Tag Archives: entrepreneur

A framework for how to take advice – for #entrepreneurs

There is no shortage of advice or number of advisers and the time you are given advice as an entrepreneur.

It can be overwhelming for an entrepreneur, especially when they hear from conflicting advice from trusted sources.

The 3 most important factors that should go into the decision making process for taking advice is a) Who should you take advice from b) What advice should you take and c) When should you seek that advice.

There are 2 kinds of people you take advice from – those you consider as “experts” in the field and those who have “experience” with the specific problem you set are seeking the advice from. Everyone else is rather a big waste of time. So, if you are an entrepreneur and seek advice from someone at a much larger company on what you should do with your product direction, when they are not an expert in the field, then be prepared to be given useless advice. Well, you asked for it so there.

Expertise is easy to ascertain since, it has a factual basis. If someone is a certified legal professional, then they know the aspect of law they practice. They won’t necessarily be the best at litigation or immigration if they are a corporate attorney, but they would be the best at company legalese.

Experience is best couched with situational awareness. If the person giving the advice is smart, they will tell you the specific conditions, background and environment that the course of action worked. From that, you can at least determine if it might work for you in your specific situation.

The worst people to take advice from are those that pattern match. In my experience, most investors, general practitioners and enthusiasts understand a situation by talking to many people and offering their generic opinion couched as “experience”.

If you seek advice from those whose experiences don’t match your current situation, then you will get suboptimal advice. People who are confident may tell you they don’t know, but it is more likely you will get opinions from 3rd party reading couched as experience.

You need actually both expertise and experiential advice for most situations, which is why understanding the contours of the problem will help you explain it to the person you are seeking advice from.

What you need advice on falls into 2 buckets as well. Easy questions and hard questions. Easy questions have a binary outcome. These are fairly rare. Most difficult questions tend to have a range of answers, with complicated if-then-else statements around the answer.

Easy questions are those that can be answered by experts alone. Can you hire someone from your ex-employer is fairly easy to answer if you look at your exit interview or contract and have a legal person review it.

Hard questions typically will give you multiple choices, not just two. Should I raise money is an easy question to answer if you are running out of cash, but the harder question of who to raise money from and how much to raise are harder questions that can run the gamut based on your situation.

Finally, when you seek advice is also fairly binary. You can either seek advice when you need it, or way before you encounter your specific situation. Seeking it after is just a waste of time – it reaffirms your position and makes your feel nice, or it will make you regret the decision since the advice you get is contrary to the decision you already took.

If you seek advice just when you need it, prepare to be rushed and expect to miss out on key details that tend to be nuances and shades of grey. For example, trying to decide what type of company (C corp or S corp) you should incorporate is best done when you don’t need it done yesterday. It will give you time to think about the options if you learn about the options way before you need them and keep the notes handy.

Seeking advice way before you need it is useful in situations when the impact is longer term. When the decision to be made cannot be reversed very easily (for example who you want as a cofounder), you are better off getting advice on the type of cofounder you need.

The biggest challenge is always the conflicting nature of the advice. What do you do when two people, both of who you trust, offer very different advice or in fact the exact opposite advice.

The relative scale of their expertise and experience does not count, so most people go with what they feel “more comfortable” with. Or they get more opinions and do a “vote count”. Either way it tends to be sub-optimal only in hindsight.

Everything I learned about entrepreneurship, my mother knew already

My mom

Happy mother’s day. I still miss my mom. She passed away a couple of years ago. Most everything I learned about entrepreneurship over the year’s she knew already and tried to tell me but, I had to learn it on my own, making my own mistakes. Here are the 5 things I learned from her.

1. Have a bias for action: My mom was not one who would talk too much when you needed help or if you needed to get something done. She’d lead by action and focus on “doing” not saying. Her actions truly spoke much louder than her words. When you are working on your startup, it is likely you will have advisers, board members, investors and mentors who will provide you will all the advice you need. The best advisers have a bias for action.

2. Be helpful and give generously: Before “Pay it forward” was a big deal, my mom would practice it. I follow a similar but more selfish approach to paying it forward – Dig your well before you are thirsty. My mom would help others, without expecting anything in return. Do that before you start your company and it helps you when you build your startup. Take as many chances to help others as you build your startup – if you have some time to help, dont pass up the opportunity. Whether it is to help a fellow entrepreneur recruit, critique their website or help the trouble shoot a problem with their technology. It will come back twice as fast and return you twice as much.

3. Your attitude matters more than your state of being: My mom’s attitude was “always sunny”. She would carry the weather with her. Not in a way that made you think things were not difficult, but she’d never get you down because she was in a troubled spot. Her attitude was one where she’d focus her energy, when she was down towards making others feel better. She’d remind me that most people will remember how you helped them feel when they were down.

“I've learned that people will forget what you said, people will forget what you did, but people will never forget how you made them feel.” - May Angelou

 

4. Focus on things under your control: My mom would obsess over the salt in the sambar, the right sized cuts on the okra and the temperature of the rice before she served it. She would focus on things she felt were under her control and many times the little things. As an entrepreneur, I have found that even if you set the vision and mission, the strategy and plan right, if you dont execute the small things well, you will do poorly. If you worry more about the competition than your own product direction, you will do badly.

5. Turn your biggest challenges into opportunities: My mom’s attitude towards adversity was enlightening. Although her first instinct was to run from it, she would tell herself that it was going to be better because of her bias towards action. She could find ways to optimize the way to make the biggest challenges into her opportunity to make a difference. As an entrepreneur, you will find customer development challenges, hiring challenges, fund raising challenges, etc. The best way to overcome these is to find a way to accept the challenge and brainstorm to execute the plans you lay out toward eliminating them.

If you have a mom, you should call her today (as often as you can every day) and tell her how much you love her, and thank her for bringing you to this world. I did not do that enough, hopefully you can learn from my mistake.

How to get channel sales or indirect sales going for your startup?

When I talk to entrepreneurs who are developers and they don’t have a hustler (sales person) on board, they ask me if they should outsource their sales function. I usually advice them never to outsource startup sales efforts. They then look to find partners who they can work with. The main reason they want to do this is because they find the entire process of hiring, managing and growing their sales team revolting.

Some of them talk about possible “channel” sales efforts via partners or larger companies in their domain who can help, who they would like to approach.

When I tell them about the potential costs, commissions and the customer relationship efforts that are involved, they take a second look at their direct sales efforts. I thought I’d document that for many of the other entrepreneurs who have the same question.

There are 5 models of partnerships I have encountered so far in my career. I will outline these models and list their pros and cons. While I cant say which model will work for you, and there may be other models as well, I think understanding the landscape will help you figure out which one makes sense in your situation.

First off, most channel or indirect sales models assume that the partner has an existing relationship with the startup’s customer. After all you are trying to shorten your sales cycle by using the partner’s strength.

Lets now look at these different models.

1. Co selling partnerships: These agreements tend to have a low to medium level of commitment from both the partner and the startup. If a sales person from the partner is going to meet the client, and are in active discussions on a deal and they feel like bringing your solution will help them win the opportunity, they will look at trying to position your product as well. In this case, you will have to go on the sales call with the sales person at the partner. The advantage of this partnership is that you typically dont have to do the initial “opening of the doors”. The “paper” or contract is typically separate as well. This means there will be 2 separate agreements for the customer to sign.

Pros: Since there is no commitment (most times) from both parties towards a quota or target, the discount you offer to the partner is low (typically starts at 20% and can go up to 30%). Also, since you can have a direct relationship with the customer, you can control the relationship going forward. Be sure to ensure that there are lower levels of “pass through” revenue you have to pay to the partner after year one.

Cons: There is no commitment to sell by the partner so you cant quite depend on this channel to deliver consistently. The customer also tends to get confused about the single person who will responsible for their success (the bad term usually used is one throat to choke).

2. Reseller agreements (sometimes called VAR or Value Added Resellers) : This partnership is medium to higher level of commitment. The partner will either resell your product on their paper or include your “quote” in their contract. You will hence have to train and manage their sales professionals.

Pros: There is a quota commitment in most cases, so you can be sure that sales people are motivated to sell, but you want to be sure that there are some downsides if they dont hit the commitments, else all this is a co selling agreement structured on the partner’s paper.

Cons: Since there are commitments, you will pay a much higher commission % – typically 40 – 60% are standard. Some partners may ask you for more. You will still have to train and do the lead generation to bring their sales folks into deals. Typically when you sign an agreement, even if you bring the partner into a new customer, they might ask you for the commission that they technically dont deserve.

3. OEM associations: When your product (or module) becomes part of another product and is integrated in such a way as to cause sales of your product each time the other product is sold, have an OEM (Original Equipment Manufacturer) association. These are typically for run time modules of developer products or a contact management product within a CRM system as an example.

Pros: Since your product is part of another product, you will typically be sold each time the other product is sold. In most cases this guarantees revenues and commits the partner to certain revenue goals.

Cons: Since your product is part of a module, you dont have the end customer relationship. Most OEM products also tend to generate smaller % of sales. Don’t be surprised if the final product is sold by the partner for a significantly more cost that what they pay you. Typically I have seen 10% of the final cost of the product paid out to the module.

There are 2 other models that I dont have much experience with, so I will let you give you an overview and try and address them in a future post.

4. Certified agent alliances: These are loose agency models (typical in affiliate sales) where the solo sales person who maybe has a few clients will try and sell for you. Since you have to recruit and manage each sales person yourself, these will be hard to scale. The only advantage is that the sales person is not an employees, so their base salary costs dont hit your books. This also means they are less committed to your product.

5. Distributor agreements: When your product is sold in a different geography where you need a local partner to stock (for hardware) or help educate local re-sellers, then distributors can help you with education, local tax and integration and identifying resellers. They can help you navigate a local market, but since they stock and manage multiple products for that region, getting their attention to focus on your product tends to be rather hard.

Startup Channel Sales
Channel partnership Framework

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How “Clustering Illusion” stalls more #startups than any other bias

When you are doing your initial customer development, by talking to many potential users, there are many cognitive biases you need to be aware of.

Cognitive biases are tendencies to think in certain ways that can lead to systematic deviations from a standard of rationality or good judgment.

Usually most founders tend to solve problems they have exposure to or those they are aware of, or those they believe to be one that’s a large market. This stems from the “scratch your own itch” phenomenon.

I had a conversation with a founder who is building a consumer internet company, where viral effects of her product determine the growth trajectory more than any other metric. Or so, she had learned from many other founders experiences – both by talking to them and investors in the space.

After 3 months of building her mobile eCommerce product, she and her cofounder launched it in the marketplace. Initial traction was good and trending ahead of their expectations. Many of the early users were impressed with their product selection and merchandise.

Growth after the 4th month though, stalled as they were on the road trying to raise their initial funding. Most every entrepreneur knows that fund raising can be a full time job. In fact I have mentioned several times that fundraising is a poker game more than chess.

When they were trying to show their initial user growth, many investors had the same problem – was their product a trendy, 3-month-uptick or a sustainable-fast-growth business?

After hearing this from the 5th seed investor, they determined that they need to look closer at their numbers, their repeat purchase behavior and address the issue before they were going to raise any funding.

Looking at the initial numbers suggested their they had many buyers who got to know about them through word-of-mouth, and the repeat purchase was high.

She and her cofounder determined that they had to improve their virality coefficient.

This is the bias I see most often: clustering illusion.

The clustering illusion is the tendency to erroneously consider the inevitable “streaks” or “clusters” arising in small samples from random distributions to be statistically significant.

When you have very little data, you have very little data. That’s it.

Don’t make assumptions about the overall market based on very little data.

There are times when you have 60% of the data and you have to make a decision. There are times when you have 30% data and you have to make a decision.

The difference between 30% and 60% is a lot. In fact, most entrepreneurs I deal with confuse having 3% of data with 30% of data.

To reduce clustering illusion the only remedy is to get more data. You will have to run more, smaller, experiments, over smaller periods of time and do it consistently. Make your assumptions, document your hypothesis, but continue to work on getting more data.

Turns out the real problem for our entrepreneur was that the overall market was much smaller, and they found it after 1 year of trying to increase their virality coefficient. They did raise their initial funding, but have since pivoted to expand their merchandise offerings to cater to a larger market.

Don’t apologize if you are building a life style business or a slow growth one

I had a friend come over to meet local investors and members this week to talk about his startup. It is a good company with very early traction. They are clearly not going to be a Unicorn in anytime soon.

The amazing part was he was not even looking for investment or money. He was seeking support and had a very nebulous but simple ask – get one person to lead the Seattle chapter of his startup and be the local champion to host events and hackathons.

Naturally, to an audience of seasoned investors and entrepreneurs, this seemed to be a small ask. There were a barrage of questions about “Why not do a bigger thing?”, “What is the market size?”, etc. Not withstanding the fact that his startup was already “in the market” with some meaningful traction. The entrepreneur was not looking to “Go Big or Go Home”, but really make a difference and also make some money.

In this market, where most everyone wants to invest in social networking applications that share real time video or a social network for dog lovers, he was building a different kind of company.

It was clear that he was not being able to tell his story and the impact his organization was making, since he was unable to convince most folks that what he was doing was material.

It would be a collective insult to the intellect of the room, if we did not support his cause actually or come up with ideas to help the entrepreneur.

When he was asked these important, but tangential questions, he chose to apologize. Many of his answers were “Yeah, we dont have that”, or “We only do this one small part” or “We have not had that level of impact yet”.

Surprisingly he had more impact on young kids and women in other regions, than I suspect 97% of the people in the room.

Yet, he was the one who was apologizing.

As an entrepreneur, you set out with a vision to change the world, however small. Sometimes you just have a small problem you want to solve. You wont even understand in most cases, the unintended consequences of your product or startup.

Never mind.

Just dont apologize to any self-righteous, unicorn chasing investor.

Tell your story, stick to your convictions and be humble, but stand up to criticism about the market you chose, or the growth you have had. Even if they chose not invest, remember that it is easier to throw rocks than to collect them and build a house.

Keep collecting all the rocks thrown at you. You will need them to build your house made of solid rock.

Until then, please dont apologize.

Happiness Manifestor: A framework for picking your battles, while keeping your vision

I want to introduce you to a new personal productivity tool, that I am testing with myself, which I think will help you as an entrepreneur. You are welcome to use it even if you are not one, but YMMV.

As a founder there will be many situations when you will disagree with many folks in your organization. With your cofounder, your investors, employees, etc. I have learned the hard way that many of these disagreements result in irreparable damage to relationships, and in some cases permanently. You will become very unhappy in this situations. This tool is to help you avoid many unhappy moments.

Of course, it is very hard, in fact sometimes impossible to be objective about the situation or have a very high level of Emotional Quotient to ensure you are doing the “right thing”.

One of my investors ages ago taught me this lesson early, but I have a blind spot, which I have learned, which is my innate desire to be the “smartest person in the room” and also to be the person that’s “right most of the time”.

This is still in the works, so by no means am I an expert, take this tool with a lot of salt.

When you have a vision as a founder to solve a problem, the first thing I’d advice you to do besides write it down, is to put it in a notepad file or sticky notepad and keep it on your desktop screen all the time. Write down also a list of things you wont compromise on and things you are willing to let go.

Here’s an example: I am making this up on the fly, so bear with me.

Your vision would be, for example, or what happens when you achieve nirvana.

AmazingCo envisions a world where working mom’s are fit and healthy and eliminate their propensity for lifestyle diseases.

Now for your mission statement – or why you exist.

AmazingCo exits to make the best fitness application for working mom’s who have to juggle multiple chores and priorities by making it easier to integrate exercise into her daily routine.

Then the next thing I’d do is to make a list of values – things you  and your cofounder believe in firmly – these will define your culture to a large extent: For example:

1. Speed – we value people that move quickly and make decisions fast

2. Open communication – we value honest feedback

3. Collaboration – we believe people should work with one other well, team before self.

etc.

These will help you determine who you’d like to hire and how they’d be successful in the company.

You and your cofounder may have disagreements about this as well, and that’s the whole point of this exercise.

As a side note, dont be fixated on having 3, 5, 7 or some odd, but arbitrary number of values – list as many as you care. Of course, larger the number, the harder it gets to communicate them. If you need help, read the list of values and culture of the best leading technology companies.

When you have disagreements with your founder, the first thing to know about your self, is to find what triggers and what emotions overcome your self, when you feel disappointed, angry or despair. This is the MOST critical part. I would say the first step is knowing more about yourself.

What I found was that I lacked the ability to overcome the emotional barrier. I recognized the barrier, but I was unable to not go “ballistic”, when that happened. By ballistic, I mean, getting really upset enough to disagree and try to win the argument so I could prove that I was smarter or that I was right.

So, the best thing to do is to appoint yourself a helpful friend, colleague or significant other as your “personal trigger detector”. This person’s sole job is to remind you when you are getting into the unproductive zone.

When you have finished your mission, vision and values, the next thing you need is your “happiness manifesto”.

This list of things is items you consider sacred to your happiness. They should align closely with your values, BTW, so dont be surprised if you repeat them here.

1. I will be happy when things are clean around my work area

2. I am happy when people acknowledge my points, even if they are not valid.

3.  I am happy when I am able to get food on time.

The next part of your happiness manifesto, is what you are willing to compromise.  I have found that this compromise list feed off the values / happiness lists.

What are you okay with because you chose to value certain things will be on this list.

1. I am okay with other people having a messy work area.

2. I am okay if we have many bugs in our product because I value speed over perfection

3. I am okay with many difficult questions from employees because we value open communications.

Then I would put this on your communications and keep reminding yourself to pick your battles.

If a situation arises which triggers responses from you that you dont like, remind yourself to look at your compromise list to see if it deserves a response.

Most likely it wont deserve a response. Move on.

Pick your battles wisely as an entrepreneur – use the happiness manifesto and let me know if it works for you.

It is not that I dont think you are great, but I am not confident about my ability to pick winners consistently

I had a very interesting conversation with an entrepreneur yesterday who I was keen to invest in. He had soft circled $250K of his $750K seed round. I have been a big champion of him and really respect his determination, thoughtfulness and diligence.

I committed to $50K and was going through the details of the investment with him, but letting him know that even if it took him a while to raise the remainder of the funds, I would ear-mark the $50K for his venture.

He then asked me “You know and influence a lot of other investors as well, can you please convince them to join the round”. I said that I can introduce him to investors who have invested in the past with me, but they will have to make their own decision.

I was not going to lean in on them to invest.

He mentioned that I “leaned in” on another VC to invest in a portfolio company, which is what he heard from the other entrepreneur, who I had worked with.

He was correct. I did lean in. So, the signal I sent him (although that was not my intent) was that I was not as committed to his venture as I was to other the one where I leaned in.

First, I dont have as much influence as entrepreneurs give me credit for. That’s just the truth. They may attribute the fact that I am at Microsoft Ventures as a signal that the corporation thinks this is a good investment, which is absolutely untrue.

Second, I believe there’s a HUGE difference between an angel investor (who I dont like to lean in on) versus a institutional investor (who I will lean in from time to time).

Most angel investors invest by reputation, connections and referrals. VC’s will judge an entrepreneur and their opportunity on its own merit, do their required due diligence and will likely pass EVEN if there was a strong referral from a person they trust.

Referral’s get you in the door with an institutional investors, whereas with an angel investor it will usually get you a deal.

Most angels I know have “day jobs” or “other interests” with angel investing being their side project, activity or means of giving back. That does not mean they don’t want a return on their investment, it just means they don’t do as much diligence as an angel group or an institutional investor would.

Knowing that, I believe the biggest challenge is the confidence in my ability to pick winners all the time. I am investing as an individual investor because I believe in the entrepreneur. I don’t know if that entrepreneur, problem set, idea or market is right for the other angel investors I know and invest with.

Well, I do know that to a certain extent, but with angel investors, the relationship I have would be personal as well as professional. With VC’s it is rarely (exceptions exist) personal.

So, when I meet the other angel investors over dinner, with their family, I don’t like having uncomfortable conversations about “the investment that went south”. Many of them are great folks, but not mature enough as an investor to realize many of these angel deals (in fact 70-80% of them) will return in loss of their investment.

Many of the angel investors I invest with are not in the “early seed market” for the long haul and have not seen ups, downs, sideways deals, etc. So, end up investing in 1 or 2 companies, solely because of referrals and recommendations.

I don’t think I have confidence in every deal I do to end up returning my money or generate a great return.

That does not still mean I dont believe in the entrepreneur when I invest in them.

This is truly one of those cases, when its not you, its me.