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Entrepreneurs, "What Do You Get Blamed For?" -- An Important Sales Tip That's Easy to Forget

In enterprise sales situations (less so, for consumer-facing businesses), it's important to remember that there are multiple people (and/or business units) in the enterprise customer who will have different, and often contradictory, points of view about whether the customer should buy your product.

An important, often forgotten, lesson for entrepreneurs is to remember that one of the most important things you can sometimes do is to help some employees of the customer company make their case for buying your product to their superiors, as well as to other business functions, like the office of the CFO, whose job it is to "screen" all such purchases (in not a few companies, sales-related employees (sometimes unfairly) refer to the General Counsel and/or CFO as the "revenue prevention departments").

This nuance -- that some employees of your "customer" are, actually, your sales "allies" against other employees -- is very important, but easy to forget.

The reasons are varied (and some of these will be "personal" (e.g., some employee involved in the product or service evaluation process just doesn't think your product is as good as competing products)), but the important one is "institutional" and lies along this main dimension: "What Do You Get Blamed For?"

Most enterprise products or services are aimed at improving some specific, identifiable business function in the enterprise customer: e.g., CRM is aimed at helping customers improve their sales processes.  So the employee (here, say, the VP Sales) who will use the CRM system wants the company to buy it because it will help him do his job better.

The VP Sales wants to spend money to get help because he gets blamed if the company's sales targets are not met (but, importantly, not not blamed if the company's costs are not properly controlled).

For the CFO, it's (almost) the reverse. 

The CFO gets no credit for achievements on the revenue side of the business; that glory goes to the VP Sales.  The CFO, however, is ("institutionally") focused more on keeping costs down because he gets blamed for anything that goes wrong on the cost side of the business.

While my example is, of course, an oversimplified description of the more complex reality inside any enterpriese customer, it's still easy to see that some employees in the enterprise customer will want to spend money on your product (e.g., you're selling a CRM system to the VP Sales) and some will want to make sure that as little money is spent as possible.

The lesson: part of helping make the sale is treating (in my example) the VP Sales as your ally in a "struggle" with the CFO over the purchase of your product.

Seasoned, smart sales execs in large companies know this lesson very well, but it's not something entrepreneurs in startups always consider.

But, it's important (often decisive), so they always should.

Entrepreneurs: What's Your Exit Strategy? Here's a Suggested Answer.

In the old days of Silicon Valley, there were two possible ways for startups to "exit":  (1) an IPO and (2) and acquisition.  One used to hear investors ask the question to entrepreneurs: "what is your exit strategy?"  Back then, I always thought the question, while it made some sense, was silly and naive.

Why?  One couldn't (and still can't) really build a valuable startup in a way that maximized the chances of an IPO vs. an acquisition.  All one could, really and truly, do was to build a fast-growing, profitable company that delivered customer happiness.  If one did that, one would have a nice exit.

Things are different now.  Even without the impact of the recent Facebook IPO, there hasn't been a real IPO market for technology startups for years. [While this is orthogonal to the argument in this post, I believe that we will never have a robust IPO market until a number of deep changes are made in the regulatory structure governing IPO's and in the parts of the financial services industries that facilitate them.  I am exceedingly pessimistic that these will occur in my lifetime.]

What that, in reality, means is that almost 100% of the exits by technology startups will, for the forseeable future, occur via an acquisition.

Nevertheless, I still hear the question ("What's your exit strategy?") asked by potential investors of the companies with whom I work in my Sherpa capacity.  Although it needs to be asked in a different way, the question makes more sense now for investors, when there is essentially only one path to liquidity, than it did when there were two.   It makes more sense because it focuses on making sure that, before investing,  there are potential buyers for the Company -- because, for investors nowadays, that's the only way out.

Because the question is still so frequently asked by investors, here's a draft answer that entrepreneurs and their startups might think about using:

"Dear Investor,

Thanks for your question. 

At X Tronics, we view our job as building a fast-growing, profitable company that provides kick-ass user benefits.  If we can do that, then good things will happen in an exit.  Obviously, the IPO route is less probable (for any company) these days, so the (numerically) higher probability outcome for X Tronics is M&A.  If we eventually proceed down that path, we think there are a number of possible acquirers for X Tronics, such as _____, ______ and _______.  We closely track those companies and stay abreast of their market activities.  Through our advisors, we are developing relationships with them that, we think, will serve us well in demonstrating (at some point) how much value we could add to their businesses. 

That said, we don’t believe that “build to sell” is a business strategy that creates real shareholder value.  We think the only way to build real shareholder value is to focus on creating lots and lots of very happy customers.

So, bottom line, we are aware that an M&A exit is more likely than an IPO, just on the law of averages.  There are a number of large companies who would be interested in buying X Tronics if we can create a company with happy customers.  We are 100%, heads-down focused on that."

Entrepreneurs, Startups and President Eisenhower: Important Lesson

Many people, it turns out, don't know that President Eisenhower was President of Columbia for several years (after WWII and before becoming President of the U.S.).  While that is a fact, the following story may well be apochryphal -- but it's too good not to republish as a lesson to entrepreneurs to "listen to the customer". 

Many venture capitalists (including me), think that the perfect founder of a startup is a great technical product person.  In many, maybe most, cases, that's true.  But, there's a potential catch that investors need to consider, and that entrepreneurs need to watch in themselves: people with strong product intuitions often ignore data from the users of the product that conflict with the designer's idea of how the product should be used.  It's almost a cliche around early-stage finance folks to tell the story of the technical product founder who, in high dudgeon and out of frustration, exclaims:  "Dammit, all those customers are using the product the wrong way!"

Guess what, any time all your users are "using the product the wrong way" should be a wake-up call.

Anyway, back to Eisenhower.  As the story goes, during his tenure at Columbia, the university was building a new quad.  In a design review meeting, the architect gave a presentation to not much reaction.  Next, the landscape architect gave a presentation about the way the grounds would look, including the layout of the sidewalks.  During this, Eisenhower supposedly burst out: "NO! We're not building any sidewalks until we see where people walk.  Only then will we know where to put the sidewalks!"

Good advice for all entrepreneurs.

For Entrepreneurs and Startups: Painful Lesson Re-Learned

There's an old adage, which each new crop of entrepreneurs needs to re-learn:  Distributors take orders; they don't "sell".  "Distributors", in this sense, includes other companies' saleforces that are going to sell your product.  What this means is that is, distributors don't/can't pro-actively market and sell anything that end-users don't already know about and want.  For a successful distribution relationship, customer demand must already exist or be generated by the maker of the product or provider of the service being distributed. 

That's the good news.

The bad news: distributors completely, really, totally, absolutely don't/can't successfully sell/distribute a product (or service, or combination) that is (1) new, so requires educating the end-customer, (2) requires training of the distributor's salesforce to understand, (3) isn't immediately easy to sell.

Entrepreneurs, if any one of the above 3 attributes is true of your situation, you will be disappointed in any distribution relationship you enter.  This is always true, notwithstanding the protestations to the contrary by savvy distributors who've heard the old saw and are smart enough to try to pre-emptively deal with the concern.

Especially for startups, with limited sales, marketing and distribution resources, it is very tempting to believe that "this distributor" is different.

It never is. Beware.

Entrepreneurs: No Passive "Taglines"

Not a big news flash that venture capitalists, being in the business of meeting with entrepreneurs, see lots and lots of pitches.  No one (not even VC's!) can do this over and over again without getting a little jaded.  Entrepreneurs need to realize this and consciously keep it in mind when developing and delivering their pitch. 

Further to this point, it's no great original insight (see, e.g., my earlier blog post, and last Sunday's guest post by Charles Moldow on TechCrunch; there are also numerous other examples) to urge entrepreneurs to "get to the point" and be succinct when pitching venture capitalists.

To have a shot, you need to stand out from the crowd.

The best way to do this, obviously, is to have a great team & a great idea -- and present the startup idea crisply and cleanly (numerous tips on how to this here (and links referenced there)). 

Less well discussed, however, is an important, corollary lesson.

Part of "creating the aha! early" is saying -- right off the bat -- what your startup "DOES", rather than what it "IS".  Venture capitalists get pitched all the time with taglines that read something like this:  "XTronics is an industry-leading, customer-centric, social media, ad targeting and delivery, fix breakfast and do the dishes platform for...blah, blah blah."  Even if the venture capitalist understands what that means (which, given the way most of these long introductory sentences are constructed, is very difficult), it's a very weak, passive way to introduce one's startup.

Venture capitalists want to invest in companies that solve big problems.  Therefore, tell the VC -- at the beginning of the presentation -- what problem your company 'solves'.  Think about starting with: "XTronics helps customers do X [i.e., solve some problem that is important to the customer]....".  It's a much more powerful intro, and will set you apart from the other startups the venture capitalist sees. 

In addition, as Charles Moldow points out in his above-referenced post, it is a very good test to see whether you really understand the core value in your startup idea.

When raising venture capital, it's a test all entrepreneurs should take, and make sure they can pass.

Entrepreneurs, Gambling & the Schmuck Factor: How a Major Upcoming Milestone May Hurt Fundraising

Entrepreneurs, here's another surprising subtlety that you might not think of when raising money from venture capitalists:  even with a solid track record of accomplishment over, say, the past year, don't try to raise money too close to an upcoming major milestone, or inflection point, in your business (e.g., big product release, significant new customer agreement, important senior hire).

Why?

Two main reasons:  (1) to a venture capitalist, it feels too much like gambling, and (2) VC's worry a lot about the "schmuck factor". 

Venture capitalists, when they're acting in their roles as investors, don't like to gamble (though many do in their "off-hours").  When evaluating a startup, venture capitalists like to have lots of data to analyze about markets, customers, entrepreneurs, etc., etc.  They don't like to have an investment decision about a startup hinge on one major risk factor, or inflection point.  All investment decisions in startups are high-risk, and, by following a disciplined process, the venture capitalist can feel comfortable that he's "done his work".

When venture capitalists don't feel comfortable, they don't invest.

This is, counter-intuitively, true even if the venture capitalist believes that the milestone will likely be accomplished, and that the startup's valuation will increase as a result.  When it comes to major inflection points, venture capitalists would rather pay a higher price for less risk.

This derives from the "schmuck factor".  VC's live in a high-risk, competitive world.  Their competitors in other firms, and, importantly, their partners and other colleagues in their own firms, put a lot of pressure on them to follow thorough due diligence processes in arriving at an investment decision.  Especially in today's envrionment with limited exits, this makes venture capitalists more conservative, and causes them to avoid situations that, if they turn out wrongly, provide ammunition for their competitors and colleagues to think of them as "schmucks".  In the present case, this means not investing too close to a major milestone, or inflection point.  If the milestone isn't reached, the investor risks being considered a "schmuck" (ie., why didn't he wait to see?).  If the milestone is achieved, the investor can decide whether to invest at a higher price; this may hurt investment returns, but it avoids the "schmuck factor".  That's a trade-off most VC's will happily make.

So, entrepreneurs, in thinking about when to raise money, and how much to raise, make sure that you have the runway to accomplish your big milestones before you go out to talk to venture capitalists -- and, as I wrote here, that, when you do start the discussions, you still have four months of burn left in the bank.

Entrepreneurs: Under Stress, Don't Do What Comes Naturally

Several recent episodes in my "Sherpa" practice have reinforced this lesson for entrepreneurs that I was taught early in my career: 

In stressful times, over-communicate with all stakeholders in your start-up, if only about process/status.

One's natural tendency is to clam up; after all, stressful times, almost by definition, are crazy busy, so who has time..... 

Wrong.

Fight the tendency.

Radio silence arouses fears of the worst.

And, counter-intuitively, if you involve your board, your advisors, and even your significant stockholders, you will be surprised how quickly folks can flip into the "how can I help" mode.

Like everything in life, however, use your judgment; not all of these folks can contribute to a resolution of the problem, but keeping them in the loop at least never makes the situation seem to them worse than it is -- and that, in and of itself, can be a big benefit (and lessens the follow-on communications burden with them).

The guy I know who does this as well as anyone is Jason Goldberg, co-founder and CEO of Fab.com (disclosure: I'm early investor and board member).

Read his blog and you'll get a sense of what I mean; there are, of course, lots of other communications via email, phone, texts, etc.

Notes on the Evolution of Contact Information

I've noticed recently that, when you ask an email correspondent for their contact information (those who don't include it in their e-signature), what one gets is different today than a few years ago.

Today, one gets:

• one or more email addresses,
• cell phone #,
• Twitter handle,
• various URL's to information on the web (usually LinkedIn, Facebook, the person's blog/tubmlr, et al.); and

What one doesn't get:

• a physical address
• IM name
• landline phone #

Exceptions:

• Service providers (e.g., lawyers, accountants, consultants), who give reams of contact information, no surprise
• Executives in large companies with executive assistants (who, increasingly and humorously in some cases, have their own elaborate e-signatures)
• Folks outside the tech/media startup echo chamber in which I live

Interesting how address book technology hasn't kept up.  In Outlook 2007, the version I use, there's no field for one's Twitter handle (one can still enter one's IM address/name), only space for one "web site", and no recognition in any of the "database fields" of the rise of social networks as a part of one's identity and "address".

Note to Apple & Opportunity for a new Startup by Hardware Entrepreneurs?

I was in a meeting a few days ago with a bunch of tech-savvy folks here in Silicon Valley, and, as meetings these days usually do, this one started with a good deal of shuffling around, with everyone pulling out their various gadgets, plugging in extension cords, etc.

Increasingly, one can't attend a meeting, at least hereabouts, without the constant clicking of keyboards as the meeting participants take notes (and, truth be told, do email, check Facebook, browse YouTube, etc.) on some form of computer.  So, initially, as the clicking started, I didn't give it much notice.

After a half hour or so, however, as my mind started to wander, I glanced around the conference room table to check out the hardware on display.  I was very interested to note that four of the eight attendees at the meeting were using some kind of iPad-with-keyboard combination, fluidly using both touchscreen and keyboard (for an example of a cool version of this (not yet available), take a look at this video about the Brydge keyboard).

I had thought that I was pretty up-to-speed, with my new MacBook Air, but I found myself wondering if the other folks in the meeting weren't inadvertently previewing/inventing the laptop of the future -- with the best of tablets and laptops combined in the same device.

Or.....more radically, were they presaging the death of the laptop as currently designed, with a monitor and keyboard that can't be detached from each another?

I assume that the Apple product folks are working on this, but, if they aren't, might be an opportunity for entrepreneurs here.

Anyway, it made me envious, so I went out and bought an iPad-compatible keyboard.

Is Amazon.com Building a Private "Uber for Package Delivery"

We're heavy Amazon.com users in our household.  Since I frequently work from my home office, I'm often here when the deliveries arrive. Over the past couple of months (it may have been longer, but that's how long I've consciously noticed it), something has changed.

Prior to this past couple of months, the Amazon packages always arrived via some commercial service (e.g., usually UPS) or via the USPS.  Occasionally, that still happens.  Increasingly, however, the packages are delivered by private couriers in delivery vans or compact, hatchback cars -- in all cases, completely unmarked.

And, often, a day earlier than promised!

In addition, when delivered this way, the Amazon boxes are different.  They're covered with labels full of bar codes, etc., but no "branding" that relates to any courier/shipping service.  "Amazon" is the only brand that appears.

Wonder if Amazon is building/leveraging some sort of "Uber for Deliveries".  They certainly have the 'ooommph' to do so.  Once sufficient scale has been achieved, will Amazon then offer the service to other businesses (or consumers) who need local deliveries, a la the model in which the Amazon 'cloud' originally being used to support internal business functions, but then becoming a hugely successful service available to third parties for a fee?