Robert Ochtel’s Blog

An Experienced Approach to Venture Funding

Being a Successful “David” in a World of “Goliaths”

Entrepreneurs need to fight the good fight every day.  Often the situation you find yourself in is much like the story of David versus Goliath.  As in this story, you are going up against insurmountable odds.  Accordingly, you are taking on a challenge that most individuals would not attempt.  As with David, the odds are long and the probability of success is small. In addition, you do not necessarily have all of the tools your competition has to be successful in the upcoming battle. This will make your road to success that much harder. But you take on the task anyway, because something inside of you tells you that you can be successful and create a product offering that is substantially better than that of the Goliath competition and at the same time be a success in the market.  In what follows is a short discussion on how to be a successful entrepreneur as a “David” in the world of “Goliaths”.

Believe in Yourself

As with any entrepreneur, the first thing you need to do to be a successful “David” in a world of “Goliaths” is to believe in yourself and your vision. Hoping that others will believe in you and see your vision of the future is not something that will happen. More often than not people will tell you that you cannot accomplish your goal of competing in a market of players that are much larger than you.  In addition, they will try to convince you to give up your plans and follow the road more traveled.  This, they will tell you, is a much easier road and much more reliable.  In this situation you need to ignore your critics.  They do not understand your will and desire to build a successful company, and more often not are telling you what they are comfortable doing.  So, ignore your critics and believe in yourself.  More often than not, in your journey as an entrepreneur, you will be the only one that believes in your vision and you ability to accomplish your task of building a successful product offering to compete in the market against your much larger “Goliath” competitors.  Many times, during this journey, colleagues will fall by the wayside, customers will tell you they are not interested, and vendors will not take the risk of working with a small start-up company.  Ignore them all and keep moving forward, it is your belief in you and your vision that will make your start-up company successful. 

Invest In Yourse

With the changes in the investment community, you need to do a lot more work to get investors’ attention and ultimately secure funding for your start-up company. The old “back of the envelope” investment scenario is all but non-existent in today’s funding environment.  If fact, having a strong plan, a differentiated product offering, and a first class team will not necessarily get you funding in today’s investor environment.  In addition, investors want to see that you have “skin in the game”.  This will not only include non-monetary time and effort, but they will also expect you to have invested “hard money” into your company.  Today’s investors do not what to be the only ones putting money into your company.  They will expect that you and your team will have invested not only time and effort, but hard money into your start-up company to move it forward.  Like “David”, you have very little funding resources at your disposal compared to your “Goliath” competitors. Therefore, you need to be prudent and “capital efficient” with your monies in order to get to a prototype early on, the general expectation of today’s angel and venture capital investors.  So, take the time, to come up with a plan and the necessary funding resources to move your start-up company to the next level. If you do not invest in yourself and your start-up company, more often than not, your potential investors will pass, as there are many other entrepreneurs that have invested their own monies to get them to the point of having a working prototype in today’s environment.

Take Your Product to Your “Goliath” Competitors

Often entrepreneurs do not put in the effort to contact their customers early on.  As a “David” in the world of “Goliaths”, this is something you necessarily need to do.  You are not walking in the door with “Intel” on your back, and as such setting up meetings with potential customers will be a much more difficult task than that of your “Goliath” competitors.  But, as the entrepreneur and “chief evangelist” of your “David” start-up company, you need to contact your customers and find a way to get you and your product offering in front of them. In addition, you need to remember to differentiate your product from your “Goliath” competitors. This is very important, as being the small player in a market dominated by large “Goliaths”; you need to convince these same skeptical customers to purchase your product offering.  So, take the time and effort to introduce your product offering to your customers and at the same time create a differentiated position yourself against “Goliath” competitors.  This will provide you with confidence in front of your investors and provide you with much more insight as to what will make your “David” start-up company successful in a world of “Goliath” competitors. 

As an entrepreneur, you need to fight everyday to move your start-up company forward. Being a “David” in the world of “Goliaths” you will often find yourself being the only one that sees your vision.  In order to be successful in this situation, you need to necessarily believe in yourself, invest in yourself, and take your product to the competition. Only by taking this approach will you be able to create a path forward to success in the market.  Remember the business world is full of “Goliaths”, but it only takes one “David” to slay the giant and change the world.

This information was taken from Robert’s new book: “Business Planning, Business Plans and Venture Funding – A Definitive Reference Guide for Start-up Companies”.  Available at www.amazon.com.

July 26, 2010 Posted by | Venture Capital | , , , , , , , | Leave a comment

Dealing with Crisis Management in the Typical Day of Start-up Company CEO

More often than not, as the CEO of a start-up company, you walk into to work to start your day and accomplish your planned tasks and then everything changes.  You are immediately in the middle of multiple crises.   Your Vice President of Sales quits.  You find out that it costs twice as much as planned to develop your product offering. You learn that your newest product offering has been delayed three months due to an unforeseen development issue.  What do you do?  Your original plans for the day are shot, and you now have to address multiple crises to address that are each individually important to the success of your start-up company. In addition, you have your investors breathing down your neck to secure customers and revenue.  This is just a typical day in the life of a start-up company CEO.  It is crisis after crisis, with each situation requiring immediate attention and direction on how to solve the problem at hand. It is not an easy life, but it is very typical. In what follows is a short discussion regarding some answers on how to manage these recurring crises situations as they occur in the typical day of a start-up company CEO.

Step Back and Separate Yourself from the Situation

When a crisis or a series of crises hits, the first thing to do is to step back and separate yourself from the situation.  Reacting emotionally or providing a knee jerk reaction to the situation often will only make it worse. By stepping back and evaluating the situation from a non-emotional standpoint you can then:

  • Gain perspective of the issue(s),
  • Fully understand the implications of the situation,
  • Understand your options, and
  • Offer a more thoughtful solution to the situation.

 Self-separation also allows you to look at the situation from the 30,000 foot level. Often when individuals come to you with a problem, due to their past and present involvement, they are emotionally tied to the situation. This often clouds their judgment and does not allow them to think with the appropriate perspective regarding the situation at hand.  By separating yourself from the situation, you can provide unique insight into the crisis that needs to be solved and often offer other options that would not be considered by someone directly involved in the problem or situation.  So, first separate yourself from any potential crisis situation.  This will provide you with a better problem solving perspective.

Establish Priorities

With more than one crisis to solve simultaneously, the first thing you need to do is to prioritize these individual problem situations. Not all crisis situations need to be solved immediately.  Some should be addressed today, some may be addressed tomorrow, and some can even be addressed later this week or even sometime next week.  As the CEO of the company, you need to look at all of the crises that need to be addressed and prioritize which one(s) need to be put on the top of your list for today.  The other crises you need to respond to can often be addressed tomorrow and at some point within the immediate future. By prioritizing the crises situations, you have provided yourself some space and time to address the most immediate crisis that requires your full attention.  The other crises on your newly established priority list will get your attention as you solve the most immediately pressing problems or issues facing your start-up company.  So take the time to establish priorities to the crises you face, this will allow you to focus all of your attention on an immediate problem or issue as required, and provide you with the ability to move on to the next crises as other higher priority problems get resolved.  

Break a Crisis Down into Smaller Steps

Not all crises can be easily solved.  In fact, many times an individual crisis is very complicated and will take weeks, if not months to solve.  In these situations it is best to break the crisis situation down into smaller steps and then focus on those steps individually.  Everything is solvable. But, often a larger crisis situation will require you break it down into smaller steps and solve these steps individually on your way to addressing and solving the overall crisis.  This is important, as it is often much easier to get your arms around the smaller steps of the crisis, than that of the overall crisis.  In addition, it is often that by solving the smaller steps of the crisis that you come up with other more effective solutions to the overall crisis.  So, break your individual crises down into smaller steps.  This will allow you to solve the overall problem in a more efficient, effective manner.

Crises management is often par for course in the typical day of a start-up company CEO.  To be effective and efficient in addressing the number of daily crises that will come your way, you need to step back and separate yourself from the crisis, establish priorities, and finally break the individual crisis down in smaller manageable steps.  By taking this approach to addressing the daily crises that come your way, you will become a much more efficient and effective CEO of your start-up company.

This information was taken from Robert’s new book: “Business Planning, Business Plans and Venture Funding – A Definitive Reference Guide for Start-up Companies”.  Available at www.amazon.com.

July 19, 2010 Posted by | Venture Capital | , , , , , , | 1 Comment

First Time Entrepreneurs, Developing a “Capital Efficient” SaaS Company Requires Work, Dedication and Diligence

Every five years or so, venture capitalists develop a new mantra with regard to their investment philosophies. In the late 1980’s and early 1990’s the mantra was “synergy”.  Towards the turn of the century and shortly thereafter, the new mantra was “scalability”.  Today, in a risk adverse environment, venture capitalists’ new mantra is “capital efficiency”.  This is especially true for start-up companies looking to develop Software as a Service (SaaS) companies. What does this really mean to entrepreneurs – spend less and so that venture capitalists can achieve a higher return on their early stage investment.  With the development of the SaaS business model, there has been a simultaneous emergence of offshore software development houses in India, Russia, Pakistan and other countries that provide Internet-focused software development services that support significantly lower labor rates that can provide equivalent services at a much lower cost than can be achieved with local software development teams in developed countries.  This is very attractive to both investors and entrepreneurs as it provides a means to facilitate capital efficiency with the delivery of a high-quality product.  In what follows is a short discussion regarding some of the issues facing entrepreneurs looking to take advantage of this offshore “capital efficient” business model on their way to developing a successful SaaS product offering.

Understand the Details

Given the geographic and time differences required by using offshore talent to develop your start-up company’s SaaS product offering, you must take the time and effort to understand the details of your SaaS product requirements.  This includes developing a proper functional specification. This document must be detailed enough to outline all of the capabilities and requirements of the website application and database. This is very important, as you need to provide a basis for which your offshore development team with the ability to analyze the needs and requirements from the technical side so that they can provide proper estimates of the total development costs and associated schedule.

During this process you also need to make a clear delineation between design and development activities.  Both are clearly different in focus and function.  During the design, generally done locally, you need to have a designer focus on the website look and feel and he necessary user interactivity that makes your website function as desired.  This needs to be accomplished before development begins. The end result or delineation point is generally the delivery of a complete architectural specification with an appropriate number of design files (.psd files) to your offshore development team.  The offshore development team then takes these results and does the necessary programming in the appropriate language for the targeted end application (e.g., website, Smartphone app, or tablet app).  The key here, to achieve successful results, is to proper delineate your requirements in a functional specification, understand the details of the design development process, and identify the proper handoff point so that both parties can do their respective jobs appropriate and deliver a successful SaaS product offering.

Get Multiple Quotes and Understand Their Differences

As in any business transaction it is important to get multiple quotes from different service providers.  If this is your first time developing a SaaS product offering, you will need to ask a lot of questions to fully understand the differences between the various quotes, their costs, and delivery schedules.  You also necessary need to understand what is required from you as the customer.  Questions you need to answer can include:

  • Do you require a project manager with the appropriate expertise to manage the process from on-shore?
  • How often will you interface with the development team?
  • What are the development milestones?
  • What do you need to deliver so that that development can proceed as required?
  • Is this a “platform” based development or a “custom” development?
  • Is there any license fees (one-time or recurring) associated with final product?
  •  What does the development contract look like?
  • What are the service and support terms, conditions and costs?
  • Where will the development be hosted?
  • Who will host the production product offering and what are the costs?

As delineated above, there are several different scenarios that you can run into when looking to source your offshore development overseas.  Make sure you get multiple quotes and that you thoroughly understand each quote and the differences between each.  Remember, the most inexpensive quote and shortest schedule may cost you more in the long run. In addition, you need to make sure you do not enter into a development contract that will tie you hands when you try to sell your start-up company. 

Check References

You need to do a reference check on your service provider(s). This is necessary and appropriate.  Remember you are putting the future of your start-up company in the hands of a stranger.  So, unless you get a recommendation from a trusted source, you need to do your due diligence and check at least three references.  In addition, develop a list of questions that covers all of your bases. This will do two things. First, it will allow you to ask the same questions to different reference sources to see how each responds. Second, it also provides you with a dialog in which to drive the conversation. During your reference check discussions, you may get off track, but you will have your reference list of questions keep you going forward as you move through the reference check.  Finally, ask tough questions to see how the references respond. This can include:

  • “What didn’t you like about the development team?”
  • “What would you do differently in the future?”
  • “Would you use them again for a future project?” 

 These types of questions provide the reference person with the ability to respond honestly to things that they would not necessarily bring up on their own.  These same questions will also provide you with a comfort level that cannot be achieved any other way.  Hence, by the time you are finished with your reference checks you will have a good feeling as to whether you want to move forward with this service provider or not.

The development of the SaaS business model and the requirement for “capital efficiency” from venture capital investors has required entrepreneurs to look overseas for their software development.  With the low cost of labor and the highly skilled readily available labor force, using an overseas software development team can significantly lower development costs and provide for the necessary capital efficient model deemed necessary by today’s venture capital investors. When looking to source their development from overseas, entrepreneurs need to necessarily understand the details of their development get multiple quotes and understand the differences, and check references.  By going through this process you will help facilitate a successful development and the delivery of a product offering that meets your requirements.

This information was taken from Robert’s new book: “Business Planning, Business Plans and Venture Funding – A Definitive Reference Guide for Start-up Companies”.  Available at www.amazon.com.

July 12, 2010 Posted by | Venture Capital | , , , , , , , , , | Leave a comment

First Time CEOs Must Continue to Learn to Become Functionally Autonomous on the Road to Building a Successful Start-up Company

Many first time CEOs of start-up companies do not have a broad background or skill set.  More often than not, these same first time CEO’s have spent their careers in a job function that has had a specific focus, including, engineering, marketing, sales, etc.  In addition to this, often these same first time CEOs have worked their whole careers in a large corporate environment where other individuals, within specific niche functions of the organization (e.g., Finance, Contracts, etc.), have had responsibility for tasks not germane to their specific job function.  This “cocoon” type functional existence, within a large organization, has not only limited one’s skill set development, but hurt their ability to function autonomously as dictated in the start-up company environment. In order to function as the CEO of a start-up company, an entrepreneur needs to be able to see the whole picture.  This includes understanding the details across all functional disciplines and being able to make important, sound decisions on issues that are not germane to their backgrounds. This requires these same individuals to continue to learn and grow in order to build a successful start-up company.   In what follows is a short discussion regarding the requirements of first time CEOs learning to become functionally autonomous on the road to building a successful start-up company.

Understand Financial Statements

Most first time CEOs lack any understanding of financial statements. This is truly a hindrance to budding entrepreneurs. Why, because venture funding is driven by financial experts and money managers.  Financial statements are their language of communications.  As a first time CEO, if you do not understand financial statements you will not be able to talk intelligently to angel investors or venture capitalists.  This will be a red flag and more than likely hurt your chances of securing venture funding. So in order to interface with the financial community, as a first time CEO you need to take the time to know and understand financial statements including the balance sheet, income statement and statement of cash flows. You not only need to learn these statements and how they interact, but you need to understand the specifics of your own start-up company’s financial statements.  More often than not world be, first-time CEO’s do not know the details of their own start-up company’s financial statements.  This will not impress your potential investors. So during the process of writing your business plan take the time to understand financial statement. It will broaden your skill set and allow you to make more effective decisions for your start-up company.

Developing a Critical Eye on Contracts

Contracts are another area where many first time CEOs do not have any background or experience. This again will hurt both their short term and long term success in building a successful start-up company. Why, because all formal business relationships require contracts.  In the corporate environment, contracts and this associated responsibility is often left to a legal team of corporate lawyers. But, as a first time CEO of your start-up company, if you do not understand the basics of “good” contract structure and what constitutes acceptable terms and conditions for specific legal relationships (e.g., employee stock options, venture funding, strategic partnerships, sales channels, technology licensing, etc.) you will be at a loss in determining if a legal contract is beneficial or detrimental to your own start-up company.  So take the time to review and learn all you can with regard specific types of contracts for various legal relationships.  Your start-up company’s lawyer can provide you with a basic contract structure, but all deals are different, and it is the details of the individual contract that require a critical eye in order to make them successful for your start-up company.  So, do not depend solely on your legal counsel for all of your legal contracts and legal issues. They all have good intensions, but remember your legal counsel should be used as the final “reviewer” of a given legal contract, and not solely responsible for all of the critical terms and conditions of a given contract.  As the CEO of your start-up company, you need to take the lead and drive all critical content into any given legal contract.  If you do not, you will not end up with a contract that serves your needs and will not ultimately benefit your start-up company.  Therefore, as a first time entrepreneur, you need to broaden your skill set to understand the basics of contract law; it will help facilitate the success of your start-up company.

Understand All Corporate Operational Functions

With a narrow background (e.g., engineering, sales, finance, etc.), most first time CEOs know very little regarding the all of the other corporate operational functions of a start-up organization. This again will be detrimental to your ability to function as an effective CEO. Why, because a successful start-up company must have all corporate operational functions running smoothly and within the defined parameters of your given industry.  So, as a first time entrepreneur you need to take the time to understand all of the details of the various operational functions within your organization.  You should not rely solely on your functional heads (e.g., Vice President of Engineering, etc.) to be the first and last say in important operational decisions.  The buck stops with the CEO. If you do not understand the details of each of the operational functions of your organization you will again not be able to ask the hard questions, make important trade-offs, and ultimately make the prudent, effective decisions that are required to make your start-up company successful.  So, as a first time CEO, learn the details of all the operational functions. This will require you to:

  • Review the corporate financials and understand the details,
  • Sit in on engineering development meetings,
  • Go on sales calls to visit with customers,
  • Go over market strategy with you business development team,
  • Review all contracts with your legal counsel,
  • Other

By doing the work to become an informed and autonomous CEO, this will allow you to make better decisions and help put your start-up company on the path to success.

Many first time entrepreneurs have very narrow backgrounds and know little about the details of running a successful start-up company.  To enhance their skills and broaden their backgrounds they need to continue to learn in order to function autonomously and make informed decisions in steering their start-up companies to success in the market.  This includes, understanding financial statements, developing a critical eye for contracts, understanding the details of all of the operational functions within their organization.  Anything less will hurt your chances of success in the market.  On the other hand, by taking the initiative to continually learn and broaden you skill set and background you will substantially increase your chances of becoming an effective and successful CEO of your start-up company.

This information was taken from Robert’s new book: “Business Planning, Business Plans and Venture Funding – A Definitive Reference Guide for Start-up Companies”.  Available at www.amazon.com.

July 5, 2010 Posted by | Venture Capital | , , , , , , | 3 Comments