Start Up Stories

Do You Really Have Time For Us?

Posted in Uncategorized by Devon on March 8, 2009

Boards are really important – though some people will tell you otherwise. Board members ought to bring applicable knowledge and experience to meetings; they should not rubber-stamp the CEO’s recommendations but rather, ought to put every member of the executive staff’s thinking through the highest level of scrutiny. If board meetings are comfortable and agreeable, you’ve got the wrong people on your board. If meetings are difficult, challenging, cause you to rethink your strategy, and leave you mentally and emotionally exhausted – congrats! You’ve selected the right people to attend the meeting.

Now, here’s the cautionary note, board members need at least three things to help the company: competence, time, and interest. Competence refers to each member’s ability to bring world-class thinking to the conversation in their respective field. Time means that the board member is able to manage their commitments and time so that they can prepare for and participate in meetings. Interest means that members have a financial interest in seeing the company succeed. The most challenging of these attributes to manage is time because highly sought after directors are always in high demand.

Lessons Learned and Questions to Ask
Not all directors will show-up to meetings that they thought they could make. If you’ve, appropriately, given them an equity interest in the firm, this will force you into a series of difficult conversations.

Ask potential directors about their commitments beyond their proposed role on your board. Then consider asking how many meetings they have missed with previous board service (e.g. 1/3, 1/2). If they’ve missed a lot of meetings, think long and hard about whether they will, in fact, be able to contribute to your board.

“Higher Profits” NEXT EXIT

Posted in Uncategorized by Devon on March 2, 2009

“Product first” is probably a good mantra. In order to “test the market” you’ll need something to test with. A tough question is, how much time to spend on a logical business case with a path to profitability vs. reasonably well planned trial and error? While there is no closed-form solution to this question, it’s probably worth circling back to the question, “How are we going to make money in this business model?” pretty frequently. In a previous life, we spent too long in an unprofitable sector of the business that we’d ultimately work in, which was costly. However, we did build critical skills in that unprofitable market which we ultimately needed to access the more profitable segment where we ultimately built a highly profitable growth business. I’d have preferred to have started earlier in the highly profitable sector now in retrospect.

Lessons Learned and Questions to Ask
Despite the uncertainties of a startup, it’s critical to always be looking for the highest-value added applications for your technology. The difference between a 30% gross margin business and a 65% gross margin revenue-matched business is enormous in terms of business value.

Who is paying the highest prices for products and services in your industry? Can you access that market segment?

I’m Certain That This Is Uncertain

Posted in Uncategorized by Devon on February 23, 2009


It’s late September and we’ve ventured “across the river” – an MIT-term indicating the location of an otherwise nameless school to visit a Harvard professor who works in the area of savings. It’s a great meeting and we learned a lot about what works and what doesn’t in terms of savings programs. I begin to see the wisdom of Dan Ariely’s work, who specializes in that strange science called Behavioral Economics. I am also now recruiting another founding member of Micronotes, Merritt Mayher, who will ultimately join; a great move. I also see that I was starting to have reservations about our old business model and was really spending more time rethinking, rather than perfecting the old model. I see that we are also starting to venture out into the blogosphere.

Lessons Learned and Questions to Ponder
1. It’s tough to do real innovation and look like a polished business at the same time; R&D seeks to increase risk and uncertainty, business plans are supposed to reduce risk.
a. Are you trying to represent a fundamentally uncertain R&D process with 2 decimal place accuracy on the proforma profit and loss statements?
2. Don’t ever stop looking for great people to join your venture – you will be richly rewarded.

a.Are you planning to spend at least one hour a week recruiting the next great team member?

Spending Quality Time With… Your Numbers!

Posted in Uncategorized by Devon on February 16, 2009


It’s mid-September and looking back, it’s amazing how many business plans we will eventually publish before we finally get it right but, that’s part of the R&D process. The good news is that we are absolutely fearless in our inquiries and not satisfied until we get it right. We are making lists of potential angel investors and still working on executing a business plan that would ultimately be untenable. We are making progress in building a great team, always a good move.

It all looks pretty logical… maybe too logical. In my first start-up, we never really did good financial modeling in the very early days, which is critical, and we burned through too much capital with insufficient margins. In a financial business, with thinner margins, this attention to the numbers in the early days is particularly critical.

Lessons Learned & Questions to Ponder

Even though you won’t really know where the ultimate business model will end-up (my last business we started in museums and ended up in semiconductor factories), never lose the discipline of crunching the numbers in the business plan. Despite occasional high profile successes with the “go do what you love and the money will take care of itself” mantra – don’t forget to run the numbers routinely – it will drive many important decisions — particularly about pricing.

When was the last time you spent a solid 1/2 day looking at your profit and loss statement, actual or proforma? If it’s been more than a month, it’s too long –

Past Performance is No Guarantee of Future Performance

Posted in Uncategorized by Devon on February 9, 2009

It’s early September, the kids are back in school and the New England nights are cooling. I am still struggling to put all the pieces of this evolving business model into place to form a solid story. My 3 main goals are to publish a labor exchange for equity framework to build an executive team with minimal cash, publish a report and agenda for our upcoming board meeting (yes, we have a board…), and make a list of potential angel investors.

Lessons Learned/Questions to Ask
1. Past performance is no guarantee of future performance!

a. Do you really think that just because you’ve been successful in the past, investors (who don’t know you) will flock to your new unproven idea?

How Can You Tell When Your In A Start-Up?

Posted in Uncategorized by Devon on January 31, 2009

 See full size image

     It’s early September and I am thinking about pricing stock options, a lot.  You know you are in a start up when everyone is talking about stock options a lot – and with great passion!  It turns out that the value of a stock option in a start-up, with predicted price volatility of >200%, 10-year expiration, is equal to the value of the stock at time zero using the Black-Scholes methodology — which we turned to when bi and trinomial methods failed to deliver a consistent and observable equity value.   

     We were also thinking about our blogging strategy which, actually was difficult given the fact that the business model would change significantly in a month. 

     We were also preparing for our first board meeting, which would turn out very well and advance what we would call eventually call the labor for equity framework – a system, grounded in sound market and financial principles, which allowed us to easily trade executive labor for stock options; this, we got right. 

 

Lessons Learned/Questions to Ask

  1. Early equity agreements really matter – spend whatever time is necessary to get them right in the eyes of the founders.  
    1. Are you spending your more productive times of the day working through founders equity agreements?
  1. Get a good board of advisors early if you’ve got a big idea that is likely to take more capital than you can personally invest. During this pre-customer stage, you’ll need smart people to report to who can help direct your thinking. 
    1. Have you got regularly scheduled board/advisory board meetings with advisors who know something and are likely to challenge your thinking?

When Strategy Meetings Suck

Posted in Uncategorized by Devon on January 26, 2009

  

It’s the end of August and last minute back-to-school items are being snapped off shelves by single-minded moms.  We are struggling to come up with a tag-line and regulatory strategy for the business model that we will substantially abandon.  Venture capital discussions continue, probably the VC and angel community can tell that our business model isn’t quite fully-baked yet. 

     We are now heavily engaged in the process of valuing the equity in the business so that we can trade executive labor for equity in this cash-constrained start-up.  This would turn out to be a major time sink but well worth it.     

 

Lessons Learned/Questions to Ask

1. Spend enough time to come up with a legitimate story and product but, start testing it in the market as soon as possible.

a. Are dreading the next start-up strategy meeting?  If so, it’s probably because you’re spending too much time with each other and not enough time in the market with customers and suppliers

2. Spend time lavishly on people and compensation issues, get it really right and keep it transparent.

a. Are people and compensation issues filling the 9am slots in your schedule?  If not, they ought to be.  

Sprinting Down Blind Alleys

Posted in Uncategorized by Devon on January 19, 2009

blind_alley_21 

It’s August in New England and the Charles River rolls lazily past its banks.  We are starting to research who we believe to be the players in our market in advance of a summit on, “what business are we in?”  As the interest-rate tempest gathers, we continue to define a business in a market that we won’t enter as we then envisioned.  As one of my former board members, Bob Akins, founder of Cymer, Inc., used to say – “You will travel down many wrong alleys, we did, before you find one good idea.” 

 

I see that I continue to pump energy into recruiting investors and advisors whom I’ve no connection to – and are attached to a business model we won’t ultimately pursue centrally.

 

Lessons Learned/Questions to Ask:

  1. Don’t be afraid to run down seemingly blind alleys, it’s a necessary part of the business invention process. 
    1. Are you getting smarter about how to fail fast and recover?
  1. Business school tools, like Porter’s diamond or Hax’s Delta, can be useful in framing a business but recognize that, as a start-up, you will likely be framing a business that you may not be in –
    1. Are you thinking about business schools tools as a part of the thought experimentation process or as a definitive means of planning business strategy?  

Improving the Odds

Posted in Uncategorized by Devon on January 12, 2009

dice1It’s the last week of July and we met with our first angel investor this week, her advice was, “Do as much as possible to demonstrate the process (reduce risk) before raising capital.”… Good advice!  We were also working on a market release of a product that supported a business model that would change; ouch!  And the laywers, of course, were reluctant to write a formal opinion on our legal status, which was and remains a little mysterious 5 months later. 

I see that I was introducing our CTO to our patent attorney – a sensible move.  We were also starting into the discussion of compensation for founders – that would be a lengthy but ultimately successful discussion (more on that later).   I see that I was still trying to contact a West Coast VC that I didn’t know – that wouldn’t make sense, in the end.  And I was about to schedule our first board meeting.

Lesson Learned/Questions to Ask    

1. Define what reducing risk means in the eyes of investors, then take systematic steps to reduce that risk.

  • Have you asked potential investors what would reduce the risk profile of your business, in their view?

2. Get ahead of the founder compensation discussion, getting it wrong or late can be a huge distraction later on and possibly be the unwinding of the firm.

  • Are you viewing the founder compensation discussion as a top priority?

3. Start assembling a board of smart and trusted advisors early, the CEO needs someone to report to about every 4-6 weeks early in the company’s life; the exercise forces the founders to expose their thinking to external criticism. 

  • Are you regularly reporting to anyone outside the firm?

Even Start-Ups Need Dashboards

Posted in Uncategorized by Devon on January 1, 2009

instrument-panel

It’s late July, and we are starting to talk to investors, assess capital needs, and thinking about how to value the business; the average start-up is valued at about $2.8MM.  We are still talking to banks, without much success but, the financial sector looks like a target-rich environment for innovation.   Our business model at this point is still interest rate arbitrage – which requires a normal interest rate to function; the storm is gathering and we aren’t paying enough attention to interest rate futures!  Our little boat steams ahead into the gathering hurricane.  We continue to build IP around the interest rate arbitrage model which will be another dead-end, at least near-term.  Someday interest rates will return to normal and we may be able to reactivate the original model. 

 Lessons Learned/Questions to Ask Yourself    

1.      Think hard and long about spending the money to file a patent before you’ve got a market-validated business model; you can burn a lot of precious money that way for very little return.

a.      How much customer feedback do you have on this idea you are about to spend $10,000 patenting? 

2.      Beware of the persuasiveness of your own arguments; you’ll begin to believe your own nonsense at your peril.  Stay close to the market and get market validation early and often.

a.      Is there a sales guy on your team pressing your ideas against the market?

3.      Even start-ups need dashboards, we should have been reviewing interest-rate futures weekly!

a.      Where’s your dashboard of forward-looking metrics that represent business model sensitivities?