Sunday, January 30, 2011

All Time Best Songs for Start-Ups

This is a list of the best song titles ever, describing what starting a tech company is like. You can read the list from top to bottom or bottom to top. I don't think it matters.

Add yours to the list!

1. You May Be Right (I may be crazy) - Billy Joel

2. American Idiot - Green Day

3. Can You Help Me - Ape Hangers

4. Crazy Life - Toad the Wet Sprocket

5. Crazy Train - Ozzie Osbourne

6. Dancing With Myself - Billy Idol

7. Fly Me to the Moon - Frank Sinatra

8. I Can Dream About You - Dan Hartman

9. I Know There's Something Going On - Frida

10. If I Had a Million Dollars - BareNakedLadies

Friday, January 21, 2011

Silicon Valley Envy

Because I am a regular at the Minneapolis BootStrapper's Breakfast, I am a member of the Bootstrapper's Breakfast Yahoo group which is, understandably, dominated by entrepreneurs from Silicon Valley, where the group originated.  I receive a lot of unreadable spam from this group, but once in a while there is a provocative discussion that get's me going (like that is super difficult?)

A couple of days ago, someone posted a question that made me cringe because I knew what would happen next.  The question was,

"If new and/or traveling into Silicon Valley, what was the one most surprising thing you found about our region?"

Based on the responses that came flooding back in, apparently, though not surprisingly if you have ever spent time there, this question was interpreted to actually be asking...

"What makes Silicon Valley so much better than everywhere else in the world?"

A group member named Sashaov responded with:

"The fact that literally everybody in the computer technology field is located here, with just a few exceptions.”

I'm not a coder, so I'm not sure why this pissed me off to the degree that it did, but this kind of thinking and mindset is what I remember most about living out there, and why any entrepreneur who has lived there, then left to start their business somewhere else in America, throws up in their mouth a little, when you say “Silicon Valley.”

 The complete self-absorption, lack of perspective, rampant hyperbole and irrationality run-amok, that made me want to run screaming from “The City,” is exactly the kind of drivel that drives entrepreneurs from other parts of the world, to the 101 corridor.  The cultrepreneurs out there are their own self-perpetuating PR machine and in many cases, their own worst enemy.

I freely admit that I lived there during the absolute worst time to get an objective view of the scene; during the dot-com boom.  However, each time I go back to visit, I get a disgusting booster-dose of entitlement and self-sycophancy.  The attitude that there is "no place else on earth better than Silicon Valley" and there cannot possibly be a concentration of smart, capable entrepreneurs anywhere else on the globe, that could ever rival the Sand Hill Road coffee-house-crew, is so insular and narrow-minded that it even makes me yearn for the horribly frigid winters of the Upper Midwest. 

At least here, while we freeze our collective asses off, we have the common sense to be cognizant that the rest of the world (including SF & Silicon Valley) may indeed house a few people who are smarter than us. (which they prove by being smart enough not to live anywhere that the temp routinely drops to 15-below-zero for days-at-a-time.)

There are SO MANY people here in the Midwest, and in the Twin Cities in particular, for whom the Dream of Silicon Valley is so strong, that they think the streets of Palo Alto are littered with $50 million term sheets, where entrepreneurs get to keep 90% of the company they started 2 weeks ago.  Most of the local “entrepreneurs” that have this terminal case of “SV Envy,” have never even been there. (and usually have only talked about starting a company) 

We all sit here in our networking meetings and start-up bitch sessions, whining about how much better off we would probably be if we were in SV.  But what we choose not to acknowledge, or simply don’t know, is that the mortgage on a 3 bedroom house in the suburbs here, is about the same amount you pay for 150 sf. of roach-motel out west.  We don't seem to care that driving 7 miles to work in "The Valley" takes about an hour-and-a-half, instead of ten minutes.  We don't recognize that folks in Palo Alto are paying $0.40 more for a single gallon-of-gas, than we are here, and that a cup of coffee at one of the vaunted Mountain View coffee shops where, supposedly, all the cool entrepreneurs hang out and talk about the millions they are making, or going to make, costs twice as much as the same cup of coffee bought in Minneapolis (and here it is usually served by someone who you might even be friends with)

So I encourage the folks from Silicon Valley to keep on thinking that it is such a special place that it would be impossible for someone to be successful anywhere else.

After all, it would be ludicrous to think  that a kid from Pittsburg, who had gone to Northwestern to study music, then dropped out of grad school to build a start-up in, of all god-awful places (gasp), Chicago, could make it work.  It would be a certifiable miracle, if that company raised $165 million from VC’s in Silicon Valley (and Moscow), hired more than 1,000 people and turned down $6.5 BILLION from Google because they knew they could make a lot more by waiting to go through an IPO.

NAH, that could NEVER HAPPEN; nobody in the Midwest becomes successful.  Nope, not in a million years, because...

"Literally everybody in the computer technology field is located here, with just a few exceptions.”

Thursday, January 20, 2011

Where the Hell are the Entrepreneurs?

I have been to two different "JumpStart Community Gatherings" and have come away from both with the same overriding question:

Where the Hell are all the Entrepreneurs?

There is something seriously wrong with a process that is supposed to be gathering information about how to fix the broken entrepreneurial and investment climate in Minnesota, but in a room with 50+ people, there were 9 entrepreneurs.

I sat at a table that was supposed to be dedicated to software and business services and there was a professor, a low-level Chamber of Commerce employee and two State of Minnesota workers.  There were two of us that are actual software company entrepreneurs, a developer from South Dakota, and a woman who owned a small business that sells financial management services to other small businesses (not exactly someone capable of going out and raising equity investment.)

I looked around the room and I would estimate that there were no more than 3-4 people who were younger than me... I am 41 years old.  I had met every single entrepreneur in the room at some time over the last 5-6 months and maybe half of us have ever done an investor pitch.

I recognized five people who had gone to Minnedemo; two of them were sitting at my table, two others have never started anything but their car and then there was Ernest Grumbles, who is an outspoken IP litigator and community agitator, who all of us entrepreneurs know well and greatly appreciate, for his work with MOJO Minnesota.  Now, Ernest deserves for his opinion to be heard, because at least it comes from interacting with entrepreneurs.

What I didn't see were:

  • 23-30 year old men and women who are constantly struggling to get their start-ups noticed by investors in the local community.
  • Anyone who has attended a Bootstrappers Breakfast or a KickStart meeting since October.
  • A single Angel Investor or VC (I take that back; Harlan Jacobs was there representing the entire local investment community)  There may have been some others there, but I go to as many networking events as anyone and I didn't see any other investors that I recognized.

There were a couple of people who are on the outer fringes of the Project Skyway lexicon, but nobody, besides me, from the core group. (although I know that Cem Erdem, at least, was at the session the night before)

I am disappointed that there weren't at least 30 desperate, cash-starved entrepreneurs, who live the actual day-to-day life, that all of these other folks are supposedly trying to help make better.

I was also disappointed that there weren't a whole table full of well-known local investors, (you know who you are) who could have come to the event and listened to the issues first hand.  Instead they'll end up reading some sanitized report, boiled down to a couple of bullet points, put together with input of the, mostly wrong, crowd.

Finally, where the hell are the politicians and lawmakers who are always up the ass of the local research university, talking about what a horrible job it is doing transferring technology to industry?  Did they not think it would be a good use of their time to come and find out, in person, what their constituents think are the real issues.  Do they really think they are going to get all the information they need to make Minnesota a better environment for entrepreneurs and a more free flowing system for investors, from a bunch of folks who fly in once every couple of months from Cleveland?

I am impressed and astonished by the great work that the JumpStart folks have been able to accomplish in a relatively short period of time in Northern Ohio.  But I can't help but wonder what is the point of doing a "regional survey," holding meaningless meetings and getting a whole bunch of bullshit input, from a group of folks who want someone else to do the hard work.  Why are we so resigned to let someone else carry the water for us.  Why don't we demand that they, instead, act like real entrepreneurs.  They should have just come in, started working and made something happen.  They aren't acting like entrepreneurs; they are waiting for all the lights to turn green at the exact same time before they pull out of the driveway.

So, I call on the entrepreneurial community to demand our input be heard, separate from all the well-wishers and wannabe's.  I am going to ask Jeff Pesek, Ben Edwards, Luke Francl, Casey Allen, Mike Bollinger, Kevin Spreng, John Roberts and Harold Slawik  to help me put together a truly representative group of "Real Entrepreneurs" to meet with the folks from Jumpstart, so they can get constructive, accurate and representative input from the woefully under-represented (and apparently under-appreciated) start-up community, who never got invited to participate in a community forum that is supposed to be designed to gather opinions that will help us.

Monday, January 17, 2011

117 Tech Start-Up Questions from a Dumbass Entrepreneur

Hi, I'm Darren and I'm a dumbass.  I work in a world where there are almost no questions that can't be answered without first saying, "Well...It depends!" But doing what I do, starting tech companies, is one of the only things I am really good at.  So, with that said...

I have been an entrepreneur/start-up junkie/ Dot-Communist for half of my adult life.  Many things have changed in the world of tech start-ups since I worked in SV more than a decade ago.  Everyone is so much more sophisticated and there is a much higher level of nuance than when I first started out.  There is also a much larger community of folks who have been-there-and-done-that.
With all that said, I started taking stock of just what I know for sure (or at least think I know, anecdotally) and what I still wish I had a better understanding of.  Then I started to write.  I came up with page- and-pages of questions that I wish I could have asked back in the beginning of my career and a whole bunch that I wish I could get answers to, today.

I am even thinking about getting a group together, which will include a pool of successful entrepreneurs, lawyers (both IP and start-up), early stage accountants and/or start-up CFO’s, Angels and VC’s.  I want to ask them all the questions that I think most newbie tech entrepreneurs would want to know the answers to. 

I figure if I could ever get a few of each, from the aforementioned group, to answer all of these, then add answers from the founders of some prominent tech accelerators like Y-Combinator, Tech Stars and/or Founder’s Institute, I could easily write some kind of “Tech Start-Ups for Dummies” book.

Obviously, there are too many questions to ask in one session, but here are all the questions that I thought to ask.  I could have kept going, but honestly, what good would that do.  I am sure I am missing a bunch of really important topics, especially around valuation, preferred vs. common stock, liquidation preferences, sub-debt, funding sources…

Enjoy, and feel free to send me additions!

Questions For Investors
1.    Have you ever founded a tech start-up and, if so, what was your role and how did it turn out?

2.    What can we, the Twin Cities start-up/entrepreneurial community, do to get more Angel/Seed investors interested in investing in pre-revenue tech start-ups?

3.    Do you ever invest in companies, when you have serious doubts about their ability to raise more money if they should need it or if they come right out and say that the don’t ever want to raise more money?

4.    What does it say about an entrepreneur, when they say they want to raise $1 million on a pre-money valuation of $1.5 million and does it ever seem weird that everyone throws around such large round-numbers, so casually?

5.    Do you ever invest completely independently or do you ever fully fund a round, without other investors; Why/why not?

6.    Have you ever funded an “idea?”

7.    Have you been so impressed with a team or an individual, that you funded what you considered a terrible idea? (how did it turn out?)

8.    If you could describe your favorite quality in an entrepreneur that leads a company that you have funded, and is (or has) provided exceptional ROI, what would it be?

9.    How do you figure out whether an entrepreneur knows the difference between an opportunity and a problem.

10.    When you meet an entrepreneur for the first time, someone who may have been successful in something they have done or started in the past, do you care or even think about whether they were good at what they did or just lucky?  How do you tell the difference?

11.    Is it important for entrepreneurs to know the difference between prepared and over-prepared or do you find that the majority of entrepreneurs are underprepared so it is actually refreshing to meet someone who is over-prepared?

12.    What are the signs of an entrepreneur who is over-prepared what message does that send to you, as an investor?

13.    What are the two-or-three due diligence things that you do, every-single-time, before you invest in a company?

14.    What are ways or examples, that you have consistently seen start-ups waste time on things that don't matter.

15.    If a founder, founders, need to be paid some kind of salary, does that affect whether you will invest?

16.    What is an acceptable salary for a CEO, CFO, or CTO if their company isn’t profitable yet?

17.    Are founders allowed to get raises in salary or do bumps like that always come in the form of stock?

18.    Since we all start somewhere, and none of us has any experience until we just jump in and start doing something, what are a couple of important lessons you have learned since you made your first investment?

19.    From both a business and personal standpoint, what is the best thing about investing in Start-ups?  The worst? 

Questions for Entrepreneurs

20.    Aside from your own company, or companies where you have been an employee, have you ever invested in a tech start-up?  If so, what was your role (board seat, etc.) and how did it turn out?

21.    Now that you have been through it, what is the most important element to choosing the perfect investor.  In other words, if you could choose one thing that an investor would bring to the party, what would it be?

22.    When you know you have a hard deadline or some really important event coming up that could make or break the success of your startup, should you tell potential investors?  If so, how do you communicate it so you don’t look desperate or pushy?

23.    Why is it important to be patient and when is it ok to push an investor to take action?

24.    When you meet an investor for the first time, do you care or even think about whether they have been successful in their past investment activities?  How do you tell the difference between a successful investor and just someone who has a lot of money?

25.    What are the dangers of hiring too quickly?

26.    What are the dangers of firing too slowly?

27.    What are the areas where you “Under-budgeted” for critical elements/expenses in your business plan?

28.    What hurt your start up more, making decisions too fast or too slow?

29.    What helps/hurts a startup more: Looking for answers from other people or Looking for approval from other people

30.    Before beginning to build your product, is it possible to get too much input or listen to too many points of view and, if so, which group is it more important to seek advice from; potential customers or potential investors?

31.    Following up on the previous question, is it more important to seek advice from those who already serve your industry or those who have built a company with a similar business model?

32.    If, as a founder, you have responsibilities and financial commitments that make it absolutely impossible to work for free; should you go into deep debt, threaten the financial security of your family, or be expected to, to “Prove” your commitment to your company?

33.    From both a business and personal standpoint, what is the best thing about founding a Start-up?  The worst?

34.    Have you ever fired an investor or had to figure out a way to remove them from the mix?  Why/how? 

Questions for all

35.    Besides getting customers and revenue, what is the one thing you would tell someone to do to really get your attention?

36.    What is the dumbest mistake you have ever seen an entrepreneur, who eventually got funded, make?

37.    What is something that you hear from entrepreneurs/investors that makes you say to yourself “Well, I can cross them off the list of people I would ever consider investing in/taking money from?”

38.    What is the difference between important and urgent and how do you decide which is which?

39.    Is it more important for an entrepreneur to be seen as smart-as-hell or obsessively driven?

40.    Thinking back on start-ups you have funded, how do you gauge whether the team understands the difference between focus and activity and, as an investor, how do you help steer them toward more productive activities.

41.    Is it more important, for someone who is looking for funding, to be better at generating publicity or confronting reality and can one overcome the other?

42.    What are the areas where you consistently see entrepreneurs “Under-budget” for critical elements/expenses in their business plans?

43.    What are the tell-tale signs of an entrepreneur who has let getting funded go to their head?

44.    What are the most common things, as an entrepreneur that you found yourself Overspending on and how did you figure out that you were doing so?

45.    What is worse; Under-communicating or over-communicating?

46.    What are the kinds of critical events that happen during a start-up’s early stages that breed overconfidence?

47.    What is worse for the long-term success of a company: Not shipping fast enough or shipping a crappy product?

48.    If a start-up hasn’t filed legal documents, which designate them as a C-Corp or an LLC, does that send a message to investors and, if so, what is that message?

49.    How do you decide what the percentages are that each founder gets?

50.    For multi-member founder teams, who or what kind of founder usually gets screwed or at the very least, under-valued for their contribution.  Who’s contribution is overvalued?

51.    If you had to choose just one, is it more important to have a great accountant or a great lawyer?

52.    When is it time to bring in an experienced CEO

53.    What are the characteristics of a good start-up CEO and how do they differ from the characteristics of a good CEO of a company that has 25 employees and/or 5 million in revenue?

54.    When should you no longer be considered a Start-up?

55.    In general, would you say it is more important for a start-up, in its infancy,  to have a long-term strategy for self sustainability, so that they can minimize the amount of outside investment they need to take, or a well-defined path to becoming a good acquisition target?

56.    Do you think IPO is a reasonable goal for a start-up to even consider from the beginning?

57.    What is the difference between a start-up friendly lawyer and an investor friendly lawyer and how does an entrepreneur know the difference?

58.    (This question for all except entrepreneurs) Are there lawyers, accountants, developers, other common types of vendors that you will not, or maybe prefer not to, work with, all thing being equal?  Does this ever become part of the equation when you are considering investing in or working with a start-up?

59.    Should a start-up have an advisory board? why?

60.    How many people is about the right size for an advisory board and when is it just too big?

61.    How should an advisory board differ from a board of directors/governors?

62.    What is the most appropriate level of compensation for a Board of Directors/Governors? Does this include cash as well as stock?

63.    Is it appropriate to have a completely independent voice on the Board of Directors?

64.    What is “smart money” and is it so important to have smart money, that you should turn down “dumb money” no matter what?

65.    What is the worst way for a start-up to spend money?

66.    What is the most cost effective way for a start-up to spend money?

67.    Do investors ever get pissed or think you are losing focus if you spend time mentoring someone else or participating in activities that don’t bring tangible value to your company?

68.    Other than stealing or some other criminal activity that directly affects the company, what is the one thing, above anything else that should trigger immediate removal from the team/company/ board, etc…? 

69.    In what percentage of start-ups are one or all of the founders removed from their initial role’s by the board?  Do they usually stay with the company, long-term, or is that a signal that they should probably leave?  Is that usually the message that the board is trying to send?

70.    Out of every ten start-ups that get funded, how many start-up CEO’s are equipped to handle that job, long-term, through multiple rounds of financing or through a successful exit?

71.    How often do founder teams split up, and why?

72.    How do you go about firing a founder?  When should that happen? What are the signs or triggers for this to occur?

73.    What are the worst case-scenarios you have seen for a company that had to get rid of a founder? (not naming names, just situations)

74.    From a company culture and morale perspective, what is the best way to deal with a founder leaving the company?

Networking - I am often intimidated by networking events filled with people who could probably help me or teach me something, but might also be WAY ahead of me in the experience life-cycle.

75.    What is the importance of networking for an entrepreneur? 

76.    Do investors ever consider how networked an entrepreneur is when they are thinking about investing?

77.    What are some of the most important groups that an entrepreneur can get involved with, that signal that they understand the importance of networking?

78.    For each group, what is the one networking event that you would never consider missing? Why?

79.    For each group, what is the one networking activity that you think some entrepreneurs waste their time participating in or that they participate in, to the detriment of their goals.

80.    What are some great networking behaviors that impress you? For entrepreneurs, talk about investors; for investors, talk about entrepreneurs; for legal, talk about all; for accountants talk about all.

81.    Is it more important to network with others in your same industry and/or your relative level of influence or social stature, or should you risk looking like an idiot or worse, feeling like an outsider in a room full of people who already know each other?

82.    Is networking more or less important after you have been funded?

83.    What are the characteristics of a good mentor?

84.    Should mentoring be a formal relationship.  In other words, should I say to someone, “would you be my mentor?” or “would you mentor me in this X area?”

85.    Is mentoring a business relationship?

86.    What should an entrepreneur be trying to get from a mentor?

87.    What should an entrepreneur never ask of or try to get from a mentor?

88.    What’s in it for the mentor?

89.    How many mentors is too many?

90.    How much time is too much when it comes to networking?

91.    Is it a mistake to become so focused on your business that you don’t have time to network or mentor, even if your business is wildly successful?

Would you rather have:

92.    An awesome, charismatic, leader who can communicate the vision OR an awesome, super-organized and empathetic (people) manager, running a start-up?

93.    A principal founder/start-up CEO with Undying Passion for the idea OR Real World Experience

94.    Founder/CEO who is Confident OR Pragmatic

95.    Founder/CEO : Street smart OR book smart

96.    Founder with a technical background OR Founder with sales background in target industry

97.    Founder with a technical background OR founder with operations, finance and HR background

98.    Founder with sales background in target industry OR operations, finance and HR background

99.    Founder/CEO: MBA with 2 years at McKinsey OR BA in English and 8 years in sales to target market

100.    Investor with personal net worth of $200 million but no experience in your industry OR Investor with net worth of $5 million, but can introduce you to lots of customers.

101.    Investor who is super-supportive of your company and helps any way they can, but likely can’t/won’t invest in follow-on rounds OR a micromanaging investor who doesn’t really offer much besides money, BUT can help you raise a ton of money, as you grow.


102.    What can a good accountant do for you and is it important that they have experience working with start-ups?  Why?

103.    In general, for entrepreneurs looking to raise money, should they file as a C-Corp, an LLC or should they wait to see what their investors want them to do?

104.    What is the best thing about working with entrepreneurs?

105.    What is the most difficult thing about working with entrepreneurs?

106.    Why do you think it is so hard for entrepreneurs to understand the concept of pre-money and post money.

107.    If an entrepreneur has a good accountant and a good attorney, is it still important for them to understand the minutiae of pre-money and post money valuations.  Why?

108.    How do you value a company that hasn’t produced revenue?  Are there any indicators or benchmarks that one should look for?
109.    For a pre-revenue tech start-up with no patents or tangible IP, what is the top end of the valuation-scale and what makes some companies, in similar situations, more valuable than others?


110.    What is the difference between legal representation that is used to working with startups and those who aren’t?

111.    Does a good start-up lawyer need to have a lot of knowledge and experience in issues surrounding IP?

112.    Is reputation a factor that entrepreneurs should consider when they hire a lawyer?

113.    What is the best thing about working with entrepreneurs

114.    What is the most difficult thing about working with entrepreneurs

115.    What are the most important things to get right from a legal standpoint, when forming a company?

116.    What should an entrepreneur do if they don’t have the money or good fortune to have access to a good attorney?


117.    Finally, For an entrepreneur who needs:

  1. A co-founder or two - Who bring skills, experience and a solid background/reputation of providing specific key elements to other successful businesses
  2. Investors - who inevitably will want them to keep the company as lean as possible in the early stages, to reduce the burn rate
  3. Market validation – to show both investors and potential co-founders that the opportunity is worth the risk
Would you be better off spending your time networking with potential partners, potential investors or potential customers?

Darren Cox

Darren Cox
Founder and Chief Evangelist - CaSTT - Commerce and Search for Technology Transfer