Startup School just got better

For those of my blog readers already locked and loaded for startup school – Good News.

For those thinking about coming long – Another great reason to join us.

The uber terrific Yvonne Adele from at Ideas Culture has just joined us for the 2 events. She will be facilitating and helping us out through the two days. But don’t think she’ll just be giving the intro’s and outro’s – she’ll be giving us her spin on creativity and ideas, as well as getting us pumped up, motivated and thinking. Which will also blow our minds!

For those who don’t know, Yvonne’s business was recently featured in Springwise and has a list of credentials and testimonials as long as both my arms.

So, if you’ve been on the edge of booking startup school. Time to get moving. The Melbourne event is about to close the door with only a couple of seats left. And Sydney is filling quickly.

Feel free to contact me if you have any queries and want to chat in more detail about it on 0438 779566. Steve.

Startup negotiating tactic

A simple way to keep a fair and reasonable percentage in your startup when getting funding is this.

Argue you require a sufficient percentage to keep you motivated.

Tell them you need enough stake to bring out your best performance. That they are investing in your performance and that this is part of the human make up. Then remind them that you are human.

2 schools of business valuation

A favourite game of entrepreneurs, especially in the technology industry is discussing whether companies are worth the price they are bought out for. $1.5 billion  for Youtube ………. Sales prices with infinite price earnings multiples (because there are no earnings, or they are loss making). Versus a company being sold for a few times it’s annual earnings with a long period of earnings history.

A more relevant discussion would be which school of business valuation was used during the transaction, and there are two:

1. Sale price representing believed potential

2. Sale price representing return on investment reality

Which is more valid? Well it depends on which side of the equation you are residing. I’d say when selling, we should be aiming for potential. When buying we should go with reality. When buying a business the simplest question to ask ourselves is this:

On current earnings, how many years will it take me to get back my original investment.

There’s no doubt certain industries are more likely to sell using the potential valuation method. Burgeoning industries like the internet, IPO’s and even railways 200 years ago are good examples. To get away with selling on ‘potential’ the industry needs to be growing, the future unknown and your company well known. If your startup ever gets enough traction to sell to an incumbent, then take what you can get – sell on potential.

Why cash flow matters

Here’s a simple description of why cash flow is the most important financial measurement in business.

Cashflow positive means: More ‘actual’ cash money is coming in than is going out. It does not mean revenue exceeds expenditure.

Hence:

It’s impossible to go broke while your business is cash flow positive.

It’s possible to broke while your business is making a profit.

This is the most important financial fact startups must know and understand.

The deception of history

Reading about Craigs list the other day I started thinking about business history and strategy. As entrepreneurs we often get fooled by the deception of history. And it’s easy to see why. All the business books and articles we read on success are based on what someone or some company we respect did. The problem with this is that the world lives in a state of flux, and what worked then, most certainly wont work now. This is where the Craig’s list example comes to the fore.

Would a 3 color page of hyperlinks which looks like the internet did in 1994 work today? Highly unlikely. Craigslist works now, because it worked well then. It had things working in it’s favour like the ‘in crowd’ in the Bay area spreading the word. That it was first to market with an on-line classified. Now these legacy issues become a strategic proposition which is worth maintaining. What it doesn’t mean is that it’s a strategic template worth copying for Startup X. It’s also less likely we’ll get the support needed from the web community or the investors needed.

The same can be said for pretty much any startup with an interesting history.

A social networking site which is set up for alumni of an Ivy League University probably wouldn’t work.

A trading website where auctions are used to develop the perfect market place probably wouldn’t work.

An on-line retailer which aims to sell every book available in the world probably wouldn’t work.

As entrepreneurs, what we are better off understanding is the insights into why things worked, and try and leverage human behavior in developing a strategic direction to launch our business.

Business Plan Template

It’s well documented that I’m not a big fan of business plans. Mainly because we live in a world of flux. But if you must use one – which I’ll call a 1 page mud map – then here’s a template. I’ve used this and I’d recommend it for ‘real entrepreneurs’ – that is non VC seeking bootstrappers.

What is it?
Describe your business or service in a single sentence. If you can’t do this, you don’t know what you’re doing.

Who is it for?
The audience who need or want this thing you’re about to create. Define them in whatever terms you please, demographically, socially, behaviourally, geographically. Just be succinct and tight in your clustering.

Why do they need it?
How is it better than the current substitute options?

How will they find us?
Where will we gain distribution? Maybe we’ll leverage a strong retail chain. A singular high traffic location. If web based strong SEO / brand awareness will be required. Maybe we already have an audience who we’ll bring a product to. This should be the most detailed part of the plan. It should include brand awareness activities and promotions. It still should only be a round 1 paragraph long.

Cost to build Version 1.0
Just estimate it – then double your estimate. Now this is the bare bones version, the absolute minimum required for launch. Outsource every element of production were possible, unless you are the major factor of production. Keep the cost low. It enhances speed, and reduces fear of failure and inertia.

Revenue Stream
There is no such thing as ‘Free’ – just a delayed revenue model. Ideas include: Sell item for price, Percentage of sales, memberships, premiums, selling advertising among others. Your plan is not finished unless you can answer this in a way your mum can understand.

Next Steps
These steps are related to launching the product. We stop typing and start prototyping. Here’s where we have 3-5 bullet points on how to get to version 1.0 The quickest possible route to being live in market. The steps to when you can out there and start selling & promoting.

That’s it. In fact you final plan should be as short as that we see above. Print it, put it up in your office and get to work.

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How to get investors interested

While watching the BBC television show the Dragons Den, quite often the ‘Dragons’ laugh at a business concept they are presented with and think it is ridiculous.

Here’s the one thing that makes them eat their words every time:

Sales figures. Revenue, Customers, Repeat orders.

It’s only then they change their view from ‘not interested‘, to ‘I’m listening‘.

If you ever want to get investors interested, go see them once you’ve got sales. When you have revenue coming in it puts the kibosh on negative opinions. In addition,  it increases value of your business and reduces the percentage you’d have to give away for a cash investment.

Business Pitch

The other day I was involved in pitching my business rentoid.com – I wanted to stay true to my beliefs and present a largely visual presentation to what I expected was an ‘info hungry’ crowd. The type who don’t mind a page full of words and numbers. My rule was no more than 6 words per slide. Some had only 2.

I think the format is pretty useful, so I thought I’d share it. Basically in each chart just change the word ‘rentoid’ and insert ‘your business’ and I think it would be just fine. It was for a pitching competition (I know they seem to be the trend of the day) and we made it to the final after a few stages so I guess it’s a method which has worked. It’s only 5 slides. I think talking to pictures works because it makes people listen, not read, and it shows you know your business.

When seeking investors

Here’s some simple advice when seeking investors for your startup.

Never use the words ‘The Next’…

Regardless of the uber successful business which follows these two words it just isn’t going to happen. For two reasons. The first is our probability of being this successful is almost non existent. Secondly if we are this successful, we wont be the next, but something new.

The main point is when people use the words the next, they lose credibility. And when someone says it to me regarding their new business venture, I find it hard to believe anything they say after that.

In order of preference

Face to face chat with single perosn who can make decision
Live internet video chat (skype / ustream et al)
Phone call
Internet chat (IM style)
Direct tweet
Text message
Email

(Pic by Christian Gates)

So is this for Customers, Suppliers, Investors or Media?

All of them – they are all people.