Category Archives: Startups

Startups

A VC’s guide to the saturated digital health market

healthtech
Image Credit: everything possible/Shutterstock

You don’t have to convince the average investor that the healthcare technology market is the hottest place to be these days. As the desire for consumer-facing tools like Fitbit grows and the need for cost-efficient care becomes more apparent, health IT startups are getting a lot of attention and a lot of capital. It seems that nearly each day a new financing is being announced.

But amid all the buzz over the latest wearables, cloud solutions, or the most robust EHRs, concerns of over-valuation are growing louder.

This past May at Rock Health’s Digital Health Investor Summit, when a room full of investors was asked whether private digital health companies are overvalued, 62 percent said yes. While there are more and more healthcare IT unicorns, there are fewer IPOs — in tech for example, there were about half as many IPOs in the first six months of 2015 than in the same time period one year prior. This proves public investors are taking a more critical look at fundamentals, such as revenue, actual growth, spending fluctuations, comparable multiples, valuations, etc.

From VentureBeat

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With that in mind, how does an investor pick the health IT players that are most likely to provide returns and a path for an eventual exit such as getting acquired or going public.

First, investors must be wary of hype. With so much promising, health-centered technology coming out, it’s all too easy to get sucked into courting a startup before looking at market viability. As a late-stage investment firm, we only invest in two or three companies per year — and we don’t get too attached without asking ourselves: Is this solution addressing a large market? Is it innovative enough? What’s the potential market opportunity five years from now? What do their customers say?

It’s natural to get excited when you see a bunch of investors starting to put in term sheets. However, it’s almost like folks forget fundamentals just to be “in the deal” vs. asking “does this price make sense?” Many of these companies are not profitable and burn a lot of cash, so that means another financing is likely in the future. The higher the valuation, the higher the hurdle to find new capital as new investors will need to justify the valuation from a returns perspective. You then risk a down-round or, even worse, a “no-round.”

Next, let’s look at the company and do real due diligence by putting a potential investment under a microscope and looking at day-to-day operations as well as future prospects. At Montreux, if we’re intrigued by a health IT company’s cutting-edge ideas and ambitious plans, that’s a start. But we also need to know whether it’s backed by a management team that understands the key points of where the solution can go and the product pipeline and that can account for daily activities and expenditures. One of the benefits of coming in late is that you usually have a business that has operations and revenues. Oftentimes you can use comparable companies (based on size, growth rate, operating metrics, Total Available Market) that are publicly trading to see whether or not the valuation is in the right zip code.

Our most recent investment, for example, was in Kareo, a provider of cloud-based EHR, billing, practice management, and integrated electronic claims processing. We were able to spend the important time understanding the market, revenue growth, massive user base, product pipeline, all of which was top among its peers.

An investor has to be patient to find the right deal where he or she can get the right return. For us, embarking on a new venture means we believe we’ll make a solid return for our investors and add value to the company at this critical stage. The healthcare industry is transforming before our eyes in major ways; we just have to keep to some fundamental investing principles. Stay away from the hype, and we will have more sustainable companies, better more consistent returns, and a robust exit ecosystem.

Michael Matly, M.D., is a Principal at Montreux Equity Partners. He has been actively involved in Montreux’s late-stage investments in health services and technology. Before joining Montreux, he led Business Development and New Ventures at the Mayo Clinic Center for Innovation. He is also a founding advisor to Rock Health, a health incubator based in San Francisco.

Startups

Establishing credibility when you’re a young entrepreneur

Eliot Buchanan, Plastiq
Tags: Eliot Buchanan
Plastiq's Eliot Buchanan and Daniel Choi cofounded the company when they were 22.

Above: Plastiq’s Eliot Buchanan and Daniel Choi cofounded the company when they were 22.

Image Credit: ©2015 Jon Chomitz Photography

Getting a business off the ground is hard and often feels like one obstacle after another. You need a compelling idea. You need funding. You need customers. You need to learn how to market – the list of things you need is endless, but perhaps the most critical thing you will need is people to take you seriously. It can be hard to get that no matter your age, but as a young entrepreneur you will often be faced with more challenges establishing credibility with potential investors, your team and peers, potential partners and even your customers.

Don’t get me wrong. Everyone loves a young-entrepreneur success story, and it’s worth a brief mention that the founders of Google, Apple, Microsoft, Facebook, and Walmart were all between the ages of 20 and 26 when they founded those iconic companies. But sometimes it takes a bit more effort for young entrepreneurs to get people to listen. Here are a few things I’ve learned on my own journey as a young entrepreneur about establishing credibility:

Credibility by Association

Building the right network of people is what I personally believe to be the most important ingredient in business, and the people you surround yourself with out of the gate will also drive others’ opinions of you.

I realize this sounds great on paper, but it’s also a chicken and egg scenario – how do you start piecing together a network until you have the credibility? In my view it boils down to three simple things – own what you don’t know, talk to everyone you meet like they have something to teach you, and do what you say you are going to do.

You Don’t Know What You Don’t Know

One of the quickest things you can do as a young founder is work to become a subject matter expert because, unlike building your resume, it’s something within your control. So many aspects of starting a business require patience and timing, but your ability to learn absolutely everything you can about your industry can be accelerated quickly by sheer work ethic and hours put in (something the majority of young entrepreneurs are already good at). Proving that you know what you are talking about establishes a huge amount of respect because people will be confident you have done your homework.

However, it’s also critical to own what you DON’T know. One of the easiest ways to lose credibility is to come across like you believe you know it all. Seasoned professionals will see right through you, but if you approach people with humility and are open to what they can teach you, you will begin to foster a great network of allies and mentors.

Everyone Has Something to Teach

It’s estimated that 11,000 new business books are published each year (not counting self-published works), and while the jury is out on how effective they are, the overall message is clear – people want to share what they have learned. I’m not saying run out and buy all of these, or even to buy any of them, but if you approach every new person you meet with an open-mind and a genuine interest in what they do, the path they took to get there, and even go so far as to ask them pointed questions like, “what is the best business lesson you have learned so far?” I guarantee you will walk away with something valuable. It might be a specific takeaway you can apply to your entrepreneurial journey right away, it might be something that helps you down the road, or it might just be the start of a solid relationship to add to your network of credibility, but it’s all valuable.

Do What You Say You Will

It’s actually that black and white – if you say you are going to do something, do it. A lot of young entrepreneurs (myself included) are very ambitious in their thinking. This is frequently touted as one of the most positive traits of the young entrepreneur, and I made the mistake several times early on thinking that ambition alone would help me be taken seriously. That’s just not the case. People are obviously much more impressed when you have real progress to show and it’s clear that your ambition translates to reality. I’ve made this a golden rule in business and everyday life.

Embrace Your Age

As young entrepreneurs we sometimes face so much skepticism that it can be discouraging, but I’d encourage you to flip that thinking – be empowered by your age. Use the time to soak up knowledge both from your own research and by learning from everyone around you. If you ask smart questions, establish your network, and deliver on your promises, you will be taken seriously by your industry and your peers, no matter the age gap.

Eliot Buchanan is cofounder and CEO of Plastiq, which he launched when he was 22.

Startups

Why It Pays to Identify and Approach Mentors in the Professional ‘Cafeteria’

 

KELLI RICHARDS
CONTRIBUTOR
CEO at All Access Group

At times, the workplace “cafeteria” resembles a middle-school lunchroom, with heightened stakes and competitors striving for power in lieu of popularity. Who sits where, and why?

Related: How to Get the Most Out of Having a Mentor

It’s all rather intimidating. But engaging with the top of the food chain, or “managing up,” in your own company or industry is easier when someone trustworthy and approachable forges a trail first. For some professionals, this means engaging a mentor.

Before pursuing that relationship, however, confirm that your potential mentor is the master of his or her trade, with a great reputation, a proven record of success and a powerful, credible brand. The strongest mentors are fearless communicators with access to the power base of an organization. They’re visible to everyone, including the CEO. With connections to major influencers, a mentor can open doors to relationships and experiences that likely wouldn’t be possible otherwise — or would take years to develop.

Steve Jobs, a perfect example of this type of leader, was one of a handful of influential mentors for me. Although we didn’t seek each other out and came together by chance, Jobs, as a well-known innovator, greatly assisted me throughout my career.

Making the first move

An experienced mentor can help navigate political land mines by serving as a role model and sounding board to support a mentee’s success. Here are three tips for finding the right one:

  • Take advantage of an open door — or “open seat” — policy. When I worked at Apple, former CEO John Sculley made himself available at an open table in our cafeteria. Most people gave him a wide berth out of fear, but I wasn’t afraid to sit down and chat with him often. When Apple offered to cover the tuition for a two-and-a-half year MBA program, I was one of about 100 people chosen because my manager pulled out all the stops on my behalf. Sculley had the final say on who was chosen, which is one reason I sat down at his table — to thank him — and I still reach out to him today.
  • Be direct. Mentors sometimes choose protégés, but usually a person must be bold enough to approach an admired senior colleague and say, “I need a mentor, and I’d like it to be you.” High-level professionals don’t have time for beating around the bush. Be direct.
  • Seek out different — and seemingly contradictory — qualities in mentors. I’ve been fortunate to build mentoring bonds with not only Steve Jobs, but also consultant and speaker Alan Weiss and writer Alan Cohen. I consider Weiss and Cohen my bookend mentors; together, they deeply inform the way I work and live, and how I serve my clients.

Related: 5 Secrets to Finding and Working With a Mentor

Vetting a potential mentor involves listening to your gut reaction. After each interaction, note any emerging patterns and how the exchange felt. If your experience gives you a positive impression that this partnership could be mutually beneficial, chances are it will be a good fit.

Both Alans provide distinct kinds of support and help me tap into contrasting parts of my personality. While Cohen has taught me how to get in touch with my softer side and shown me how to help others see the best in themselves by identifying their strengths, Weiss has taught me how to reinforce my brand. With his guidance, I’ve sought to be a thought leader in my field, by creating a body of intellectual property with a unique voice.

These dynamic and complementary philosophies have helped me build a solid foundation for my work and define my career trajectory. Developing a positive mentor relationship that pushes you to grow outside your comfort zone can propel you forward, too, ensuring that you thrive — not merely survive — in the workplace cafeteria.

The weeding-out process in the workplace can unfold like an episode of Survivor. Hang out with the wrong crowd or miss critical unspoken cues and you risk getting voted off the company island. But the right mentor can offer a “path to immunity” and a faster track to success, to achieve the dreams that might otherwise dissipate amid self-doubt and cafeteria politics.

Related: What No One Tells You About Seeking A Mentor for Your Startup 

Startups

5 Ways Startups Build Priceless Cultures Without Spending a Cent

5 Ways Startups Build Priceless Cultures Without Spending a Cent

HEATHER R. HUHMAN
CONTRIBUTOR
Career and Workplace Expert; Founder and President, Come Recommended
Image credit: Andrew Rich Photography

In the job search market, employees have the upper hand — and they know it. In a 2015 survey of U.S. job seekers conducted by Jobvite, 45 percent of respondents were satisfied with their current jobs but were open to a new one.

Employees are on the lookout for better opportunities, and much of how they decide is based on company culture. Employees don’t want to leave workplaces with awesome cultures and will stay in a job that satisfies them professionally and personally.

Startups have some of the best and most innovative ideas when it comes to company culture. Here are some of the most interesting culture hacks to adopt from creative startups:

1. Celebrate creatively.

A major part of employee satisfaction is recognizing and celebrating employee achievements. Yet, a 2014 survey of employees from more than 500 U.S. organizations conducted by TinyPulse found that 79 percent of employees don’t feel valued at work.

Startups without a lot of extra cash have to find creative non-financial ways to appreciate and motivate their employees.

Experticity, the startup that created GoToMeeting and was sold to Citrix in 2003, built employee recognition into their culture with a large iron bell. The bell was installed in their kitchen, and anyone could ring it at anytime. The bell was meant to be rung for victories, large and small. An employee who rang it without a good reason had to buy breakfast for the whole team the next morning.

After ringing the bell for a valid reason, the employee would send an email to everyone in the company to explain why they rang it and announce the accomplishment. Although some feared the employees would see the bell as a cheesy gimmick, the bell brought genuine excitement to the office. The employees would rush back to their desks to read about and celebrate the achievement.

Creating a culture that celebrates wins, big and small, boosts morale and keep employees motivated and engaged without spending money.

Related: 10 Examples of Companies With Fantastic Cultures

2. Exciting rewards.

At the end of a long project, employees aren’t left with much. They move on to the next one with little fanfare. But at Palantir, a software company that specializes in data analytics, the end of each project is celebrated with a unique memento: a t-shirt.

Every month, the company releases a new version of their software. To commemorate the release, they produce a t-shirt with a unique design featuring the name of the new software. Employees treat these shirts as collectibles. They show how long an employee has been with the company, and allow everyone to remember and look proudly at their past work.

Employees know that, at the end of the month, their hard work will be rewarded. Small tokens of appreciation can be a big deal. Get employees excited about their own work and the overall accomplishments of the organization.

3. Build supportive teams.

An employee’s first day is overwhelming. There’s the stress of learning new information, and the awkwardness of meeting and getting to know a new set of coworkers.

Commerce Sciences, an A/B testing platform, eases the nerves of new employees with a welcoming tradition. The last employee who joined the team is responsible for creating a starter kit for the next new employee. There are no rules, and they use their creativity to fill the kit with jokes, books, coffee, nerf guns, and anything else.

The starter kits gets employees involved in the welcoming process and helps new employees feel connected and supported by the team from day one.

Great employees don’t magically translate to great teams. Create a culture where employees collaborate and support each other. Make employees feel welcome from their first day to better integrate them to the team and keep the team strong.

Related: 4 Ways to Establish a Strong Culture Without Sacrificing Startup Success

4. Integrate culture and mission.

Company culture is a direct reflection of the brand, and workplace values should relate to the company mission. For Maptia, a storytelling platform for travelers, creating a culture that reflected their mission meant moving their headquarters to another continent.

When the startup couldn’t afford to set up shop in the team’s hometown of London, they moved to a small beach town in Morocco. The move allowed them to better live the company’s mission to explore the world and share their stories.

The location was the perfect place to blend the startup culture with their everyday lives. During stressful times, they could easily relax by surfing, doing yoga on their rooftop, or cliff jumping. These fun activities became a routine part of their days, allowing them to live their mission and work hard at the same time.

There’s a lot of work that needs to be done at startups, so focus on a work-life blend, not balance. Achieving this blend requires startups to focus on what’s most important to their brand and their culture. Tools like The Good Jobs can help companies discover which cultural values are most important so they can focus their values.

Make those values central to the company culture — the company should live and breathe them.

5. Focus on communication.

Employees value transparent workplaces. In fact, a survey of 1,000 U.S. employees published in March by 15Five found that 81 percent of respondents would rather join a company that values open communication than trendy perks like gym memberships and free food.

Enplug, a digital display software startup, offers their employees open communication reddit-style. Every few weeks, the company holds an ask me anything session with company leadership. Employees submit their questions before the meeting and each one is answered and discussed in detail in a presentation.

Encourage employees to ask questions and share their thoughts, and make them feel comfortable doing so. Welcome new ideas and value their feedback to build a culture of communication.

Related: 3 Truths You Must Embrace to Lead Your Team to the Summit

Startups

Lessons From a 91-Year-Old Entrepreneur That Are Still Relevant Today

CLAY CLARK
CONTRIBUTOR
Founder of Thrive15.com

I recently had the pleasure of sitting down with 91-year-old entrepreneur Jack Nadel to ask him how he has been able to achieve sustainable success in a wide range of industries over a 70 year span of time.

Nadel started his first business venture immediately after World War II and went on to found, acquire and operate more than a dozen companies worldwide that have produced hundreds of new products, thousands of jobs and millions of dollars in profits. Over the course of years, Nadel has also built up the Jack Nadel International multi-million dollar empire, a promotional merchandise distribution.

Because of his success, my seven-hour and three-day mentorship session with Nadel provided me with countless actionable and invaluable business tips, strategies and advice. Here are three particularly valuable lessons Nadel shared with me:

Related: 7 Management Lessons From a 7-Time CEO

Find a need and fill it.

Nadel stressed to me that finding a need and filling it is his best and most important advice. He explained to me that this advice applies to both product and service-based businesses, startups or giant corporations. “Success is in finding a real market need and filling it,” he said. Nadel pointed out that his adherence to this lesson has allowed him to enjoy success in multiple industries over the past 70 years while many other businesses and aspiring entrepreneurs around him were struggling or going out of business.

Don’t let your ego get in the way.

Nadel emphasized that in order to achieve massive success as an entrepreneur you must be receptive to coaching, know your numbers and do your research. He warned, “There’s nothing quite as exciting as a new idea, especially when you’re convinced the idea is worth a million bucks, or more, but watch out. Great ideas are rarely born fully formed, and a new idea is like a 2-year-old: loud, self-centered and completely without perspective.” Having consulted with thousands of entrepreneurs all around the world, this lesson really resonated with me, because I see egos getting in the way of most entrepreneurs every day.

Remember: the business idea or concept you are considering right now is not the first or last incredible business opportunity that you are going to come across. The billionaire success story Richard Branson was correct when he once said, “Business opportunities are like buses, there’s always another one coming.”

Related: Unlikely Lessons From Building a Multi-Million Dollar Social Business

Most successful entrepreneurs aren’t geniuses.

As a business consultant and the founder of Thrive15.com, I constantly run into people at conferences and in workshops who don’t feel like they are worthy of success, or have the mental capacity and the connections needed to achieve success because they are not geniuses. However, this is not the case. “Every generation will produce technology pioneers like Steve Jobs, Bill Gates and Elon Musk, who invent revolutionary new products and services,” says Nadel. “They seem to have a genetic pre-disposition toward genius, but for the majority of us, the non-geniuses, the best solution is still to be entrepreneurial, even if only to earn enough income to cover the difference between expenses and earnings.”

He went on to say, “I speak from seven decades of experience, which have provided me with knowledge that is invaluable in an ever-changing market. I’ve lived, learned and profited knowing that every down stroke has an upstroke, and there is money to be made in either situation.”

Whether you are a current entrepreneur or an aspiring one and regardless of what industry you are in, I encourage you to apply these three lessons to your own life and business.

Related: How Reflection Sets You Up for Success

Startups

How Startups Can Take Advantage of Netflix’s Early-Release Strategy

ELLIOT TOMAENO
CONTRIBUTOR
Founder of Astrsk

August 18, 2015

Netflix in June made a calculated decision to release the entire third season ofOrange Is the New Black early. Not only did this thrill the OITNB fan base and generate a ton of press coverage on the new season, but it also sent a powerful message: Netflix aims to please.

Entrepreneurs can enjoy these same advantages by making strategic decisions to announce or release products before the originally promised dates. Vital “go live” dates, including new website releases, product updates and even a company’s initial release are all prime opportunities for startups to excite customers, grab press attention and earn valuable feedback.

The trick is to release early, but wisely.

Related: Eliminate These 5 Words From Your PR Messaging

Netflix faces disadvantages in trying to reach large markets of potential viewers. So similar to a startup, it’s always searching for new ways to find the target audience.

By releasing the newest season early, Netflix advertised the show while reminding people that the company has a history of doing things differently, proving to customers that it doesn’t blindly follow tradition. Netflix gives fans the power to watch when and how they wish, which builds goodwill and makes customers feel special.

In the same vein, startups can grant certain customers early access to products. The opportunity to see what a company is working on behind the scenes builds excitement and is often perceived as a reward.

In the public-relations game, the brand that comes out first often makes the biggest splash, but how can a startup carry that momentum forward? To make the most of an early release, follow these four tips:

1. Target the right customers.

Always keep the type of customer you want to attract in mind. Customers may view early-release products as half-baked, so it’s a good idea to target a specific audience with the highest potential for conversion. If conversion doesn’t occur, a strategy shift has to follow quickly.

A clear focus is critical. Who do you want to give this to, and what kind of feedback do you want from them?

2. Request feedback.

Let people in early to play around through a direct invitation. Reach out to certain individuals, and tell them, “You’ve been invited to join our VIP beta-testing group prior to the official launch.”

Related: 5 Tools Every PR Pro Should Be Using to Measure Storytelling Efforts

Also consider creating a waitlist or another way for people to sign up. Engaging early adopters offers significant benefits because these test customers using the product in the real world can provide priceless feedback. Even when a firm is more interested in testing server load time than receiving feedback, asking for it every step of the way makes participants feel valued.

3. Don’t fight expert opinion.

If people feel like they’re part of the platform, they’ll be more forgiving of its flaws and will put more effort into improving it. Don’t fight their opinions. Practice strategic vulnerability. Even if the experts are wrong, simply thank them. This will build trust with early customers and can enhance potential press.

4. Connect with the media.

Attracting press isn’t always the goal of an early release, but it’s a good way to get the media interested in the platform sooner. Don’t try to emulate successful early releases launched by other companies such as Mint or Mailbox – a newsworthy early release must be unique.

Of course, an early release isn’t appropriate in some situations. Physical products that require testing should be released to the press first to ensure adequate coverage. If the product is new and innovative, it’s counterproductive to alert competitors. And finally, an early release is too risky for any project with uncertain development timelines.

For the right product or announcement, however, a strategic early release can work wonders.

If the success of the OITNB release has proven anything, it’s that startups don’t have to cling to traditional release structures. In fact, breaking those norms can result in more press, buzz, feedback and, most important, happy customers.

Related: 4 PR Strategies You Should Be Using Right Now

Startups

Smart Startups Learn How to Create and Manage Hype

Smart Startups Learn How to Create and Manage Hype

MARTIN ZWILLING
CONTRIBUTOR
Veteran startup mentor, executive, blogger, author, tech professional, and Angel investor.
7 Ways Founders Demonstrate They Can Run a Startup
Image credit: Shutterstock.com

Creating a successful startup is all about marketing these days, no matter how compelling your solution. Technologists have long believed that marketing is only required when selling the next pet rock, but in this age of information overload, even the most exciting solutions will be lost from view or assumed to have no value unless they are surrounded by hype.

According to Urban Dictionary, hype is “a clever marketing strategy where a product is advertised as the thing everyone must have, to the point where people begin to feel they need to consume it.”

Even technology solutions with a large intuitive value, such as a cure for cancer, need hype for visibility, education, side-effect considerations and to avoid a scam label. What most entrepreneurs fail to appreciate is that even the most basic marketing takes time, money and creativity, and even the best still may not succeed in winning over competitive approaches or the status quo.

Related: 4 Secrets to a Successful Product Launch

Marketing acceptance, especially for new technologies, actually goes through several predictable stages, called the hype cycle, as outlined by Gartner research. This cycle is actually an evolution to total acceptance of a specific solution or technology, based on the effectiveness of the marketing and hype and on the feedback of early users.

Progress through these phases is unpredictable in time, often takes many years, and can only be measured by customer surveys and market penetration analyses. Here are the five key phases:

1. Innovation trigger

Every new startup rolling out an innovative solution is the start of a new cycle. Early hype actually should precede the final product, and consists of proof-of-concept stories, media events and industry exposure. Every entrepreneur in stealth mode who insists on waiting for their product runs the risk of being a non-starter.

2. Peak of inflated expectations

This is the phase where the marketing hype has fully kicked in, often creating unrealistic expectations which the solution can’t yet deliver. Many startup solutions flame out at this point. According to Gartner’s Hype Cycle Special Report for 2014, wearable user interfaces such as Google Glass are now in this stage.

3. Trough of disillusionment

Solutions and startups that stumble under inflated expectations quickly lose their allure, and enter a long period of slow growth or even a big downturn. Technologies used in these solutions are then seen as red flags by investors. Examples include mobile health monitoring, NFC (near field communication) and virtual-reality systems.

Related: 6 Steps to a Successful Product Launch

4. Slope of enlightenment

Over time, with more marketing, and with further enhancements, customers begin to understand and accept the practical benefits of a given solution. This is the phase where strategic partnerships and new markets are key. Investors seek out startups at this point that are well positioned for rapid scaling.

5. Plateau of productivity

This phase more specifically applies to technologies that have evolved through multiple generations and are widely accepted. Multiple startups can now spawn solutions from the technology, and position themselves for rapid customer growth and early seed-stage support from investors.

I have intentionally broadened the hype-cycle definitions from their traditional hard-technology application to include soft technologies, such as social networks and entertainment. The rules for technology startups are no longer unique — marketing and hype are now as critical for business-to-business solutions as for business-to-consumer solutions.

There is evidence that the elapsed time of each phase is getting shorter, which just means that every entrepreneur needs to start earlier, and measure feedback more carefully, or risk failure by working on the wrong problem. As an angel investor, I often hear startups touting inflated expectations, or refusing to pivot in the face of disillusionment for their technologies.

The days are gone for those who believe that “If we build it, they will come!” Growing a business in this highly connected and information-intensive world requires a total focus on marketing and evolving customer perceptions. The best startups start early, and put as much focus on the hype as they do on the product. Where is your solution in the hype cycle?

Related: A Blueprint for a Killer Product Launch (Infographic)

Startups

Crowdfunding or a Small-Business Loan: What’s Best for Your Company?

Crowdfunding or a Small-Business Loan: What's Best for Your Company?

Image credit: Tax Credits | Flickr

The crowdfunding site Kickstarter might be best known for funding films, games and products — like Pebble, the Palo Alto-based smartwatch whose maker raised more than $20.3 million in March, making it the most-backed product in the site’s history.

But occasionally, small Main Street businesses get their start through crowdfunding. One example is Portico Latin Bistro & Cantina in Langley, Wash., on rural Whidbey Island near Seattle, which raised $16,000 in seed money late last year.

Owner Graham Gori was skeptical about his chances for success, and he was right to be: Although Kickstarter has raised $1.8 billion for projects since 2009, most campaigns — about three of every five — fail to launch. Chances on Indiegogo, another crowdfunding site, are even slimmer; about 1 in 10 fundraising projects reach their goal. And small businesses have the toughest time: Only 3.1 percent of small-business projects out of 20,000 reached their goal on Indiegogo last year, according to reports.

Related: 4 Tips to Set You Up for Crowdfunding Success

Is crowdfunding right for you?

At NerdWallet, we examine complex financial situations that could affect small businesses. We then try to reduce them to a few key drivers to help bring clarity to the financial decisions people may make.

We found that successful crowdfunded projects or businesses depend on two main drivers:

  1. You must have a sexy, marketable project or product.
  2. It’s crucial to have a large number of backers — friends, family, local community, existing online followers — who are willing to drum up support for you. These people are your funders, but they are also your promoters.

It’s not enough to satisfy these drivers, however; you must also have a high risk tolerance. It’s an all-or-nothing mode for Kickstarterl: If you fail to reach the fundraising target you’ve set, you get nothing. In other words, you could spend weeks raising money on Kickstarter and lose it all if you don’t meet your minimum threshold.

Other crowdfunding sites are not all or nothing, but they can still leave business owners facing considerable uncertainty.

How a small-town business succeeded

Gori built a successful Kickstarter campaign by:

Testing the market. While Gori was “no expert on Kickstarter,” he did need to figure out if a campaign would even have legs, so he had to determine if there was a need in the market for his kind of restaurant.

Related: Cash Crunch: What’s the Best Loan for Your Small Business?

“I set up a stand at a holiday bazaar over Thanksgiving weekend at a local farmers market. We prepared blue corn pozole and vegan pipian rojo, put up a little stand and hung up our shingle,” he says. People lined up for his fare. “There was clearly an opening in the market for what people here would call ‘ethnic food.”

Mobilizing friends and family. With 17 days to run his campaign during the busy holiday season last year, the first step was getting help with a promotional video.

“I called a friend who was a photographer. He said, ‘I’m booked for the next two weeks, but I’m free tonight.’ We borrowed a friend’s house with an enormous kitchen, invited a bunch of friends to take part. We did it in two takes.”

Doing some old-school marketing. While Gori took advantage of a cutting-edge funding platform and all the social-media tools at his disposal, he also used one of the world’s oldest marketing techniques: He put on a sandwich board and walked in a parade and at a school festival, passing out fliers.

“A local magazine and newspaper did articles on our campaign. Folks at the library helped me create fliers with tags, like you see for garage sales,” Gori says.

In small communities, especially places like Whidbey Island, where one in five residents is above the age of 65, you can’t expect your market to be glued to social media for outreach.

The alternatives to crowdfunding

If you’re a startup business — say, a franchise — you may have easier access to credit on manageable terms than you realize. Your franchisor is one possible source, and small-business loans may be available from other lenders if the brand you’re franchising has a strong track record. Another place to try is online lender Funding Circle, which has agreeable terms for franchises.

If you’re opening a business with low overhead costs — like a consultancy or graphic design company — and all you need to start your business from home is a computer and an Internet connection, business credit cards may be all the capital you need.

If you have good credit, another alternative to crowdfunding might be a personal loan or, if you own a home, a home equity line of credit.

Small companies in business-to-business industries with invoices and low revenue — essentially a cash flow problem — may want to consider selling accounts receivable, a small-business financing technique known as“factoring.” BlueVine, Lighter Capital and Fundbox all have products that can help.

If you have no invoices, low business revenue or low business credit, online lenders like OnDeck and Kabbage may be good alternatives to crowdsourcing and traditional bank loans.

Related: Applying for a Short Term Business Loan Online? These 4 Steps Can Protect Your Startup.

Small businesses that have been around for longer than two years have more options. If you have a high credit score and are picky about what kind of debt you take on, you should investigate SBA loans from traditional lenders or new lenders. These government-backed small-business loans have significantly lower rates than many other lenders offer. Alternatively, you can check out online lenders such as Funding Circle, Lending Club and Fundation (if you have two or more employees).

Have a backup plan

Even Gori didn’t rely on his Kickstarter campaign alone to succeed. As a backstop, he applied and received a $15,000 loan from Whidbey Island Local Lending (WILL), a group that matches local investors with local small businesses in search of funding.

The Portico Latin Bistro & Cantina campaign defied the odds, but it was a nail biter. Gori — a former correspondent for The New York Times and Associated Press in Mexico and Central America, whose love of Latin food turned him into a chef — only succeeded in meeting his goal in the last hours of the campaign.

“There was a sense of relief, just my wife and I in an empty bedroom looking at the computer screen,” he recalls.

Crowdfunding can be a fun and successful way to fund your small business and generate buzz even before you open your doors. But it’s important to explore every available option as you look for the small-business funding. Although the crowdfunding route isn’t easy, you may find success and blow past your intended goal. But just remember to have a backup plan.

Related: Why Now Is the Best Time to Start Your Own Business

Measure
Measure
Startups

11 Vital Books for First-Time Entrepreneurs

11 Vital Books for First-Time Entrepreneurs

ANDREW MEDAL
CONTRIBUTOR
Serial Entrepreneur, Digital Strategist, Web Designer, Author, Volunteer

From 2011 to 2013, I read 197 books. I read about history, physics, science, health, world travel, space exploration, the ocean, fitness and mathematics. I read bestsellers, classics and unknown authors. However, the underlying foundation of my reading was rooted in startups and entrepreneurship (not simply because I build startups, but because I have a sincere passion for it).

Here are 11 books I recommend for all first-time entrepreneurs (and really any entrepreneur for that matter), not in any order.

1. The Lean Startup by Eric Ries

This book is still a must read, even though the Lean Startup movement is not as radiant as it was from 2011 to 2013. Based in principles taught by Steve Blank inFour Steps to the Epiphany, Ries provides any entrepreneur (or intrapreneur) the framework and practical science behind testing ideas.

The whole premise of the book is to view startups as science experiments, by testing and analyzing everything you do, to help you save money and time to ensure your idea has some sort of demand. Read it if you haven’t.

Related: 3 Psychology Books to Change Your Mindset (and Your Business)

2. Rework by Jason Fried

Jason Fried is a diabolical genius. In my mind, he’s like this mad scientist that sits up in a tower overlooking the world, and watches as the world does everything wrong, while he sits back and plays a game of chess. He’s the godfather of going against the grain and disrupting the status quo.

This book will help you unravel the societal norms engrained into us at an early age, and uplift you to become better entrepreneurs by thinking outside the box.

3. The Tipping Point by Malcolm Gladwell

In The Tipping Point, Malcolm Gladwell attempts to uncover the “mysterious sociological behaviors” that shape everyday life. Gladwell explains a tipping point as “the moment of critical mass, the threshold, the boiling point,” and says “ideas and products and messages and behaviors spread like viruses do.”

He gives historical examples and substantiates his theories with facts, while breaking down his examples through invisible forces that only a world-renown sociologist can. He explains the reason that hush puppies became so popular in the mid 1990s and the reason behind steep decline in New York City’s crime rate after 1990.

To simply learn about how these invisible forces can create unintended results helped me to be more conscious about life and business. All of Gladwell’s books encourage me to think deeply, and empower me to see the world through a different lens, which results in new perspective. These new perspectives help me view my own entrepreneurial journey differently, which I greatly value.

4. The Innovator’s Dilemma by Clayton Christensen

Disruption. We’ve all heard the term. Christensen was the one who brought it to life.

Here’s the synopsis: “First published in 1997, Christensen’s book suggests that successful companies can put too much emphasis on customers’ current needs, and fail to adopt new technology or business models that will meet their customers’ unstated or future needs. He argues that such companies will eventually fall behind. Christensen calls the anticipation of future needs ‘disruptive innovation,’ and gives examples involving the personal computer industry, milkshakes, and steel minimills.”

Pairing this book with The Lean Startup helped me realize how important testing and validating assumptions is for not just startups, but for established companies as well. The innovator’s “dilemma” comes from the concept that companies will dismiss new market innovation based on the fact that customers do not currently use them, which then leaves the market ripe for disruption. Clayton gives historical examples that makes the concept easily digestible and helps drive home the lessons.

5. Crossing the Chasm by Geoffery A. Moore

Immediately after reading this book I thought I understood everything about building a company. This book teaches you why you may have had early “traction,” but how and why that traction does not guarantee mass market success. He does this by breaking down early adoption cycles, and shows the difference in your product lifecycle.

The chasm he refers to is between early adopters and the mass market. Simply looking at the cover will help you understand the concept. This book helped me understand the hockey stick curve growth model and other vital startup lessons. If you read the Lean Startup beforehand, Moore’s lessons will help you understand “product-market fit” as Ries discusses so frequently in his book.

6. Launch! by Scott Duffy

This book acts as a practical manual for breathing life into your idea. Duffy walks through examples and entertaining stories along the way, as well as provides a basic framework to follow through his years of business (which includes selling his last company to Richard Branson and the Virgin Group). Entertaining and useful, this book lives up to its allure, and displays the value and expertise of Duffy as a businessman, mentor and human.

Related: A Busy Entrepreneur’s 3-Step Guide to Reading Business Books

7. Hackers & Painters: Big Ideas From the Computer Age by Paul Graham

Paul Graham is the man behind Y Combinator, the Harvard of tech accelerators, and Graham has an uncanny ability to see into the future. This book gives a glimpse into Paul’s unique thinking and draws on historical examples. He takes us on a journey of what he calls “an intellectual Wild West,” where anyone with an idea can take a shot.

8. The 7 Habits of Highly Effective People by Steven Covey

This book is highly effective for helping anyone to prioritize and stay organized and on task. My big takeaway from this book was the Urgent/Important prioritization matrix. As entrepreneurs, being able to intelligently prioritize becomes a vital skill. You can learn this skill and many more through Covey’s classic.

9. The 4-Hour Work Week by Tim Ferriss

The 4-Hour Work Week has become an instant classic for any entrepreneur. Tim Ferriss treats his life as a big experiment. In this book, he teaches us how to live the life we want now, through real world case studies and practical examples. He explains that the “New Rich” figure out how to outsource, delegate and eliminate half of your work and other cool life/work hacks.

10. The 50th Law by Robert Greene and 50 Cent

Robert Greene is the man behind the 33 Strategies of War, The 48 Laws of Powerand other classics. Teaming up with 50 Cent, they have written the manuscript for business and life success, which can be summed up as one mantra: “Fear nothing.” The book walks us through real life examples of 50 Cent’s life, and how he overcame personal and business adversity. It provides a message of hope and encouragement.

Bonus: Moonwalking with Einstein: The Art & Science of Remembering Everything by Joshua Foer

This is not a business book. However, it’s one of my favorites that I’ve read in the past five years. Joshua Foer is a journalist who started covering memory competitions. He got so enthralled by his work, that he took on the challenge of becoming a memory athlete himself.

Filled with rich journalism, he provides us deep insight into the tricks and strategies used by these “mental athletes,” while he walks us through his personal journey of preparation for the United States Memory Championship. The book is riveting and entertaining beyond belief, and as Foer says, “in every way that matters, we are the sum of our memories.”

Tweet at me or comment below with your book recommendations. I’d love to hear them.

Related: 5 Powerful Books That Changed the Direction of My Life

Startups

10 Essential Startup Expenses, and 10 You Should Avoid

VIP CONTRIBUTOR
Entrepreneur and Marketer, Co-founder of Web Profits
February 23, 2015
It’s no secret that startups often fall into the trap of spending money on things that aren’t that important — it’s just one of the many mistakes that entrepreneurs can make.
However, the fact that some expenses are unnecessary doesn’t mean that you need to be a cheapskate whenever you encounter a potential cost. In fact, some expenses are absolutely necessary, and as an entrepreneur, it’s essential that you know the difference.
Here’s a list of 10 things that you absolutely must spend money on, followed by 10 things you definitely shouldn’t:

10 essential expenses

1. A business plan. There’s a lot of controversy regarding business plans, but in my opinion, knowing where you’re going and how you’re going to get there isn’t optional in business.
2. Market research. Never spend money on production before you know that you have customers ready to buy. Knowing what your market needs and how you can meet that need is essential for success.
3. A CFO or accountant. A good CFO or accountant can save you more money than you’ll spend on him or her by holding you accountable for spending and helping you plan your investments and understand your return on investment.
4. Buying lunch for those more important than you. An awesome life lesson from the richest man in Asia, this tip is all about networking. The cost of a single lunch is worth far more.
5. Legal advice. While unnecessary services cost you money you can’t afford, nearly all startup entrepreneurs require some level of legal advice. Whether it’s basic incorporation paperwork or understanding liability issues, pay for good advice from the start so that you aren’t stuck with the big bills of legal settlements later on.
6. Tax professionals. Doing your own taxes wastes countless hours that could be better spent on your business. Hire a tax professional, get the advice you need, and rest easy in April.
7. Customer service. It’s been said that sales without service is like putting money into a pocket with a hole in it. Customer service is an extremely profitable portion of your company, and it pays to invest in it.
8. Marketing and branding. Again, this business need can be done well and it can be done poorly. Don’t waste money unnecessarily, but do spend wisely on targeted, measurable campaigns.
9. Outsourced PR. This one is controversial as well, but keep in mind that I’m advocating tailored spending on measurable results. Your time as a founder is too valuable to spend on activities that others can handle for you in a profitable way.
10. Technical support. As a rule, the hours you’d spend doing your own website and server maintenance would be far better spent serving your customers. Hire technical support and put your time to better use elsewhere.

10 expenses to avoid

1. Expensive subscription-based services. Many times, project management software and other subscriptions have cheaper or free alternatives. Use them until you’re sure you need the features only a paid solution can provide.
2. Expensive clothes. Don’t let your ego put you out of business. It’s important to look professional, but you can do so fairly cheaply if you’re smart about how you shop.
3. A fancy office. Everyone wants a plush office, but the expenses involved in creating this business oasis can add up quickly. Focus on your business’s success first — the office can wait.
4. Expensive equipment. Like anybody, you may want to buy the latest and greatest technology, but that doesn’t mean it’s a useful business expense. Purchase only what you truly need, and do so as economically as possible.
5. Staffing before you’re ready. It’s fun to be an employer and to watch your startup grow, but if your business isn’t ready, you’re just wasting money. Outsource first, and only bring on employees if it makes financial sense to do so.
6. Extravagant business parties or trips. Again, these expenses may be fun, but they’re not wise. This kind of spending in a young company isn’t a sign of success — it’s a sign of wastefulness.
7. Non-measurable outreach efforts. Whether it’s PR, marketing or branding, if you can’t measure the results of your efforts, you shouldn’t spend the money. When money is tight, start by focusing your spending on things you know can build your business.
8. Buying followers, email marketing lists or other “customers.” Not only is this usually a scam, it’s not a great way to get customers. It may look good to say you have thousands of followers, but if they’re fake, you’re never going to see a return on that cost.
9. Expensive shipping or printing costs. While having a logo and some inexpensive business cards makes sense, there’s no reason for young companies to spend money on major printing or shipping expenses. Focus on meeting your customer needs first, and fancy stationery later.
10. Spending money before you’re sure you’ll make money. Unless you have some extremely generous investors in your back pocket, be especially cautious about spending significant amounts of money before you’re making enough to cover it. Just as individuals should live within their means, so should your business.
Every business is unique and will have different needs at different times, which is why having someone who will hold you accountable can be very helpful when it comes to making smart decisions. When you spend money on the things that are truly important, you position your business well for long-term success.
What do you think are the best and worst expenses for startups? Share your thoughts in the comments section below!