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Showing posts from June, 2007

Startup 101: Staying funded

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The number one job of a startup CEO is to secure funding for his or her company. Most early stage startups need external investment to cover costs, so without funding, there is no company. The number one question a startup CEO needs to be able to answer is "how are you going to get to the next round of funding?" If there is no credible answer to that question, there is going to be a very unpleasant road ahead. I ran out of money at JRad, and didn't run out of money at ActiveGrid, and believe me, there's a big difference! Following are the three variables at the disposal of a CEO in order to secure the next round of funding: timing, traction, and positioning. Timing - Startups generally have 12-18 months of cash between funding rounds. You have to raise money while you still have 6 months of cash in the bank or you are going to get tooled as potential investors wait you out in order to increase their leverage. The math is simple: if there is 12 months of mone…

Startup 101: Getting funded

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Raising venture capital for a new business is not easy, but fortunately the process is very predictable. First time entrepreneurs often do not understand the process, or think that they are above it, which leads to a lot of frustration, and in the end, no venture financing. If your business doesn't meet these criteria, it doesn't mean it is a bad business, just that it probably isn't going to be venture backed. If you want to raise venture capital, get out of your own way and navigate the following process. Domain Expert - The most important thing for a startup to have is a domain expert. When people start a company in a business that they know nothing about, you end up with disasters like Pets.com. So it is critical that a startup has an expert in the market it is trying to penetrate. There is no such thing as a "visionary," just people who know a market very well and can therefore make a much more educated guess as to where it is going to go next than a…

Startup 101: Customer "pull"

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In my blog post "Startup 101: Sell to Users" I emphasized the need to focus on the product before scaling up a company. Marc Andreeson has recently started a new blog and he has a great term for this concept, "Product/Market Fit".



Whenever you see a successful startup, you see one that has reached product/market fit -- and usually along the way screwed up all kinds of other things, from channel model to pipeline development strategy to marketing plan to press relations to compensation policies to the CEO sleeping with the venture capitalist. And the startup is still successful.

Conversely, you see a surprising number of really well-run startups that have all aspects of operations completely buttoned down, HR policies in place, great sales model, thoroughly thought-through marketing plan, great interview processes, outstanding catered food, 30" monitors for all the programmers, top tier VCs on the board -- heading straight off a cliff due to not ever finding pr…

Startup 101: Sell to users

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In the last few years, there has been a remarkable shift in how software is sold to businesses: by the time a salesperson is talking with a prospect, they are already a user! Numerous successful businesses do not have a single salesperson until there are a groundswell of customers that want to purchase their software at a relatively high pricepoint. Successful companies concentrate on getting users to use fully functional software for download or browser use and then upselling those users. This is a sharp contrast with the time consuming and expensive style of effectively selling incomplete software door to door to the Global 2000 and then fixing the software after the customer has bitten. Following are the characteristics of a successful 21st century software business: Self-Service Product - Software must be easy to install and a service must be easy to run from a browser. Anything that these products do that is already well known (ie, add a customer in CRM) must be brain-dead …

Startup 101: The platform game

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I have been advising a few startups over the past few months and thought it might be useful to share some startup advice in a series I will call "Startup 101". The ability to identify a new trend early, turn on a dime, and capitalize on a market shift is what distinguishes a startup from a large company. A lot of what startups do is not actually new, but rather something old for a new platform. For example, NetDynamics/WebLogic/Kiva were appdev/deployment for Java/Internet, ActiveGrid was appdev/deployment for LAMP, MySpace is BBS for the web, Skype is phone for the Internet, Salesforce is CRM for SaaS, etc. The latest in vogue platform is Facebook's F8 platform, which is a supercool way for startups to deliver social features without having to build a social network. Kudos to iLike, which as one of the early adopters of the Facebook F8 platform has massively increased their number of users (850K new users in less than a week). iLike retained the ability to respond…