7/23/01 PLEASE Learn A Lesson
by an anonymous community member
I'm not one of the entrepreneurs who started
and ran the dotcom where for 2 years I rode the wave of excitement, exhaustion and, finally, defeat, so I don't know if this
letter will count. But I have been involved in other "old economy" ventures as well -- only some of which succeeded -- so
here I go anyway.
Welcome to Humility
School. Yes, you are smart and yes, you are hardworking. But that's not
the whole picture. The world is a far more complex place than it appears. Your marketing and/or technical smarts are no substitute
for treating your human customers with real respect. Give them value and honesty, not marketing techniques. Give them a handsome
website that respects their real interests, ability and bandwidth, not your latest Flash fantasies. And accept that, in the
real world, life IS difficult and you don't always get what you worked so hard for.
You wanted the right to take a risk, so
deal with it. Who knows, you might even gain a little respect for millions of hard working but non-entitled people who just
keep on keepin' on every day. The lessons to be learned are human lessons and are, believe it or not, well worth the tuition you are currently paying.
7/16/01 The Black Pearl
by
Jack Meltzer
There is a fictional story that is
often read by high school students about a fisherman that finds a rare black pearl (hence the title - The Black Pearl. In
general, the story is about what happens to a regular man that comes across something that is extremely valuable. In the story,
his life is ultimately destroyed as a consequence of the greed and desperation that is triggered by the appearance of the
black pearl. It is partially about the effects of success on people that do not fully understand the darker sides of human
nature.
As an entrepreneur, I have experienced
my own version of the black pearl. It involves a unique software application that essentially satisfies the needs of a very
large and underserved market. Over a period of more than ten years, I have seen best friends turn on me because they wanted
more equity than I was able to give; I have had developers steal the source code in the night because they wanted more leverage;
and last but not least, an angel investor tried to steal the company after putting in more than four million dollars of their
own money. While the courts returned the company to us in March, the man successfully convinced the 29 odd employees that
we were to blame. After 12 years of fanatical effort and passion, we are once again alone with our vision and our determination.
We do have 58% of the company, a beta version of the software and lots of computers. But we currently have no funding.
I have heard that there are honest
decent business people out there that are genuinely looking for dedicated people with great ideas. But we haven't met any
yet. When we came up with a huge business opportunity, we were so caught up in the excitement, we didn't think about the impact
it might have on the people around us. As arrogant as it sounds, killer application may ultimately kill more than market share.
As for us, we will keep on plugging. It's too bad there isn't a VC firm that specializes in integrity.
(Jack can be reached at meltzerjack@hotmail.com)
7/6/01 COBRA or a mirage?
by David Kemp from Dallas, TX
Your failed company offers COBRA
healthcare coverage ... but is it really there? Here is my war story.
After (company name removed) of San Jose suddenly failed in December (due mainly to poor management),
they sent us all standard COBRA-signup paperwork. I had a simple question for the insurance company Blue Cross, so I called
them. They told me that Cyber IQ had stopped paying them and they had terminated coverage a month earlier, and so could not
be offering COBRA.
Already furious at the management
for stiffing us on salary, commissions, high expenses, etc., I now felt that they had crossed the line from bad management
to toying with the lives - literally - of hundreds of employees and family members. I called the Department of Labor to ask
if this was illegal. The answer is no: if an employer has healthcare then it must offer COBRA to a exiting employee, but if
the employer does not have healthcare then it does not have to offer COBRA. Worst of all, there is no requirement to notify
employees of the terminated coverage!
My advice for those leaving a failing
company (or still there) is to call your health insurance provider and ask them if you are still covered. If so, make the
call again from time to time. If not, notify everyone you can in your company.
Good luck to all of us!
(David can be reached at dkemp@att.net)
6/26/01 Keep Family out of the Executive Slots!
by an anonymous
community member
I have worked for THREE different
Hong Kong based American eCommerce sites. Each developed different products or provided different
services, but all three had the same slip-shod promotion plan.
In each case, DIRECT blood relatives
of the CEO and COO filled every important executive position. For example, at one company, the CEO's secret girlfriend was
the head of IT, her brothers and sisters were the heads of Web Design, Database, and so on, and His high school buddies, cousins,
and direct siblings headed each other office as acting heads (of Japan, Taiwan and so on).
Each company offered low salaries,
false raises, and when layoffs came, all but the family members were trashed. Ultimately, the lay-offs were because the company
moved back to HK, after realizing the San Francisco area was
too expensive...
I guess what I'd like others to be
aware of is this: if too many of your execs are family and close friends of the CEO, you end up in an uncomfortable climate
of finger-pointing, favoritism, and so on... I found that the family members WOULD not take criticism--and there's no one
to run to if your co-worker is being sexually harrassed by the cousin of the CEO if the cousin's dad is head of HR.
Be aware of your company's makeup.
If there are too many family members, I'd start looking for another job!
5/29/01 Dumb and Dumber
by SK in Vancouver, BC
Every time a startup fails, fingers
point instinctively at the founders and CEOs. It is convenient to blame them because they are the most visible culprits. I
always dig deeper and try to find out who financed the deal. From my perspective VCs are just as guilty. Having worked in
the vc sector for eight years I can safely say that there are proportionally just as many incompetent VCs as there are incompetent
founders.
The large number of Nick Riviera
type of venture capitalists (if you watch the Simpsons you know what I mean) makes it excruciating difficult for good entrepreneurs
to get in front of capable VCs.
Entrepreneurs unconsciously assume
that just because an investor has got money and a name he knows what he is doing. This is true in only 50-60% of the cases.
Street name VCs are not immune. Most of the time founders have to deal with an associate or ex fund manager who has a limited
understanding of the venture investing process. It is like a blind leading another bl!ind.
If you put a dumb founder with a
dumber venture capitalist, you have a guaranteed failure.
(SK can be reached at venturegroup@infoserve.net)
5/22/01 There's No Need to go IPO
by anonymous in California
I'm a veteran of 5 dot coms--most
of which failed. In each new situation, amidst wildly different products, services, and climates, I saw similar failure symptoms
emerge, months before the actual cataclysm. I got so good at predicting different flavors of demise that co-workers would
be utterly surprised.
By watching the failures of well-fed,
well-funded CEOs and their plans, I've learned a few
things that I'd like to share with other entrepreneurs, especially the observation listed below.
---------There's NO need to go IPO!------------
Plenty of businesses, new and old,
never go IPO. They remain privately owned companies that do very well. Every company I have been a part of has thrown the
catch-phrase "when we go IPO" around like confetti. There were false IPO dates that always got pushed back and management
meetings pumped everyone with "drive us to IPO" ideas. Glossy ads in The Standard and Business 2.0 portrayed companies as
starving beasts and IPOs as juicy steaks. The CEOs wanted to cash in and clear out.
Each company was so obsessed with
reaching IPO and becoming instant millionaires that they lost sight of the REAL process of business. Had they taken the time
to say "IPO MAY be an eventual goal, but let's concentrate on laying down the foundation now," more companies might have stuck
around. I honestly believe that all this desire to rush in on "IPO" is what encouraged companies to burn capital at such outrageous
rates.
For example, Company A (one of the
first I worked for) received $28 million in VC. 28 million is a lot of clams, my friends. A good friend of mine recently opened
a restaurant. He started with $5 thousand in capital. He used the $5,000 wisely and now has a profitable business. It's privately
owned, of course, and he used every cent carefully. Company A, however, blew through 28 million in 6 months on pizza, cars,
tv commercials, and PR--all in the hopes that we would "look good for IPO." And that, truly, is a quote I heard around the
office.
Of course, not all companies blast
money stupidly, like Company A. When I went to work for Company B--they were penny-pinchers. They gave basement salaries,
had few workers, and skimped on office products. They also drove everyone madly, saying that "once we reach IPO--everyone
will get bonuses. Everything will be OK!" So everyone worked quickly. No time was taken to plan or consider. And BOOM, it
died.
I have learned (well beyond those two examples) that GROWTH is more important than being first.
Sure, eBay was the first major auction site, but it doesn't mean another well-planned, carefully grown auction house can't
also emerge.
GROW your company, folks. Don't just
toss hyper-grow on it and expect to reap massive rewards. Consider keeping it a private company or reach IPO slowly. Don't
use IPO as your driving force. Say, "I want to build a business that does XYZ the best it can" not "When we go IPO, you'll
get vacation."
5/8/01 Reality bites. Get over it. Get past it. Get on with it.
by
T in Silicon Valley
In early 1999, I persuaded a friend
attending business school to start a company with me. We thought we could do something faster, cheaper and better than another
company which was enjoying extraordinary success (by the measures in use at that time). Our original business plan said we'd
go IPO for a billion last fall, and be sitting on top of a $500 million dollar a year business by now.
Well, it's early 2001, and since
then:
we've changed our business model three or four times, and watched revenues decline almost every month since we started...
burning through most of three rounds of funding in the process.
Lesson #1: the only success metric
that means anything is how close you are to positive cash flow
Lesson #2: in a collapsing market,
no matter how hard you struggle, you'll be swept out with the tide, hired up to a staffing level of 30+, fired everyone, discovered
huge amounts of theft, indifference to costs, and that we're doing more faster with 25% of the people
Lesson #3: if people are not working
out, don't try and save them, fire their asses, yesterday... good reasons to fire: incompetence, laziness, being an asshole,
subversive behaviors, refusal to be managed
Lesson #4: if you aren't watching
the books, no one is - our accountants paid bills for other companies, they paid tens of thousands of dollars in unauthorized
expenditures
Lesson #5: if you're a young entrepreneur,
don't fool yourself into thinking age brings wisdom, or that you can trust experienced management not to do stupid things
Lesson #6: experienced executives
delegate. this means they expect people to do what they tell them to do. if they don't, it is quite possible that they will
simply tell them what to do again. and again. and again. someone must *RUN* the company on a day to day basis and pay attention
to the *DETAILS*
Lesson #7: nothing is more important
than making sure you know what money is being spent, where, by who, and that it is all authorized - otherwise, you're handing
employees a blank check
4/24/01 A Complete Dodo with Computers
by an anonymous community
member in India
My "good" friend came to me one day
with loads of PC magazines and said that if all these companies can be started in the garages or in kitchens by our own people
in India, why can't we start something
like this? Not knowing anything about startup/dotcom companies, I blindly trusted him and invested about $10,000 US. Six months
went by, and all I could see when I entered my living room was my good "friend" "starting up" the company with 4 PC's around
him and lots and lots of papers scattered all over the place. He would "work" the whole day and pack up to leave in the evening
(after demanding some "taxi fare".
After six months I became exasperated
and asked him to leave the place and to return my money.
He asked me to show him a receipt
for the money that he had received. This was the end of my money and my "trusted friend".
I got back nothing, not even a scrap
of paper for my investment. Needless to say, my "friend" was seen moving around with a couple of other gals and discussing
"startup dotcoms" with them.
Like they say, "there's a sucker
born every minute", huh?
Take care of wolves in sheep's clothing,
my friends, and DON'T YOU EVER PART WITH MONEY until you know what's happening.
Take care.
3/27/01 Recruiting Management Team
by Anonymous in Silicon Valley
Startup experience is actually a
great learning period. From meeting and assessing people to formulate your strategy, there is so much to learn and absorb.
Most ntrepreneurs would love to get a high level exec to be in their team, thinking that this would enhance funding attraction
as well as great execution speed. But sometimes, there're more than meeting the eyes.
In our case, we have honed in on
one candidate who's a VP of Engineering for a small app vendor. They went thru a merger, and he didn't want to be their combined
VP head. So we got him. Things looked great at the start such as engineering plan, number of engineers to hire, IT plan and
how he can help get funding from his own connections.
Right when the investors gave us
the term sheet, he wants change of CEO, as well as having a COO title. After haggling that COO or CEO are not usually stayed
w/ the founding team, things calmed down for a few weeks w/ more VCs.
Then we found out that by himself,
he couldn't land any VC that we brought to him. Things started to unravel when one group of investors smell something not
right w/ our Engineering head. They declined to even talk to us further when he is still at that spot. Boom, stuffs hit the
fan! He claimed that those investors had nothing but just luck in their career (to get to their Billion market cap) and that
their products are nothing but junk.
We talked to our advisors. Those
who were brought in by him echoed the same rhetorics (i.e. lucky dumb guys w/ lousy products, even if they're past Billion
dollar mark). Other advisors were surprised at his reaction. Then w/ 1/3 of the advisors on his side, he requested to be CEO
or else. So we cut bait, and lost our round.
Two weeks afterward, we found out
from a new recruit that during his past merger, they didn't want him at all. More dirt came to light as well, but all we care
is that he is no longer part of us.
Started from ground zero again, but
that is entrepreneur life! Moral of story, do your due diligence on exec recruits. Get advisor team from diverse background
and origins. And when the core team is in disconcert, assess and make decisions quickly.
We did not act quick enough. Life
is too short to put up years w/ egomaniacs. Live w/ a compelled vision & higher calling or don't live at all! One friend
told us "I refuse to live an unchallenged life"!!
3/20/01 Management Dynamics
by John Markör, from Seattle, WA
I learned that management dynamics, and the quality of management, counts for a lot. Failure
of upper management to control the working environment, and the quality of the middle management counts for a lot.
I worked for a well-funded dot-bomb
that burned through a massive amount of money (while not privy to the exact amount, the rumor was $20 Million) in just under
9 months. Most of the money was spent on lavish extravagances - like Friday afternoon wine-tastings and industry parties.
Managers were hired at will, with no regard to whom or what they were to be managing, and with little regard to whether or
not they actually needed a manager in that position. In a dot-bomb that at it's hey-day had about 50 people, there were 30
upper and middle managers and supervisors.
And the quality of management was
suspect, also. For example, the VP's credentials amounted to the fact that she was a screen-writer in Hollywood (and writing for "Married with Children" at that). The Marketing Director was a
former consultant that put her personal preferences, instead of those of our clients, into everything she did. For example,
she didn't drink coffee, so she decided that the organization wasn't going to give coffee cups as marketing tools (which meant
that everyone sitting at there desk were now not going to see our branded logo in front of them). But she did authorize cheap
little aluminum "beaners" for use as key chains, with a logo that rubbed off the first time you put it in your pocket.
What management there was was ignored
most of the time by the underlings who felt passed over for positions that they felt they should have had. Programmers with
master's degrees and PhD's were passed over for promotions in favor of people off the street who happened to be friends with
someone and who had little or no education, much less experience with the subject matter.
(John can be reached at john.markor@mindless.com)
2/20/01 Avoid unnecessary expenses in the beginning
by
Sharon Gary-McGuinness in Chester, NY
I started my business in Feb of 99.
I own a gift basket company selling to corporations and businesses for B to B gifting. Mistakes? I have a few, much to my
dismay!
First don't bother printing a brochure
for your business until you have been in business for at least one year. We did and in a very short time, we had changed our
image and our baskets making the $5000 expenditure useless. We were learning about the industry as well as our talents and
abilities, not to mention what people wanted in a corporate basket. The brochure did do one thing though. It made us look
bigger than we were and much more professional appearance which did get us in the door where we wouldn't have otherwise, but
not worth the mistake so early on.
Second, buying lists? We got burned
twice because of our ignorance to the industry. We bought a business list, not knowing that included Wendy's and Synagogue's
who do not buy baskets for business. Another big waste of money! You live! and learn. I have a few more however due to the
ones I just mentioned I have work to do! Hope this helps someone, got to be a reason for making them Ah?
(Sharon
can be reached at infor@giftsingoodtaste.com)
2/10/01 Put Ideas into Action
by Daniel Simmons in Sydney
As an independent internet consultant
advising start-ups and traditionally offline companies on their online brand and creative strategy, I have been faced with
many people with many ideas.
The one key ingredient which I would
say distinguishes the people who put their ideas into action compared with those who just talk about it, is simply the capacity
to stop prevaricating and cross the line. It seems one can spend, literally a lifetime inventing reasons not to do something,
being afraid of 'what if's'. For me, the greatest risk in any venture is always the initial crossing of the line, the taking
of that first baby step into the unknown. Without this there can be no journey- no experience, no success, no failure (however
you define these things).
(Dan can be reached at dansimmons24@hotmail.com)
1/30/01 Going to work for a startup
by anonymous
Hmmmm.... Where to begin?
The startup experience was a mixed
one. Learned a lot, met great people, but the way
it ended up was less than ideal.
Many lessons were learned including:
- Scrutinize
management when you interview. Even if you are mid-level (ie manager), let them scrutinize you, but really grade the mgmt
(either upper or at least who you will report to). If they don't strike you as bright, then don't think you can come and be
a superstar. Startups are inherently political so if your boss is a moron, it means several things:
- you will
get lots of work dumped on you because they cannot do it
- upper management
doesn't have a good eye for talent and therefore if they hired one idiot, it's likely that the other groups are littered with
folks who are high on credentials/low on common sense aka idiots. Ask them a business question to see what their gut instinct
is. If you think it is way off, it prob means that all important commons sense is lacking. And if they ding you cuz you challenged
them, then it's prob better that you didn't go work for an insecure person anyways.
- There is
no such thing as job security even if you feel you did a better than average job.
- If you have
any doubt when you join, don't take the gig. That doubt will only grow.
- Operational
experience in building a company is huge. MBAs from top schools are good at putting together decks and analysis, but start
up world is all about execution. Identifying partners and building a rosey model showing profitability and 35% market share
is easy. Look for folks who could do your job. Applied theory is worth a ton more than theoretical knowledge. The ability
to manage costs is huge. When in doubt, I think a general and easy to implement rule is to avoid consultants.
- Don't expect
to get rich with it. Equity is a bonus if it works out. Make sure the salary is there.
- And lastly,
ENJOY THE RIDE!!! It can be tons of fun.
12/12/00 Existing in Silicon Valley
by anonymous in Silicon Valley
I know this is a coaster ride to
build a successful company. Being in the SILICON VALLEY and having every other person, part of some exciting operation leaves you restless
and if you do not get thrilled with just a thought of being counted in the list of Doers community, you are not enjoying the
Bay Area.
I also had a nice dream to doing
something BIG and DIFFERENT. Already had some experience of Start-Up operation and some Paper money in the diluted market
gave Oxygen to my inner fire. Explored a lot and selected one idea to pursue... had nice time (though sometime real tough)
and learnt a lot. I must admit now, it is kind of purged, I would like to share the invaluable experience I got.
1. Never think, this is the SOoooo
great. Competitors can outsmart you (almost, always... somehow).
2. Do not lose faith in your idea but never be blindfolded
with greener view.
3. Do sufficient risk analysis and evaluate the partner very thoroughly (good to have a partner... fellow
believer).
4. Have the business plan handy with clear distinction of revenue generation stream.
5. Be best at everything.
There is no place for side paths.
Tomorrow never dies....
12/5/00 'Twas the Day before the IPO
by Bill Flitter
'Twas the day before the IPO, when
all through the net,
Not an executive was flying, not even Ellison’s jet.
The documents were filed with the SEC
with care,
In hopes that the IPO, soon would be there.
Techies were nestled all snug by
their screens,
While visions of liquidity danced in their dreams.
The CEO with a reporter and PR at his side,
The
press tour just concluded a cross-country ride.
When out on the web there arose such
a clatter,
I surfed to the stock ticker to see what was the matter.
To eTrade, my Mac flew like a flash,
The market
made a slight correction, it started to crash!!
I gasped at the thought and started
to grouse,
“Must I sell my SUV, what about the house?”
When what to my wondering eyes would appear,
An
email from the CEO that was quite clear.
I knew in a moment what he had to
say,
It had to do with the crash that happened that day.
More rapid then VC money and Napster fame,
Another Dotcom
Bomb and he called them by name;
"Now Pets! Now Petopia! It was plain
to see,
Garden and Eve!” Oh God, why is this happening to me?
"We spent and we spent, with no revenue in site!
Be
‘sticky’, capture eyeballs, VC’s shouted all night.”
“As fast as we filed, the IPO
was pulled,”
On f***edcompany.com our story will be told.
B2C, B2B, P2P changed with a flicker,
No company
was spared on the stock ticker.
And then, in a twinkle, we were off
raising a round.
Searching and searching, no money to be found.
Don’t count on series E, no money, no loan,
The
end was quite near, we started to moan.
No more launch parties, and Super
Bowl ads,
Pink slips and revenue became the fads.
The dot com frenzy – how it glimmered! The days were so merry!
The
stock options how rosy, the payoff so cherry!
From Yahoo! to Amazon, they started
it all,
Who would think, “The stock market, fall?”
We were chubby and plump, a right jolly ole folk,
We
laughed when we heard, ‘Our start-up going broke?’
A wink of the eye and a twist of
fate,
We realized our start-up entered the market too late.
We spoke not a word, but overcome with grief,
As we watched
the market close in disbelief.
The CEO sprang to his team, and gave
a whistle,
Away we were, laid-off like the down of a thistle.
But I heard him exclaim, as we drove off that night,
‘www.laptoplotto.com
will be our next site!’
(Bill can be reached at bill@reology.com)
11/30/00 Not that different in India
by
Sameer Kulkarni from Mumbai, India
The net mania was at its peak. A
bright team with a sound (?) business idea was getting funded at astronomical valuations…. and this was happening not
only in the Silicon Valley but in India.
It was tempting to think of running your own business. So three of us; all MBAs from the best business schools in India formed www.cfoindia.com, a portal for CFOs. After all
we had substantial experience in finance and banking in India
and abroad. We were seasoned professionals; not the typical fresh green naive youth.
After about eight months we are closing
our business. Reasons : lack of funding, much lower-than-expected internet usage and acceptance and strong competition from
existing, well-entrenched offline players.
The business is lost but not the
learning. Given the extent of globalisation, the experience is universally applicable. Here are a few lessons :
Lesson 1
Don't interpolate linearly;
look at qualitative factors too.
If funding at seemingly irrational valuations happen in January does not mean it will
continue in May. If there are 3 million Internet users today, does not mean 6 million users tomorrow and even if there are,
what will be their level of sophistication?
Lesson 2
The sector matters as
much as the team
Too much emphasis is placed on a bright, committed team. While it is true that a competent cohesive team
can work wonders, the business in which it operates also matters a lot. A good team in a bad sector is probably a losing proposition.
Choosing the right sector is important.
Lesson 3
Risk can be mitigated
but not eliminated
I can see several ways by which we could have reduced the risk - early funding, more thinking but all
this would still never make a new concept work necessarily nor would we know conclusively about the outcome. Many a times
one has to take a plunge to test the limits especially for new concepts. And we still have the spirit and zeal for it!
(Sameer can be reached at sameer@cfoindia.com)
11/16/00 Give up some control
by Craig H. Sloss of Huntington Beach, CA
Why do so many dot-coms waste all
of their venture capital building the structure of a traditional company when it's not needed? They're doing something new,
so why not do something different too? These are questions that I ask myself , venture capitalists, and dot-com management
people everyday. I never seem to get a logical response, other than "because we want to be in CONTROL".
Control of what? Another failed business?
Most dot-coms originating in the US have
followed the "traditional American business pathway" during their development stages, leading to a very unbalanced capital
investment in lots of bricks and mortar, IT infrastructure, and personnel for back-office operations. This reliance on an
old model has lead to the failure of most dot-coms, the tech stock market near-collapse, and the e-Commerce industry at large
has become suspect. It's too bad. The solution to the problem has been overlooked. It was too simple. Single-point, third-party
outsourcing.
If your capital investment is strictly
focused on product development/aggregation, channel development, key executive management and marketing communications only,
you've begun to head down a more logical path. No big buildings; no massive headcount levels, or warehouses, or multi-million
dollar IT systems (and hardware); no complex call centers. Nope, not needed. Outsource it all to one source and you don't
spend a dime until your dot-com is ready to launch. When that time comes, an even bigger surprise occurs when you find out
that operating costs are not only quantifiable and forecast-able, but much lower than what you would encounter following the
traditional old "build-your-own-bricks-and-mortar pathway". Oh, but there is a downside. The entire operation is now 100%
scalable for seasonal fluctuations and rapid growth; you're equipped to supply customers domestically and globally; all of
your operational data is updated and accessible in real-time via an internet link or merged transparently into your servers,
and the orders are being fulfilled accurately on the same day as the order receipt.
Tough, isn't it? Well, it gets even
worse. You are now able to accurately map out 100% of your operating expenses for up to five years (with the help of a company
like mine), allowing you to easily see whether you'll make it into the black (or not).
I would like some feedback on my
nagging question from your readers. Are the incubators the ones that can change or redirect the traditional thinking of an
industry like ours?
(Craig Sloss can be reached at c.sloss@centraworld.com)
11/9/00 What we learned about
startup investing
by John Allen of NJ
Two years ago, myself and a partner
were 1.5M wealthier than we are today. We had liquid cash at an incredible time period in history and we were determined to
get our slice of the technology revolution. If we couldn't build it we were going to invest in it! Two years later here are
the lessons we've learned at such a deep level we will never forget them.
1) Unless entrepreneurs have a track
record that equals or surpasses the experience level required for the venture they are asking you to invest in, don't invest!
2) Part of the investment is the
due diligence and don't be afraid to spend a significant % of the investment amount on proper due diligence, 3rd party ideally,
else you seriously risk losing a major portion of your money like we did. Do so whether it's a public or private equity you
are investing in.
3) Get to know the character of the
people you are investing in great detail and question them. If you are not 100% satisfied in both the answers and representation
of their values, beliefs and results in terms of past achievement in their current day lives; it's likely someone who's acting
as if.
4) Make sure you know the business
very well, else, you'll never be able to decipher all the communiqué’s that will transpire.
5) Make sure you have a great professional
team, lawyer and accountant, if it does not get by them, don't invest.
6) Realize that everyone has an agenda.
Make sure you are comfortable with the one hopefully shared by the founders. And if you like it, make sure that it's shared.
7) Don't confuse being realistic
with pessimism. Being realistic is all that matters. If that realism appears pessimistic or optimistic, then so be it.
8) Acknowledge that entrepreneurs
are known to stretch the truth phenomenally well in the name of vision, promotion and keeping everyone looking forward. They
often forget reality.
9) Don't invest what you can't afford
to loose. Be willing to walk away if you don't get what you know you need for the investment to be a success. Other opportunities
exist.
(John Allen can be reached at jamhandle@yahoo.com)
11/2/00 Paying customers are the key
by Robb Sequin from Cape Cod, MA
Just a quick note I guess. I'm founder
and CEO of www.dotcomcardz.com . A start up that would feature printed web site home pages on color 4" x 6" trading cards.
We expected the cards to be collectable but also new forms of hard advertising for any company with a web site. We signed
up lots of big names (see the customers link at the site) but could never raise the VC money. Many thought it was a good idea
and I put a good team together.
My lesson learned is to have PAYING customers before trying to raise first round money.
We had lots of big cap names for customers but figured we should give away our advertising service for free first. Wrong.
VC's told us that if we had paying
customers we would have been much better off. Thanks, just found your site from an article on startup failures. I'll be hanging
around at your site since I am now...between start ups. Hey, that sounds good. Maybe I'll put that on my resume "between start
ups". Has a nice ring to it:-0
(Robb Sequin can be reached at president@dotcomcardz.com)
10/27/00 Hard times after working for startup
by Mandi Pinni from
Los Angeles, CA
I was with a wonderful dot.com/Internet/software
company with a great idea and not much else. When I was hired two years into the company's existence, they felt they needed
a PR/Creative Advertising professional to assist them in "putting the word out" about their site. I was a seasoned employee,
I brought in 7 years of PR/Media and Creative Advertising knowledge into the position and I liked what the company was proposing.
I took a low salary in exchange for stock because the plans were that the company was on the fast track to IPO and really
wanted to work with financial magazines, do a press roadshow and prepare the Communications portion of the IPO Business plan.
I knew I could help it succeed. I wanted it to.
What I didn't know was that the CEO
wasn't used to working with employees and levels of employees. He wanted everybody to report to him. We had three or four
two-hour sometimes two and a half-hour meetings a week about nothing except to hear him speak about his personal pursuits
and not what we were doing to make the company succeed. It was like he could care less because the money and kudos were coming
in and he was taking all the credit.
I resigned from this company after
two years because every other week my paychecks were bouncing and he wouldn't have the courtesy to tell us he had a financial
problem. He would hand out the checks and say, "Oh, the money is in there." There was some money there but we all had to fight
each other to get to the bank first so we could get paid. Very sad. I felt that since I was a professional at what I did,
and I brought in many of my connections to the company and I would want to use them again, I would have to leave in an appropriate
manner.
Well, Now its October and I am broke.
Broke financially and broke mentally. The resumes are still going out, but the companies interested in me aren't getting any
more experienced with what they want out of a PR/Ad person like me. Many companies still tell me "Well, we got a Marketing
Director and they're doing good in PR and Advertising but we're not getting any press." Therein lies the problem.
My old dot com company still owes
me thousands of dollars. I filed with the labor board but I am one of 60 suits against this company. None of us got paid as
yet. He's claiming financial problems but never filed bankruptcy. I am still applying to companies but I am really asking
them allot of questions and I can tell they don't appreciate it. The problem is...getting past those HR people or owners of
Internet/dot com companies who look at me when they ask "Why aren't you at your last company?" and I reply, "The company ran
out of VC funding." and they ask, "What's VC Funding?" and I still keep a smile on my face. a good attitude and get through
the interview without walking out screaming.
(Mandi Pinni can be reached at Mandi7882@hotmail.com)
10/19/00 To go into business with family or not to...
by Julie
Mucha-Sullivan from Santee, CA
To go into business with family or
to not go into business with family. That should never be a question!
Two years ago I opened a sarcastic
greeting card company called The DeadBeat Collection, Inc. The company was derived from the unfortunate happenings to my 10
year old nephew who never received child support. Classic idea, cards are cutting edge, funny, ready for the public? By the
seventh month of my completed product, I was featured centerfold in The National Examiner, Denver Post, N.Y. Times, Radio
spots across the US. Thought I was onto
something big.
The two biggest mistakes I made were
1.)
going into business with family and
2.) Allowing my "partner" to go forward with certain types of cards that were too revengeful.
It comes to a point where you the
entrepreneur puts everything out on the line, your time, money, and other profession to proceed forward, and your stuck with
a partner who is only big on a "Title" yet has absolutely no interest in putting any effort or time in but still wants 50%.
There honestly is no way out. Eventually it will end in disaster, and your "family" relationship will always be tarnished.
I dissolved the Corporation because
I couldn't hide her flaws or non-business ability to make a company grow. There would have been no way of getting her out
because it would end up in court just because of the personality of the individual. I also realized that though something
may be funny "ie, I was compared to South Park
by the Denver Post" however is only feeds the fire with the type of message that some of the cards were sending. The only
way to rectify this situation was to close the corporation, take one of the lines of cards, (Pink Elephant Greetings for dysfunctional
families) and start again. This time in a totally funny and humorous manner.
10/12/00 All's Well That Ends Well
by anonymous
July 5, 2000 was the low-point of
my career: I was one of five people laid-off from a dotcom startup due to the company's inability to secure their second round
of financing. To slow the burn rate, they were forced to lay-off five people (out of 30 something) and all remaining employees
were forced to take a 15% pay cut.
The day was particularly dark for
me since I was laid-off after just one month on the job (that must be some kind of record)! Compounding the pain was the fact
that, after nine good years, I had left a secure job with an established record company because of the opportunity to jump
start my career and make more money at a music-related dotcom. I loved my new job as Business Development Manager, believed
in the startup, and was psyched to be a part of the team at this early stage. Of course, I knew there was risk involved but
figured I was safe for six months or a year, at least. Turns out I was not so fortunate.
As dismal as that day was, I had
no regrets, and knew there were other jobs out there. Having had a taste of a startup, I decided it was worth it to throw
myself into the fire again by pursuing other start-up opportunities in the music/entertainment arena.
With two young children, my wife
not working, and a mortgage to pay, I could ill afford to be out of work for long and began my pursuit in earnest. I immediately
made progress and secured some interviews in spite of the fact that July and August are traditionally the worst months to
be looking for work.
Last week, I accepted an offer as
Director, Business Development at another startup, proving that my brief time at the first dotcom was worth it--I now have
a higher-level position, a decent "raise", and a better chance for growth within the company. After two months without work,
and collecting unemployment benefits for the first time in my life, I am eager to begin this new phase of my career.
Yes, there is still plenty of risk
involved. The company has just received its seed money which will only keep it going for six months or so, but I believe the
prospects for first round financing are good. Furthermore, in my new role I will be responsible for securing the kind of strategic
partnerships that will help to make the company more atttractive to investors. Sure, nothing is guaranteed, but I figure I
can't do any worse than the one month I lasted at the last place!
Lesson Learned: It's a cliche, I know, but very true to my experience. "If at first you don't
succeed, try, try again."
9/28/00 Rebound and Restart
By Bill Turner
I sold my successful printing company,
Triangle Printing to a insurance company in 1998. I was a success and respected. I decided to start a mortgage company with
my brother who had mortgage experience. In May 1998 we started 1st State Mortgage with 2 people. Business was booming and
we built the company into 10 offices in 2 states with the refinance boom. Then the unexpected happened, the refinance boom
ended. We took all our money to prop up the company, but just could not turn it around.
In less than two years I went from
the Greatest guy on earth to "who knows what."
On July 10, 2000 I launched the first
of 45 entrepreneural portals www.TriangleEntrepreneur.com and have added nine cities since.
I've learned several valuable lessons:
1. Have a plan of action, and follow it closely.
2. Be careful
about signing personal guarantees, you never no what can happen.
3. Know the business you are starting and proceed carefully.
4.
Know when your business is failing and get out early.
5. If you fail, have your pity party, then get out there and make
a difference in the world. That's what makes us entrepreneurs.
Thanks,
Bill Turner
March Six
Communications, Inc.
b.turner@ix.netcom.com
9/20/00 Lawyers are expensive
by anonymous
Well, we were all set to go on the
1st round of financing and the VC pulled the plug... We blew $45k of our money on the attorney's to prepare the round. Lesson
1- make the VC split the attorney's fees if the deal falls apart. They wanted a no-shop clause. That cost us 4 months of momentum.
Don't give it to them, or if you have to, give them a month. period. No shop means you have no leverage. Lie, tell them you've
already got interested players...whatever, don't give away your power...walk out the door.
What the hell does a term sheet mean???
Get the book "high tech startup" and avoid $500 an hour lawyer tutorials...Know what an s-2 registration right means? How
about piggy backs???
Outside consultants for due diligence
suck. They hired some idiots who didn't know the difference between symmetric key size (des) 56 bits and the 1024 bit rsa
key public key to evaluate our product. They slammed it. The VC used it as an excuse to bail out, although the took commerce
one stock from 160 to 45 a share 3 days before your 181 day lockup lifted, so they screwed everyone on that. Didn't matter
though, I had the ex-head of the NSA certify my product to deal with that. Lesson! Have your outside due diligence already
done by someone that is impartial. If you're paying, you'll get what you need.
Repeat internal 1000x Lawyers suck.
Big ones suck even more... You get lousy service, they pawn off your stuff to $45.00 an hour paralegals and you get charged
$500 and they don't even bother to check the work. Make sure you check it, I had to send the warrants/options stuff back 3x
to get it done right. Then there's the bozo that wanted me to give a consultant a $50k separation fee without our stuff back
or a release...dumb!
No real advice with lawyers, even
if you pay them, you get half-assed work...
If you don't have the compelling
product for your market, don't bother. Competition with others that are already there is difficult to overcome... Get a patent
filed if possible, but most importantly, get a product done and deployed...saves you a lot of money on your first round...
Oh..I could go on..but I have a release
to get out...
8/31/00 Have a contingency plan
by anonymous
I consult for small start-ups and
turn around companies on the verge of bankruptcy and in every case I see lots of plans for success but never any plans "in
case it takes a bit longer." I suggest that in all cases plan for the realistic and put some aside to take care of Murphy's
law.
If you plan for the realities of
business- that is to make money- and do not get buried in the obsession that only you can do it all- then you have a chance.
A company with $27 million in sales that loses $7 million is not being run right- greed and optimism will cause you to sacrifice
a slower more precisely planned approach to the market that will keep your business around long enough to succeed.
Be realistic on how you spend your
money and remember Venture capitalists are not your friends- they are in it for the fast buck and will often push you to decisions
you should be more careful in making. Caution and good business practice will give you a far better chance for success.
You would be surprised how few startups
follow this practice and even great ideas can go under!
Good luck to you all
8/17/00 Learned from failure
by Rizwan Mallal of Salt Lake City, UT
I was an employee of Raptor Systems
from 1995-1999. Raptor today no longer exists today just like hundreds of other net companies that are going bankrupt, getting
acquired or simply struggling to make their mark. Raptor Systems is no longer a company but a division of Axent Technologies.
Some might argue it wasn't a failure since it was acquired for a decent sum by Axent and its products continue sell well after
the acquisition. In my own view it was a failure since it failed to dominate its sector. It competed well but did not dominate
the firewall market. The lessons I learnt from Raptor's
demise as a independent company were valuable.
No matter how astronomical the growth
of the sector is it can only sustain a 2-3 players. In the computer industry as in the Olympics, we only have the gold medalist,
the silver medalist and the bronze medalist of each sector. Rest of the companies in each sector disappear. The gold medalist
always dominates its sector of the market. Cisco is the prime example of a dominant player in the layer 3 switching sector.
No matter how astronomical the growth of the sector is it can only sustain a 2-3 players.
The second lesson I learnt is being
first in any sector always helps. It is not a guaranteed win but it is a sure bet.
The third lesson I learnt was that
a decent engineered product with great marketing will always win against a great engineered product will poor marketing.
The fourth lesson I learnt was even
if the company fails to execute and goes belly up one should hold their head high. No need to be bitter or take things personally
or point fingers at your colleagues. When you point a finger at your colleague or the management with bitterness the other
three are pointing towards you.
A company failure is not the end
of the world for you. People in this world have lost their loved ones in civil wars and bloody uprisings. We have only lost
the value of our stock options.
Winning in the internet game means
not being afraid to lose. If you are not afraid to lose even after several failures I will guarantee you will win.
(Rizwan Mallal can be reached at
rmallal@hotmail.com)
8/10/00 Indications of failure
by anonymous
The items I noticed that lead to
failure in the companies I worked for:
- Marketing
did not have a good grasp on what customers wanted.
- Engineering
was not following marketing. They thought they knew better but were wrong also.
- Sales was
screaming "If only we had a product that did ......." If engineering reacted, then only one or two seats were sold not even
covering the cost of development.
- The CEO
was too concerned with making our best customer happy who was demanding so much that we were losing money from them.
- Companies
were bought cheaply that were losing money and no plan was in place to turn them around.
- If marketing
had identified a product that would have made money, and engineering and sales worked in the same direction, then the company
would have survived.
8/3/00 Recognizing Market Darwinism
by an executive at a well-funded
startup
INTRODUCTION
The vast majority
of technology companies fail. That is market Darwinism at work. Through no fault of your own, chances are you currently work
at one of the eventual losers. If you are prepared this experience will be little more than an opportunity for an unpaid vacation.
If you are caught flat footed it can be a very traumatic experience. With a little forethought, effort and strategy you will
be in control.
MENTAL PREPARATION
Pilots are
trained to always look for the next possible landing strip in case of an emergency. If your company's engine quit today where
would you land? Try to always have an answer for that question. Here are a few suggestions to reduce the pain of unemployment.
Make sure you have marketable skills.
Check the employment pages of companies you would like to work for and make sure you have the skills they want. Go to seminars.
Take classes. Volunteer for projects which use new, popular or cool technologies. Do some projects on the side. Make an effort.
It's for your benefit.
Save some money. This can't be emphasized
enough. This is a VERY risky business. You could be handed your last paycheck at the next meeting. Can you afford to live
for a couple of months without income? If not, put away some money now. At the very least contribute as much as you can to
your 401k. You can get at that money in an emergency. DO IT!
Maintain contacts. Keep in touch
with previous supervisors, coworkers and recruiters. These people are good sources for references and possible job openings.
The larger your circle of contacts the safer you are. Go to lunch with someone who might hire you once in a while - and buy!
If you are in a large company cultivate some relationships with people in other groups and divisions. Keep your resume fresh.
Hopefully, if you have enough contacts you won't need it.
PREFLIGHT INSPECTION Pilots perform
a preflight inspection of the aircraft they are about to take off in. You should do the same with your company. Get out occasionally
and talk to some business people. Ask tough questions. Nose around a bit. Look for the signs of trouble detailed below. Watch
what happens to your competition. Sure they may have an inferior product or service but what if a number of them are going
down? Is your company really that much better? In most industries there are at most one or two winners. The rest will eventually
die or be assimilated.
The number one reason companies fail
is insufficient capitalization. This is MBA speak for going broke. Business is about making money after all. Find out how
much your company is spending each month versus how much it is bringing in. If this difference is negative then your company
is 'burning' money. Next, find out how much your company has in the bank. You probably know how much was taken in the last
round of funding, right? Divide the amount brought in from the last round of financing by the monthly 'burn' rate. How long
will that money last?
DO NOT trust management's assessment
of the situation. They are well compensated to evangelize the party line that all is well. It is in their best interest to
keep you working feverishly until they decide to let you go. I've been on both sides of this equation. I've had a Venture
