new dog old trick

Why vision statements matter

Link: BeyondVC: Why vision statements matter.

A good post by Ed Sim about the importance of a shared vision in a start-up.  I am a big proponent of creating a broadly shared vision for a company (start-up or otherwise).  I think that a shared vision is a fundamental platform for creating a great leadership team and great company.  I don't particularly care what terminology you use - if you're into Guy Kawasaki's "mantra" instead of mission, that's great, or you can use Collins and Porras's terminology (see below). 

It has always bothered me that many executives can't seem to understand the value of good vision and the value of investing energy in defining and maintaining a corporate vision and a supporting corporate culture despite all of the evidence regarding the importance in doing so.  I especially like it when supposedly short-term oriented investors like Sim (who is a venture capitalist at Dawntreader Ventures) or Kawasaki (of Garage Ventures) are clearly supportive of making such investments.

A solid vision should includes a purpose, values, and the other things that the classic Collins and Porras paper "Building Your Company's Vision" talks about.  Those ideas are embedded in the subsequent Collins and Porras book, "Built to Last" and discussed on Jim Collins website here.   Or see Jeff Cornwall's weblog, The Entrepreneurial Mind,  for some thoughts about why values should be an integral part of a start-up's vision. 

Here are a few of the things that Sim has to say in his post - but please do read the whole thing:

Vision statements matter.  Sometimes we get too focused on the daily bump and grind, the next product release, and forget about the big picture and what we are trying to accomplish (see an earlier post on Vision). Trust me, the word vision became a dirty word during the bubble as many companies were long on vision and short on execution.  I am not advocating that we return to that environment, but I am strongly saying that companies do need a vision and that it can help them with their execution.

I went out to dinner a couple weeks ago with a few key executives at a portfolio company and as we started talking about future product direction, it seemed that we all had different ideas of where the company should go.  Seeing some confusion I tried to get us focused back on the basics when I asked the team what our vision was.  The first pitch was great and so were the others but unfortunately they were all different.  It is really hard to drive future product direction when your key executives can't agree on what the company should be when it grows up.  In addition, it is quite difficult to get your employees on the same page without a simple, succinct vision.  Furthermore, it is hard to build word of mouth marketing without boiling down who you are and what you do in a memorable and short manner.  Yes, it can be challenging to distill everything you are doing into a short pitch but great companies are able to do this. 

Angel Investors Taking up the Slack?

Link: RED HERRING | Angels Fund More Deals in '05

Red Herring reports on a survey that indicates that angel investors are funding a higher percentage of the startups that approach them seeking funding.  It suggests that angel investors are filling a gap in the market created by the retreat of traditional venture capital funds from providing seed or first round funding for startups. 

The upswing in angel support comes as VC firms are shunning early-stage “seed” investments in favor of later-stage deals. Venture financing for seed-stage investments, as a portion of total venture investment, has fallen to its lowest level since 1999. Less than 2.9 percent of all VC investments in the first half of 2005 went to seed startups, down from 8.1 percent in 1999.

Of course, this research relates to those segments of the entrepreneurial economy where traditional venture firms prowl, e.g. software, semiconductors, bio-tech, medical devices, etc.  Outside those segments, angel investors (private investors investing their personal funds) have always been a major source of seed stage (and later stage) funding.   

In the software world, where my personal experience lies, I know quite a few entrepreneurs who now no longer even consider trying to approach the traditional venture funds for early stage funding.  Their model is to get the product (or service, which is the business model most "software" companies are shifting to) up and running, gain initial customers, and then leverage angel investors for at least the first round of external funding.  Traditional v.c. are not even considered until and unless the opportunity is demonstrated for sufficient growth that a B or even C round is needed of a scale beyond the ability of angels and strategic investors to fund. 

"The Science of Opportunity"

ooooohhhh...Jeff Cornwall is going to love the title of this interview from BusinessWeek. 

Link: "The Science of Opportunity".

There's a lot to be said for careful planning and cautious review when starting a small business. But there's another side to the story, say some entrepreneurs, and that's following up a good opportunity and seizing it.

Seven Deadly Founder's Sins: A VC's View

Interesting perspective from venture capitalist David Beisel of the seven deadly sins that distract entrepreneurs from the true path to success: inauthenticity, sloth, extravagance, taciturnity, greed, arogance, indecisiveness.  A couple of these probably only get elevated to the level of "deadly sin" for investor-backed (esp. VC-backed) businesses, e.g. taciturnity and greed (at least greed in the sense Beisel identifies) but the others make the hit parade for any type of start-up.

Link: Genuine VC: Seven Founding Sins.

Building the Perfect Start-up Leadership Team

Good post by Bernard Moon out on the AlwaysOn groupblog/emagazine/social networking site (what exactly is AlwaysOn?) about the challenge of building a great management team for a start-up. 

Link: Building the Perfect Team :: AO.

Moon is a confirmed serial entrepreneur (his current start-up is his third) so this post captures a practitioner's personal best practices.  He lists five rules to follow for building a team that will perform and endure.  Some of it is common sense, but like the man said, nothing is so uncommon...

All five rules are good ones - I particularly like #1 (Partner with people you trust) and #3 (Check your ego at the door).  On trust, he has a great quote from John Doerr: "Are these the people I want to be in trouble with for the next 5, 10, 15 years of my life?' Because as you build a new business, one thing's for sure: You will  get into trouble." 

Startups bad for health?

This morning's email from Red Herring had a link to this article...

Link: RED HERRING | Startup Hours Threaten Health.

Hmmmm, so what does the study cited actually say...

Researchers from the University of Massachusetts Medical School have found that people working long hours are considerably more likely to develop illness and have a higher rate of injury

...[blah, blah, study methodology, blah, blah]...

Specifically, the researchers, led by Allard Dembe, a professor at the Center for Health Policy and Research at the University of Massachusetts Medical School, report that people who work more than 60-hour weeks experience a 30 to 40 percent increased risk of injury or illness.

OK, so the study says that anyone (in any type of occupation) who works 60-hour or longer weeks (I assume we're talking about working 60-hour+ weeks on a consistent basis, not once or twice a year, but it's not clear from the Red Herring article) is at risk.  Fine as far as it goes, but now the fine folks at Red Herring take a leap...

In Silicon Valley, 80-hour weeks are not uncommon.

Thus they draw the obvious conclusion...start-ups are bad for your health!  So, in Silicon Valley, where 80 hour weeks are "not uncommon", and, implicitly, where start-ups are also not uncommon, we must therefore conclude that it's the start-ups that are forcing people to consistently work 80-hour weeks and that therefore all those folks working in start-ups are at risk for their health.  Yeah, it's only the start-ups that have people working 80-hour weeks (or even 60-hour weeks for that matter).  Right - I suppose all the lights on at night at HP since Hurd arrived, just to cite one example, are evidence that HP is a start-up since those folks are clearly working way more than the prescribed work week. 

That's bad enough (and weak enough), but then where does Red Herring go with the article...they quote the study in favor of...wait for it...

that's right - the solution of all good right-thinking people - more (Euro-flavored) government intervention!!!

“This study supports initiatives of the European Union and other governments to regulate the length of working schedules,” said the paper. “Proposals in the United State to modify the Fair Labor Standards Act should examine the impact of those proposed changes on the injury risks associated with overtime work.”

</rant on>

Congratulations, Jeff Cornwall

Dr. Jeff Cornwall's The Entrepreneurial Mind has been selected by Forbes magazine's Best of the Web as one of the best small business weblogs.  Well deserved recognition for Jeff.  Congratulations, Dr. Cornwall!

I got to know Jeff through his weblog and have had the pleasure more recently to teach in the entrepreneurship program, which Jeff runs, at Belmont University.  Jeff's weblog is one of a small handful of blogs that I open first thing in the morning when I fire up my browser.  He has the best and most consistent coverage of issues in entrepreneurship/small business management in the blog world (better than some of the "big name" mainstream business publications too, for that matter).  Bottom line - if you care about entrepreneurship or small business management, The Entrepreneurial Mind needs to be on your regular reading list. 

You can check out the full list of small business weblogs selected by Forbes here.  Link: Forbes.com Best of the Web.  It includes several other personal favorites, including Anita Campbell's Small Business Trends and Duct Tape Marketing (which is on my personal all time best weblog names list).

This is great recognition of the solid work Jeff has been doing for quite some time now.  Heck, even the local dead tree publication, The Tennessean, picks up on the news and has an article this morning about Jeff and his weblog here. 

Berkus on Angel Investing

Courtesy of Drakeview, here's a good summary of what one well known Southern California angel investor looks for in evaluating a prospective investment.  Dave Berkus is a long-time major player on the SoCal tech investing scene (my old stomping grounds) and Tech Coast Angels network is a force in early stage venture investing in LA, Orange, and San Diego counties. 

Link: Drakeview : Berkus on Angel Investing.

There are a large number of smart and dedicated business service professionals, consultants and academics who are part of the venture ecosystem in and around southern California.  To a person they are genuine, enthusiastic and vociferous supporters of entrepreneurs, venture financing, start-ups and risk taking.  Of all those people, Dave Berkus stands out for his experience, energy and insights that he generously shares with those who have started or those who are thinking about starting a business. 

Dave has participated, invested or served on the board of over 60 companies and non-profits.  He currently sits on 19 boards.  He serves as chairman of the board on 5 of these and 5 are non-profits.

Venture Capital financing - term sheet

Brad Feld has been posting a series about the various points that you will find on a venture capital financing term sheet.  I have pointed to some of these individual posts before but in order to pick up the entire series I thought that I'd point here where you can scan through the entire series of posts.  Very good overview and discussion of each of the key points on a venture financing term sheet:  what is the term all about, why is it here, how negotiable is it, what impact might this term have down the road under various scenarios, etc.  Great stuff, admittedly from the perspective of a venture capitalist, but also from a guy who was a successful entrepreneur in his prior life. 

Feld's weblog continues to be one of the best blogs out there written by a V.C.  Highly recommended.

Business plans and planning

My students will be getting into the subject of business plans and planning in another week or two so this great article from this week's Carnival of the Capitalists is timely.  A very nice overview of the subject.  Link: Drakeview : Business plan planning.

There is a nice discussion in this article about why the entrepreneur needs to be the primary author of the plan and why the job can't be outsourced to some consultant.  Yes, outside consultants can help as knowledge experts in providing market data or other information.  And yes, consultants or other third parties can help to edit and shape the presentation of the plan to a degree.  But the substance of the plan - the vision of what is to be done and why, the basic energy and passion for the venture, must be provided by the entrepreneur. 

Even more importantly, the entrepreneur must own the process of planning.  The plan document is an artifact - an output of the planning process.  Nobody can own the content, the substance behind the planning process, except the entrepreneur.  That's where all the time and energy need to be focused.  On the process of planning, not on the document itself.  Yes, the document is important, but confusing the plan with the planning process is a triumph of form over substance that too many entrepreneurs fall victim to.  Good business planning is an focused process of exploration and learning, of "trying to fail on paper" as my friend Jeff Cornwall says, that is a very important part of the process of launching a new venture.