Archive for September, 2008

Good Advice For Start-Ups In A Bad Economy (No, It’s Not To Buy Gold).

Tuesday, September 30th, 2008

While there’s plenty of rumors swirling on the Internet right now (Banks are closing credit cards! They’re cutting credit limits!) and advice aplenty regarding what start-ups should do in the face of the crisis, most don’t hold much water. However, we stumbled on one piece of solid advice today amidst all the hysteria and proclamations that you should liquidate your stocks for gold.

Over at Silicon Alley Insider, VC Fred Wilson shares his thoughts on a potential “start-up depression” (he doesn’t think there is one). While he says the good news is that VC-backed start-ups don’t face any immediate risk, things are going to be tougher for all start-ups—period. His advice?

“Get focused, get better, get leaner, and ultimately to get profitable.”

Sure it’s straightforward, but it’s solid advice worth remembering if you’re moving forward with a start-up or operating a small business.

Tags: economy, start-up
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Deflating VC Egos, One Study At A Time.

Tuesday, September 30th, 2008

To hear venture capitalists tell it, there’s no question that they spur innovation and entrepreneurship—not the other way around. Unfortunately for them, we’ve got a newsflash: you’re wrong.

A new research paper called “Venture Capital and Innovation: Which Is First?” suggests that (surprise, surprise), it’s actually money that follows innovation. Says BusinessWeek on the study:

“Yes, VCs are experts in knowing how to commercialize proven technologies and make lots of money from them. But VCs aren’t the gurus of innovation. In fact, new research shows that venture capital may actually slow it down.”

More specifically, the research showed that VC investment actually caused a decline in productivity, and that first round investment actually correlates directly with a direct delays in total factor productivity (which is a measure used by some economists to measure innovation).

Of course if you’re an entrepreneur, you probably knew all that already. Last we checked, it’s companies like Google and Apple knocking on VCs doors at their inception, not the other way around. We do love ourselves a little schadenfreude though.

chickenegg

Tags: entrepreneur, venture capital
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Sales Aren’t Supposed To Kill Your Bottom Line.

Tuesday, September 30th, 2008

In tight times like these promotions may seem like a good way to drum up business. Given that consumers aren’t shopping, in fact, it seems like a sweet discount might be the only way to get them to open their wallets. The problem is that it can come back to bite you if you’re not careful. In today’s lessons small businesses can learn from the big screw-ups, er, big corporations: how not to do discounts.

Here’s what we mean: Walgreen announced disappointing revenues that fell short of predictions today (and that takes a lot right now), which they say are the result of offering too many discounts and promotions. Seriously, too many people clipping coupons actually impacted Walgreen’s bottom line. Given that this could happen to a large mega-corporation like Walgreen, it could easily happen to a small mom-and-pop shop.

The larger point this illustrates is why it’s critical that you maintain a business plan even if your company is already in operation, and why you should closely monitor discounts, promotions, and sales. Keeping a close watch on these figures—particularly money’s as tight as it is right now for most small businesses—is key to staying out of the red.

sale

Tags: business plan, costs
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Tools You Can Use: Rent Or Buy Calculator.

Tuesday, September 30th, 2008

To buy or to rent? While it’s a moot point for most start-ups (hey, all you need is a basement somewhere to start a social networking site), it’s a question worth considering for businesses that need more space. Let’s face it, given what’s been going on, you want to ensure that you keep your costs as low as possible in your business plan, but that you still make the most financially sound long-term decision.

The problem is unless you know a thing or two about real estate (we don’t) it can be tricky to figure out what makes the most sense not only in the long-term, but in the short-term. That’s why you should check out this slick calculator over at the New York Times that can help you determine whether it’s smarter to rent or buy. While it’s intended to help potential homeowners, it works equally well for commercial space (hey, we’re talking about rough estimates here). Simply fill out what the monthly rent would be on a space you’re interested in, as well as what the purchase price, down payment, mortgage rate, and property taxes would be on a potential property to purchase and the calculator compares the costs and tells you whether it’s better to buy or rent.

While sure it’s just a rough estimate and naturally other considerations figure in when—you know, like whether you can afford it and whether or not you could write off rent—it’s still a handy tool that can help further advise your decision.

Tags: business plan, costs
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Is It Too Early For Jokes?

Monday, September 29th, 2008

One of the things we’re hearing a lot of about this week are the bad investments that brought Wall Street to its knees. While the VC and start-up community appears to be largely untouched (as yet) by the crisis, Silicon Valley gossip blog Valleywag makes a funny point: bad investments are something VCs know all about. But unlike Wall Street, they live and die by them. Says Valleywag:

“If investors here had any sense, they’d be padding the halls of the Capitol, palms out…What is a stake in a Web 2.0 startup if not a toxic investment, waiting to be written off. And why aren’t the pension funds and college endowments marking to market the fliers they took on venture capital? Conspiracy theorists too paranoid to read Snopes.com believe that Facebook is secretly run by the CIA anyway; why not rescue Microsoft and the other investors who bought in at a $15 billion valuation, and make it official?”

Tags: venture capital, wall street
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Financial Armageddon Not So Appealing To Investors.

Monday, September 29th, 2008

If you’re working on your business plan in the midst of this financial brouhaha (let’s use euphemisms—it’s been a tough day), you’re probably trying to determine how—if at all—it should figure into your plan.

The answer is not much. Unless your start-up is involved in mortgage lending or any other industry directly linked to financial services, there’s a good chance it won’t be directly impacted by what’s going on. That means you might want to think about axing that page-long rehash of what happened at Lehman and how it may impact your candy shop in your exec sum.

That doesn’t mean you should completely ignore the situation though. While the debacle on Wall Street might not have a major impact on your start-up, the generally gloomy economy might. Double check figures like the cost of goods because those expenses have risen, in some cases dramatically, over the past few months. Find out how start-ups and businesses like yours have been impacted by slowing of the economy and adjust your sales figures. Plan for a worst case financial situation in your business plan to show investors you’re prepared to handle whatever comes next. Above all else, continue to closely monitor what’s happening in your industry and adjust your business plan accordingly.

Besides, making numerous mentions of impending “financial Armageddon” in your business plan isn’t really a good way to sell investors.

arma

Tags: business plan, economy, wall street
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And Now For The Bad.

Monday, September 29th, 2008

So, despite the current freak out on Wall Street, things aren’t all bad for start-ups. That is, unless you’re trying to go public. Fluidigm, the VC-backed tech start-up that had intended to go public two weeks ago, announced late last week that they’re withdrawing their IPO.

While the news isn’t terrible surprising—who goes public in the midst of a historically insane week on Wall Street?—it would have been an interesting IPO to watch. That’s because the biotech company has been bleeding cash. They reported a net loss of $25.5 million on $7.3 million in revenue in 2007 and predicts losses for the foreseeable future, reports the New York Times.

Regardless of Wall Street’s tumult, would anyone have wanted to buy stock from a company like that anyhow?

Tags: ipo, wall street
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Looking For Some Cheery News? We’ve Got It.

Monday, September 29th, 2008

If you’re an entrepreneur who’s been following every nail-biting turn on Wall Street this week (and who among us hasn’t?), you’ve probably wondered how the whole fiasco may impact your chances at scoring funding for your start-up. Here’s the good news: despite everything, it appears that Wall Street’s meltdown may not have disastrous implications for start-ups seeking funding. Sure, everyone—from VCs to entrepreneurs to your next door neighbor—is freaked out, but the numbers suggest that it hasn’t (yet) slowed business for some start-ups and the VCs that fund them.

“Our traffic numbers keep going up and up,” a [business-to-consumer start-up] CEO tells the Boston Globe, and a VC offers the same sentiment: “Our portfolio is basically not affected.”

Feel better?

Tags: economy, start-up
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Week In Review: Our Week As Slackers

Friday, September 26th, 2008

As you probably noticed, the blog was relatively light on content this week. To the two of you who read this blog: not to worry. We’ll be back next week with a full schedule of daily posts. In the meantime, we leave you with our standard weekly round-up of this week’s posts. In case you’ve forgotten, here’s what we talked about:

-If you think that referencing word-of-mouth marketing in your business plans makes you sound smart, please read this.

-By now you’re probably tired of all the “lessons” we’re all supposedly learning from last week’s collapse of Lehman. Well, we heaped another one on you. We may be beating a dead horse here, but Lehman’s a great illustration of why it’s critical to have a viable model for long-term profitability in your business plan.

-While it may just feel right to slip that cutttteee Anne Geddes portrait of a baby in buttercup into your business plan, please don’t. Really.

-When it comes to creating your PowerPoint, there’s a right way and then there’s the very, very boring wrong way. Click here to find out how to achieve PowerPoint nirvana. That is, preventing potential investors from nodding off during your pitch.

Tags: weekly round-up
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PowerPoint Nirvana

Thursday, September 25th, 2008

If there’s one thing that’s just as important as your business plan, it’s the PowerPoint presentation you use to pitch potential investors. The reason it’s so critical is obvious: while the investors might not read your business plan, they’ll actually be forced to watch your presentation.

Unfortunately, a lot of entrepreneurs trip up when it comes to their PowerPoint. That’s because, as with their business plan, they over-think it and try to cram too much information into just a handful of slides. Even worse, they end of with a presentation that’s 100 slides long and takes two hours to present.

Remember this: the same advice holds true with PowerPoint presentations as it does with business plans. Keep the information on each slide simple, clear, and to the point. No one will read a slide jam-packed with bullet points. The reason is two-fold. One, it’s boring. And two, if you’ve got too much information on a slide, it’s likely too small to read. Make the font big. If investors are squinting to read your slides, you have a problem. Use catchy, simple language. Never use the word synergize, systems, or value-add. It makes investors’ heads hurt.

Also structure your presentation much the same way you have your business plan. Include a slide on your business model, the problem your business is solving, how it will solve it, your management team, your marketing strategy, and how you will be profitable. Each of these slides should only include a few sentences that are succinct and drive the point home.

Here’s another secret: you don’t have to be super creative or arty to come up with an effective presentation. The truth is that investors don’t care what types of borders or fonts you use. While sure, it’s an added bonus if it’s pretty, it’s not going to make or break your chances of getting investment.

powerpoint