Category Archives: Startup Businesses

Goodbye Pandora

Apple launched an amazing suite of products this week. I’m excited to install iOS 7 and I’m looking forward to buying Mac Pro for my video editing lab.

I’ve been an Apple fan ever since the introduction of the Macintosh back in the early days. As a startup guy, I’ve always cheered for the underdog; which used to be Apple as they faced competition against IBM, Microsoft, Gateway, and Dell. Now it seems as Apple is the 800lb gorilla. They’ve become “the man”, the very thing Steve Jobs taught us to hate back in the 80s.

Consider these companies that Apple squeezed out of the market:

Blackberry – I used to love my “Crackberry”. I became lightening fast at the small keyboard. I still think a real keyboard works better than the iPhone. However, everything else about the Blackberry was terrible. The Apps sucked, the browser was poor, and the phone part was bad too. Apple destroyed Blackberry with the iPhone. As a result, thousands of jobs were also destroyed.

Dell – I know you remember the days when Dell laptops were everywhere. Businessmen, Students, and Moms all wanted a Dell laptop. Looking around your local coffee shop today and the Dell has been replaced by the glow of the Apple logo.

Napster and MP3.com – Both of these platforms changed the way we consume music. They were here first, way before iTunes. Apple found a way to sell music digitally and the world was better off because of it. But in no way did Apple pioneer digital downloads, they just made it better and “legalized” it.

Nokia – Before smart phones, everyone carried a Nokia. I’m sure you too have owned at least one. They were the top selling mobile phone for several years. Now they are fighting for their last breath.

Palm, Handspring – Handheld computing used to be lead by these companies. Since the iPhone, neither can stay afloat. No matter how good any of their products are, we will never know because of how huge Apple’s presence is in mobile computing.

Roku – Streaming TV was launched before Apple TV. Roku has some amazing hardware which you’ve probably never heard about. Apple beat this company with their digital catalog of music and movies, even though Roku’s hardware is superior to Apple.

Pandora – On Monday, Apple announced its new radio offering. Now Pandora has nothing to offer above what Apple is going to provide for millions of iPhone users. I predict the company will be out of business within 3 years. It’s sad, I love Pandora, but Apple makes it too hard to use another service over their own.

As a CEO, I never like to see people lose their jobs. Global competition is the American Way. But ask yourself, is Apple now “the man”? If so, who’s the underdog that we should be rooting for this time?

Jason

The 1%

A few months ago I was interviewing CFO candidates for an open position at my company. One of the candidates started the interview by congratulating me on starting my own company. He indicated that less than 1% of the population in the United States has the courage to begin a business. I was floored by the statistic and soon found myself on Google trying to discredit it. I was disheartened to find out that he was right.

True entrepreneurs enjoy seeing others succeed. They get joy in helping others achieve their dreams. A true entrepreneur can’t ever imagine life with a “day job”. They can’t understand why someone who truly believes in his or her idea wouldn’t be working on it obsessively full time. This is why I was so shocked to find out that only 1% move forward with starting a company.

Drilling online further, I came across the following infographic that talks about “Entrepreneur DNA”.

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Do you have enough guts to start your own company?

“Most people have attainted their greatest success just one step beyond their greatest failure.” – Napoleon Hill

– Jason

Got Funding?

Over the past few years, I have helped raise nearly $25 million dollars for Shoutlet. So it’s no surprise that several new entrepreneurs ask me about the process of obtaining Venture Capital funding. I’ve learned some very valuable lessons throughout the process, and I’m hoping that this post will help you examine all of your available options before you consider funding.

First, only take funding if you need it. It sounds like an obvious statement, but too many startups go out for funding just because they think they have to. I suggest to do whatever you can to self fund your startup before accepting funding.

Second, the days of funding an “idea” are over. Naive startups believe that you can simply come up with a good idea, get it funded, quit your day job and then start taking salary. Those types of funding events have not happened since the Clinton era. No investor funds an “idea” anymore. Venture Capitalist look for proven business models now. They only want to invest in a “sure thing.” My suggestion is to borrow and beg to get your idea to a prototype, sell some of it into the marketplace, then go for funding once you able to prove that it can scale.

A famous CEO told me once, “The second you take funding, you can never go back. Your business will be all about growing top line revenue and you’ll soon find yourself needing more funding to sustain your growth.” He was right. Once you accept funding, you work for your Board of Directors and shareholders, and you have an obligation to do what’s best for the company, with or without you there. I suggest examining all other options before going for funding.

Consider this story from my friend and fellow entrepreneur Jack Phan. He’s an entrepreneur that did it both with and without funding. I’ve asked Jack to share his story:

“In 1997, I was involved with an early Internet startup in Portland, Ore during the dot-com boom of the 90s called Handyman Online. By 1998, our technology for online lead generation, matching and lead distribution systems proved so successful that we were growing beyond our capacity and had to expand offices and take on more overhead. By 1999, we had raised nearly $26 million dollars in funding, hired a new CEO, opened nearly 30 physical offices nationwide and grew our headcount to 300+ employees. We spent several million dollars to hire a consulting firm to do an overhaul of our technology infrastructure, complete hardware upgrade and bring in enterprise level software to support a large business.

By 2000, we had given up control, burning through cash at a faster rate than we could grow revenues, and by spring of 2001, during the dot-com meltdown, we needed the next round of funding but our investors had all fled. The more money we raised, it appeared the more money we would need to keep growing and chase profitability. Eventually, we sold our assets to our biggest competitor and walked away with nothing.

However, it didn’t take long before we were back at it. By September of 2001, we had started a new company called ReliableRemodeler.com and vowed to grow this company with our own resources and not give up our equity if we didn’t have to. The goal was simple; grow with our own resources, build a solid team, wear as many hats as we could manage and try to double our revenues each year while maintaining control of our company.

By 2007, we landed #187 on Inc. 500’s Fastest Growing Private Companies by achieving more than 1100% growth. The offers started to come in and by February of 2008, we successfully sold our business to a Bay Area company in the lead generation space for all cash. Our patience, hard work and dedication finally paid off.  We probably could have grown faster had we taken on investor money like the first business but we would have given up control, equity and would have had to sell our business for at least 10 times what we sold it for just to achieve the same personal financial exit.

My advice is have a good business model first, take money only if you have to, do your job as an entrepreneur to add value, work your butt off, and build a business that can be self sustaining for a long time.  In the end, your hard work and dedication will pay off.”

– Jack Phan

Funding Sources (listing by recommended order of priority):

  1. Pre-sell – If your idea is solid enough, why not try pre-selling it to customers? When I first began Shoutlet, I sold the idea of our platform to clients by showing them a PowerPoint presentation well before it was actually built. I promised prospects a substantial discount and the opportunity to help shape my product roadmap if they ordered in advance. I funded the entire first version of Shoutlet from taking pre-orders.
  2. Friends and Family – Your own friends and family can be an excellent source of funding. It may surprise you how supportive they can be when you approach them for investment. Most families have a “rich uncle” that is more than willing to help. If you do get funding from family, I would make the process formal. Set a valuation and determine your terms of investment before you take their money. I’ve seen verbal deals lead to lawsuits later, which can be ugly for families. Also be clear about the risks involved in funding a startup.
  3. Bank Loan – After last year’s financial crisis, getting money from bank institutions is much more difficult than it used to be. I’d recommend a bank loan if you truly have faith that your product or service is going to sell immediately AND if you have collateral to offer the bank (such as your home, car, or 401k account). My advice is to never put yourself into a situation that you can’t unwind. Always make sure that you can pay off the loan even without selling your product or service.
  4. Angel Funding – Often you can obtain funding from high net worth individuals in your hometown. These people can often be found by networking with lawyers, bankers, accountants. Be sure that the individual is an accredited investor. There are certain rules you need to follow to stay out of legal trouble when going the Angel route. Often Angels invest in the individual, not necessarily the company.  It’s much easier to get Angel investors than it is to go out for Venture Capital funding.
  5. Venture Capital – Venture Capital money is the toughest to get. The folks that run these firms are often Harvard or Stanford educated with several years of experience in funding and selling companies. They receive hundreds of business plans per month, and only jump on the ones that completely align with their firm’s investment criteria. To obtain Venture Capital, you often have to already be generating revenue with a proven business model. Venture Capitalist invest in the company, not the individual. They want to see how you can scale your company and give them a ten times multiple on their investment. To pitch a Venture Firm, I recommend having two pieces to your pitch: 1) A PowerPoint presentation that can tell your story in less than 10 slides and 2) An Excel sheet that proves your revenue model. Note: VCs think in bullet points. Be clear, concise, and to the point. You can visit the National Venture Capital Association for information on Venture Capital. Also, it may be helpful to download a Term Sheet so that you can see in advance what your investment terms might look like. In addition, be sure to check out The Funded to see how well your potential Venture Capital investors are rated by other entrepreneurs.
  6. Crowdfunding – Kickstarter gained significant attention as a way to get funding for your new product or service through the internet. Crowdfunding allows inventors to list their idea on a popular website in an effort to raise funds before the idea goes to market. Often several hundred (or thousand) people will invest or pre-order your product before you build it. I’ve found this process to be very effective for product (not as good for services) that you want test the market before you go bigger.

Types of Investment Instruments (Definitions from Wikipedia):

  1. Preferred Stock – Preferred shareholders have priority over common stockholders on earnings and assets in the event of liquidation and they have a fixed dividend (paid before common stockholders). I’ve seen almost all Venture Capital deals use Preferred Stock. Basically, they get their back before you do. They also get nifty little add-ons like dividends and participation rights (extra ways of squeezing cash out).
  2. Common Stock – The type of stock most often used for investment. If your legal structure is currently a Limited Liability Company, you might have to change it to a C Corporation to begin selling Common Stock. Most Angel investors are fine buying Common Stock as it’s the same type of ownership you would have an the entrepreneur. One of the only ways for an entrepreneur to get Preferred Stock is if you put a significant amount of your own cash into the company.
  3. Warrants – A warrant is a security that entitles the holder to buy the underlying stock of the issuing company at a fixed exercise price until the expiry date. Warrants and options are similar in that the two contractual financial instruments allow the holder special rights to buy securities. Both are discretionary and have expiration dates. The word warrant simply means to “endow with the right,” which is only slightly different from the meaning of option.
  4. Debentures – A debenture is a document that either creates a debt or acknowledges it, and it is a debt without collateral. In corporate finance, the term is used for a medium- to long-term debt instrument used by large companies to borrow money. Basically, it’s give companies that opportunity to borrow money from investors instead of going to a bank.
  5. Stock Options – A call option on the common stock of a company, granted by the company to an employee as part of the employee’s remuneration package. The objective is to give employees an incentive to behave in ways that will boost the company’s stock price. If the company’s stock market price rises above the call price, the employee could exercise the option, pay the exercise price and would be issued with ordinary shares in the company. The employee would experience a direct financial benefit of the difference between the market and the exercise prices. If the market price falls below the stock exercise price at the time near expiration, the employee is not obligated to exercise the option, in which case the option will lapse. Restrictions on the option, such as vesting and non-transferring, attempt to align the holder’s interest with those of the business shareholders.
  6. Phantom Stock – A form of compensation where a company promises to pay cash at some future date, in an amount equal to the market value of a number of shares of its stock. Sometimes companies prefer to use Phantom Stock for its employees because it gives them similar benefits to Stock Options, but without voting rights. Additionally, Phantom Stock doesn’t need to be purchased at a later date like Options do, so there is no money out of pocket. However, Phantom Stock is often taxed like a cash bonus, so employees cannot take advantage of long-term capital gain tax discounts like they can with Options.

So, where do you start? That’s a good question. You have planted the seeds, and now it’s time to develop the roots of your company with a strong management team. Once you set a solid foundation in place, your company will flourish. Investors bet on your teams as much as they do your company, so select your branches wisely.

Remember at the end of the day it’s all about control. Even though Facebook has raised several rounds of capital, Mark Zuckerberg still controls all of the votes for Facebook. If you position yourself correctly, you can do the same.

I hope you found this post helpful as you consider raising capital. Let me know if you have any questions or need any additional advice for your own funding process.

-Jason

7 Must Read Books Before Starting Your Company

No book can replace the real experience of managing your own company; however there are several lessons that are worth learning ahead of time. I often joke with my colleagues that I earned my “street MBA” via the business book section of Amazon.com. You can learn a tremendous amount simply by studying the leaders in your industry that have succeeded before you. The following book recommendations offer a starting point to help guide you through your entrepreneurial journey.

Becoming a Category of One
By Joe Calloway

BecomingoneBecoming a Category of One reveals how extraordinary companies succeed, and offers you the tools and ideas to help your business emulate their success. Packed with real case studies and personal reflections from successful business leaders, it helps you apply the best practices of the best companies to set yourself apart from your competitors and turn your business into a market leader.

Jason says: This book was instrumental in helping me identify new markets for Shoutlet. While every one of our competitors began to offer the same functions, we chose a different path. This book is uplifting and insightful. Use it for when you need to find your competitive edge.

It’s Not How Good You Are, Its How Good You Want to Be: The World’s Best Selling Book
By Paul Arden

Itsnothowgoodyouare It’s Not How Good You Are, It’s How Good You Want to Be is a handbook to make the unthinkable thinkable, and the impossible possible. The world’s top advertising guru, Paul Arden, offers up his wisdom on issues as diverse as problem solving, responding to a brief, communicating, playing your cards right, making mistakes and creativity, all notions that can be applied to aspects of modern life. This book provides a unique insight into the world of advertising into easy-to-digest, bite-sized spreads.

Jason says: I’ve made this book a required read for many new employees. My favorite takeaway is that most people don’t realize that the current job they are in could be the one that makes them famous. It teaches you to master your current role through a series of inspirational stories from the late Paul Arden, former Creative Director of one of the world’s leading advertising agencies. Use this book if you are searching for meaning in your current job.

Think and Grow Rich
By Napoleon Hill

ThinkThink and Grow Rich is a must for anyone wanting to improve their lives and their positive thinking. There have been more millionaires and indeed, billionaires, who have made their fortunes as a result of reading this success classic than any other book every printed. This is a true masterpiece with the fundamentals of the Success philosophy.

Jason says: I tell the “three feet from gold” story in this book all of the time to friends, employees, and other entrepreneurs. In this book you’ll discover that many people give up on their dreams due to a what is often a short-term setback. The stories in this book will give you confidence enough to stick with it as you’re probably only “three feet from gold.”

Blue Ocean Strategy: How to Create Uncontested Market Space and Make Competition
By W. Chan Kim and Renee Mauborgne

BlueWritten by the business world’s new gurus, Blue Ocean Strategy continues to challenge everything you thought you knew about competing in today’s crowded market place. Based on a study of 150 strategic moves spanning more than a hundred years and thirty industries, authors W. Chan Kim and Renee Mauborgne argue that lasting success comes from creating ‘blue oceans’: untapped new market spaces ripe from growth. And the business world has caught on – companies around the world are skipping the bloody red oceans of rivals and creating their very own blue oceans.

Jason says: This book is a much more scientific take on the above Becoming a Category of One. It’s written by a couple Harvard professors, and I found it to be a dry read; but it is also very effective in helping to define your competitive differentiators. Often the answers are right in front of you, and this book will help you find them.

Rework
By Jason Fried

Rwork

Rework shows you a better, faster, easier way to succeed in business. Read it and you’ll know why plans are actually harmful, why you don’t need outside investors, and why you’re better off ignoring the competition. The truth is, you need less than you think. You don’t need to be a workaholic. You don’t need to staff up. You don’t need to waste time on paperwork or meetings. You don’t even need an office. Those are all just excuses. What you really need to do is stop talking and start working. This book shows you the way. You’ll learn how to be more productive, how to get exposure without breaking the bank, and tons more counterintuitive ideas that will inspire and provoke you.

Jason says: This book proves that you can create a successful company without an endless supply of resources. I used this book with my product development team to help them continue to think like a startup as we grew. Read this before you go out to get a big round of funding, and it will humble you.

The Art of the Start: The Time-Tested, Battle-Hardened Guide for Anyone Starting Anything
By Guy Kawasaki

Art

A new product, a new service, a new company, a new division, a new organization, a new anything—where there’s a will, here’s the way. It begins with a dream that just won’t quit, the once-in-a-lifetime thunderbolt of pure inspiration, the obsession, the world-beater, the killer app, the next big thing. Everyone who wants to make the world a better place becomes possessed by a grand idea. But what does it take to turn your idea into action? Whether you are an entrepreneur, intrapreneur, or not-for-profit crusader, there’s no shortage of advice available on issues such as writing a business plan, recruiting, raising capital, and branding. In fact, there are so many books, articles, and Web sites that many startups get bogged down to the point of paralysis. Or else they focus on the wrong priorities and go broke before they discover their mistakes.

Jason says: This book taught me how to create a cadence to get our company marching to the same beat. I learned about mantras and the importance of communication in a fast growing company. Use this book to help create meaning for your company.

 

Drive: The Surprising Truth About What Motivates Us
By Daniel H. Pink

DriveMost people believe that the best way to motivate is with rewards like money—the carrot-and-stick approach. That’s a mistake, says Daniel H. Pink (author of To Sell Is Human: The Surprising Truth About Motivating Others). In this provocative and persuasive new book, he asserts that the secret to high performance and satisfaction-at work, at school, and at home—is the deeply human need to direct our own lives, to learn and create new things, and to do better by ourselves and our world. Drawing on four decades of scientific research on human motivation, Pink exposes the mismatch between what science knows and what business does—and how that affects every aspect of life. He examines the three elements of true motivation—autonomy, mastery, and purpose-and offers smart and surprising techniques for putting these into action in a unique book that will change how we think and transform how we live.

Jason says: This book changed the way I manage employees. A mid-level manager I was used to doing the tasks for my employees. As I became a CEO that strategy was no longer an option. Use this book to teach you how to empower your employees to become the extraordinary thought leaders that they are capable of becoming. Most people thrive on solving challenges. This book will show you how to lead your employees to greatness.

What is the best startup related book that you would recommend?

– Jason

Entrepreneur vs. Wantrepreneur

“A journey of a thousand miles begins with a single step.”
Lao-tzu, The Way of Lao-tzu

I often have friends and family talk to me about their business ideas and dream jobs. I listen with great interest. I ask fundamental business questions, and I always offer to connect them with investors or business colleagues. Surprisingly, over the years I have observed that most people never take the first step.

Many of my colleagues and co-workers are often shocked when they hear me talk publicly about business ideas of my own without having some sort of Non-Disclosure Agreement in place first.

Sadly, I’ve become comfortable discussing my future plans with others because I’ve learned from experience that most people never execute their own business ideas. Granted, they’ll get excited, or perhaps make a design or prototype, but most will give up far before it ever gets to market. No matter how crazy or far-fetched the idea is, true entrepreneurs execute, and they push onward until the world takes notice.

My curiosity drove me to dig deeper to better understand why some people fail to execute their dreams. I’ve found the that many people point to the following excuses time and time again:

1) Non-supportive spouse, friend, or family member. There are several people in the world who will discourage you from running with a business idea. Unfortunately, some people do not want you to succeed, or they’re simply afraid to take risks themselves. Don’t be afraid to make mistakes as they are stepping stones to greatness.

2) Lack of Resources (Time and/or money). This is the biggest misconception of all. Most beginners believe you need money to start a business. When I first began Shoutlet, I pre-sold licenses from a PowerPoint presentation before I ever had a single dime of investment. Consider Orville and Wilbur Wright: they invented the airplane with spare bicycle parts, part time. If you have the will, you can find a way.

3) Missing Key Skills. Another important lesson I learned early on is that I don’t have to know everything. It takes a team to win a game. Today, I have several people in my life that offer me advice regularly. Focus on what you’re good at, and get help with the rest.

The difference between an entrepreneur and a “wantrepreneur” is execution. If you truly believe in your dream, you should execute it today.

Welcome to the first day of the rest of your life.

-Jason

New Year, New Blog!

“It’s never too late to be who you might have been.” – George Elliot

When I first began Shoutlet, I had very little understanding of how to build a business, and little appreciation for how hard it is to become a successful entrepreneur. No coursework or published book could have adequately prepared me for what I ultimately learned through running a technology company in Madison, Wisconsin.

In my life, I have been fortunate enough to surround myself with people that I admire. I’ve learned more through the people that have been running companies themselves than I could have ever learned in a college lecture hall.

One lesson that I learned early on is the importance of recognizing what you’re good at, and having the insight to know when to ask for help. I’ve found my expertise to be focused on product innovation, fundraising, and startup businesses. Therefore, these will be the key topics that I focus on here.

Now that Shoutlet has become an international social media marketing company, I’ve had several others ask me for help with their ideas and companies. I believe that if you make it in business, you have a responsibility to “send the elevator back down.” Today, I receive many requests for advice, and thus, I find myself turning my lessons into a blog. I hope my posts help with your journey.

-Jason