A VC in Vacationland

Are Business Plans a Waste of Time?

February 6, 2010

Image by Yodel Anecdotal via Flickr

According to Xconomy reporters (and on whose reporting this particular Blog is based), entrepreneurs who slave to craft a perfectly-articulated business plan expect the effort will pay off with better odds of getting funded. But they’re probably fooling themselves.

That’s the finding of a study conducted by two professors and a doctoral student at the University of Maryland’s Robert H. Smith School of Business. Management and entrepreneurship professors David Kirsch and Brent Goldfarb, along with doctoral student Azi Gera, studied business plans and found quality had zero impact on the amount of VC funding raised.

According to the executive summary, the group studied business plans of more than 700 dot com companies from the late-1990s to early-2000s. They compared characteristics of each business plan – including the contents, team make-up and business model – and whether the plan received venture capital funding.

Their conclusion is that the content of the business plans does not predict which businesses get funded. That doesn’t mean writing one is an entirely worthless process, as it may be useful for organizing thoughts and details of a venture. However, it’s not going to bring in the money.

Are the findings a big surprise to the authors? Yes, according to recent interviews: “We kind of thought we’d find something,” he says. “We thought it would at least matter if you submitted a plan, or if the plan kind of looked right. The evidence is pretty strong that they don’t pay attention at all.”

So what does matter? Social connections trump business plans by a long shot, says Goldfarb Thus it is that people who already know VCs and angels have an easier time raising money. The irony, says Goldfarb, is that people who don’t have connections need to go out and make them, which may require that they have a business plan to discuss. But the plan is sort of like a business card, he says – just something that business protocol dictates you carry around.

Kirsch maintains a business plan archive that contains records from a number of startups from the dot-com bubble era. The research paper, “Form or Substance? The Role of Business Plans in Venture Capital Decision Making,” appears in the May 2009 issue of Strategic Management Journal.

Goldfarb says he believes conclusions drawn from a dataset of business plans from during and slightly after the dot-com implosion are relevant to current entrepreneurs because venture capitalists have not significantly changed the way they make funding decisions.

Should entrepreneurs just forget developing a business plan? Of course not, but they should spend their time fine tuning their idea, market and business model to make sure their technology really will be the big hit they want it to be. Business plans will always be requested, read some of the time and immediately discarded once the marketplace changes.

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Supply Chain Innovators: Digital Ants in Your Supply Chain?

January 30, 2010

Three years ago, I wrote a Blog on Dust Networks and the idea that one could know where their product was at all times using motes technology.

Image by binuxvia Flickr

Motes are still very much around and under development in a variety of industry settings, although a Google search on the subject yields mostly academic papers and not operational supply chain technology solutions. But the concept of inexpensive, real time tracking of products in a supply chain remains a tantalizing subject. And now we have related technologies that may show equal promise in this space–digital ants.

There was a fascinating article in MSN recently on Digital Ants and their role in increasing security in computers. Scientists from Wake Forest University and the Pacific Northwest National Laboratory have created an army of digital ants (as well as their superior officers,sergeants and sentinels) to search out viruses, worms and other mal-ware on your computer. The ants are programmed to sense very basic activities, such as a connection rate to a web site. The evidence is then collected and evaluated for security threats or infections. In this manner, new viruses are attacked at a more micro level, without knowing exactly where they are programmed to impact the computer hard drive.

The whole ecosystems for digital ants mimics the real world ant colony. Digital ants relay any suspicious behavior to a digital sentinel, a program designed to monitor a computer network. The sentinel sorts through the data gathered by the ants, and passes it on to a digital sergeant, who alerts their human counterpart to take action. If particular kinds of ants find more problems, then more of these ants are created to intensify monitoring of the network. The beauty of using digital ants instead of traditional anti-virus programs is that the ants are always on duty, unlike the set-schedule scans with current virus software.

The same concept could work in tracing anomalies in supply chain operations. The digital ants could be programmed to sense one particular fact, such as a delivery delay, in multiple operating systems–production, inventory, shipping, carriers, etc.–for a particular order, or product within an order. The information could be used to populate a business intelligence dashboard for supply chain professionals to monitor. The difference would be that the information would be much more robust and real-time than current BI solutions.

There are numerous other applications for motes and digital ant technologies in monitoring and managing supply chains. The next generation of supply chain software should take full advantage of these and related technologies to drive further cost saving and service improvements in operations. So far, no one has announced such a leap forward, unless my readers know of one?

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January 25, 2010

Thomas Friedman wrote a great piece in yesterday's NY Times (http://www.nytimes.com/2010/01/24/opinion/24friedman.html?em) on how the Administration needs to help create a million new start-up companies that won't just be temporary highway construction jobs. Hooray for some clear thinking on what this country needs to be successful in the 21st Century!
Charter for Compassion

January 23, 2010

Image via Wikipedia

TED is a) a bunch of touchy feely do gooders and liberal environmentalist nuts, b) a force for good in the world, c) an elitist and very expensive invitation-only conference, or d) all of the above. Whatever one thinks of TED, they do come up with interesting "reminders" of what counts in life. Their Charter for Compassion is an example of a reminder which has serious applicability in building a successful start up. It's only one page long, so don't think Book of Job, and give it a read.

So what does compassion have to building a start up? Simple. The golden rule, the basis for the Charter for Compassion, is a great way for the founders to view how best to manage a growing company. You will need a lot of sacrifice and loyalty to build a successful company. You must be willing to jump in and work side by side with all team members to make it happen. For example, you should not ask them to "stay late" and finish stuff if you are not willing to do the same.

You get the idea–do unto others as you would have them do unto you. If anyone has a better way of getting the extra effort you will need from your entrepreneurial partners to be successful, let me know.

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Marketing & Sales Strategy: Business Intelligence & Networking Solutions

January 16, 2010
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One of the big problems companies have, especially start ups, is distinguishing themselves in the marketplace. For example, how can you best communicate the impact your technology can have in creating higher ROI and revenues for buyers? If you do not succeed here, you can have the best technology in the world and few buyers will understand how it can make them successful.

The "old school" model was to, once you had a lead or a prospect, have the sales guys, perhaps assisted by marketing, develop some basic information on a company, its successes and its problems. The sales guy would then grab a pre sales or product management guru and head off to visit the company, hoping to make a sale based on a "few good facts". Not exactly the Marines hitting the beach…

There is an opportunity to create competitive advantage in your market by improving the access sales guys have to in-depth information on a company, its performance, the performance of the industry, the performance of its competitors, its executives(and who in your network might know them), etc, etc. The problem is that few collective sources exist that pull together information from the many necessary on-line data bases that contain all this information. Until now…

Two new services are providing sales executives with new ways to gain much more relevant information on target companies, leading to significant advantages over less prepared competitors. Dow Jones Companies and Executives is a new offering aimed at sales professionals which combines numerous information sources to improve knowledge in the selling process. The Dow Jones solutions combines development of prospecting lists, territory management, alerts, business analysis, competitive data and executive profiles. It's not cheap, perhaps the same dollars as a marketing automation solution ($25K per year or so), but it can be invaluable if it helps close sales by having sales people be able to "customize" selling to solve specific customer problems.

Decisionlink is another interesting start up in the business intelligence and networking space. They call their solution "Comparative Intelligence" and their web site describes the process as follows:

"Comparative Intelligence is the basis of your IQ. Comparative Intelligence tells you where companies have issues based on a comparative analysis of each company in context to their True Peer Group. By determining the issues at each of the 120,000 North American companies in our database you now have a entry point of value. This is appropriate for evaluating a solution you are bringing to market, researching the companies you want to sell, or determining your strategy and go-to-market plans. Capabilities include:
- Analyzing your target markets, geographical territories, and individual companies across a spectrum of millions of data points with conclusions drawn for you.
- Contribution by not just you and your colleagues but by all users, for non-sensitive data, shortens your research time and provides immediate benefit even if you infrequently use the system.
- A library of sales assets and internal communication documents are at your disposal and prepopulated with content to maximize your effectiveness and minimize your effort.
- One click integration with your CRM (Customer Relationship Management) system means no more double duty as a data entry clerk for your sales and marketing field teams."
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How Green is Amazon’s Supply Chain?

January 9, 2010

Image via CrunchBase

I admit it. My family are "abusers" of Amazon's Prime option for shipping. We constantly order one book or CD and have it shipped for two day arrival. No doubt it goes initially by air, is wrapped in a lot of cardboard and plastic, but costs "only" $79 per year for unlimited shipping, or about the cost of shipping 10 or so goodies from Amazon each year. Except we probably ship forty or more single item packages per year when all is added up. All in all, we buy a lot more from Amazon as a result of this brilliant marketing strategy, but does the strategy really create a much less green supply chain because it encourages lots more small shipments?

I have just finished breaking down about 40 Amazon boxes for recycling. Our family all came to Maine for Christmas and brought with them numerous presents, many in Amazon boxes. I suppose that getting in my car, driving to the Mall and buying the same books or CD's is not exceptionally green either, but it seemed to me that the "one product at a time shipment" behavior created by Amazon Prime does lead to a less efficient and less green distribution system. At least I combine errands when I get in the car to go shopping. Of course, Prime make UPS, USPS and Fedex quite happy to have all the extra volume, but also creates more greenhouse gases.

I should not worry so much about one company un-greening its supply chain. But the trend is spreading to other on-line retailers. More and more are offering free shipping, even for split orders. To be fair, Amazon does let you ship in one shipment to save shipping costs, but this does not apply to Prime, which ships everything for free anyway. One book order for 6 kid books for Christmas arrived in three packages, some from the West Coast, since not all products are stocked at all distribution centers. Not a very green logistics process.

Amazon could go into the business of selling carbon offsets for a shipment, buying the offsets at auction and selling them, at a markup, to green-oriented consumers. It's another way to make a buck in retailing. Or they could partner with an company like TerraPass, or non-profits in the space, to sell the offsets at cost. Either way, it would be a good public relations gesture to help their supply chain be a lot greener than it is today.

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QR Codes

January 2, 2010

Mobile phone bar code scanners are coming to Britain. Bar codes that can be scanned by mobile phones allowing consumers to read more about a product are coming to Britain from Japan.

The QR bar codes allow users to pick up information with the swipe of a mobile phone and have rapidly gained cult status in Japan. From scanning a poster to obtaining cinema times to swiping a pack of tomatoes to find out the size of the farm on which they were grown, there are few aspects of Japanese society untouched by the codes. One example, the ChocoQR, is both innovative and edible and an addition to an ever-growing list of Japanese products into which the small square codes have been fully integrated as society increasingly revolves around mobile phones.

The technology is poised to revolutionise the British consumer landscape following the launch of the first major QR code marketing campaign in the UK. Pepsi has placed QR codes on 400 million products for the first time, offering mobile phone-friendly consumers instant access to games, videos, websites, prizes and other entertainment at the swipe of a phone. While QR codes have slowly been creeping into the British consumer scene in the past year, it is the first time a major company has employed the technology on such a scale.

Bruno Gruwez, marketing director for Pepsi UK, said: "Not everyone in the UK is going to know how to use QR codes, but we're targeting early adopters. "Young adults and our drinkers very much live in the digital world, so the way we communicate with them is evolving rapidly. "Mobile internet has formed an increasingly significant part of our communications over the last few years and QR codes allow us to go even further, transforming the can into a gateway between the consumer and their digital world." He added: "The widespread use of QR codes in Japan gives a taste of what's to come in the UK, and I expect that we'll see other consumer brands following our lead in using this technology." It was in 1994 that QR codes short for Quick Response were invented by Denso-Wave, a Japanese corporation, initially with the purpose of tracking parts in vehicle manufacturing. However, as the nation's population of mobile phone owners expanded rapidly, the use of QR codes eventually shifted towards a commercial context, from newspaper adverts and restaurant menus to shop information and bus timetables. Camera phones need to be fitted with the correct reader software which enables them to connect in an instant to a link with mobile information. As a growing number of mobile phones sold in the UK are today fitted with cameras, the use of QR codes is slowly gathering pace with a number of companies embracing the technology as an innovative means of targeting a young technology-friendly market. Last year, the Pet Shop Boys used QR Codes for the artwork and video of Integral, a downloadable-only single, while the UK DVD release of the movie 28 Weeks Later was also accompanied by a QR code marketing campaign, with the familiar square box code contained on posters.

In Japan, the technology is becoming increasingly innovative: IT DeSign is one company at the helm of the QR code revolution, designing the technology for a raft of innovative outlets, As well as this week unveiling the first edible dark chocolate QR code, the company has previously created QR codes for gravestones, enabling the bereaved to swipe a bar code in order to access tributes to the deceased and comments from friends and relatives. Koji Sakahashi, chief executive of IT DeSign, said: "In 2002, a mobile phone operator started installing a bar code reader into its phones and since then, all other phone companies have also started pre-installed them. "Today, almost every Japanese mobile is pre-installed with a bar code reader as standard which means that everyone can scan the codes which is one important reason why it is so popular in Japan. "QR Codes are popular among the Japanese, especially young people who are addicted to their mobiles. You can see the codes everywhere, in every newspaper and magazine."

Thanks to Xconomy for the heads up on the coming of QR codes.
The Entrepreneurs’ Organization

January 2, 2010

Image by davemc500hats via Flickr

Happy day after New Years….

Is it time to live up to those resolutions you made after a few glasses of bubbly? Like I really should do a better job running my business in 2010? Then this post may be for you.

The Entrepreneurs' Organization is not for every entrepreneuer, in spite of its name. Imagine a monthly late afternnon meeting where you can bare your business and personal soul to seven other entrepreneurs in a highly managed discussion group and then have a totally unscripted dinner. Sound appealing? or not?

Over 6600 entrepreneurs participate in these monthly forums worldwide. The protocols are very strict–being late costs you $100 towards dinner; no one give advice, only shared similar experiences; five minute time limits on updates are rigidly enforced. In return, you can share your deepest thoughts and issues with a group of people who are going through similar experiences. It's sort of like AA for entrepreneurs, I'm told, as in "Hello, I am Bob and I am an recovering entrepreneur".

Entrepreneurial friends of mine who are members swear by the therapy sessions where they can share thoughts they could not express in their business or personal worlds. Others who have tried it find it too intimate and would rather just get the needed advice straight up from advisors or board members. You can test drive a session in a forum near you to see if you like.

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Hiring the Right Sales Guy

December 26, 2009

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One of the big mistakes start up entrepreneurs make is hiring the wrong sales guy. Sales guys come in many flavors. Here are a few prime examples:

Super Sales Guy—lone wolf; hunts off his LinkedIn/Rolodex connections;
has the ability to sell really big deals by himself, sometimes oversells; often
creates delivery issues due to little staff and specialist involvement

C Level Sales Opener Guy—similar to above, except is best at
opening C level doors and bringing in the right tech resources to close the
deal; better on integrated selling and delivery than the super sales guy; often has issues with below C-level guys who influence purchase decisions in a company (thinks they are beneath him)

Hunter/Gatherer Guy— goes on
a focused hunt, catches the prey and brings it back for the family to eat; tends to get
caught up in delivery, leaving a revenue gap when his/her project nears an end.

So what's the best type of sales guy for a start up? To be honest, none of the above. The founders are the best sales guys, supported by the correct marketing and sales support technology, processes and people. They know their solutions and vision best and should be the one who lead the charge in the marketplace.

Instead of hiring a very expensive super sales guy, for example, use your board members to get introductions at target customers. That's a prime role for board members and should be a key criteria in choosing them. Want C-Level introductions? Try cold calling at 8am in the morning when the C-levels get in early to check their emails. Need a group of specialists to sell the solution? Assemble the team from current employees to make the pitch. Everyone should be a sales person in a start up.

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Managing Your Startup: Payscale

December 26, 2009

Image by Getty Images via @daylife

One of the difficult tasks entrepreneurs face is deciding how much to pay their people. I have seen wide discrepancies across start ups in the same geographic region around software engineer, developer and executive pay .

Payscale, a Seattle based web site takes some of the anxiety out of making that offer. Operating on the "give and get" model–meaning you provide information on your job and salary in return for information on pay scales in your area, Payscale takes some of the guess work out of making job offers and salary increases. Not perfect, but free and at least you can make sure your offers/salaries are in the ballpark.

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