Here’s the latest from VentureBeat’s Entrepreneur Corner:
Using contractors? Lock down their work as your IP – Owning intellectual property is the most important thing to a startup. But if you’re using a mix of salaried employees and contracted labor, you might be in murky waters. Attorney Curtis Smolar runs down how to protect yourself.
When should you turn on the marketing faucet? — “Turning on the faucet” is a metaphor for flooding your market with marketing, but timing is everything. Chris Drake, founder of FireHost, discusses how to know when your company is ready.
The right way to position your startup against competition — Some entrepreneurs claim they have no competition, while others define their company by the competition. Angel investor Jason Cohen says both hurt you in the funding process. He lists the reasons why (and tells you what you should be saying instead).
Stability or startup: Keys to making the choice – Deciding whether to make the plunge into a new industry or a fledgling startup is tough. Ro Choy, CEO of PeePong, has done it twice and gives his thoughts on thresholds you should use before you make the decision.
The 5 biggest mistakes entrepreneurs make – If you’re starting a company, you’re going to screw something up along the way. Serial entrepreneur Jerry Kaplan runs through the list of five mistakes to be most wary of.
Previous Story: Lolcat mastermind Ben Huh offers to buy social news site Reddit from Condé Nast
Tags: entrepreneur corner
–>
5 startup pitfalls to avoid, and how to position yourself against your competition
How Your Smartphone Will Transform Your Elevator Pitch
Listening to good entrepreneurs make their pitch is great fun. How well, or poorly, they align their passion and persuasiveness to the product details reveals a lot. Are they pushing an idea or telling a story? Is it all about their own charisma or is the innovative idea the real hero? Are we having a conversation or am I being sold? How will they get me to “get it”?
All these entrepreneurial issues resurfaced during the recent Fortune technology conference in Aspen. There was no shortage of either articulate entrepreneurs or provocative ideas. So as Osman Rashid, who co-founded Chegg.com, described his new digital textbook startup Kno during a coffee break, I peppered him with questions. His idea was undeniably clever, but aspects of his business model weren’t clear to me. He had his elevator pitch answers down pat, but I wanted to learn more.
Unprompted by me, Osman whipped out his smartphone and handed it over. I was watching a decent video clip illustrating his product’s features and functionality. I could tap to hear testimonials. I could tap to play with a simulation of the software. In a matter of moments, the device had transformed Osman from an entrepreneur I was having a conversation with to a guide and narrator of an interactive experience. My focus and attention alternated between what he said and what appeared onscreen. Sometimes he’d take, touch, and hand back the device; other times, I’d point to something onscreen and ask another question.
The object — and our interaction with it — became an intimate part of our conversation. We couldn’t have discussed either Kno or his answers to my questions the same way without it. An idle part of me wondered how cool it would be if our conversation (and my questions) could be recorded and time-stamped along with what was appearing onscreen. Osman refused to allow his smartphone to decay into a sales tool or product pitch — although those elements were baked into the material — and instead used the device as a medium to both reinforce his conversation points and invite new questions and comments from me.
I can say without hesitation that this felt technically and interpersonally different from “laptop-on-the-table” presentations I’d experienced 1,000 times. We were standing up, drinking coffee, chatting, and taking turns holding, viewing, and manipulating this device. The kinesthetics, eye contact, questions, and interruptions revolved as much around the device as us. We would have been worse off without it.
Not ten days later, I was at a Venture Cafe gathering by my MIT office. It’s a place where entrepreneurs and VCs alike come to socialize and impress each other. I struck up a casual conversation with an aspiring biotech entrepreneur. Not two minutes into our talk, he took out his iPhone to animate a technical point about his company’s planned product. He handed it over to me. I thought it fascinating and asked if he might forward that animation to my email. He could and did.
Again, the nature of the questions and our conversation made his iPhone a focal point of our interaction. I wouldn’t have learned nearly as much about his company, or him, if we had just been talking. The “hand-it-over” nature of the iPhone made it feel more like a value-added conversation rather than a scaled-down presentation.
I looked around. No one else was interacting this way.
Elevator pitches are important. The ability to boil down the essence of your innovation into a tasty forty-second sound-bite remains essential. Only now, the pervasiveness, ubiquity, and visuality of mobile devices quantitatively and qualitatively changes the ecology of interpersonal interaction. It’s no longer about what you say and how you say it; it’s increasingly about what you hand over.
What do you hand over that transforms the conversation? What do you hand over that visually and interactively adds value to your spoken words? What do you hand over that complements and supplements your pitch? What do you hand over that invites and inspires the curiosity you want? What do you hand over that makes you more persuasive? These are the questions that will increasingly shape tomorrow’s rhetoric of innovation. The design challenge here is fantastic: how do we use mobile devices not to better connect us to digital networks but to better connect us with customers, clients, and prospects.
Of course, the technical beauty of these media is that — unlike the words one speaks — the imagery one sees onscreen can be emailed, Facebooked, forwarded, or LinkedIn as desired. “Hand-it-over” innovation pitches can be seamlessly slipped wherever your prospects desire. Indeed, an excellent measure of “hand-it-over” effectiveness is whether the person who you “hand-it-over” to actually asks you to send what they’ve been seeing and interacting with.
My professional bet is that “hand-it-over” innovation pitches will double smartphone and mobile device sales worldwide. Entrepreneurs, salespeople and innovators alike will socialize with at least two devices in the backpacks and breast pockets — one for their personal/professional use and the other to “hand over” for interpersonal play.
“Hand-it-over” conversations seem destined to create new genres of salesmanship and interaction. It will become an innovation best practice. In fact, people will be surprised, and disappointed, if you don’t have anything to hand over.
A VC: The Expanding Birthrate Of Web Startups
There is a general consensus that web startups are being created at a faster rate than ever. The impact of accelerator programs like Y Combinator, Techstars, Seedcamp, and dozens more are one factor. The expanding pool of angel, seed, and super seed funds is another. And the most important factor is how cheap it is to build and launch a web service these days. You can bootstrap your way into existence.
I like to think of the venture capital business like parenting. When I invest in a company, I am committing to the care and feeding of the company until cash flow breakeven (the startup equivalent of adulthood). That care and feeding includes the decision to call it quits and give up on the project sometimes, but honestly that doesn’t happen that much in our portfolios.
So when I look at this expanding birthrate, I think “who is going to house, feed, school, and send all these kids to college?”
Part of the answer is that this crop of startups is going to be way more self sufficient than what has come before them. I believe that is certainly true. We invested about a half a million of seed capital into a company last year and it is already profitable and there is a good chance that company isn’t going to need any more capital from us. But it will continue to need advice of other sorts.
Part of the answer is that this crop of startups will get bought out earlier than those who have come before them. Look at Hot Potato. Josh Kopelman said “we’ve only been investors for a couple of months” about Hot Potato. That is a good outcome for the founders. Not so much for the investors. But it is going to happen more and more as large tech companies look for teams that have a proven record of building and launching strong products.
But even with these two very positive factors, I worry like a parent with too many kids. “Who is going to take care of all of these kids?”
I am an investor in some of these super seed funds personally. I see the capital calls. When a fund has called 40% of its committed capital six months into its existence, I worry. What happens when the money runs out? Will there be more?
Flatiron Partners came into existence in 1996. Today we still manage a portfolio of four companies. That is down from something like 55 total companies we funded. But the fact is fourteen years later we still have four portfolio companies.
Union Square Ventures’ first fund was raised in 2004. We invested in twenty-one companies and we still have sixteen active companies. And we still have $25mm on reserve for them. Christina and I calculated last week that about half of those sixteen active companies still might need more funding from us. So we have eight “kids who have not yet reached adulthood”. That is six years after we raised the fund.
The thing that nobody understands until you’ve lived through it is just how long it takes for some companies to get profitable and self sustaining. And just how long it takes for some companies to get liquid and leave the portfolio.
The VCs I talk to who have been doing this for 25 years or longer aren’t so much worried about the “dipshit companies” (as if there were such a thing). They are worried about the entry of so many new investors with relatively small funds birthing so many companies. These veterans may not be as connected to the latest web startup, but they sure are connected to the realities of the venture capital business. They’ve lived through it and they know what is involved with getting a company all the way to profitability and exit.
The venture capital business is contracting. There are less VC funds than there were a few years ago. And there will be fewer in a few more years. And the birthrate of web startups is expanding. That is the challenge we all face.
So, if you are an entrepreneur you should be very focused on either getting to profitability or getting a VC firm or two with deep pockets into your company (or both). If you are a seed investor, don’t go quite so fast. Reserve some funds for follow on investments. And help your portfolio companies get to profitability or get a VC firm or two with deep pockets into your company.
I think this expanding birthrate is a great thing. Entrepreneurship is alive and well all around the world. Smart and scrappy entrepreneurs are imaging new products and services and building them. But we all should be careful to think about how we are going to fund all of this company creation. Not just the first part of it, but all of it.
