Startable – Healy Jones’ & Prasad Thammineni’s Blog

Wow, the Techstars Boston Investor Day last Thursday was great! I can’t believe the progress made in the past month by the teams. I’ve been a very absent Techstars advisor for the past month, so I didn’t know what to expect. Everyone in the crowd seemed impressed by the startups, and I felt a great vibe and high level of interest from some of the well-known Boston angel investors I spoke with during the event. Andrew Hyde mentioned to me that it felt a lot like Investor Day at the 1st Techstars Boulder in 2007 – and that 3 of those companies have had successful exits. Let’s hope that the good Techstars mojo continues here on the East Coast. To that end, here is my advice to the Techstars entrepreneurs on keeping the positive momentum going post-Investor Day. I guess the gist of my advice is that the hard work hasn’t ended – it’s actually just begun. But you are in such a great spot that you should be excited to keep moving forward and you should continue to take advantage of everything that Techstars has created with/for you – especially the network.

Techstars Boston, photo by Andrew Hyde

1. Don’t take a breather. You have a narrow window to exploit the momentum that you’ve created. Investors and the press are interested in what you are doing, but they have notoriously short attention spans.
2. Follow up with EVERYONE you spoke to. Send emails to each and every investor that you met – ask Shawn for their contact info if you didn’t capture it. These emails should be out by Monday afternoon at the latest – again, people have short attention spans. Did you speak to any of the tech reporters at the event? Heck, even if you didn’t get a list of the reporters (and bloggers) at the event from Shawn and send them a “thank you for attending email.” Include a three or four sentence business description so they remember who you were. Finally, offer yourself up to talk to them about Techstars or ASK for something.
3. Hit up your local tech press if you’re not from Boston – with a “the local tech startup doing something big time” angle and see if they bite.
4. Have an opinion on the terms of your investment round. This will help move the angels along more quickly.
5. Look for an investor “anchor” for your angel round (if you haven’t already raised your capital/got your fund raise going.) You need an angel to set the terms for seed round, so that the other angels will fall into line and step into the mix. I know a few of you have investors approach you and express high interest in the business. Those are the ones to hit up first. Once you have an anchor things become much, much easier.
6. Consider doing a tranched close on your round so you can get money into the company sooner rather than later (this means taking less than 100% of your hoped for fund round and continuing to work toward getting the other % at the same terms in the not too distant future). Angel rounds seem to take even longer than VC investments, so if you can get some of the investment dollars to come in right away that will help you do important things like pay for developers and ramen.
7. Take the free stuff. If Techstars offers to let you stay in the space for a while, take it. You probably had a good routine going pre-Investor Day in the space, so why mess things up? Keep the same schedule going. Cheap or free rent is VERY hard to find. And if Shawn wants you to pay for the space, well, talk him down as much as you can or ask for the first month free or something.
8. Stay in touch with all the other companies! How awesome were these other entrepreneurs? You have one of the best advantages of any startups – a real, legit peer group. Do you know how lonely doing a traditional startup is? You don’t have that problem! Those other CEOs and founders want you to succeed just as badly as you do. They will experience the same issues that you will face, sometimes before you do. Hit each other up for advice, networking and friendship.
9. Keep the weekly email updates going. It will help you stay focused – and you don’t want to lose the connections that you developed during the program.
10. Don’t get distracted. $, PR and continued growth of the business are your near-term goals. Don’t forget about the business while you take advantage of the external momentum. Set aggressive near-term business goals and hit them.

Finally, a bonus tip:

1. HAVE FUN! You are better off than 95% of all startups in the world. Your network is so much stronger than anyone else I know. Your peer group is strong, smart and passionate. You guys and gals are awesome – kick some butt! (And don’t forget about little old me once you hit it big time…)

Link to Andrew’s photos of Investor Day: http://www.flickr.com/photos/bouldair/sets/72157622218729239/

When I was a venture capitalist, I saw a recurring, common mistake made by startup founders who were trying to project their company’s revenue for the coming years. Of course, now that I am actually trying to help a startup create their financial projections from the other side of the table I almost made the same mistake! This issue is particularly important when the startup has a SaaS or viral revenue model.

How to NOT project SaaS revenues

Probably the number two or three mistake startup founders (and me, almost) make when estimating their revenues is to assume they acquire their customers in a linear fashion during the year. Many, many CEOs project revenue by the following formula:

(Number of expected customers at year end) X (monthly subscription revenue) X (12 months) X 50% = Anticipated Yearly Revenue

The 50% discount attempts to take into account that you haven’t acquired all of the customers on January 1*, but instead get some of them month 1, some month 2, some month 3, etc. However, this creates a major assumption – the assumption is that you get the same number of customers in month 1 as month 12. Usually this is not the case if you are a startup ramping up your marketing and sales programs. Typically you get more of your customers in the final months, and many, many fewer in the first couple. This effect is more pronounced the greater number of marketing programs you are layering on during the year.

To illustrate how this 50% discount will over-estimate your revenues, consider the following example. I am over-simplifying everything to make a point, so please don’t make too much fun of this. Although it is so simplified as to be comical.

Assume a startup has 12 different marketing programs that will run for at least 12 months each. The CEO anticipates that these will result in one new customer per month that they are running. The team will have bandwidth to launch one new program per month, so one new program will be launched each month. The company’s service is so amazing that no customers will churn; assume the service costs $100 per month. Customer acquisition will be as follows:

1st Month: 1 new marketing program. 1 new customer
2nd Month: 1 new program, one old program. 2 new customers, plus 1 existing customer = 3 total paying customers.
3rd Month: 1 new program, two old programs. 3 new customers, plus 3 existing customer = 6 total paying customers.
…
I think you get the picture. By the end of the year the company will have 78 paying customers.

Running the formula above for expected revenues, we get $46,800.

The problem is that the company won’t actually have that high of revenue. Revenues will really be only $36,400. 77.8% of the amount projected. So, even if the company hits their customer acquisition plan they will miss their revenue target. Obviously this could have serious implications to their cash flow, etc. The level of your revenue miss will be even greater if you have a viral product, since your growth will be even more exponential.

It’s a much better idea to identify the specific marketing programs that you will be implementing, the months that you’ll be rolling them out and the anticipated customer acquisition by month from them. I realize this takes a long time, and you are probably pretty busy trying to actually get your company going. But projecting your cash flow is such an important part of the success in the early life of your startup that I’d suggest you do it and don’t fall into the trap of making such simple revenue forecasts that you misjudge your cash needs.

*Or whatever your fiscal year day one is

Should startup founders spend time creating a crisp elevator pitch? Yes! Let me explain what got me thinking about this…

I recently received an email from a student in Texas who is thinking of starting a business. He stated, “I’m 23, I have my eyes on an idea with IP that’s protected, I’m piecing together a business model, and I’m doing all in my power to make this happen. The problem is that I’m so young I don’t have many industry contacts and, even though I’ve yet to try, I think it would be difficult to get a VC to sit down in the room with me and listen to my proposal because I’m so young. I think because of my youth they may not take me seriously even though the idea is solid, potentially very profitable, and has IP security. ”

My advice to him was that if his idea was good, and if he could articulate it well, then he could make smart people interested in helping him. First he should get together a smart elevator pitch and then approach potential advisers who could help him evaluate his idea’s probability of success, firm up the business plan and then introduce him to capital sources and team members. I really think a crisp elevator pitch will be critical in getting experienced people to lend him a hand. (I guess I just articulated it better here that I did in my emails to him! Sorry Steve!)

What is an elevator pitch?

Venturehacks has a great post on how to prepare an elevator pitch for an investor and says, “the major components of the pitch are traction, product, and team.” If you are preparing to raise venture capital you must read their take on the elevator pitch.

But I think that an elevator pitch has an importance greater than just impressing investors. If you are a startup, no one has ever heard of you. No one knows what you are doing. No one knows how or why they should lend you a hand or buy your product or make an introduction to someone who could join your team. You need to be able to let people know what you are up to quickly, and interest them enough to get them thinking about how they can help you build your business.

An elevator pitch is a short description that will help the entrepreneur quickly explain the purpose of their startup to someone who has not heard of the company before. I think you should have a single elevator pitch (that you occasionally tailor to a specific audience, such a customer or investor or potential team member). You will need to have practiced this pitch to the point where you can recite it in your sleep, because you never know when you’ll be in front of the CTO of a potential customer or find the VP of Sales that you’ve been dreaming of for months. Make that first impression a solid one.

Here is my take on how to get a good elevator pitch put together:

1. Problem definition
2. Size/magnitude of problem
3. Your solution, including why it is better
4. Your company’s traction
5. Who you are

I don’t think your elevator pitch should be more than 30 to 45 seconds long. (And you probably don’t want to talk at light speed, unless you are pitching a speed speaking product – lame joke.) If the listener is interested then they will ask you questions and you can elaborate on the points that interest them.

I’m not convinced that my formula for a good elevator pitch is perfect, nor is it the only way to create an effective pitch. I’d love to hear other people’s ideas on elevator pitches that have worked for them.

Having spent some time over at TechStars, it is pretty clear that the TechStars founders take the elevator pitch very seriously. The teams are forced to play with their elevator pitch over and over –  practice, modify, get feedback on and practice. These pitches are not focused for particular audiences – rather they are generic pitches that would be interesting to customers, investors and people who might want to pitch in with their time or introductions. My experience at TechStars has really re-inforced the impression that an articulate elevator pitch is very important for pretty much any entrepreneur. After all, you never know when you’ll bump into the person who will somehow help your startup take over the world!

Wow, there is an incredible amount of customer feedback that can be collected through a customer support number. I’ve learned some interesting stuff by listening on conversations the Pixily team has had with users of their service. This got me thinking – why don’t more internet-based businesses have phone numbers?

I guess it’s pretty simple to understand why Google doesn’t have a help desk. Think of the calls they would get: “Hey, I can’t find the address of the restaurant I’m going to on Google Maps,” or even more likely, “Why isn’t my company at the top of your search results?” (Or me a few weeks ago: “what the hell just happened to gmail?” This afternoon at TechStars I attended a talk by Nitzan Shaer, who was at Skype for a few years, and he mentioned that Skype consciously did not have a customer service number available because there was no way the service could handle the number of calls they would receive. I can buy that.

But what about smaller/startup internet companies? Can they have a help desk and actually not get overwhelmed helping customers? Should they? I’m starting to think that maybe… I’m pretty sure that for each customer who cares enough to contact a startup there are many, many other users who don’t bother. When you are trying to get something totally novel accepted by an as-of-yet undefined market, any customer feedback that you can get sounds pretty good, even if it is negative feedback. Early product decisions should probably be based on more than just the founders’/programmers’ gut instinct. Most startup internet companies have such a short runway to develop a product that will actually be accepted by the market that minor tweaks to the UI, content, etc. can have a huge impact on customer acquisition and retention.

I realize that actually talking to people is sometimes scary. And constantly picking up the phone can be very distracting. But you may be able to carefully expose a customer support phone number and not only help your business but also help some customers.

I’d imagine that the right way to have a customer service number starts with an easy way to REMOVE the customer service number. After all, if you end up having a Skype level of user adoption you just can’t support a support line very easily. So I’d go with one of those easy to throw away 800 services for the original number. I mean, you don’t want mooches like Mark MacLeod constantly bugging you… On the other hand, if you are an accounting software company and a well known startup CFO is constantly raving about how great your service is, maybe you do.

I’d also think that you will want your developers/product managers to answer a lot of these calls. I know this will slow them down, but on the other hand get the customer info into their hands asap. Also, if they build something that sucks shouldn’t they be the first to hear?

The feedback you get should also be taken in the context of customer segmentation. Maybe the particular user group that you are targeting just can’t “get” your product. Or maybe you want a help line specifically for bigger or corporate customers, or as a way to differentiate your free vs. premium app.

I obviously don’t have most of the answers on this topic. I’d love to learn from others who have or have not had a successful experience with their customer support line.

Prasad and I had an interesting discussion with Siamak Taghaddos, co-founder of Grasshopper (formerly GotVMail.com), a provider of phone number and voicemail services to entrepreneurial companies. Siamak and his team have done a very impressive job bootstrapping Grasshopper into a successful company. He is known in the area as a very savvy marketer, which is why Prasad and I wanted to meet with him – he’s the guy who sent out thousands of chocolate covered grasshoppers recently. We were looking for any advice he might have on how to continue to increase sales at Pixily since he was able to grow his own sales so effectively without a big ad budget in the early days of his company.

His advice was pretty interesting, and is something that I think maybe needs to be reiterated in today’s go-go world of internet based marketing. I was expecting him to mention some sort of a viral online campaign or SEO tactic that really helped get things going back when his company was just a tiny startup. I was wrong. Instead, he said:

1. Figure out the right pricing
2. Get the positioning correct

Then worry about promoting/advertising the service. No one will sign up for your service if you can’t convince them they will get value for what they pay. He even went so far as to say that RAISING the price can be a good thing, if you can simplify your pricing structure. Customers don’t like to worry about overage charges or special fees, even if that means they pay a bit more – a predictable/stable bit more. And a higher price, in the funny world of the internet, can be a signal of quality. If it’s too cheap businesses owners may be afraid that the service is not up to par.

Of course, Siamak is totally right. And of course, his advice is totally obvious. But it was so refreshing to hear from someone who is walking the walk everyday that I thought I’d share it.

Don’t sell your team short when you are trying to get a meeting with a venture capitalist. When a VC is trying to decide if they want to meet with your startup, the most important factor is YOU and your team. I’ve seen way too many financing pitches/teasers where the startup does not provide information on the team and their previous accomplishments.

Can the Team really be more important than the Idea?

In a word: yes. If Bill Gates wanted to meet with me to discuss financing a pig farm I would take the meeting. VCs take meetings with people all the time because they are interested in the people. Networking is a key, perhaps THE key, job function of the VC. Make sure your team sounds accomplished enough to warrant the meeting, then shine in the meeting and convince the VC to get interested in the business idea.

Make your Bios interesting to the venture capitalist

In your investors’ pitch or teaser you need to:

1. Make sure you have your bios in the slide deck/teaser
2. Name the companies that you have worked for and highlight key accomplishments
3. Feel free to include your advisers if they are compelling – VCs might want to meet them too!

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Seeing the success of the Quick VC tips from Healy Jones,  I am starting a new series from the prespective of an Entrepreneur:

Entrepreneur Tip #1: Get enough sleep the night before the VC pitch

From personal experience, I found that if I sleep well the night before the pitch, I do a much better job with my presentations whether it is to a VC, a partner or a customer. You will be more attentive, less nervous, more responsive,  your answers will be well thought and the delivery will be smooth and to the point.

The actual numbers of hours of sleep that you really need depends on you. Research has shown that one needs about 6.5 to 7.5 hours of sleep. The other important element of a good sleep is the time at which you go to bed. Here consistency is important. You should go to sleep at the same time as you did the entire previous week. What I also found is that if I sleep before midnight, I tend to get good sleep and I need about 6.5 hours. The longer I stay up, the longer I need to sleep to get the same rest.

If you are travelling across the country to make a presentation, you need to make sure that the timezones don’t mess up your sleep. You should arrive at the hotel early enough that you get some good sleep. Last week, for instance, I was in Seattle for a big presentation and I went to bed at 9 PM PST (12 AM EST) and woke up at 4 PM PST (7 PM EST). I was well rested and ready to go. If you are overcharged and are unable to get sleep, Tylenol PM or Advil PM will do the job.