How to Invest in a Start Up Company by qqo13525

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									Roadmap for the Start-Up Company




             Pete Higgins
               Partner
        Second Avenue Partners
    GETTING STARTED
•   People
•   Idea
•   Plan
•   $$
•   Turn idea into product
•   Manage evolution
              Building a Team
•   Smart, complementary skills
•   Meeting around the kitchen table
•   Domain expertise
•   Investors are wary of non-business types
•   Industry is different than University life
•   Product development very different than
    research
            Hire in Context

•   Right person, wrong time
•   Right kind of skills and experience
•   Strategist vs. scrappy
•   Big company vs. little company
•   Personality or Culture Fit
       PROCESS STUFF
• Space
• Legal
• Getting organized
            Legal Stuff
•   Referrals
•   Interview for personality fit
•   Plain vanilla is always better
•   Simple, simple, simple
•   IP important, but not panacea
Business Plan—Think Like an Investor
•   What’s the problem?
•   What is solution?
•   Will customers really care?
•   Who is competition? Narrow vs. Broad
•   Why win?
•   Why should I believe these guys?
•   Gross characteristics of financial forecast
•   What is dream?
  Depth of Critical Thought
• Basic rules of business
  – # of competitors
  – Depth of value-add
  – What are customer options?
• Know relevant models
  – What are competitive models?
  – What are historical models?
  – Why have predecessor technologies failed?
• Know your own model
  – What are you betting on?
  – How soon does it have to work?
  – What’s important to your success?
• Business plan is test of the people
                   Realism
“When a great executive meets up with a bad
 business, it is usually the business whose
 reputation remains intact.”
                                  - Warren Buffett
                   Realism
• Hockey sticks are extremely rare outside the
  NHL
• Even if market is hockey stick, why are you?
• It always takes longer and costs more
• Plan for reality; be prepared to react to the
  dream
• Know what you are betting on
       Raising Money
• Angels, Friends, and Family
• Govt grants of various kinds
• Venture Capital
  – Many different flavors and tastes
• Tradeoff between dilution and time
• How much do you need to get to
  the next milestone?
Where Do Ideas Come From?
• Lab--Modumetal
• “There must be a better way”—
  Housevalues
• Previous job-Azaleos
• Enabling technology—Insitu
• Enabling legislation
• Enabling world events—Insitu
      From R&D To Product
• Different discipline; often different teams
• Products evolve; but need to be “done” at
  different points in time
• “Better is the enemy of Good Enough”
• Completeness; providing real solution
• Customer feedback loop is critical
• V1, V2, V3
         Get to Market Early
• Get revenue, “traction”, start selling
• Customer satisfaction more important that
  product and technology
• Build customer relationships and customer
  feedback loop
• Make mistakes early and cheaply
          Low Hanging Fruit
•   Who can make a decision?
•   High value, low risk
•   Big budget, already approved
•   History of trying new stuff
•   Other hurdles—Regulation, compatibility,
    etc.
        Build domain expertise
• Focus on success of customer—every decision
  should be weighed against this
• Listen to customers—Fine line between vision
  and passion, and being stubborn
• All startups are in the service business
• More things liable to change than stay constant
• Everyone sells
• Be the voice of the customer
        Falling in Love with First Plan
• Product is “done”; it’s just a sales/market
  problem
• “Great technology”
   – Customer don’t care; problem doesn’t exist
   – Too complicated
   – Who’s the customer?
• Agility is critical
   Sell the Vision, Plan to Struggle
• 2X Rule: Everything takes twice as long and
  costs twice as much
• Sales learning curve
• Be realistic about valuation milestones
• Raise more money; relax about valuation
                   Focus
• Rare to fail due to excessive focus
• Companies pulled in many directions
  – Lots of unexplored potential
  – Lots of ideas; many of them bad
  – Well-meaning board members
• Conventional wisdom is frequently
  inappropriate
• Focus on core value-add to highest priority
  customers, then expand
      Getting Ahead of Yourself
•   Do not confuse activity with revenue
    – Brother in law sales
    – Great meetings
    – Pipeline Value
•   Jerry Maguire
•   What would you do if you were the
    customer?
•   Invest FOLLOWING growth
                   Be Cheap
•   Good intentions…but it is a slippery slope
•   It isn’t supposed to be comfortable
•   What culture do you want to establish?
•   It is okay to be small for awhile
•   What do you really need?
•   Minimum now vs. cash crunch
•   Growth and progress are not linear
   Memo from the Last Downturn
• You don’t realize how fast things spin out of
  control. There are self-reinforcing negative
  affects in a downturn.
• Don’t spend money until you have to
  • Don’t move out of your office until you are sitting
    on top of one another
  • Don’t hire any incremental employee until you just
    can’t stand it
  • Don’t get more capacity in your data center until
    your site is going down
   Memo from the Last Downturn
• Better to be “late to the party” than to be early
  and run out of money
• Line item review of the budget every month
  (everything)
• Not just a CEO mindset, but a company mindset
   – Everyone must buy into the process
   – But in a calm way—not run for the hills
• Create 2 or 3 different burn scenarios—know at
  any point in time how many months of cash is left
         Invest in Culture Early
• Values are easier to establish than change
• Frugality, integrity, customer orientation,
  accountability, focus
• Invest in “team” values: balance, support,
  communication, shared values, collaborative,
  flexible job descriptions
• Consistent values + clear priorities simplifies
  management
Manage the Company, Even When It is Small

• Don’t assume everyone knows
• Communicate goals and objectives
  – Share successes and failures
  – Enroll people; Encourage debate
• Communicate often; clearly; think about it
  – Think about cultural icons
      Don’t Treat Board Like IRS
•   Enroll them in your mission; engage them in
    reality
•   Arms length relationship leads to wariness
•   Communication is frequent and informal
•   Good news and bad news
•   If frequent, they can be trained to handle
•   Do the worrying for them
        –   Thinking about right goals and problems?
        –   Right process? People?
        –   Right solution?
        –   Can I be helpful?
          Team Evolution
• Overly Broad to specialist
• Generalists may not have specialist
  skills
• Not everyone is right for the next stage
• V2.0 team vs. V1.0 Team
    Knowing What You are Good At
   Or, Why “Founder” Becomes a Dirty Word

• Focus on your strengths
• Aggressively complement yourself
• Focus outward--make everyone else
  successful
• Ongoing conversation about yourself
      Knowing What You are Good At
     Or, Why “Founder” Becomes a Dirty Word

• Fixated on first vision
• Personal agenda—it’s not your company
• Over-rating your own capabilities
• Failure to delegate and micromanage
• Statistically, you’re eventually the wrong
  person
• You don’t know if you even want the job
                Leadership
•   Domain experience and customer advocacy
•   Recruits great people
•   Manageable ego
•   Thoughtful about the business
•   Thoughtful about company culture, and
    management
      “It’s An Execution Play”
• All businesses are execution plays
• Not about patents and secret sauce
• Not about being first
• First strategy is probably wrong
• Winners, especially today, are those who
  execute the best, and often changed strategy
  the best
• Winners are never satisfied
      Building Great Companies
• Business is a journey of unknown duration and
  course
• It takes a fundamentally strong business idea
• More importantly, a talented team that has
  thought about and built what it takes to win

								
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