Category Archives: Starting a Business

What’s In It For You from The Startup America Partnership

February 28, 2012Productivity Software, Starting a BusinessStartup America Partnership, Steve CaseTim Berry

So how cool is this? The Startup America Partnership is offering a collection of real business tools and resources, mostly web-based, to help high-growth startups.

This was announced at the White House a year ago this month. Here’s what I wrote then on this blog:

The Obama White House [Feb. 1, 2011] announced its Startup America Partnership yesterday with some very slick online video streaming, some serious financial commitments, and the good sense to lead with real entrepreneurs including Steve Case and Brad Feld, and real information provided by the Small Business Administration and the Kauffman Foundation. That was a great start.

The announcement now is that the partnership has come out with actual resources people can use. We’re talking about software tools like web apps, analytics tools, accounting, legal forms helps, and of course business planning, things people can use, made available to people who need it. If you are an entrepreneur, high-growth business owner, or in the process of starting, you can join the program for free and take advantage of different tools and resources, depending on your stage of business.

You can use this link to register your business, started or about to start.

And I’m proud to say, by the way, that my company, Palo Alto Software, is one of the participating companies. I like to see us doing our part.

And another note, just because it should be said: I don’t like the sentiment that says this is like “at last” the federal government is helping small business. I’ve posted on this blog often about how much I respect the government’s Small Business Administration (SBA) programs to help small business. I cooperate with the SBA whenever I can, and I blog for the SBA community site, and I have business plan tutorials on that site too. I also work often with the SBA-funded Small Business Development Centers (SBDC), which offer help to small businesses in 1,000 locations; they are excellent. And I am a member of SCORE, a mentorship program, sponsored by the SBA. The difference between these and Startup America is that Startup America isn’t using tax dollars at all.

Paul Graham: A Company is Defined by the Schleps It Undertakes

January 19, 2012Back to Fundamentals, Starting a BusinessPaul GrahamTim Berry

Paul Graham has posted a(nother) brilliant essay, this one called Schlep Blindness, which is about hackers and startups and “tedious unpleasant tasks” (which he calls schleps, from the Yiddish, and of course popular culture). Here’s what he says:

No one likes schleps, but hackers especially dislike them. Most hackers who start startups wish they could do it by just writing some clever software, putting it on a server somewhere, and watching the money roll in—without ever having to talk to users, or negotiate with other companies, or deal with other people’s broken code. Maybe that’s possible, but I haven’t seen it. …schleps are not merely inevitable, but pretty much what business consists of. A company is defined by the schleps it will undertake. And schleps should be dealt with the same way you’d deal with a cold swimming pool: just jump in.

To me that’s a sudden gust of cold-but-fresh air, a badly-needed reminder of fundamentals, a refreshing change from most of the standard stuff of entrepreneurship lore and literature. Notice that in this case it’s not about the idea, or the funding, or the plan or the pitch — it’s about the work. And doing things you don’t like to do.

I particularly like this point, clearly one of those sad-but-true realities:

The most dangerous thing about our dislike of schleps is that much of it is unconscious. Your unconscious won’t even let you see ideas that involve painful schleps. That’s schlep blindness.

Paul Graham knows what he writes about. He’s a startup veteran, successful, and still investing. For a great reading list on startups, try the list of Paul Graham’s essays.

10 Tips For Starting a Service Business

January 18, 2012Starting a Business99Designs, Business Plan Pro, Duct Tape Marketing, John Jantsch, liveplan.com, Plan-as-you-go Business Plan, planasyougo.comTim Berry

You can see the request here on the right, posted to me on Twitter. I decided it’s a good subject for a blog post here, and I went on my own first as a service business and survived that way for 12 years before Palo Alto Software finally established itself as a product company. So I do have some tips I can share.

Set your goals right and define success well. Service businesses generally take less start-up capital but are also much less likely than product businesses to offer eventual leverage and scalability. There are exceptions, but in most service businesses the assets walk out the door every night. Those businesses are relatively easy to start, relatively easy to survive and prosper with, but also hard to grow beyond small, hard to sell, and hard to attract outside investors.
Look for a business anchor. That’s a former employer and/or a strong client. For example, I had Apple Computer, a former client, and Creative Strategies, a former employer, both willing to contract my services from the beginning. Apple remained critical to – and loyal to – my business services from the beginning in 1984 until Business Plan Pro changed the business to product-driven in 1994.
Understand your first client is twice as hard to get as your second. And the second is a third harder than the third. Land those first few clients well. Make sure they’re happy. Give them a huge discount to get the relationship going, and expect to keep your rates low for them, but ask them, in return, to not tell strangers what they pay you. Work free if you have to. You need references and testimonials.
Find a focus. Be different from anybody offering similar services to similar clients, in a way they can understand immediately and will share with others. Example: I was a business plan consultant who had a fancy MBA degree, no big deal; but I had also built my first computer, programmed extensively, lived in Latin America, and spoke fluent Spanish. My clients tended to be high-tech companies doing international business.
Use social media and blogging and your website as your main tools for marketing. Create and share content that validates your expertise. Your marketing today is so much easier than it was when I went out on my own; where I had to get through editors and publishers and conference organizers to get my expertise in front of clients (specifically, I wrote magazine articles, and books, and I spoke at COMDEX and the like), you can do it yourself by posting on blogs and Twitter and Facebook and LinkedIn. And, soon, RebelMouse. Oh, and that reminds me: Read Duct Tape Marketing, by John Jantsch.
Spend wisely on your logo and look and feel. Look into 99Designs, I’ve seen some sensational work from them. A professional look to your logo and website (or Twitter or Facebook or LinkedIn profile, if that’s all you do for a website) is really important. It isn’t a matter of business cards or stationery anymore, but it is how you represent yourself.
Don’t ever spend money you don’t have. You’ll get lots of suggestions for ways you can spend money now to make money later; mail lists, marketing programs, they never stop.
Don’t ever lose a client. Repeat business is vital. Keeping your existing clients is way cheaper and easier than finding new ones. Always go that extra mile, when you have to, to keep your existing clients happy.
Know your numbers. If you don’t know the difference between sales and money in the bank, between profits and cash, learn it. It’s vital. Know your numbers like the back of your hand.
Never compromise integrity. You’re going to succeed or fail based on your reputation. Don’t cut corners with credibility.
(Bonus point) Expect to make mistakes. If you can’t acknowledge and learn from and apologize for your mistakes, then you’re doomed. You will make them. If you think you won’t, keep your day job.
(Second bonus point) Do your own simple, practical business plan. Do it for yourself, not outsiders. Make it just big enough. Keep it fluid and flexible and review it often and revise it frequently. Read The Plan-as-you-go Business Plan, by me. Sign up for www.liveplan.com. [Disclosure: I’m the author of that book (but I’m linking you to where you can read it free) and I own Palo Alto Software, which publishes liveplan, a web app for business planning.]

Q&A: How Do I Sell My Idea to A Big Company?

January 11, 2012Business Ideas, Business Mistakes, Q&A, Starting a BusinessFacebook, patent protection, patentsTim Berry

This is another email question I received via my ask-me-a-question form on my timberry.com site. I’ve edited it slightly:

I recently read your article protect your ideas and I have an idea that I want to protect and want to pitch to a company. I don’t know if I can turn my idea into a business without the business I created it for. I have an idea for a new revenue model for Facebook that uses their current model but gets more advertising and more potential … But my model would only work on Facebook; I don’t think I could start up a social networking site and get the same results. So my questions is do I try to patent the idea then go to them or what? How do I approach a successful company and tell them “hey you could be making way more money and revolutionize social networking!

And my answer:

Find out about patents and whether or not your idea has a good chance of being patentable. I seriously doubt that your idea is patentable, but I don’t know what it is. Patents are for inventions, not ideas. There have been some business model patents issued, but to build a business around it you’d have to be able to not just have a patent but defend it. And you should worry that the patent system is no longer working, caught in a deluge of technology.
If there’s a reasonable chance of a good strong patent that would be defensible against Facebook, explore that option. Plan to spend tens of thousands of dollars, so be honest with yourself. Start by spending a thousand or so dollars with a patent attorney really good, and really honest, who can tell you what the odds are, and be prepared to end the project there.
If — my guess — the patent option isn’t realistic, then forget it. You’re wasting your time. Give it up. The following points are just so you understand why.
Jump into the shoes of Facebook for a few seconds. They live and breathe their business model. How likely is it that they’re going to invite you to tell them what they haven’t thought of? How likely is it that you’ve got something related to some direction they’re already studying? And how much to they want to deal with some stranger saying what they’re doing is an idea they copied.
To help you think of it this way, I’ll share that during the years I built Palo Alto Software I learned not to even respond to people who wanted to sell me an idea for my business. I learned it the hard way: every single time I listened, it was something we’d thought about, often something we tried, but didn’t work. In a couple of rare occasions it was something we were already working on, which led to “oh dear, now this guy’s going to think we did it because he suggested.”
And then, to make matters worse, there’s the problem of ownership: even if you did think up that great idea, originally, you don’t own it. You can’t legally own an idea. Patents protect inventions, not ideas (see points 1 and 2 above); copyright protects creative works; and trademark protects commercial communications. You can’t sell something you don’t own. Tell it to Facebook and they can run with it for free. They pay you only if they want to, out of the well-known goodness of their huge corporate heart.
Just to explain an apparent contradiction between points 4 and 6: legally the big company can take anybody’s idea and run with it, because nobody owns an idea; but big companies don’t want to deal with the accusation or even the bad karma of actually doing that. Who wants the negative press? It’s way better to just not ever respond to you.

So there you have it. Not what you wanted to hear, I’m sure, but if I save you a lot of wasted effort, then I’ve done you a favor.

Q&A: Finding a Consultant to Find Investors

January 10, 2012Angel investment, Starting a BusinessAngel investment, asbdc-us.org, gust.com, Q&ATim Berry

This is another frequently asked question that came from the ask-me-a-question web form on my main site at timberry.com.

Question:

Trying to find a consultant that links me to investors? Does this exist? I’m a 21 yr old entrepreneur. Learning on the fly!

Answer:

You don’t need a consultant to learn about angel investment. There are thousands of good links on the web. Not that mine are necessarily the best, but since you asked me: Browse though the angel investment articles on this site (click here for a site search for angels). Read the angel investment category on this blog.
Please make sure you have a deal that will interest investors first. It takes a credible experienced startup team, an attractive product-market fit, an interesting market, and defensibility. Way too many people waste their time and — if they hire consultants — trying to find investors with a deal that no investors would ever be interested in. Please read Is Angel Investment Realistic? and be honest with yourself.
If you don’t have the right stuff, don’t spend energy searching for investors. Change your plan. Either gather some more team members to beef up the offering, or focus on what you can implement by yourself. Bootstrap your business. If you still want a consultant, forget paying somebody to link you to investors. Get somebody to tell you what you need to have.
If you do have the right stuff, then you probably don’t need a consultant. Go register at gust.com where you can browse through about 600 angel investment groups and look for one in your local area, or one with interest in your kind of business. Don’t apply to all; don’t send your info bouncing around everywhere; concentrate on the groups that are more likely. Connect with your local small business development center (SBDC). Ask people you know who they know locally who might be interested. Find out about local investors using the SBDC, the chamber of commerce, local business schools, etc.
And if you really want the consultant, and you have money to spend, buy expertise and experience from the consultant, not heavy lifting. Buy very targeted help. There are honest legitimate consultants in this business, but they are rare. Check references carefully. Talk to past clients. And if you have a consultant help with your own business plan and your own business pitch, what you want is coaching, constructive criticism, not writing and formatting.

Truth About Women in Startups

December 12, 2011Rants, Starting a Business, Web/TechAlexia Tsotsis, TechCrunchTim Berry

Yes. I couldn’t agree more. I just read Alexia Tsotsis’ Stop Telling Women Not To Do Startups on TechCrunch. The key moment:

Because nothing says link bait like “taking on a controversial topic” stupidly, using gross generalizations. The latest in this series is a post by Penelope Trunk, who is either a master at extrapolation or seems to have seriously conflated the word “women” with “Penelope Trunk.” I remember being a young TechCruncher reading her first post, “Women Don’t Want To Run Startups Because They’d Rather Have Children” and thinking, “Wow, this seems deliberate.”

The trouble with link bait like that, as Alexia points out, is that people read it, believe it, and use it, oftentimes use it against a good cause. It becomes justification. Rationalization. Reinforcement.

And I like her conclusion, too:

And here’s a piece of advice to women (or any other minority) in tech — Every time you get worked up over a dumb blog post, you’re wasting time that you could have spent building a world-changing company, writing your own blog post and/or proving pundits like Penelope Trunk wrong. And that starts with voting with your feet (or pen even).

So go, prove her wrong. Because a) This needs to stop b) The future depends on it.

Agreed.

(Image: from the TechCrunch post)

Is Your Startup Positioned in The Funding Gap?

December 7, 2011Angel investment, Starting a Business, Venture CapitalBill Payne, gust.comTim Berry

Nice post by Bill Payne called The Funding Gap on the Gust.com Blog. Here’s the summary:

It is clear from this table that Friends and Family, Angel Investors and Venture Capitalists provide 95% of the capital for new ventures. Friends and Family typically invest a few thousand to perhaps $10,000, and only a small number of investors provide more than $50,000. Angel investments range from $100,000 to $1.5 million with a small fraction below and above this range, while venture capitalists fund rounds of investment from $4 million to $100 million with a few above and below this range. So, generally, these three major sources of capital are complementary, not competitive.

After examining the details, he draws the bar chart below, showing the funding gaps he identifies.

Clearly, there is a funding gap between $25,000 and $100,000, and another capital gap between $1.5 million and $4 million. This simply means that there are fewer investors who are willing to provide investments in these two capital gaps than for rounds of investment larger and smaller than these two ranges. To elaborate, seldom can entrepreneurs accumulate $50,000 from Friends and Family, while angels are infrequently willing to provide as little as $75,000 for new ventures. In the gap between $1.5 and $4 million, angels only occasionally fund rounds larger than $1.5 million, while VCs are hardly ever interested in investing less than $4 to $5 million in startup companies. In fact, we estimate that less than 200 investors in the US are routinely investing $2.5 to $3.5 million in entrepreneurial ventures.

Interesting discussion. I think I see this in the real world. And what do you, the entrepreneur, do about it? Here’s what Bill says:

So, how should entrepreneurs use this information? Clearly, new companies need to design their achievement milestones with the capital food chain in mind. For example, entrepreneurs who anticipate needing $4 million to achieve positive cash flow need to carefully plan to hit important milestones with perhaps $1 million, and then plan to raise two additional rounds of $1.5 million to eventually achieve positive cash flow. What might these milestones be? Milestones are accomplishments that demonstrate the viability of the business; hence, they increase the valuation of the company. Depending on the company, important milestones may include being granted a patent, receiving a 510k FDA approval, completing a prototype, receiving positive customer feedback on a beta test, achieving first revenues, hitting the goal in annual revenues of $1 million, etc.

(image: from gust.com)

Only Two Numbers Matter

December 6, 2011Angel investment, Starting a Business, Web/Techcost of acquisition of a customer, gust.com, Howard Morgan, lifetime value of a customerTim Berry

This is Howard Morgan, managing partner at First Round Capital, serial entrepreneur, and former professor at Wharton. He says:

If you have a business that’s based around the internet, there are basically only two numbers you need to know: what’s the cost to acquire a customer, and what’s the lifetime customer value. If the lifetime value is higher than the cost to acquire a customer, then you have a business. If it isn’t, then you don’t.

Here’s the quick video, from gust.com, one of a rich collection of short videos from angel investors. It’s a great resource:

If for any reason you don’t see that video embedded here, you can click here for the link to the original.

True Story: But Nobody Moved In. They Ran Out of Money

December 2, 2011Business Mistakes, Starting a Businessempty office space, failureTim Berry

Every day when I get to my office I walk by an empty office of about 4,000 square feet, that reminds me of the dark side of pollyanna entrepreneurship, acting on impulse and optimism, without planning.

I don’t know whether or not anybody is paying rent for that space, but it’s class A office space. More than a year ago that space was tailored and customized for a new tenant. The changed the layout, added walls, carpets, interior lighting, and signage. It must have cost tens of thousands of dollars.

But nobody moved in. They ran out of money. Nothing happened but the leasehold improvements. That space has been empty for more than a year now.

Somewhere there ought to have been a plan, with a rough estimate of funding required, and the wisdom of waiting until they got the funding before they started the spending.

(Image: stock photo, from bigstockphoto.com, not a picture of the space I refer to)