Saturday, June 16, 2012

 

Are You Fundable?



Are You Fundable?

The Entrepreneur’s Guide to Winning Over Investors

by Alan Brody

After 12+ years of evaluating pitches and helping entrepreneurs raise money, we have put together a book of rules on what it takes to get funding. What Investors look for and how to make your plan fundable. By looking through the prism of Angel Investor wisdom. It tells you how to:

• evaluate an idea
• find the right investor
• build sales
• attract sponsors
• pivot, reconstruct or know when to fold

At the heart of the book is this idea: you understand Start-Ups by seeing them through the eyes of investors and how they bet on you. If you know how they handicap you, then you not only know how to get ahead but which race you should be in.

1.    Are You Fundable?

Not all Start-Ups are the same. You already knew that, but do you know what sets them apart in the minds of investors? When you do, you can increase your chances of success dramatically.

Why Ask “Am I Fundable?”
The key reason to ask is that it forces you to think about your enterprise from the outside in. When you do that, you get out of your own spin zone and into the mindset of real customers and investors.

Here is what you will discover:

1.     There is a hierarchy of Start-Ups and you need to understand where you belong on that line-up.
2.     Customers and Investors may be connected to each other but often have very different points of view – what makes a customer want to buy your product or service can be different from why an investor would want to write you a check.
3.     All businesses have to adjust their much developed ideas to the reality of the marketplace. When the market gives feedback, be prepared, it is often harsh or cryptic and may force you to rethink drastically.                                                                                                                                                                                                                                                                                                  
4.     When you know what you have and how it is really perceived, you can calibrate your message for each audience: investors, customers and potential partners. You can also realistically determine how to spend your – pursuing customers or investors in just the right measure, instead of wasting time doing both incorrectly.

THE MAP OF THE ENTREPRENEUR’S LAND….MINES

The Start-Up Hierarchy: What Kind of Entrepreneur Are You?

The heart of Are You Fundable? is the idea of a hierarchy of Start-Ups and then a matching taxonomy of investors. Investors handicap you according to your status. If you pitch an idea that is inconsistent with your status you will probably lose credibility. Without credibility, you don’t get funded or even attract business.


The Hierarchy of Entrepreneurs

What is a Serial Entrepreneur?
A serial entrepreneur is someone who has started one or more businesses. These Kings of the Start-Up realm can sit by the phone and investors will offer them money just in case they come up with an idea.

What is a Semi-Serial Entrepreneur?
At the next rung are serial entrepreneurs with a mixed record.

The Pedigreed Start-up
At the next level down in the hierarchy are what we like to call the Pedigreed Start-ups. I can say anecdotally, that these people seem to get the lion’s share of the Start-Up money. Almost anyone with 10 years in an industry could make a case if only they found the marketable idea within their domain of expertise and understood the “rules.”

Pedigreed Start-ups are people who have:
• 5 or more years of domain experience in a field (10 years seems to be the sweet spot)
• have identified a key market with a critically needed product in their field
• have the developer team in place with the product ready or at least a working demo
• have the customers who want or need to buy it

Not-So Pedigreed
Here are some of the traps this kind of entrepreneur can fall into. Investors look out for this and if you are not careful, you can disqualify yourself:

• Salaryman/woman: never been an entrepreneur before
• No skin in the game – as in not having your own money at risk, is negatively viewed. 
• Tied to a paycheck: the risk with this type of entrepreneur is that they could be more interested in finding a paycheck than in taking on the struggle of launching a business. • Mixed age team. Having an older manager and a very young developer raises generational issues.
• Acting like an exec. Don’t be aloof, you’re supposed to hustle or it will seem like you never left the previous company.
• You were fired. Tricky and best left to the later conversation but if you were fired for being an entrepreneur, as long as you were one in the past is not a bad story.
• The worst sin: coming up with an idea that has nothing to do with you previous line of business.

Moonshots, Up-and-Comers and Career-Enders
At the bottom level are the youngest and the oldest. These are the folks who come to our really early stage Start-Up events called Startupalooza. They are the heart and soul of the TV show “Shark Tank” and they are the biggest winners when they get it but overall, the most consistent group of losers. They either reach the moon or fizzle out trying.

1. The greatest Start-Ups are usually founded by people under 27 Google, Microsoft, Facebook, Apple, Netscape and so on.
2. Only the young can invent the defining ideas of their generation which is by definition, an untapped market.
2. They can afford to take the greatest risks since they have the least to lose. The right person is also adaptable, able to struggle, accept loss and still recover.
3. They appeal to the vicarious reinvention psychology of Angel Investors.
4. Young people who have these qualities – even if the idea is wrong or the investor doesn’t invest in their deal – are a kind of currency that Angels like to “trade” with each other.
5. They have nowhere to go but up.

Let’s Give them Something to Tweet About
The way investors find out about great Start-Ups is that people talk.

The Up-and-Comer
Most Start-Ups have a good idea that is essentially a twist on other ideas in play.

The Older Player
If you are over 50, you can pretty much forget about getting Angel money. Angel Investors will probably deny this but I am sure they will also want you to believe they are not a day over 50, either.

The Going Enterprise that Seeks Growth
For a company already showing profits, to bring on investors is usually a double edge sword. Their actual profits tend to put a cap on their valuations.

Scalability
This is more challenging than it seems. Do you have a formula that with nothing more than the addition of capital, will generate more sales?

Transformative Element
Not just projections, something that the changes the business paradigm.

How to Improve the Way Investors Rank You

Make Friends with Investors

Make Friends with Serial Entrepreneurs

Thumb on the Scale and other Anti-competitive Ideas
They want to know if you have a thumb on the scale – a special advantage that others don’t have and can’t see.

Patents
A defensible patent is prized by investors, but any patent along with business momentum carries value because it has the possible effect of warding off competition.

Barrier to Entry
If you don’t have a patent then you want to convince investors that you have some type of barrier like special equipment or rarefied knowledge that competitors either can’t get.

First Mover Advantage
This is essentially what Amazon had as the first online bookseller. The reality is not so much that the first in a market as much as the first credible player in the market wins.

What Impresses Investors

What kinds of deals investors are looking for?

Get a Lead Investor or Champion
If you don’t have a lead investor or at least an investor who introduces you to other investors, or a serial entrepreneur, the next best thing is a fellow entrepreneur.

Understand What Investors Don’t Want

1. Lifestyle Business – the Big No No
What they cannot abide, what the live in fear of is the lifestyle business.



What Investors Fear 

Don’t Settle (A Tribute of Sorts, to Steve Jobs)
Even the idea of selling out too soon – or settling will upset an investor.

The Zombie Business
Never quite taking off but never quite dying either. You always need more money because you’re always just about to break .

Failed Execution/Failed Idea
Fix it and then pitch….

The rule of thumb for fast-rising business in a massive, emerging market is a defensible business in a sector that is likely to double every year for 5 years in at least a billion dollar market. They also need to know that it is scalable through capital.

The Tells – How you Know You Need Help!

a.      “If we just had 5% of Google’s (or Apple/Facebook/put_big company_name here) market we would be worth a billion. Sure!
b.     We need the money for sales and marketing. When you ask for money to sell you’ve just told them you don’t have the confidence to sell it yourself.
c.     We have no competition
Hosni Mubarak used to say the same thing about his Egyptian regime and for 40 years he was right. Then along came Facebook. There is always competition.
Types of Angels
d.     Our competition is Microsoft, eBay and Google - but they don’t get it.
Nor do the investors.

When you have that lined up you can focus on the pitch. And not just any pitch, but the one we call The Power Pitch or Pitching in the 3rd Dimension.



 

How MTA's Kiosk Mis-Design Costs Passengers


6 Steps to Missing Your Train with the Ticket Machine

by Alan Brody


Thanks to the MTA, we now know what interface hell looks like when you buy a train ticket on their electronic vending machines. The obstacle course the MTA throws up is the perfect example of what happens when high tech lands in the wrong hands. Instead of a simple, ticket-buying experience you, poor traveler, are dragged through a multiple choice and misdirection madness that looks like the MTA’s All Passengers Left Behind Program.

To begin with, it never dawned on the MTA that when you’re buying a train ticket you’re probably in a hurry. There’s the train coming, there’s people breathing down your neck and maybe, just maybe you really don’t want to play a bureaucratic videogame.

Not have missed trains on the occasion that I have used these punishing devices but one of their technicians began laughing at me when noticed me struggling at Gand Central Station: “They ask too many questions, don’t they,” he laughed. “Well, don’t you tell them,” I asked, naively thinking that they would welcome direct intelligence form the field. “I do,” he said, “but it goes nowhere.”

So here is ecommerce looks like when you a few million, little digital savvy and even less accountability.

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The first screen delivers 5 choices with largest box devoted to the least likely purchase. True, it comes at the end but it is nevertheless disconcerting. The first time user will take a microsecond to double check on the content of the large box just in case they missed something. Subtract one design point.

Since I am coming in from Scarsdale, the machine shows this one glimmer of intelligence – guesses that I just might be headed for Grand Central. Bravo. For moment you think you have entered man-machine harmony. Add one design point.

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Just as you feel at one with the machine, it throws the first of series of curve balls. It sks one another question: Peak or Non-Peak?

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I suspect there may be a random soul who is loading up on ticket for the next day, or is planning to take a leisurely lunch before ambling back to the station. But the vast majority of purchasers are here because they want THE NEXT TRAIN. In that case, the machine aught to be able to figure out whether or not you need Peak or Off-Peak. For now you can satisfy yourself by reading the fine print where you will be treated to another mindbender. Instead of telling when the last PEAK train leaves the station – it tells you by arrival time so you have to do the math. Does the 9:37 mean PEAK or not PEAK. Several dollars are at stake here. On the other hand, since nothing is at stake, they very kindly tell when the last PEAK train leaves Grand Central. As if that matters. Deduct one design point plus a scold for deviousness.

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Let’s say you’ve gone this far without driving the purchasers behind you crazy you may think it is time to settle up and get out of Dodge. Not so fast. Now you have options. I’m guessing very few people want these options. I could be wrong, but since they have a way of bringing up options that you may never want, why not have a ticket fast track? In any case, deduct a point for giving me no option to have no options.

Now you get to pay. You have made it screen 4 and you must believe that relief is coming. This screen asks if you are ready to pay. You bet….but…


P1030577.JPG

Like a timeshare salesman who won’t let you out of the room they hit you again with a big box asking if you want more. Since regular users have figured that anything other than blue boxes are irrelevant, they deserve some credit even though Credit and Debit cards are easily confused. Deduct a half point.

P1030578.JPG

The next head fake comes in the following two screens. First, you are instructed to “Please Insert and Remove Card.” At this point the train is heard beating down the tracks and the customer behind you is taking quick breaths.

You plunge in the card. Instead of hearing the roar of a ticket being printed you a deliverd a screenful of more information. It is quite hard to read this all in the muted light of Scarsdale but almost impossible in the sunlit glare of outdoor suburban kiosk.

What you get is eyeful of useless features. Instead of simply asking for your zip code it chooses the more fully rounded: “Please enter credit card billing ZIP code and press OK to continue.” Gas stations do fine with “Zip Code” and a numeric keypad but not the kiosk komedians. After they have poked you in the eye with the long question they deliver a fully formed screenful of letters. There may well be the odd Canadian or Brit on our suburban lines but the vast majority need numbers for an American ZIP code.

P1030579.JPG

Then comes the zinger: if you linger too long, or hit the wrong keys such as not registered and number and then hitting OK there is no error fixing. The kiosk throws you back to the beginning of the turgid credit card insertion process.

screenfull of mixed signals pops up. You get a large keyboard and the dicreet questin at the top asking for e need your zip code.

Unless you hail from Canada, you are going to be mighty confused. Why would they present yo with a QWETY keyboar when it asks for your zip code. By the time you have found the numeric keypad and realized that you  are supposed to ignore the letters, you notice a few other things as well: your train might be wheeling into the station. Or a line of passengers have formed behind you, breathing down your neck.







You just might be foregiven for not entering the digits just right. Perhaps you don’t apply quite enough pressure. Or you enter the numbers in the wrong order. Acreen pops up to inform you. Oops you try to correct but no…the screen takes you back to re-onserting you credit card. And so it goes again.

At this point, some percentage of riders will abandon the machine, thinkg, how much more can it be to buy a ticket on the train? The answer is – about double. Not only that, but you need cash or, you’re off the train, pal.

You may wonder why a billion dollar operation would plant these machines that violiate several critical rules of interface design – enough to put Amazon’s Bezos into peals of laughter. Or enough to make you wonder if any MTA executive ever vsited Apple as long as they were in the Big Apple. In other words, their design firm or information architercts or unser testing company owes them a refund.

That would be a generous interpretation. Or they could be burrearact who desing a system that only a bureaucrat would love. The end result is slower thatn necessary ticket line and an increase in passengers having to pay on the train. Hich slows down the ocnductor and so necessitates an increased ticket charge.  

The more cyinical explanation is that they have bamboozled cumsters into wanting to pay more on the train.




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The FaceBook IPO - Social Media's Last Stand?



The FaceBook IPO

Social Media's Last Stand?
or SavingFace Book.com 

  
Unlike the Google IPO which used its considerable popularity to reward individual investors and boost their stock value, Facebook used the same dynamicagainst their users, the retail investors. So, is this the end of Social Media - from the Entrepreneur's perspective?
  
In this version of the Wall Street Spring, the pinstripe set got to show how Social Media can be used against the crowd.
  
While it isn't exactly a revelation that Wall Street is rigged in favor of insiders, it wasn't supposed to happen with our friendly FaceBook.
  
The market expected the typical "popping tech IPO" based on the idea that you sell a tiny sliver of stock, limit availability to insiders who ride the pop as they dump it on willing outsiders (a/k/a fans of the company) in a way that keeps the prices up. 

Facebook did the opposite.
  
They let the considerable number of willing outsiders (a/k/a fans of the company) get their hands on the stock at just about the highest valuation of the stock as insiders lined up at the bell to blithely sell into the market - knowing that the pop had already happened before the opening. Instead of spreading the wealth, they knew just how many suckers there were out there to milk. Remember when they unleashed more stock just a few days before the IPO? That's when they know just how many fools there were. 

All they had to do was make sure to put out as much stock as they could to all of these willing buyer. There was so much that they jammed NASDAQ. Not that they care, they had already run for the hills.
  
Let's just say they un-occupied Wall Street.
  
This head fake by insiders took away scarcity and an underlying faith in the stock that had the effect of lowering prices. The old sell-a-sliver-and-let-it-pop technique usually meant the value stayed high as the insiders waited for the secondary offering. But not here.
  
As the price slides, the air goes out of the Social Media bubble - at least in the short term. In the long term? Let's just say that without trust, you really don't have a Social Media. You have Media that is used Socially.
  
Bottom Line - if you haven't already figured that the low hanging fruit has already been picked in the Social Media space, this should serve as notice.
  
What I would invest in though, is a Facebook porting utility - a website that lets you back up your Facebook data assets and lets you move them as you see fit while making it easy for you to get the word out to your Friends.
  
Let's call it SavingFace Book.com
  
by Alan Brody
   

 

Topless Body Seeks Headless Rule: The Meaning of Occupy Wall Street


A New York Town Hall Meeting of Social Media Insiders explains what's really going on:
Open Source Thinking and Self-Managed Groups
......

If it weren’t for the fight that broke out in the second hour of the New York Town Hall Meeting on Occupy Wall Street, it would have been merely interesting. Social Media has gone from a dating, teen popularity management and marketing phenomenon to a revolutionary movement thanks to Occupy Wall Street, the Arab Spring, Spanishindignados and so on.

When a Wall Streeter at the meeting objected to being photographed after making an impassioned statement about how hard he worked and how much he deserved the American Dream, the clash of cultures became apparent.

Any netizen would accept being photographed in a public setting as simple transparency but his group saw it as a violation of privacy. Social Media, when applied to organizations that only know top-down management of the opaque kind is an existential threat. Keeping out of the news is a big deal. Showing your face is asking for trouble.
Occupy Wall Street Town Hall Meeting

That generational divide is evident at many levels. Even the founder of Social Media and our lead speaker,Andrew Weinreich, who created the prototypical social media site, sixdegrees.com back in the 90’s, had doubts about the power of this movement because the numbers, he noted, are still small. Only a few thousand show up at Zucotti Park vs millions in the Arab World, Spain or for that matter, Israel.

Even the money it has raised, is a mere $500,000. Obama will raise $1 billion for his next campaign.
He would not be alone - industry types often underestimate Social Media's power because they saw this as a consumer business and not a battleground for the politically disenchanted who would be so inspired as to put themselves in harm’s way. Nevertheless, most of the public seems to get the potential. They are well aware that just one police strike generated 953 Occupy movements in 84 countries within days.

Headless Group seeks a Topless Government.
The recurring complaint is that Occupy Wall Street has too many messages. Perhaps. Yet anytime they focus on one, it can be devastating. The numbers on the ground may small but the numbers at home or on their smartphones are immense. Americans may like to do their protesting from their couches but as long as a symbolic number are willing to take to the streets, the power of Social Media seems to hold.
What we are really witnessing is the battle testing of open source thinking vs. the old hierarchies. Like the civil war, where the bullets were more powerful than the military strategies of the day, there may be large and unexpected casualties. This may be more powerful than its creators imagined and harder for people in power to resolve than they know.

Thanks to our meeting, we have generated a few ideas -but they won’t be easy.

Legless and Headless
The courts may be the next testing ground. Yetta Kurland, is a legal activist and TV host who helps represent a Law society observer at an OWS protest who was run down by a police motorcycle. The police use these vehicles to control crowds and in the past, if an innocent person got in the way that was just too bad. They will arrest them, make up a story and bring them before the courts which would generally assume that the police are telling the truth. In this case there are widely distributed videos showing that the police mowed down this innocent observer, trapped him under the wheels of the vehicle and then beat and cuffed him as he writhed in pain. He now has to defend himself in court against some type of obstruction of justice charge.

This charade continues even though the video is common knowledge thanks to YouTube and numerous cable TV news shows. One would imagine that the charges will be dropped but the issue will probably wind up costing the city dearly when it goes to Civil Court. The biggest cost to the NYPD, however, will be their credibility. Somewhere, heads will roll and a new management will have to rethink their practices in a world where everyone is watching.

Media Reorganization
Greg Galant, the founder of the Shorty Awards, arguably the “Oscars of the Twitterverse” talked about its impact on media. Journalists are now using Social Media tools like Storify, Klout and Hootsuite to keep tabs on the movement. Equally significant is the reshuffling of the media ecosystem – the blogosphere is generating stories that feeds the mainstream coverage while doing its own coverage of the traditional media’s reporting. Now that Google+ is adding journalists’ bios to the net, there is a channel for readers to communicate with them, thereby making the conversation interactive in all media. Besides, as Kurland pointed out, the mayors and police chiefs are using Social Media to discuss the issues among themselves too - Social Media’s influence has become inescapable.

What Color is Your Social Media Parachute
John Havens, the author “Tactical Transparency” cites Facebook’s 900 million users and $21Bn in ad sales as the transformational issue in the business world. If CEOs haven’t already been alerted by those numbers, then the Occupy movement is surely their ultimate wake up call – and the Social Media industry’s single greatest advertisement. Companies need a crisis protocol for Social Media. More importantly, CMO’s must know that the brand doesn’t entirely belong to them although they bear ultimate responsibility for it. Jet Blue still seems to be the poster child for this type of approach, with CEO David Neeleman responding to customer issues with a heartfelt and slightly ruffled apology on YouTube. Admission of responsibility and promises to change seem to be the mantra. To keep the promise, JetBlue now has a team of people with the power to respond to Twitter complaints on the spot. The last storm showed that the problem could sill recur, yet so far the response has been relatively tepid.

Damn You – I’m Good
Stuart Tracte, who runs his own geek talk show “Beer Diplomacy” notes that Apple has no Social Media effort to speak of. Steve Jobs put out occasional text statements when he hurt his faithful and almost none of their products are actually made in the US. He just makes a “damned good product and you want it.” From Stuart’s perspective, OWS is not a Social Media movement as much as a human movement: people don’t want business in their government. They want to end that unless, of course, that business is as good as Apple’s.

Topple the Banks
Co-host, TJ Walker of Worldwide Media Training noted that the movement lacked the kind of single message that animated the anti-Vietnam War and Civil Rights movements. He announced his own eBook “Bust up the Big Banks” as an antidote to this, since the banks in his opinion, are the real issue. Then again, as he noted, thanks to Social Media he is now competing with 40 books on the topic of Occupy Wall Street.

Too Promotional to Fail
So where’s this all going? The city believes that winter will put OWS out of business but I doubt that. What better advertisement for a hip new camping company than supplying them with thermal tents and sleeping bags? Ski clothing is so good these days that freezing temperatures are just a fun fact. The movement only needs a few hundred people to keep their foothold – any number of interchangeable volunteers who can do this in shifts seem to be endlessly available thanks to the 10% unemployment figures.

Going Public About Being Public
Generally, the powerful will try to co-opt the groups they can’t crush. But OWS is a leaderless group. There are key influencers but they could be anywhere and if co-opted they could be replaced at any time by another influencer. Over time, it is quite possible that the group will dig in. If they raise enough money, they can buy the protest property they want or, in the ultimate irony of ironies – they could go public. They generate income, so why not sell stock? In theory, they could wind up acquiring the companies they oppose – the first publicly traded anti-Wall street company on a hostile takeover frenzy. When you consider that the NASDAQ OTC has not one but two technically illegal medical marijuana companies, MJNA and CANA, the idea is not so far-fetched.

Headless vs Bodyless: The End of Two Party Democracies
The real issue is this clash of civilizations: what happens when an amorphous, open source group organizes synchronously and multinationally against the World Order? Anyone who has grown up with Wikipedia knows that it works. Anyone who grew up with a set of Encyclopedia Britannicas still can’t accept that it’s for real. Democracies are really based a binary system – its either Democrats or Republicans, Labor or Management with a revocable dictatorship granted to the majority. Over time, the power concentrates near the top where it is open to manipulation by the highest bidder. That might have been fine when there were majorities but today we are more diverse and the ruling party is really the one with the best plurality of constituents of which most are not really served.

As Ross Perot and Jack Nader proved, we can’t handle a third or fourth or fifth party but in an open source environment, you can sustain a plurality of voices without affecting the core functioning of the system. Most governments, when not unduly influenced by special interests, can function quite well in a transparent, self-organizing, user-operated fashion. That would lower costs and doom a lot of bureaucratic guilds whose first priority are self-protection and poliferation.

On the other hand, leaders can try to learn from Apple: become a cool cult while providing incredibly good and inventive programs.

The public may stand to benefit either way.

Warning: to be a cult you must have somehow died and come back to life. On the other hand, if you are incredibly good and inventive in politics, your opponents will help you with the former.

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