Roadmap for the Start-Up Company

Pete HigginsPartner

Second Avenue Partners

GETTING STARTED

• People• Idea• Plan• $$• Turn idea into product• Manage evolution

Building a Team

• Smart, complementary skills• Meeting around the kitchen table• Domain expertise• Investors are wary of non-business types• Industry is different than University life• Product development very different than

research

Hire in Context

• Right person, wrong time• Right kind of skills and experience• Strategist vs. scrappy• Big company vs. little company• Personality or Culture Fit

PROCESS STUFF

• Space• Legal• Getting organized

Legal Stuff

• Referrals• Interview for personality fit• Plain vanilla is always better• Simple, simple, simple• IP important, but not panacea

Business Plan—Think Like an Investor

• What’s the problem?• What is solution? • Will customers really care?• Who is competition? Narrow vs. Broad• Why win?• Why should I believe these guys?• Gross characteristics of financial forecast• What is dream?

Depth of Critical Thought• Basic rules of business

– # of competitors– Depth of value-add– What are customer options?

• Know relevant models– What are competitive models?– What are historical models?– Why have predecessor technologies failed?

• Know your own model– What are you betting on?– How soon does it have to work?– What’s important to your success?

• Business plan is test of the people

Realism

“When a great executive meets up with a bad business, it is usually the business whose reputation remains intact.”

- Warren Buffett

Realism

• Hockey sticks are extremely rare outside the NHL

• Even if market is hockey stick, why are you?• It always takes longer and costs more• Plan for reality; be prepared to react to the

dream• Know what you are betting on

Raising Money

• Angels, Friends, and Family• Govt grants of various kinds• Venture Capital– Many different flavors and tastes

• Tradeoff between dilution and time• How much do you need to get to

the next milestone?

Where Do Ideas Come From?• Lab--Modumetal• “There must be a better way”—

Housevalues• Previous job-Azaleos• Enabling technology—Insitu• Enabling legislation• Enabling world events—Insitu

From R&D To Product

• Different discipline; often different teams• Products evolve; but need to be “done”

at different points in time• “Better is the enemy of Good Enough”• Completeness; providing real solution• Customer feedback loop is critical• V1, V2, V3

Get to Market Early

• Get revenue, “traction”, start selling• Customer satisfaction more important that

product and technology• Build customer relationships and customer

feedback loop• Make mistakes early and cheaply

Low Hanging Fruit

• Who can make a decision?• High value, low risk• Big budget, already approved• History of trying new stuff• Other hurdles—Regulation,

compatibility, etc.

Build domain expertise

• Focus on success of customer—every decision should be weighed against this

• Listen to customers—Fine line between vision and passion, and being stubborn

• All startups are in the service business• More things liable to change than stay constant• Everyone sells• Be the voice of the customer

Falling in Love with First Plan

• Product is “done”; it’s just a sales/market problem

• “Great technology”– Customer don’t care; problem doesn’t exist– Too complicated– Who’s the customer?

• Agility is critical

Sell the Vision, Plan to Struggle

• 2X Rule: Everything takes twice as long and costs twice as much

• Sales learning curve• Be realistic about valuation milestones• Raise more money; relax about valuation

Focus• Rare to fail due to excessive focus• Companies pulled in many directions– Lots of unexplored potential– Lots of ideas; many of them bad– Well-meaning board members

• Conventional wisdom is frequently inappropriate

• Focus on core value-add to highest priority customers, then expand

Getting Ahead of Yourself

• Do not confuse activity with revenue– Brother in law sales– Great meetings– Pipeline Value

• Jerry Maguire• What would you do if you were the

customer?• Invest FOLLOWING growth

Be Cheap

• Good intentions…but it is a slippery slope• It isn’t supposed to be comfortable• What culture do you want to establish?• It is okay to be small for awhile• What do you really need?• Minimum now vs. cash crunch • Growth and progress are not linear

Memo from the Last Downturn

• You don’t realize how fast things spin out of control. There are self-reinforcing negative affects in a downturn.

• Don’t spend money until you have to• Don’t move out of your office until you are sitting

on top of one another• Don’t hire any incremental employee until you

just can’t stand it• Don’t get more capacity in your data center until

your site is going down

Memo from the Last Downturn

• Better to be “late to the party” than to be early and run out of money

• Line item review of the budget every month (everything)

• Not just a CEO mindset, but a company mindset– Everyone must buy into the process– But in a calm way—not run for the hills

• Create 2 or 3 different burn scenarios—know at any point in time how many months of cash is left

Invest in Culture Early

• Values are easier to establish than change• Frugality, integrity, customer orientation,

accountability, focus• Invest in “team” values: balance, support,

communication, shared values, collaborative, flexible job descriptions

• Consistent values + clear priorities simplifies management

Manage the Company, Even When It is Small

• Don’t assume everyone knows• Communicate goals and objectives– Share successes and failures– Enroll people; Encourage debate

• Communicate often; clearly; think about it– Think about cultural icons

Don’t Treat Board Like IRS• Enroll them in your mission; engage them in

reality• Arms length relationship leads to wariness• Communication is frequent and informal• Good news and bad news• If frequent, they can be trained to handle• Do the worrying for them

– Thinking about right goals and problems?– Right process? People?– Right solution?– Can I be helpful?

Team Evolution

• Overly Broad to specialist• Generalists may not have specialist

skills• Not everyone is right for the next stage• V2.0 team vs. V1.0 Team

Knowing What You are Good AtOr, Why “Founder” Becomes a Dirty Word

• Focus on your strengths• Aggressively complement yourself• Focus outward--make everyone else

successful• Ongoing conversation about yourself

Knowing What You are Good AtOr, Why “Founder” Becomes a Dirty Word

• Fixated on first vision• Personal agenda—it’s not your company• Over-rating your own capabilities• Failure to delegate and micromanage• Statistically, you’re eventually the wrong

person• You don’t know if you even want the job

Leadership

• Domain experience and customer advocacy• Recruits great people• Manageable ego• Thoughtful about the business• Thoughtful about company culture, and

management

“It’s An Execution Play”• All businesses are execution plays• Not about patents and secret sauce• Not about being first• First strategy is probably wrong• Winners, especially today, are those who

execute the best, and often changed strategy the best

• Winners are never satisfied

Building Great Companies

• Business is a journey of unknown duration and course

• It takes a fundamentally strong business idea• More importantly, a talented team that has

thought about and built what it takes to win