Tom Herman Entrepreneurship

Entrepreneurship

Lessons Learned

Tom Herman

Partner, KITCapital

January 2012

Linkedin.com/in/TomHerman

Tom@KITCapital.com

Twitter: @tomherman

Introduction

Tom Herman, Entrepreneur

Lessons drawn from experiences at: • govWorks Inc (portrayed in the movie Startup.com)

• KCP Capital (current employer)

• JumpTV (TSE:NLN)

• KIT Digital (NASDAQ: KITD)

• KPE Inc

• Guias Local Inc

• Dashbid llc

Startup.com The Movie

Initially expected to be a b-school case study

Became a story about friendship in the crucible of business formation

Tells the story of the rise and fall of govWorks Inc

Ultimately has become a teaching tool

What was govWorks?

govWorks collaborated with government agencies to enhance the way

government and constituents interact and offered the following products:

• govPay: Payments of taxes and tickets

• govPermits: Licenses and permits

• govJobs: Database of available government jobs

• govAuctions: Surplus equipment auctions

• govCRM: Constituent relationship management tools

• govStores: Ecommerce sale of docs, publications, memorabilia,

taxi medallions, etc

• govHotline: 24-hr answers/support for government related

questions

• govSurveys: Allowing constituents to voice opinions on pressing

issues

govWorks Timeline & Employees

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200

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июл.98 ноя.98 фев.99 май.99 авг.99 дек.99 мар.00 июн.00 окт.00 янв.01 апр.01

Lessons Learned at govWorks

You may recognize some of the mistakes which were made in all areas of business:

• Strategic

• Human Resources

• Financial

• Marketing

• Operational

• Technical

Strategic Lessons Learned

Focus attention and resources across fewer projects

Build learning culture to track and learn from successes & failures

Make time to communicate with employees

Listen to your advisors and let them know you have done so

Be Proactive, not Reactive; we followed ezGov, not our strategic plan

Don’t “Believe The Hype”

What we did right

Identified a ‘Mass Problem’ with a scalable solution (eGov Works!)

Human Resources Lessons

Hire at a measured pace with a clear hiring plan

Define each job description before hiring to avoid the reactionary, “He/she’s good, let’s hire!”

Set aside adequate time to train for new hires, develop structured orientation program that runs for first 6 months of the hiring date

Develop and follow through on a documented employee review process early enough to allow for employee development and a pay/performance linkage

What we did right

Hired a superb team of committed professionals with ‘Can Do’ spirit

Financial Lessons Learned

Ensure that budgeting is realistic to avoid requiring additional and unexpected fundraising in crisis situations

Fail fast and live to see another day

Link spending to specific revenue generation

Careful control of purse strings and resource allocation

Spend on what really matters, not what looks impressive

Scrupulously monitor cash flow situation

What we did right What we did right

Raised large amounts of capital quickly and cheaply

Practical FAQs on raising capital

Raising capital is like selling your product and requires marketing, a well crafted pitch, and a personal connection with your investor

Valuations in early rounds often based on emotion

Capital is your lifeline, so be willing to give enough to succeed

Today, pre-revenue is extremely difficult

The team bios really matter

Be optimistic, but show defensible financial models

The need for working prototypes

Ideas are a dime a dozen, so widen the net

Marketing Lessons Learned

Pay attention to market research

Focus on the right customer (constituents, governments, or Wall St?)

Spend marketing dollars to create revenue primarily and brand secondarily (this tests the product)

Shameless self promotion is more useful for raising capital than finding customers, but press can be a powerful tool

Before social media

What we did right

Created a powerful brand, “govWorks”

Operational Lessons Learned

Add experienced team members (Gray Hair) early

Delegate responsibilities

Create sustainable organizational structures

Develop and document consistent procedures (back office)

Engender communication channels between groups and functional areas to avoid doubled efforts and conflicting goals

Create an operational plan that does not change frequently so the team can focus and finish one task before starting the next

What we did right What we did right

Navigated the challenging logistical transition from R&D organization to functioning operational organization supporting 24/7 customer support 24/7 customer support

Board Board-Related Lessons

Build a board that brings experience, time to mentor on practical issues, and finances instead of a ‘name brand’ board

Listen to board members who make time to read board materials

Get information to the board regularly and in a digestible format

Balance between standing your ground and hubris

No surprises: Give bad news early enough that the board will be able to assist

Be sure to include key executives in all board discussions

What we did right What we did right

Created a high profile board improving our ability to attract quality employees, capital, and press coverage, as well as improving our ability to network and gain access to new clients

Technical Lessons Learned

Call out problems with outsourcing firms (Sapient) and their employees early and insist they be fixed

Require product, marketing, and executive teams to adequately document product specifications and change requests early

Consider technical, HR, and market conditions around infrastructure decisions before making architectural decisions

Only bite off what you can chew, but plan for a wide open future

Develop with a componentized or SOA mindset

Beware Dangers of off-shore development

What we did right

Created in 12 months a highly functional web portal which supported complex, customized and robust financial processing

On Working with friends

I support working with friends

Makes work fun

Known quantity

You already have experience working together

Find a friend whose skills complement yours

Requires open, honest communication

Downside of working with friends

Challenge of holding friends accountable

Difficulties at work jeopardize the friendship

Working with American Clients

Over communicate

Under promise and over deliver

Be flexible

Understand the context, don’t just complete the task and check the box

Help your clients help you – If they can’t create the documentation you need, create the

first draft for them

Use spellcheck, get the grammar right, make it attractive

Top lessons

Sign an employment contract

Be on the board

Document and sign a cofounder agreement with – Equity splits

– Responsibilities

– Weekly hours committed to project

Keep fellow co-founders honest and remove them and their equity quickly if they don’t deliver

Be generous with equity, if necessary, to raise capital

Keep the books or get an accountant

Write a business plan even if you’re not raising capital

Some quotes to end

Luck is the intersection of opportunity and preparation (Ed Shepherd)

Entrepreneurship requires balancing unbridled optimism with delusional foolishness. Most entrepreneurs are mocked and misunderstood until they are wildly successful, at which point the chorus changes from “good luck with that ‘business’, pal” to “I always believed in ya, buddy!” (Ashkan Karbasfrooshan)

No conflict, no interest. (John Doerr)

Wrap Up and Q & A

Let the journey be

the reward

Tom Herman

Twitter.com/TomHerman

Tom@KITCapital.com

http://www.linkedin.com/in/TomHerman