Monday, January 31, 2011

Tim Ferriss on Marketing, Self-Promotion, and Productivity

It's not every day that you get to sit only a few feet away from a celebrity and listen to his tales. I suppose here, in the Silicon Valley, there is a higher per capita ratio of self-made millionaires and other persons of note than in some other places. (No disrespect intended to any other places.) But it is still an experience that I seek out and savor. And not because I am a groupie. :) But because, even if success isn't transmitted virally--unfortunately, if someone sneezes on you, you don't get rich--then perhaps, at least in part, it can be transmitted orally, or, more precisely, verbally, by way of educating us.

And so it was with great interest that I listened to Tim Ferriss's story and his advice to young entrepreneurs that he shared at ZURB's soapbox in Campbell last week. (Video and podcast from the meeting are available on ZURB's blog.)


The first step, says Tim, is to identify customers who would be able to evangelize on your behalf. Once you identify this group, you must design your product for these customers.

When he was starting his nutritional supplement company, BrainQUICKEN, Tim identified his ideal initial customer demographic as computer-savvy, health-conscious males, 18 to 35 years old. The group of initial supporters and evangelists must believe the messenger before it believes the message, says Tim. Groups which identify you as a member, whether alumni associations or just groups with the same demographic to which you belong, will find it easier to trust you as the messenger.

Once you identify the group of initial customers, putting money into the product they will love is where you are best-served.

As I was listening to Tim, I was impressed with how similar his approach was to that identified by Jeff Smith at his presentation just the day before. For all the different opinions that there exist about running a business and succeeding, it was refreshing to see some uniformity.

So once you have designed a product for that initial group of customers, how do you get the word out? When Tim's first book, 4 Hour Work Week was about to be published, Tim identified some 15 blogs that were frequented by his target demographic, and he set himself a goal to have at least half of them cover his book. Then it was about meeting these bloggers at conferences, having drinks with them, and getting them excited about the book. You can't "sell" to these people, advises Tim. There has to be genuine interest.

It is also very difficult to have a blogger or a journalist write about your product in a vacuum. It sounds like an endorsement and makes the piece look "bought." To get the attention of bloggers and journalists, you need to show something newsworthy, like a trend. Sometimes, to be able to show a trend, you might even go so far as helping competitors get on the radar.

From blogs, you can build up to print. From print to radio. And if you can do well on the radio, you might be invited on TV. But you wouldn't be well served to be covered by any of these media too early, before you are ready. Also important to remember is that brand name media is not necessarily the most effective marketing. The effectiveness depends on the strength of the endorsement and the duration.

You should maintain a primary social media tool, where your community of fans and supporters can feel connected. For Tim, it's his blog. He uses Facebook and Twitter solely for directing traffic to the blog. Whatever your social media tool of choice may be, however, you need to police the community to make sure that people feel comfortable sharing. "I treat it like my living room," says Tim, "and there is nothing I enjoy more than deleting a 5-hour message of hate in one stroke." A policy of no tolerance for abusive behavior is extremely important.


What's the secret to being productive?

A lot of us start the day with email. It's easy. Chris Sacca once said, "Email is a task list created for you by someone else." How very true! Email is a reactive workspace, and that's not productive.

Tim suggests, finding that one thing on your to-do list for the day that is most important, the one thing that, if it was the only thing you did that day, it wouldn't be a bad day, and probably the one thing that you least want to do, and then doing that one thing for the first hour of the day, before you ever open your email.

Beyond that, here are a few other tips to being more productive:
  • Try to minimize the number of decisions that you need make on a day-to-day basis.

  • For repeatable situations, set policies.

  • Allow employees to think for themselves. Don't make simple decisions for other people.
Reading List

During his presentation, Tim referenced many books that he enjoyed and recommended. Among them were:

  • Letters from a Stoic by Seneca

  • 22 Immutable Laws of Marketing by Al Ries and Jack Trout, and

  • Do More Faster: TechStars Lessons to Accelerate Your Startup by Brad Feld and David Cohen
Tim is especially influenced by Seneca, and says he rereads Letters from a Stoic a few times a year. Most importantly, Tim tries to follow Seneca's admonition (1) not to overreact to things outside your own control, and (2) not to get attached to things that can be taken away from you. Good lessons for all of us to remember.

Thank you, Tim Ferriss, for an interesting discussion, and thank you, ZURB team, for your soapbox series.

Inna Efimchik

Emergence Law Group  Emergence Law Group, specializing in assisting emerging technology companies in Silicon Valley and beyond, provides incorporation, financing, and licensing services as well as general corporate counseling.

Saturday, January 29, 2011

4 Tips for Business Success | Getting Your Mobile App to Top the Charts

What does it take to build a successful technology startup? Is it about a great idea? An amazing group of people? Being in the right place at the right time? There are as many answers as there are entrepreneurs, yet it's a question on the mind of anyone who has ever decided to take the plunge and work on a startup.

Last week at a Startup Grind meetup hosted by Derek Andersen of Vaporware Labs, Jeff Smith, co-founder and CEO of Smule shared his formula for business success. Smule, if you have not heard of it, is the creator of some of the most popular, chart-topping social music-making applications for the "i" platforms (iPhone, iPad, etc).


As history teaches us, best technology does not always win in the marketplace. Jeff argues, however, that the best product does win!

But what about the best marketing? What about a really well-funded company that beats out its competition by flooding the market with advertising? (Anyone else thinking of LivingSocial versus Groupon?)

Here's Jeff's point: the best product is one that prioritizes the user's experience. Having identified the core group targeted by the product, the development for such a product is focused on (1) how likely they are to use the product, and (2) how likely they are to recommend it. Word-of-mouth, after all, is a tremendously powerful distribution channel. But this word-of-mouth, viral marketing will only work well for the product that really grips the customers.

And it is a much more mature market now in mobile apps than it was just a few years ago. If customers were blown away by Smule's first app, the Sonic Lighter (a virtual cigarette lighter), today's customers won't be as easily impressed.

In working on a new product, Jeff's team tests the premise by asking itself, "What's the 20-second YouTube teaser for this product?" or "What's the 20-second demo?" If the teaser or the demo doesn't grab the user in those 20 seconds, viral distribution will not work.

Is a teaser or a demo really a good proxy for the product, you might ask. Isn't this exactly the case where great marketing wins? Though Jeff did not elaborate on this point in his presentation, I think he would say that the teaser or the demo is the product essence, not a clever marketing reel. And the main reason for that is that with viral distribution, the majority of the time the 20-second demo is not going to come from the company, but from a fan showing the application to a friend off his phone.

"The best products," says Jeff "are developed by developers who are close to what the user is doing."

Cumulative Value

Jeff's next point was very straight forward--don't let your developers convince you to start from scratch each time, for each new iteration. Build on the existing code, even if it seems like it would be easier to start from a clean slate, even if the existing code looks convoluted and messy. Whatever its other failings, existing code works! Build on that. Don't let that value slip away.


"Empower your customers with all their creativity," says Jeff. Take a look at this YouTube video posted by one of the fans, using Smule's app Ocarina. Amazing, isn't it? This video, being a fan video, cost Smule nothing to produce and nothing to distribute. But it has been viewed almost 500,000 times. According to Jeff, Smule has been able to map a direct correlation between traffic for YouTube videos featuring an application and application sales.

Listening to the customers, hearing and acknowledging what the customers want, is key. The biggest mistake, says Jeff, is to think you know better than the customer. Everyone in the company has to be thinking about the customers. Making the customer the focus, lowers customer acquisition cost, and allows those funds to go to product development and enhancement.


Simply put, the company's ability to recruit and retain top people is going to be directly related to the company's success. I doubt there is anyone out there who would dispute this correlation.

Jeff focuses on building Smule's culture around creativity, not discipline. This has its own drawbacks, to be sure, but it works to help create chart-topping products. In hiring, says Jeff, they aren't looking as much at the skill set. First and foremost they care about the attitude.

Thank you, Jeff, for a great, insightful presentation. Your PowerPoint was inspiring! [For those who weren't there, there were just the four words spread out over the four slides: product, cumulative value, customers, and team.] ;)

Inna Efimchik

Emergence Law Group  Emergence Law Group, specializing in assisting emerging technology companies in Silicon Valley and beyond, provides incorporation, financing, and licensing services as well as general corporate counseling.

Sunday, January 16, 2011

The Science of Building a Successful Startup

There are those who say that the majority of startups are doomed to fail. And there are those who believe that startup success is all about luck--being in the right place, at the right time, with the right idea.

Mike Cassidy, the founder of four technology startups, all with successful and very successful exits, has reduced building a successful startup to a science. His secret (which he shares openly): speed as the primary business strategy.

I heard Mike speak at The Entrepreneurs' Club (TEC) event on January 12. Recognizing that these strategies will not work for every entrepreneur, every business, or in every industry, I still found Mike's story and the premise very interesting and compelling. In the days following the event, even before I had had a chance to blog about it, I found myself sharing the presentation highlights with friends and clients, over and over again.

So why is speed so important?

  • It builds morale, for one. When employees have milestones they are helping meet every day and when objectives are being met all the time, it motivates them to do even more and to do it even better.
  • It also makes it difficult for competitors (especially bigger, slower-moving competitors) to catch up.
  • The press loves companies with momentum. A good write-up from a well-read publication saves a lot of advertising and marketing dollars, and a lot of time!
  • Finally, momentum drives higher valuations from a fund-raising perspective. The trajectory of a company moving very quickly is hard to map.

Timeline. A typical startup might take roughly two years to get from idea to first customers. Mike's timeline requires about 4 months, with 2 weeks allotted to exploring ideas, 1 day [gasp!] to raising capital, another 2 weeks to hiring a team and opening an office, and 3 months to building a product. Admittedly, this may not be possible for every company, but in the consumer Internet space it can be done.

So what does it take to speed everything up?

Fundraising. Most startups will not be able to get funded in one day, especially those founded by first-time entrepreneurs. But Mike's strategy for getting funded quickly may still help to speed up (or even make possible) a funding.

  • Raise money when the conditions are in your favor - in other words, when you are about to, but haven't yet, signed a major deal or there is another significant and predictable event about to happen in the life of the company that is going to raise its valuation. Mike is not worried about leaving money on the table by raising before, not after, the valuation changes. Getting funding and getting it quickly is worth more to him than getting the most money on the best terms. In addition, Mike's philosophy is to make sure every dealing results in people continuing to want to do business with him, and part of that is not being bent on winning a negotiation.
  • Get all decision-makers in the room - before taking a meeting with the VCs, Mike requests that all decision-makers be present, so that a decision can be reached the very same day. His track record demonstrates that this approach can work, for some executives and some companies. Some VCs, however, are turned off by an entrepreneur who rushes them and his own decisions, so if you're going to add this strategy to your repertoire, use at your own risk and peril.
  • Synchronize the timing of competing offers - startups that have the luxury of doing so, can turn up the pressure on the VCs to act and act fast by scheduling all their pitch meetings in one day. With the caveat that most startups would consider themselves lucky to be able to get in front of more than one VC in the first instance, it's certainly a strategy bound to put the pressure on the VCs to produce a term sheet.
  • Bring "if/then" contracts with customers to the meeting - an "if/then" contract is essentially a conditional indication of interest in becoming a customer. For example, "If you build an application with this functionality and specification, we will buy a license to use it." The bigger the account, the more impressive the potential client, the further it will get you. The "if" part of the contract is the action plan, and in the presentation you need to be able to show the VCs exactly how you are going to accomplish that "if" in the proposed time. According to Mike, "if/then" contracts go a long way towards convincing the VCs that you are the real deal.

Hiring. Just as Mike likes to get funded in one day, he likes to hire in one day as well. Not just anyone, of course--Mike is very picky with his hires. He looks for very experienced developers, not recent college grads, and he looks for people referred through and known in his network. But if he finds that great candidate, Mike checks his references while the candidate is proceeding with the interviews and, before the candidate leaves, presents him with an offer. He also asks for an answer by 9am the next morning. And until that offer is accepted, Mike pursues and woos and doesn't let up. He is relentless.

He also expects his hires to hit the ground running. No filling out IRS forms on day one. No reading through manuals, waiting for computer station to be set up, or twiddling your thumbs. That just kills all the momentum, all the great energy that an employee brings with her on the first day. The paperwork and manuals are given to the employee before the first day of work. The computer, email, accounts are all set up ahead of time, too. On their first day of work, Mike's employees receive a list of goals, projects and deliverables, and it's off to the races.

Of course, picking those perfect candidates is no easy task. Mike looks for hard-charging individuals, people who take ownership, but who are not stubborn. He also maintains a culture where no one looks back. Once a decision is made and all the voices have been heard, everyone gets behind it and works to make it happen. If it turns out to have been the wrong decision, there is no blame, no looking back. Everyone just moves forward. And if that's the culture, says Mike, people get used to it.

Product Development. Not surprisingly, given his speed motto, Mike believes in incremental development. He builds out his products module by module, one release quickly following the next. Another way to approach product development is to hit the market with a product that is rich and compelling, as you only get one first impression. But this approach calls for a longer development cycle and more capital upfront.

Business Development. "Probability of a deal ever closing declines by 10% each day it doesn't close," says Mike. So he pushes hard to close deals and not allow them to go stale, even if that means leaving something on the table. Some of his pressure tactics to elicit faster action involve using calendars and maps to show limited, even vanishing, supply, and encroaching competitors. Scarcity, after all, creates demand (and panic).

Marketing. Public relations is faster than marketing, is Mike's approach. All of his companies have been featured in major industry publications. If you can create a buzz with the press, the proverbial (or actual) phones ringing off the hook, who needs marketing?!

Changing Direction. As soon as you decide it's not working, you have to be fast to change direction, says Mike. Indecisiveness will only sap the resources of the company, sabotaging its chances of making it with either the old or the new idea.

But how do you come up with the "right" idea? It doesn't matter, says Mike, if you have a really strong team. You want to get into a space that is changing and happening, and learn rapidly. The "right" space will be something you enjoy and are excited about. You should have a network of people that you like to bounce ideas with, to help you find the right space. And, of course, look for pain points.

Can anyone replicate Mike's success using his business strategy? I think not. It takes a special kind of person, with amazing efficiency, organization, and even brilliance for building startups. But as with any success stories, there are valuable lessons to be learned.

Thank you for sharing, Mike! Your presentation was an inspiration!

Inna Efimchik

Emergence Law Group  Emergence Law Group, specializing in assisting emerging technology companies in Silicon Valley and beyond, provides incorporation, financing, and licensing services as well as general corporate counseling.

Monday, January 10, 2011

Quora | Raising Venture Capital

I answered a question on Quora, and have reposted the question and my response here:

What advice can you offer an entrepreneur with regard to when to raise capital, how much capital to raise, and from which sources?

In answering this question please give some thought to perceived risk, control issues, cost of capital, moral, legal and contractual obligations of taking outside money.

There is no formula that will fit across the board. Whether to raise capital, how much capital to raise, and which investors to use will depend on many factors, including (1) the current value of the company and the kind of valuation that it could hope for with investors, (2) the need for a capital infusion, and (3) the need for strategic partners and relationships.

(1) Value & Valuation
The first point is a pretty basic one. The earlier that you go out for funding, the lower the valuation, the more of the company you give up. And conversely, the more value that you are able to add to the company before seeking funding, the greater the valuation, and the smaller the percentage of the company that you give up.

(2) Need for Capital
Depending on the industry and the type of business, as well as on your own personal resources, you may be able to bootstrap the company to get to a beta of your product or even to a public product launch, or the company may require a large capital infusion long before the first prototype is ever created. If you can put off taking capital, there are advantages to doing so.

(3) The Rolodex
When you take on investors, you are taking on partners. If you are taking money from friends and family in an angel round, unless your friends and family are Ron Conway (and the like), you are just getting money. But if you are financed by sophisticated industry players, they are bringing with them their connections and their experience. And they are motivated to make good use of their connections for your benefit. If you need the connections to get your business of the ground, you will want to seek investors sooner. Among other things, they may help to bring in experienced industry professionals to augment your team.

Turning now to the specific points you asked to be addressed:

(a) Perceived Risk
I think this is answered in (1) above. If a company has a product out, maybe has a few paying customers, and needs funding to gain more traction in the marketplace, there is a lot less perceived risk than in a company that is seeking funding to build out an idea. This is not to say that the latter company will not get funded. In biotech, unlike the web and mobile application space, it is all but impossible to get to a product without significant investment. But the perceived risk is higher in the second scenario so the idea has to be really great (or perceived as really great).

(b) Control Issues
Whether an investor will seek control (such as a board seat, registration or voting rights) will depend on the investment amount and on the type of investor. The more money that you take it, and the more that your investor is starting to look like a venture fund or a very sophisticated angel, the more that you can expect them to seek a board seat or protective provisions. It's a standard practice in venture deals. If an investor is proposing control terms, you should make sure you understand them and their implications (and consult with a startup attorney or another industry player to make sure they are fair and market), but this is not something you should be afraid of or try to avoid like the plague. :-) Money comes with strings attached, that's life.

(c) Cost of Capital
The cost of capital will depend on the perceived valuation of your company. If an investor values your company at $10 million pre-, and wants to invest $5 million, the value of the company will be $15 million post- and the investor will own 1/3 of the company. If the same company is valued at $5 million pre-, the same investment will give the investor a 50% stake in the company. This is an over-simplification, because VCs always want to set an option pool at a percentage of post- (usually ~ 20%), but they price the shares as if the new option pool was part of the pre-, which skews these percentages. And there may be other intricacies involved with how convertible note discounts and warrants affect the per share price. But you get the idea.

I've also heard the view that, valuation aside, VCs come in with a general idea of what percentage of the company they want to buy, and that asking for more money (in a justifiable, business plan supported way) may get you a higher "valuation". But I will let the VCs comment on whether that's ever the case or not. :-)

(d) Moral, Legal and Contractual Obligations of Taking Outside Money
From a moral perspective, don't take the money if you don't believe in your venture and in its ultimate success. Period. In dealing with friends and family, make sure they can afford to lose their entire investment and understand the risks.

From a legal and contractual perspective, there are several ways you can structure the deal. The two primary ways are convertible notes and preferred stock financings. The former (in its purest form) allows you to defer the valuation of your company until such time as you are further along and can seek a better valuation. Investors in a bridge or a convertible note financing receive a debt instrument (convertible notes) for their investment, which they can convert to preferred stock (usually at a discount) at the time of an equity financing. In a very founder-friendly round, a bridge loan might be just the perfect vehicle to fund the company until it is further along in its development and is ready to seek an equity round. But not all convertible note financings are made equal, so watch out for onerous terms and price caps on shares, which may serve as an effective low valuation.

Also, please note that bridge financings are loans which accrue interest, and if they don't convert, they need to be repaid at the end of the term. How does this play out? If the company has not become sufficiently profitable and has not obtained a qualifying equity financing (in which the notes would have converted) when the notes come due, it is unlikely that the company will have the money to repay the note holders. If the note holders continue to believe in the company, they may extend the due date or even put more money in to sustain the company until an equity financing or a sale. But if the note holders have lost faith, the company will likely have to default on the note and the note holders can pursue the matter in court. Long story short, this can put a company out of business.

Preferred stock, sold in an equity financing, entitles the holder to a pro rata distribution of assets in the event of liquidation, after all debts of the company have been repaid.

If your company is at a point where you are seriously contemplating looking for funding, I am happy to talk to you offline in more detail about the options available to you.

Inna Efimchik

Disclaimer: This post does not constitute legal advice and does not establish an attorney-client relationship.

Emergence Law Group  Emergence Law Group, specializing in assisting emerging technology companies in Silicon Valley and beyond, provides incorporation, financing, and licensing services as well as general corporate counseling.