Is it a course, a website, a spreadsheet template, a custom-built software, a physical product, a service, something else?What are its components? How many web pages? What are they? How many worksheets? What are they? What material do you need to build the product? Do I need a community?What action steps do you need to take? Can you do this alone? Do you need freelancers? Do you need to go to the store and buy material? Do you need to contact anyone?

Step 3: Rate how critical each task and action is to the intended result using a percentage

For each of the components from step 2, figure out how much each contributes to reaching the desired results. Spend a good amount of time on this.If we use the coaching example, 100 percent of the results means helping your customers reach the goals you set together.Here’s how one might break it down (there’s no right or wrong):1%: Create a home page for a website1%: Create a contact page for a website1%: Integrate a payment system on the website1%: Set up an email provider1%: Set up a customer database1%: Set up a calendar1%: Sign up for a video call software (or use phone if operating within the same country)5%: Strategic planning60%: Do the calls27%: Follow up with your clientI’m greatly simplifying everything here, but looking at this, you can understand how overwhelming it may seem at first until you realize that most of the tasks don’t bring you closer to the results.Find solutions that take care of the barriers to entry, which typically don’t bring results. In that example, Magnifi.io takes care of all of the above except for the last three. That’s your job! 🙂

Step 4: Combine the tasks and actions leading to about 50% of the results

To use another example, if I want my users to get 50% more views on their articles, what components deliver roughly 50% of the results?The headline is always the number one thing to focus on to get more views. The product, therefore, needs a good way to craft better headlines.

Step 5: Figure out which existing tools you can use for each task and action, and how to combine them to achieve 50% of the results.

This is very important. Don’t re-invent the wheel if you don’t need to! There are so many great tools out there to make products and services really quick.By combining the above tools, you can create many different types of products and services in less than a day.

Step 6: Use your mailing list, friends, local events, and social networks to promote the new product or service.

Most products or services you’ll create in a single day won’t have a very high price tag. A mailing list, however small, should bring you some sales. On your next newsletter, casually mention your new offering after you add value to them for free.You can also show it to your friends. They may not buy but they can spread the word for you and give you testimonials. Word of mouth is still incredibly powerful. Try to show people one-on-one for a more personal interaction.You can promote on social media but always remember that people buy from people. Anything that looks like an ad will not work. Make it a story.An overlooked way to sell is the join local events and mastermind groups. Inevitably, you’ll talk about yourself and what you do. Many times people will be curious and ask for more. Many are genuinely helpful and will either buy your product or help spread the word.

More examples to get you started

Create an email course

A few people I know created a course that was distributed solely by using email. It consisted of sending one important lesson every day for 30 days. This can easily be done using Mailerlite, Mailchimp or any mailing list product. If you have the content already, putting the product together should take no time at all. If you don’t have the content already, well, you’ve got a day between each email!Depending on your “renown,” you can charge anywhere from $30 to $300 for such a course. If you make a single sale that day, you’ll already make $30. But what’s nice about an email course is that you’ll continue making money after its release, constantly increasing its value.

Create a paid newsletter

Niklas Göke started a paid newsletter called Empty Your Cup using Substack. Within an hour, you can get it running , start building a list, and send emails. You can use Patreon in a similar way also, like Shannon Ashley did here.Nik charges $5/month for it and signed up many people. This takes much less than 24 hours to get running and can bring you good recurring revenues.Similarly, Shannon charges $5 or up to $20 per month for it.

Create an eBook from content you’ve already written

My first three books were put together in less than a day because the content was already written. I used Scrivener to take the best content from some of my most popular articles and I created books out of it. I published on Amazon Kindle and each book was approved within 24 hours.Using Amazon Kindle, you can promote your book for free for a short period of time so you can gather invaluable reviews. Once you have a few reviews, the sales can pick up decently enough. If you do things right, selling 100 copies within a month is certainly doable, and the more reviews you gather, the easier it becomes to sell.

Create spreadsheet templates

My productivity tools are Airtable templates. They are worth something because they are organized in ways that save people time. And many people are not creative or knowledgeable enough to get them started from scratch.I was charging $100 for the whole package and sold over 10 of them within the first week. Implementing these templates took me about 7 hours in total, so that’s worth more than $100/hour and they keep making me more for months after.

Conclusion

The 1–50 Rule is about releasing a product built in one day that provides 50% of the value to the user, then scaling from there.This approach accomplishes two amazing things:You receive early feedback from your users; andSome money to help you bring it to the next level.With baby steps, you can reach 100% results while getting both money and valuable feedback from your early adopters.So, next time you think of another big and ambitious project, think about the 1–50 Rule. Think outside the box and figure out what tools you can combine in creative ways to build your product or service. Using the 1–50 Rule, you can start making profits within less than 24 hours.It’s time to outpace your competition and try the 1–50 Rule out for your next project!You can do this!

Startups

This Is What It Takes to Go from $0 to $1 Million in Less Than One Year

I came across an individual who figured out how to start a successful business from zero multiple times.No resources, no capital, no investors.His name is Michael Sherman, a Long Island native. He launched his latest business LetterDash in July 2018. One year later, he says his business is on track to pull in over $100,000 in revenue in July 2019.Previously, he started a handful of other businesses, including Qualified Impressions, which reached $2M per year before decline, Penalty Be Gone, $500,000 before decline, and Great Agencies, $100,000 per year.I was intrigued to know what his process looks like: what, exactly, does he do to build these companies?So I reached out, and picked his brain over a chat. Here’s what he said.

Michael Sherman’s Story

By
Stephen Moore in Entrepreneur’s Handbook

Michael Sherman, CEO of LetterDashWhen I ask Michael to define what he does, he says that he’s not sure what to call his “profession.”Before becoming what he is today, he gave the 9–5 a shot — about 10 times.His résumé of jobs is varied. In no particular order, he has done door-to-door sales selling vacuums, worked at Home Depot and McDonalds, became a licensed investment banker, tried his hand at computer tech, and even became a licensed bartender.His education is no different. Michael transferred in and out of a total of five different universities before finally graduating, and that was all after dropping out of high school.Nothing gave him the excitement or passion he craved. So he took a different path — entrepreneurship — and never looked back.Each business Michael built achieved a healthy profit — and he did that with nothing more than his brain, a laptop, and a couple of Google Ads coupons.His latest company, LetterDash, an on-demand legal letter sending service, just turned one year old. Michael shared some of the financial figures from the year so far —July 7, 2018 — spent $18; generated a single lead; generated $4,000 during month 1.August — about $11,000.January — about $56,000.May 2019 — about $79,000.June 2019 — about $105,000.July 2019 — Over $100,000 (final numbers aren’t in yet).But Michael has gained far more than just money from LetterDash. The experience has been full of learning, and below he shares the lessons you can learn from his journey.

1. Don’t Rush to Raise Capital

When he started LetterDash, he didn’t need or want to raise capital. He explained that raising capital only adds layers of complications and pressure.“These pressures come in many forms — pressure to grow fast, pressure to hire, pressure to put up numbers.”And this pressure can lead to bad decisions, he warns.In the end, he started the business with a bank account of zero, no framework, and no plan.There was nothing but an idea. He says that all you need in the early days is the commitment to grow from there.

2. Don’t Rush Into Development

Michael learned this lesson the hard way. He invested heavily in building software applications for previous companies and all of the businesses failed miserably.He had learned that the software produced was never the problem. The problem was that he had focused solely on his vision and on how it would be executed, before figuring out who the software was for.In the case of LetterDash, he says that the software they would have developed would have automated the interactions between the client, LetterDash, and the attorney.But now that the company is up and running, he sees that it would have been completely useless, and was able to dedicate resources elsewhere.His advice?“Get customers first, build your software later. It’s cool to say you have software, it’s much cooler to say you have revenue from paying customers.”

3. Start Small …and Boring

Getting to a million is never easy. It might be easy for the Elon Musks of the world, those with deep connections and vast resources, who can spend millions in advertising and infrastructure.For all the Michael Shermans out there, it’s easier said than done.He said his approach to building LetterDash was boring and straightforward.“We spent about 15 minutes of keyword research using the Google Ads Keyword Tool. There was enough search volume being reported to warrant the green light and test the idea. We came up with a business name, found a cheap .co domain and threw up a very basic, yet credible looking website.”This is a point worth emphasizing. The purpose of the website is to generate leads and validate demand. If both of these are ticked, there is scope to build bigger down the line.“We spent about $100 on web development. We found a Google Ads coupon, I believe it was $100 free for spending $25, we put together a barebones ad campaign and started sending traffic to the site. Twenty-four hours later, we received our first client request. A week later, we had a dozen requests.”This was the indicator he was looking for, and he was now ready to hire some attorneys and begin scaling.

4. You Need to Obsessively Tweak

“There wasn’t a single action or moment that led to success or the $1M in revenue. I’d say there might have literally been a million little tweaks and ideas tested along the way.”Michael says that as they received customer feedback, they began to analyze the success of the letters being sent out by one attorney to another. As they went through responses to the attorneys’ letters, they continuously tested newideas.“We’re constantly tweaking and optimizing the letterheads, the shipping method, the packaging, the presentation, even the language used by the attorneys in the letters.”That same customer feedback led to the formulation of new products and ancillary services that significantly boosted company revenue, without having to worry about new user acquisition costs.“Listening to the customers, what they want and what they need after the primary service was delivered has been key.”

5. Invest in Customer Success

Customers are everything. Their feedback and word of mouth are critical to expanding your client base, and in being able to improve and expand your service.With LetterDash, customer service has played a major role in the growth of the company.“The many 18 hour workdays and time we spent focusing on each tiny thing to make sure the customer was blown away by the service have all been a major factor in our explosive growth and ability to reach that $1M milestone,” says Michael.The biggest lesson here is to focus on customers’ feedback and to use it to improve your service. You must always be focused on making sure every customer is a satisfied one, even when in reality that likely cannot be achieved.

“My Advice Is Nothing Unique”

You might have noticed that the advice Michael offers is nothing unique. You’ve likely seen a lot of it before. And that’s exactly the point. As he said himself, it’s boring and straightforward.But this means it’s replicable. It’s a process that anyone can follow to achieve similar successes.The key takeaway here for entrepreneurs is this: Don’t focus or obsess on anything other than validating demand for your product or solution. In the end, nothing else matters if you don’t have a market.

Startups

Planning Your Exit Should Begin When You Launch

Greg Shepard
GUEST WRITER
CTO of Pepperjam

 

Entrepreneurs may not want to think of their companies as “products,” but the truth is, the vast majority of successful startups end in acquisitions. In 2017, mergers and acquisitions accounted for 93 percent of the 809 venture capital-backed exits, yielding a total of $45.6 billion in disclosed exit value, according to the National Venture Capitalists Association’s 2018 NVCA Yearbook.
A recent Silicon Valley Bank survey revealed that more than half of today’s health and tech startups are “hoping for an acquisition.” But hope isn’t enough to make it happen. From the beginning, entrepreneurs need to think about the profiles of companies that might potentially acquire them, and align their strategies, team hires and products with these companies to build the right foundation for mutually beneficial acquisitions later on.
To achieve this alignment, entrepreneurs should start by creating the Ideal Customer Profile (ICP), Ideal Employee Profile (IEP) and the Ideal Buyer Profile (IBP). As operations develop, the next step is to develop partnerships with some of those potential acquirers — ideally, innovative companies likely to perceive the emerging startup’s worth and that might eventually consider buying the company. When it’s time to exit, those longer-term partners will rate the startup’s value higher than if the relationship just began at the bargaining table.

Establish your target audience.

At fast-paced startups, standard operating procedure for entrepreneurs is to take a “ready, fire, aim” approach instead of practicing “ready, aim, fire.” It might surprise many entrepreneurs to know that, according to research by Crunchbase, many exit opportunities come early — the overwhelming majority before a company’s series B funding.
The profile for your ideal customer is the person or entity that needs your product or service the most; your job is to determine what that prospect is not getting from your competitors, or the marketplace in general, and how you can best fill that void.
When thinking about employees, it’s important to determine — before you start the hiring process — what kind of training, experience and expertise your team will need to build and market your product most effectively. Hiring the right talent can be a huge draw for potential buyers, some of which purchase companies in order to acquire teams, a process commonly referred to as “acqui-hires.” According to the Huffington Post, Mark Zuckerberg told an audience in 2010 that “Facebook has not once bought a company for the company itself. We buy companies to get excellent people.”
Once you’ve nailed down the attributes of your ideal customers and employees, you will be better equipped to develop prospects for your optimal buyer pool. The key is to find companies that serve similar markets, so you can design your product and business model to address unmet needs within that customer base. If a company perceives the importance of that need but, for one reason or another, does not serve it, it could be much more likely to consider an acquisition in the future.

Partner with the right people.

Your company may offer an essential product or service that a potential buyer is missing, but it is also crucial for the two of you to be on the same page strategically, culturally and philosophically. Nearly 45 percent of respondents to a survey of corporations and startups by MassChallenge and Imaginatik cited “strategic fit” as the most important factor in success or failure of a startup relationship.
Disruptors should seek out companies that are truly driven by innovation — perhaps those that have already established or partnered with innovation labs or accelerators. Those types of organizational environments typically feel much less “corporate,” and leaders are often more receptive and open to collaboration with startups.
Entrepreneurs should also look outside of their own industries. Approximately 70 percent of all tech deals in 2016 involved buyers from outside the tech sector, according to management consulting firm BCG.
Before defining a shortlist of potential corporate partners, entrepreneurs need to ask themselves several questions: Where could my company fit in the larger organization? Will the company’s existing team be able to sell and service my product? Will its customer base see (and pay for) the added value of the product I’m offering? Aligning your startup to a partner based on these attributes will improve the likelihood of a potential acquisition — and, ultimately, your startup’s value — if that company moves forward with a purchase.

Reap what you sow.

Once you’ve found potential corporate partners and have raised your initial funding, spend the time really getting to know them. What is a given company’s standard of excellence? What exactly will it pay for, and how much will it pay? And, perhaps most importantly, what do you offer that your partner company can’t produce itself?
Although most interactions between startups and corporations traditionally begin at the negotiation table, corporate players increasingly recognize the benefits of earlier interactions. The MassChallenge and Imaginatik survey found that 67 percent of companies prefer working with startups in earlier stages, mainly “to explore new technologies and business models.” And it found that a full 82 percent of corporations view interactions with startups as “somewhat important” to “very important,” with 23 percent indicating that these interactions are “mission critical.” Innovation efforts are no longer on the fringe of most corporations.
Corporate partnerships are essential for forward-thinking young startups. During the most critical phase of development, startups can derive significant benefit from their partner’s resources, mentorship and insights. Building strong professional relationships between these organizations can also set the stage for a smooth transition if a merger or acquisition ultimately takes place.
Startups

There’s No Such Thing as a Bad Idea

“Any idea can be a great idea if you think differently, dream big, and commit to seeing it realized.”
-Richard Branson, CEO and Founder, Virgin Group
You have a great idea and you want to turn it into a viable product or business. What do you do? Here are some tips from one of the world’s most successful entrepreneurs, Richard Branson, from a guest column he wrote for Entrepreneur magazine.

Step 1. Take It to the Hammock

Don’t be in a rush to start building a spreadsheet of projections and ordering inventory. Start out by relaxing in a comfortable place. Branson prefers using a hammock at his home on Necker Island. This is where he can relax, settle in, and envision the development of his idea.
There are two things Branson believes are crucial to the success of a new venture: frustration and enthusiasm. His first business was selling records in the late 1960s, selling them for less than the major retail outlets. He was successful because he combined his passion for music with his aggravation at prices the big stores were charging customers for it.
But the key is to love what you do. “Are you enthusiastic about how this business will make a difference in people’s lives?” Branson asks. If you are, he goes on to say, you’re more likely to persevere in the face of struggles you will inevitably encounter.
A mind map is a very effective way to brainstorm new ideas.

Step 2. Give It the Mom Test

Sometimes the people closest to you can be your best intitial sounding board. Tell them about your project and if they don’t get it, other people might not either.
Branson says “Ask your mother for her honest thoughts on your plans. If she glazes over when you describe the new venture, return to your hammock and start over. If she gets excited, you could be onto a winner.”

Step 3. Take a Risk

This is the part where most people hesitate, because it’s risky. It’s easier to hold back and wait for the perfect time to move forward. But this is a mistake, Branson says. “Successful entrepreneurs don’t wait for the perfect moment—they create it.”

Step 4. Test it Out

It’s said that entrepreneurs are willing to take risks. This is true, but successful entrepreneurs are the ones who mitigate the risks they take. This means developing, testing, and and getting market feedback on your product or service, then refining and improving upon it, as you move forward.
Branson’s advice: “Develop some samples of what you intend to sell, and when you’re happy with your product or service, begin the best and cheapest form of market research you can—ask your friends, family members, neighbors, and social media followers to try it out.”
Don’t get down about adverse feedback. This is a process, and you need to be prepared to be flexible, willing to make adjustments to your product or your plan. (Without saying so, Branson is applying the lean startup philosophy of the MVP—minimum viable product.)

Step 5. The Ultimate Test

Once the product or service has been tested and refined to your satisfaction, it’s time for the final test: Will it sell?
Once you’ve made those changes, try selling small batches of your product or offer initial introductions to the service wherever you can — online, door to door, at street fairs, and so on. Continue asking for feedback, and keep in touch with those customers. Make sure you get the branding right: Does it stand out? Do your brand values attract eager customers? Will they also attract talented employees?
When this happens, you’ll encounter new, practical problems. Such as how to distribute your product, how to manage cash flow, and whether to raise capital from investors.
The kinds of problems we hope you will have.
Startups

Rule #1 in Angel Investing – It’s All About the Team

Note: This article is part of Angel 201, an ongoing series for Angel Investors. To learn more about developing the key skills needed to make great investments, download this free eBook today Angel 201: The 4 Critical Skills Every Angel Should Master or purchase our books at Amazon.com.
Team Huddle
Great ideas are a dime a dozen.  Living in the Boston/Cambridge area, we are surrounded by some of the most innovative researchers in the world working at institutions like MIT and Harvard. I’m pretty confident when I say, in Boston, hardly a day goes by when some graduate student or professor doesn’t invent a new product, discover a new molecule or create a cool app. Unfortunately, without a great team behind that new product, it’s doubtful that a great company will result.
There is an old saying that goes something like this… “I’d rather invest in an A team with a B plan than a B team with an A plan.” Without a doubt, we feel this is the most important point for investors to embrace. Once you understand how critical the team is to a successful outcome, the greater success you will have as an investor. As a long term serial entrepreneur and a successful angel investor, I asked Ham to tell me how he evaluates teams and differentiates the A teams from the B teams.

Q: Ham, let’s start with the person at the top. How do you evaluate startup CEOs and what are the most important characteristics you look for?

First and foremost, I look for integrity. That character trait might sound obvious and a bit trite, but I feel it’s very important to be on alert for trust issues when you are interacting with an entrepreneur. From the initial meeting with the company, during the due diligence process, and finally while negotiating the deal, I want to make sure the CEO is being honest and negotiates in a fair manner. If I sense any duplicity at this early a stage, I can be sure that things will only get worse as the company progresses through the challenges faced by all startups.
That leads me to my second character trait, tenacity. It’s not easy being a startup CEO. The pressure to succeed is enormous, and CEOs struggle every day to motivate their team. Life in a startup is a series of highs and lows not too dissimilar from riding a roller coaster. One minute life is great as you ship your first product. The next day you hear back from customers that your product is lousy. It takes resilience to handle the good and the bad that a CEO faces on a daily basis. A CEO’s tenacity allows her to continue the battle to succeed even when others would give up in despair.

Q: Okay. Those make sense, but there has to be more in the mix than that? What else do you look for?

Next on my list is a combination of IQ and EQ. In other words, a CEO needs to be smart and self aware. By “smart”, I mean the CEO has the intelligence to discover a major market opportunity, and articulate a plan that will address that opportunity. The CEO has the intelligence to develop high-level strategic plans, and the problem solving skills to deal with day-to-day tactical and execution challenges.  By “self aware”, I mean the CEO works well with a great team and is willing to take guidance from close advisors. In other words, the CEO must be coachable. A great CEO wants to hire “A” team members who are better than he is for the job being filled.
A deep market understanding is an important skill set for a CEO because it provides the North Star from which the CEO will navigate the company. Great CEOs are two steps ahead of the competition because they have an inherent understanding of where the market is heading.
The final characteristic I look for in a CEO is presence. I define presence as follows… A CEO with presence has the leadership charisma to command any audience. This type of charisma allows the CEO to take charge whether speaking with employees, customers or investors. When the CEO walks into a meeting, you know who is in charge! Furthermore, this ability to command an audience gives the CEO a unique ability to create a winning culture. Building a winning company culture takes constant care and attention from the CEO, and the best way to tend to this task is by communicating a compelling story on a regular basis to the entire company.

Q: Wait – what about experience?  What role does experience play in startup success?

This is a trick question, right? The obvious answer is that experience is critical. You should always back serial entrepreneurs with decades of market experience. Well… that’s true in some cases. If you are looking to build the next generation of product or service in a well established market, having a few grey hairs and a deep network of contacts is probably the right way to go.
But, suppose you are trying to totally disrupt a market. For example, you are Jeff Bezos and you are looking to change the way people buy stuff. When he started Amazon, online retailing was in its infancy. Lots of market experience didn’t exist. He had to make it up as time went on. So disrupting markets takes a very different type of entrepreneur. Success at Amazon had very little to do with experience and much more to do with the ability to try new things and learn as fast as possible!

Q: So you hear the CEO give her pitch and then you spend an hour or two digging into the company to learn more. How are you able to really get to know the CEO and figure out whether she has the key characteristics you are looking for?

The first step that most investors take to learn more about the CEO is to reach out and perform reference checks. Some of the references will be from contacts that the CEO provides to you. Other contacts will be people in your network that know the CEO. This type of background information is useful if you ask the right questions. At Launchpad, we have a well defined set of questions we use to guide these interviews. It helps us uncover red flag issues that we need to keep an eye out for, and it helps us apply resources to help the CEO be successful.
Personally, I find the reference checks to be useful but not sufficient in helping me get to know the CEO. I like to take things one step further. In addition to typical due diligence meetings, I arrange for time with the CEO in a non-business setting. For example, I like spending an evening with the CEO at dinner or a sporting event. Hopefully, our conversation flows smoothly with most of the discussion focused on personal topics. This way I get to know the CEO in a different context.

Q: Moving beyond the CEO, what skills do you look for in a startup company team?

There are four skills that I look for in a startup team. Given the small size of an early stage company, sometimes these skills are part of the CEO’s repertoire, but I like to see them incorporated in the skill set of the other founding members.
  • First, I look for selling skills. Whether talking to prospects, investors or future employees, the management team has to be able to sell. If you ain’t sellin’, nobody’s buyin’!
  • Second, I look for technical skills. I invest in tech companies and so I expect the company will have a great product that will build some competitive barriers to entry.
  • Third, I look for a deep market awareness. As I discussed in one of the above questions, this market awareness is critical for developing the company’s strategy.
  • Fourth, I look for product management skills. This is closely related to market awareness, because it requires the ability to listen to customers and understand the competitive environment. It also requires the ability to translate market needs into a plan that engineering can actually deliver in a timely fashion given limited company resources. Product Management is an often under appreciated skill set. A greater number of tech companies would succeed if they invested more in this critical resource.

Q: What’s the right size for a startup company founding team?

It’s not as though there is any magic number here, but I tend to like founding teams with 2 or 3 people. Here’s my thinking on why that’s the right size. To start with, we won’t invest in a company that has only one person involved. If a founder can’t convince a co-founder to join him in this crazy startup, why would the founder think he can convince investors to put money into the business?? With 2 co-founders, the company is moving in the right direction (read more on Key Founder Issues). Hopefully, the team has complementary skills that help round out the need for the key skills I discussed in the previous question. And, if 2 people can’t pull that off, then 3 team members usually can.
Once you move up to founding teams of 4 or more you run into a lot of issues with coat-tail riders, founder dilution, outgrowing the co-founders who aren’t producing, etc.  Another issue to be aware of in this context is that founders always obsess about negotiating valuation and they can become overly focused on issues relating to dilution. That makes little sense when you consider the deadweight college buddy / co-founder who owns 25% of the company.  Fussing about dilution by bringing in great investors and capital while having no-ops on the team, is like locking the front door but leaving the back screen door swinging in the breeze!
Want to learn more about building an angel portfolio and developing the key skills needed to make great investments? Download Angel 101: A Primer for Angel Investors and Angel 201: The 4 Critical Skills Every Angel Should Master for free, or purchase our books at Amazon.com.
Startups

Money isn’t the only valuable thing a VC can give a startup

Ken Yeung
A visitor views the electronic sculpture '$' by Tim Noble and Sue Webster at Sotheby's auction house in London June 8, 2015.

Above: A visitor views the electronic sculpture ‘$’ by Tim Noble and Sue Webster at Sotheby’s auction house in London June 8, 2015.

Image Credit: REUTERS/Toby Melville – RTX1FMQP

Entrepreneurs know it can be difficult selecting the right investors to fund their startup. But instead of choosing firms based on which has a celebrity partner or offers the most money, Norwest Venture Partners‘ Sergio Monsalve counsels startups to select venture capitalists who will be there for the long term.

In fact, he offers several points a company must consider before taking money from an investor: Are they proficient in your space? Has the firm demonstrated that they are dependable in good times and bad? Are they aligned with your vision?

Norwest Venture Partners (NVP) may not be as well-recognized as the likes of Andreessen Horowitz, Kleiner Perkins Caufield & Byers, Greylock Partners, and Google Ventures, but for over 50 years, the firm has been positioning itself as more than just an investment provider. “Early on we realized that we needed to be catering to the needs of entrepreneurs and had to look at [them] before [the need] arises,” Monsalve told VentureBeat in an interview.

He further explained what it means to be service-oriented: “Being a multi-stage firm with a large fund, [entrepreneurs] get the best of both worlds (capital and resources). You work tightly with a few partners that can help you throughout your company’s life cycle. How do you start a company from scratch, establishing product fit, scaling, IPO, creating a reputable company model?”

All venture capitalists aren’t created equal

When a startup decides to accept funds, Monsalve believes it’s important to consider what else investors are bringing to the table. NVP, for example, touts its entrepreneurial roots (many of its partners were founders themselves) and a database of knowledge around different market conditions, trends, and other insights gleaned over the past 53 years.

He cautioned that many venture capitalists are unwilling to extend themselves beyond the initial outlay of money. “A lot of people that are investing today just want to write a check and pray,” Monsalve said. “That’s not a strategy that works — that’s called betting. [NVP] wants to invest and partner with startups and work with them.” He added that NVP sees its role as essentially entrepreneurial, in that the company has “skin in the game” and is willing to do what it takes to help the business succeed.

Monsalve explained that entrepreneurs need partners who aren’t afraid to dive into the trenches when things go bad. For NVP, that includes more than what they put in financially; its partners are willing to put in the work to help out in whatever way it can: “You can call someone at 5 a.m. or ask for help on the weekends — this doesn’t happen if you just pick someone off the street and give them a few shares.”

Wallpaper along a building in London, England near the Grand Union Canal.

Above: Wallpaper along a building in London, England near the Grand Union Canal.

Image Credit: Edward Simpson/Flickr

How to pick an investor

Monsalve believes it’s important for a startup to look for firms that share its ideals. Be clear about what the investor sees for your startup as it grows from early stage to potentially being acquired or going public; otherwise things could end badly for everyone. “You can’t do shotgun weddings,” he said.

He counseled that the only way to be sure you see eye to eye with prospective investors is to have detailed conversations. Are they thinking about major issues the same way you are? What are their thoughts about contingency plans, such as pivoting, in case things go awry?

Beyond finding like-minded investors, founders also need to determine if the firm has proven competency in their particular space. This is perhaps the most obvious concern, but for Monsalve, it’s not enough just to have knowledge — one must also be constantly curious about the changing landscape. A smart investor will be knowledgeable about recruiting, establishing company culture, dealing with ways to grow the company, and dozens of other issues that a startup will have to address.

What if you’re gearing up for a potential exit, either via acquisition or public offering? That’s something a partner should prepare you for, Monsalve said. This is a perk that NVP offers through its annual investment summit, which introduces investment bankers, portfolio managers, and analysts to companies thinking about going public soon. This opportunity gives startups a chance to learn the ins and outs of the process before preparing for their own IPO.

Last, but certainly not least, is whether a firm has proven itself to be a “good actor,” not only in the best of times, but also when a company is under duress — have they demonstrated grit, resilience, and a willingness to stick it out? Monsalve brought up the example of Lending Club, a peer-to-peer lending company that was on the verge of being shut down by the Securities and Exchange Commission (SEC) in 2008. As an investor, NVP counseled Lending Club to work with the SEC to address its issues and provided enough funds to keep the startup operational. Not only did Lending Club remain afloat, it settled with regulators and even went public.

NEW YORK, NY – DECEMBER 11: LendingClub Corporation led by Founder and CEO Renaud Laplanche and members of the company’s management team ring the opening bell at the New York Stock Exchange on December 11, 2014 in New York City. (Photo by Ben Hider/NYSE)

Above: NEW YORK, NY – DECEMBER 11: Lending Club Corporation, led by founder and CEO Renaud Laplanche and members of the company’s management team, ring the opening bell at the New York Stock Exchange on December 11, 2014 in New York City. (Photo by Ben Hider/NYSE)

Image Credit: Lending Club