Monday 26 November 2012

The red flags of change

There are two pushbacks that I almost always hear when trying to persuade someone that a change is needed. They are very common and I use them as red flags for myself. Every time when I get an urge to say something like that, I know I'm getting into a defensive mode, hence shutting down my brain.

We're specific - natural resistance to change manifests itself in this phrase. It always happens with strong opinionated people, particularly the ones who rethink everything and are convinced that ratio solves everything. The truth is that unless you're NASA and planning a mission to Mars, you're not specific! And even NASA is getting competition from SpaceX, so even that argument is no longer rock solid.

We've tried it already - Any suggestion can be molded into something that might resemble prior attempt of solving the situation. We like to simplify or just refuse to look at the same problem from another angle. That's a dangerous trap. We often forget one important fact: our actions are not the only activity that determines outcomes. Jack Dorsey tried a Twitter-like service way before it actually launched, but the timing wasn't right.  The same goes for FourSquare, in that case, the tech wasn't ready. Most successful tech startups don't have a novel idea. Their success is combination of timing, execution and luck.

Tuesday 22 February 2011

DeckReport Beta

After a few months of preparations, we've launched DeckReport beta. Please try it and tell us what you think.

More on:

Monday 13 December 2010

Don't waste time!

Sketch for Twitter. See also the author's desc...                              Image via Wikipedia
Startups don't waste time. They typically have one head(CEO) that decides quickly and on the spot. She is not concearned about being right on every decision, making a decission with the given information is more important.

Being a startup  has nothing to do with the size of the company. Twitter is considered a startup, because they are fast. Microsoft is considered to be  corporate, because they are slow. Need more examples? Look at Facebook, they are big and fast.

Interestingly, every single startup or small company that started to implement management models from the big companies changed sigificantly. To the worse.  It doesn't matter if they are implementing ISO standard, project management  or some other methodology that relies on form more than on substance.

The don't waste time rule applies to investors, managers or engineers as well. Good investor will tell you immediatelly what they like or not, good CEOs will be open, clear and decisive, good engineers will solve problems and not explain a list of tasks they did every day.

I think that's one of the reasons why Americans are so much better in startups than Europeans. They don't care about the form and typically, they don't waste time. In the same way, whenever Americans turn to form, they suck at it! Just look at their bureaucratic procedures.

However you put it, it's very clear to me what is a DNA of a successful startup: nobody wastes each other's time. When you see a startup that relies more on form than on substance, or have long endless meetings, or when their leaderships doesn't lead but wants to discuss everything, you know that this is only a small company wanting to be a corporation. It's not a startup anymore!

So for the sake of fun and prosperity: don't waste time!
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Wednesday 10 November 2010

KPIs reporting

Key performance indicators are the startup's dashboard, they are your compass and life saving data pointers. Without them, you're flying blind. Needless to say, setting them up correctly is one of the most important thing you can do. And equally important, you should use the same KPI's that you show to your board. Otherwise the whole discussion looses meaning.

There are different ways of doing it, however here are some rules of thumb:
- limit number of KIPs to 10 or less
- they should natural, and straightforward, if you have hard time explaining them, find new ones
- cover the vital areas of your business, like financial, operations...

One KPI that you will almost certainly on the financial side have is the burn rate. It's the amount of money you burn per month. It's pretty self explanatory. There are really just two ways how to optimise it: spend less or earn more. Unless you have a really good one, there is really no big need to add another KPI from the financial side. From this one and cash in the bank it's pretty easy to calculate your runway and others.

On the sales,  the imagination can run wild. Sales, sales/client, number of deals (if you have standardised ones), recurring clients, all those are good ones, depending what kind of business you're in. Pick one, two or three that really accurately  embody sales side of your business.

From that point on, areas can be very different. If you're in online retailing, gross margin might be it, if you're building destination site, number of users. If you're in freemium business, conversion rate might be most appropriate. If you're building large data sets amd that brings you value, a number from that side might be appropriate.

There are a number of areas that might be appropriate for your business. Think it through and make the best set of KPIs you can.

When you're finished, take a step back and look at the big picture. Are they accurately portraying your business? Is the impact of each significant long term. When each of them declines, remains stagnant or declines, what do they tell you?

If that all makes sense, bring them to your next board, agree on them with your board. If everybody agrees burn them in and keep them for at least six months, to see the trends. If you can simulate them for the past, even better. Now you have your flying dashboard.

The only thing you need to ensure now that they actually get populated without you having to spend two days each month compiling them.

And that's it, that's one slide on your board deck that you should never be without.  

Thursday 4 November 2010

Board reporting on marketing

Unless you're playing in a really niche space, you need some sort of marketing. Marketing in a startup, like everywhere else, is a fairly straightforward exercise, with two distinctive focus areas.

In strategic marketing you think about positioning and target audience. What kind of product or service you want to produce on long term? What is your target audience, how big is the market. What do you need to do to address it. Those questions will influence your product and operational decision.

In operational marketing you think about ways to achieve what you set out to do. Branding, web site, PR are just one of the  tools with which you execute your decisions. 

So how far do you have to go in reporting to your board? That depends on what kind of board you have, however there are some general guidelines. I recommend that you set and revisit your marekting strategy every quarter, do the analysis and challange your assumptions from the previous cycle. Have the assumptions change? If so, what kind of conclusions do you need to draw, does that change your strategy? You can do that on a fairly condense report and share it with your board. Board will look forward for your recommendations and ask a few questions, but bottom line is: should we stay on course, intensify it or change direction?How much will that cost us in terms of money, time and resources.

On operational marketing  your should concentrate on particular campaigns and projects that you set out to do in order to fullfil your marketing strategy. Usually there is enough news on the topic to address it on every board meeting. So put top two or three projects on one slide.

I suggest that you look at everything in marketing as a project and that you measure as much as you can. Examples are: home page, conference presence, rebranding and new version launch. For each such project you need to understand: scope, timeline, needed resources and expected autcome. It's highly likely, that you can list those on one slide, each month, which give's you a nice overview of what's going on marketing.

Tuesday 2 November 2010

Financial reporting for startups

There are really just a few key and important data points for the board of directors in terms of financial reporting.

On a simplified level investors are interested in:
- how much money you burn
- runway, which tells you how long can you sustain the current and projected  burn rate
- cash in the bank

Investors are worried that you don't run out of money before they can decide that your business is worth financing further. It's natural, they  really like to be on top of their investment. 

There are  4 spreadsheets that fully encompass your business. 

Profit and loss statement is the classical one. It's not the purpose of this blog post to explain it, if you don't know it, google it. But you need to have one ready for your investors each month. The good side of it is that it's usually prepared by your accountants, so you really don't have to bother with it too much. But you still need to understand it.

Balance Sheet is the second classical financial statement. Often it gets produced together with PL and you should  just staple them together PL and send it out. It won't get looked as much, since it doesn't reflect short term performance a lot, it's importance is in a long term.

Budget slide is one of the most important documents. It's basically a table for each month, where draw  your limits of operation. A simplified one breaks down costs into 10-20 categories and forecasts them for next 12 months. It gets looked at a lot, particularly with picky investors. More accurately, the promises and actual performance gets compared a lot. I don't want to go into details, but I was at a board meeting when investors raised an issue with one category that got over budget by 3% in one month. Makes no sense, but it happens. 

Cash flow statement is in my view one of the most useful statements in the world. It's a corporate take on a pocket economy. It shows you exactly how you spent your money, you see how much money came in and how much went out and how. They often don't get produced since an accountant needs to  put a bit of effort in and often needs the management for some explanations. But I think it's absolutely worth it. Particularly in a startup environment where cash is king. If you're not familiar with it, check out wikipedia

Finance guys will often come up with another one, the ratios. There are whole bunch of ratios out there that are standard in a financial community, however I don't believe it makes a lot of sense to use them in a startup. If you really need one, put it into KPIs, don't produce a separate statement for them.

So what to put on a deck in term of financial reporting. Here is my take:
- one spreadsheet where actual numbers against the budget are shown
- simplified cash flow statement (I think you can put everything into at most 10 categories, so you should easily get it onto one slide)
- one slide with burn rate, runway, revenue, cash balance on the bank

The Profit&Loss and Balance Sheet should also be produced and part of the deck, but only as an addendum and not as part of the main presentation.

Wednesday 27 October 2010

Should VCs be entrepreneurs or not?

Old Car in MontevideoImage by AMWRanes via Flickr
To be honest, I don't know. I've been back and forth on the issue on various panels and I kind of cannot make up my mind. On one hand you want to have your investors to have on hands experience, however on the other hand, having to deal with someone who was successful in the past and forces you to do things in their way doesn't really help.

In the past I really looked up at the people who successfully built companies and wanted them to be close by. Over years I learned that this is the wrong criteria. Being successful in the past is not only a function of ability, there are a whole bunch of other factors as well. Some of them have nothing to do with their ability to be a good investor.

One of my best experiences with investors is with those who haven't built big and successful companies, but are rather humble in a way that they really work hard with the founder to built something big and meaningful. Even if they are investment superstars.

So I think it boils down to this: Investors that you want to work with are: intelligent, well connected and respectfully proactive.

You don't want to work with arrogant individuals that sit in shiny offices, come late to the meeting and never switch off their phones during conversation. You owe it to yourself and your business not to take this kind of nonsense.

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Monday 25 October 2010

Introducing DeckReport

It's been 6 months since I've started to work on a small new project called DeckReport. The idea is to create a solution that addresses a bunch of small but important challenges that burden most of startups, founders and investors alike - board management.

Board of directors are quite instrumental in strategic management of a startup. However the advantage comes at a price - time. Running a board is expensive and hard. Presentations, action items management, coordinating investors, sharing information and preparing analysis can easily take 2-3 days a month from the CEO and management.

That's where DeckReport comes in! It's a solution where you're able to post your board decks, share information and coordinate investors. if you're an investor, you'll be able to interact with all your investments from one account. So no more endless email exchanges and hunting down for the last versions of the deck. Everything in one place. Nice and tidy!

Check it out at and follow us on Twitter at @deckreport. We'll launch in private beta in November and go live in January 2011. Sign up for the beta account. 

Tuesday 19 October 2010

Board meeting introduction

Meetings are often held in conference roomsImage via Wikipedia
Each board meeting should start with three basic slides. They are the slides for a brief and quick introduction and they send a tone for the meeting and provide a framework for discussion while setting expectations:

- highlights: this is an overview of a top news from the past month or period, list the good and bad news, don't hide it. If you want to list it in two columns, color it differently, you can do whatever you want. But pick top 3 - 4 of each and list them on one single slide
- plans and challenges: list the plans and challenges that you expect in the next month. Nothing fancy, just a list of top 3 - 4 things that you expect to happen.
- KPI overview - dashboard: it's a kind of dashboard overview of key performance indicators. You should briefly walk through each of them since this is the stuff you agreed with your investors that you'll measure and track. It's one of the most important slides for you since it shows your performance against your past achievements.

Don't spend half of the board meeting on these, however a solid 5 -10 mins will make the whole difference at the meeting.
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Monday 18 October 2010

Tools of trade

I find it amazing how many tools foe entrepreneura on the internet are free and how available they are. I'm Mac biased, however I'm sure you can do the same thing with Wins or Linux. The point is on cloud based and online tools, not on the computer. Here is my list of tools I use, when I'm sketching out new projects/prototypes for internet services. 

Gmail and everything G: I host all of my mailing addresses there. Some say that Google is evil and that they don't want to have the Big gBrother checking their mail. Well they are many more ways how somebody could tap into your account than hacking Google abusing it. Unless you're from another planet, you've heard of google docs, forms and other stuff. It's useful and what I really like, it's good enough for me. Price: 0
gContacts and Isync: again Google, I have my addresses tagged and synced with my phone mac's address book and than it syncs through Isync (standard on mac) with my Nokia, works with everything else out there as well. iSync has a great feature that allows you to sync only those addresses with your phone that have have phone numbers, thus leaving all mailing lists alone. I use gContacts to generate lists who I should contact if i'm in NY, notify if I have something new or just update every 3 months. Checks gContacts tag feature, it's really powerful. Price: 0 
LinkedIn: I don't use Facebook, because I can't find a good use for it, but I definitely use LinkedIn. It's the source of of my business contacts and I use it frequently when I need to find someone close to my network. Price: 0
DropBox: the ultimate file syncing tool, I use it on my Mac, iPad, everywhere. It simply works. Price: 0
iWeb and Google Sites: iWeb is limited to Mac but I use it to generate prototypes for web sites and even production ready web sites. If I need any kind of interaction, like subscriptions or order forms, I simply use gForms. I don't care if it looks slightly lame. It's good enough for low traffic, reliable and it works. Google Sites works well as well, I don't use it, however it's perfect for any kind of site generation/hosting that is occasional in nature and it's aimed at sited that convey information and not interact with users a lot. Price: 0
Skype: talk, talk, talk, for free
gChat: yeah I know, again Google. It's free, widely used and it works 
TechMeMe: the fastest way to learn about important stuff, I'm not fan about browsing through a lot of web sites, I even don't follow TechCrunch. I know I should, but I don't. If something really important happened somewhere I'll stumble over it. It's very unlikely that I'll fail in a business opportunity if I don't read all the blogs. 
Twitter: I use it as an alert tool for my followers and friends. I'm not a heavy user, and I don't use it to gather information. I use it more to stay in touch with companies I'm interested in, rarely with people. Don't DM me, because it's likely that I won't read it for several days. 
EverNote: not ideal, but the most useful way to sync your text files all over. Price:0 or a few dollars if you want to have an offline ability on Ipad

Monday 11 October 2010

What is a startup?

I've heard many definitions about what startup is. Particularly in blogs and tech comunities, startups are becoming synonimous with internet companies. Interestingly, Wikipedia offers a perfect answer: startup is a company with no history!

So how come that the startup concept is so vibrant in the tech community? Because in order for any company to succeed, it needs capital, team and partners. All this is difficult to obtain if you have no history. That's why tech startups came up with inovative ways to obtain those resources.

A significant factor in the story is also the fact that IT and internet advances simplified the way we do business. In fact you need a computer and an internet connection, a few hundred dollars and you're ready to roll, world wide! That's profoundly different to local mill, backery or local delivery business. They all need significant capital investment and when you're there, your set for many years, either your run with it, or you close. In software world that's much easiser.

Given the facts it's interesting to see how tech startups are sometimes rigid and how their investors don't get the difference. It's actually harmful to a startup to demand long term plans as if it was a traditional business.  It locks them in and limits their flexibility and ability to leverage one advantage they have: cost effectivness. I think we need a new model.  

Wednesday 6 October 2010

Working long hours

Image representing Information Architects as d...Image via CrunchBase
I've recently came across an interesting quote:

"There are exceptions, but we believe that working over hours as a habit leads to bad work."

It's a quote from the About page of Information Architects, one of the leading design firms. They go even further than that:

  • We don’t do free pitches.
  • We don’t work on weekends.
  • We don’t work crazy long hours.
  • We don’t finish presentations five minutes before the deadline.

It actually reflects perfectly how I feel about doing things. Not surprisingly they are a studio with a strong European background. And yet they achieve world class results. 

I actually don't think I should add anything to this!   

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Monday 4 October 2010

Why European startups perform differently

Sheena IyengarImage via Wikipedia
European founders too often try to mimic their American counterparts. They hire American advisors, have American investors and yet somehow often European startups don't perform as one would expect. I could never rationalise this until I watched very interesting TED talk by Sheena Iyengar.

The idea is that our culture simply makes a huge difference how we perform in different situations. Sheena talks about an interesting experiment that she and here team did with a bunch of kids. Here is a simplified version of it (watch the video, absolutely worth it!):

Researchers asked a a group of American and Asian kids to solve some anagrams. Anagrams were grouped into six themed batches. Some kids got to choose the batches they want to solve and others were told which ones to solve by an authority (a teacher or mother). And than something interesting happened. American kids solved twice as much anagrams when they were able to choose which ones they want to solve, while Asian kids performed exactly the opposite. When they got a chance to choose a batch they performance went down the drain, but they over performed their American friends when they where told which ones to solve. Interesting isn't it?

Now apply this to a startup. Americans absolutely shine when they have more options or when they can come up with new ones, while non Americans might simply execute the ones they have better and go into depth more.

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Friday 1 October 2010

Who should do the talking at the board meetings

I recently came across an interesting idea about board meetings. Basically, board meetings are a tool that CEO has at his disposal to communicate with investors and other board members. However quite often it's a fairly strict relationship. CEO does the presentation, board members intervene and comment in between and that's about it. I've done it, it's ok, but not great.

However one important aspect of managing the board is to open up the company to the board members.

And one of he best ways is to invite some of the team members from time to time do a presentation on particular subject.  So I'm convinced now that the rule of thumb of who does the talking at the board should be:

CEO: 20%, team members: 40%, board members: 40%

It will benefit the CEO since it will elevate the level of trust the board has in to the CEO. It will change the dynamics of the board and increase the engagement of the team members.

It's best to rotate presentations of the team members, so that on each board meeting, one or two team members do a presentation on the current state and future of various topics like product, marketing and other (depending on their area of expertise). It's actually quite easy to open 30 or 45 mins of time for team presentations and discussions. The topics need to be discussed anyway, why not just include the ones who have most hand's on experience with them.

Thursday 30 September 2010

Board meeting action items

BrainstormingImage via Wikipedia
Board meeting is an intense 90 minutes event that happens every month or every second month. It's the time when you get all  your investors, observers board members and management in one room, reflect on past few weeks and steer the course of your startup in the future.

One interesting side effect of such brainstorming is that even though boards often tackle more strategic issues, there are quite a few operational ideas sprouting in the same time,  like intros, sharing some docs and others. It's crucial for the CEO or whomever is taking down the minutes to adequately organise them and follows up on them with the board members. Otherwise things get forgotten and potentially helpful idea goes down the drain. 

So in order to do it right, do the following:
1. write down every single action item, if possible with a due date and the owner of the item
2. send out follow up emails to participants with their action item lists, don't expect investors to write down what they promised; I even suggest that you send one email, CC everybody and list action items per each participants
3. in due time, or every week send out gentle reminders on to each participant; in this case don't CC everybody, you don't want to make them look like kids that needs to be reminded constantly
4. on the next board meeting, report on the non executed action item, and thank your board members for the executed action items

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Wednesday 29 September 2010

If in Rome, do what Romans do!

I was on a panel yesterday, where there were quite a few founder wannabes. An interesting question was asked: "Where can we get the information an knowledge about having a startup?"

Effectively there are two things one should do:
1. start reading blogs about startups
2. move to the Valley

The first one is obvious, I guess I don't have to expand it further.

The second one needs a bit more explanation. If you're a model, you want to be in Milan or Paris. If you're a car designer, you want to be in Germany, Italy or Japan. If you're Egyptologist, you want to be in Egipt.

Got the idea?
I'm not advocating that you should move permanently. On a contrary, I respect European lifestyle too much.  But a few months gig in the Valley for any internet startup is a must and very eye opening.

Tuesday 28 September 2010

How investors value startups

cats_2010-09-28_7Image by yousukezan via Flickr
Startup raise money in order to leverage their businesses. However when and how much to raise is always a source of misunderstandings and false expectations amongst founders. A road to break even can be divided in 4 stages, and investors value various stages in different ways:

1. Idea - valuation is 0, nada, null...I don't know how else  to put it, however ideas don't get financed. They're are a necessary element in one of the next stages, but on their own, they're practically worthless.

2. Technology/Product - up to a  few tens of thousands of dollars. In a few cases a bit more, but not much. This would a typically  be an angel round, where founders have some code and a prototype, but they need an engineer or two to get it a bit further.

3. Distribution - when the technology is ready and service/product done, you want this thing to spread like a virus. It might take to recode the service several times, change focus, poke the market.... You need to demonstrate that the thing is growing and gets used on a massive scale. This is quite often  a strong angel, or early stage VC stuff. If you're really successful, you'll raise up to 2M USD. More realistically you're looking between 0.5 and 1M USD.

4. Revenue - You need to have significant revenue, closing in on profitability with a reasonable team,  payed properly, 6+ guys, and you can already smell the profits in the following months. That's the VC's sweet spot. If you can show that by adding 2 sales guys or a product + sales guy or something in that sort, you can significantly increase revenue, you hit the jack pot. That's a proper A round and  you're looking at 3-5M USD.

That's it. As always, things are not black and white, stages overlap, however the concept is there. The lesson is that it's worth to set your expectations.
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Monday 27 September 2010

Planned vs. market driven product development

The natural resource of wind powers these 5MW ...Image via Wikipedia
European startups, particularly the ones with strong engineering team, tend to plan their product development. They trust themselves and meticulously plan all details of the product. That's fine if you have time for it, but it gets worse. There is a fine line with planing  and over planing. When a CEO explain that they "just need to add one more feature" I know something is wrong. I've seen startups postponing their launch month over months, due to that "just one more feature" reason.

Valley based startups tend to be much more market driven. They launch, test, measure, iterate. At the end of the day, that's what small lean startups are designed to do...Move really fast (we're talking about days, not weeks), and check for every clue from the market.

There are pros and cons to both approaches. Europeans would benefit from a bit more flexibility, and Americans from thinking things through a bit more from time to time. A startup must find it's own balance, as always the right answer is somewhere between the two extremes.
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Friday 24 September 2010

Are you ready to fundraise?

Quite a few startups want to fundraise just for the heck of it. I think that's wrong. I partly blame the whole social networks phenomena, when it's hip to receive funding.

However business is supposed to be a rational thing. There is a set of criteria, where one can decide if they want/need to fundraise or not:
- Can added funds be significantly leveraged? e.g can adding 2 engineers, or 2 sales people to the team at least quadruple revenue, or adoption. Can you prove it, or it's a hunch? Do you have 1 sales guy that already does X and two more will do X*3?
- Can adding the investors really help you with finding the right answers, connections? In other words, are these investors the right ones, or are they just bringing money and you already know everything?
- Are you willing to give up your company for fame and wealth? It's very simple, having investors is great, if you sort this one out in your head: It's not your company anymore! Typically after normal fundraising process you give up around 30% on every proper rounds and by the time you get to an exit, founders hold less than 20% and that's without liquidation preference and other legal mess. It can still be a fun ride though:)
- Do you want to have a lifestyle business or make it big? That seems obvious but can significantly change your preferences and your decision. Lifestyle business is safer, slower more secure, and you don't fundraise for it. Venture type business can be big, very risky and you want to fundraise for it.

What you want to do?

Thursday 23 September 2010

Setting the pace for a board meeting

HSS Executive Director Jay Malone address a cr...Image via Wikipedia
Board meetings are strange beasts. On one hand the CEO is talking to his investors, which is by definition an asymmetrical relation, on the other hand it's the CEO who's responsible to control the meeting and make sure that things don't get out of hand.

Investors are typical quite chatty and it's occasionally hard to stop them and move on to another topic. However, if the meeting runs out of time without touching on all topics, it's a failure.

So here is one suggestion how to deal with it:

1. make sure that you know how much time each participant has for the meeting (aim at 2h, expect 1.5h), start on time, even if somebody is missing
2. on the first slide show agenda with allocated time slots; it frames the discussion and sets the expectations
3. keep time, or better, have one of your team members do it, but be sensitive to where the discussion is going
4. while the time for certain topic is running out, summarise the key points; that puts everyone in the summarise mode and moves them away from the details they often like to drill into

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