Archive for June, 2010

Quotes For Entrepreneurs–June 2010

Written by Sean Murphy. Posted in Quotes, skmurphy

You can follow @skmurphy to get these quotes for entrepreneurs hot off the mojo wire or wait until the end of the month when they are collected on the blog. Enter your E-mail if you would like Feedburner to deliver new blog posts to your inbox.

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“Amateurs practice until they can get it right;  pros practice until they can’t get it wrong.”
Mark Zimmerman in “Makes Perfect” (although may not be original with him)

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A startup walks into a bar and says “I’m going to revolutionize the way people walk into bars.”
Kevin Owocki

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“There will come a time when you believe everything is finished. That will be the beginning.”
Louis L’Amour opening lines to “Lonely on the Mountain

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“If people who make millions of dollars a year were as honest as people who do not, we all might be a whole lot better off.”
Stanley Bing in “New York. Honestly.

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“We cannot recapture the past, but sometimes it can recapture us–if we are not careful.”
Thomas Sowell in “Random Thoughts on the Passing Scene (June-8-2010)”

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“All is pattern, all life, be we can’t always see the pattern when we are part of it.”
Belva Plain

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“Were all men equal tonight, some would get the start by rising an hour earlier tomorrow.”
Elizabeth Gaskell

One reason to get out of bed to get to a 7:30am Bootstrappers Breakfast.

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“The Revolution will not be televised. The Revolution will be no rerun, brothers. The Revolution — will be live.”
Gil Scott-Heron, The Revolution Will Not Be Televised,

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“Best Practices, n.: Making the same mistakes everyone else does.”
Chris Barts in http://news.ycombinator.com/item?id=1283262

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“I got a feeling, and it won’t go away. oh, no.
Just one thing, then I’ll be okay.
I need a miracle every day.”
John Perry Barlow lyricist on “I Need a Miracle”

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“Life is full of miracles, but they are not always the ones that we pray for. ”
Eve Arden

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“The three requirements for influence are relevance, credibility, and insight.”
Dan Holden (@Dan_Holden)

I really like Dan’s triad of relevance, credibility, and insight;  any two are probably not sufficient. Deft influence can unlock tremendous value.

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Empires build Death Stars, rebels build X-Wing fighters
Sean Murphy “Finding a Co-Founder: 3 Months is a Long Time

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“The human race has now become almost a single entity, divided by time zones rather than the natural frontiers of geography.”
Arthur C. Clarke

see also Beat the Clock

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“Courage is the capacity to confront what can be imagined.”
Leo Rosten

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“History unfolds in the space between difficult and impossible.
John Hayward in “The Pillars of Apathy

More context

Every time I write something optimistic about the future of the United States, I hear from some doomsayers who assure me things will never get any better. Pessimistic conservatives say we’re locked into a death spiral, at the mercy of a system running on autopilot and programmed to crash. I also hear from some liberals who maintain there is no morally acceptable alternative to unsustainable Big Government, so we’re honor-bound to hold our course… right into the giant iceberg of insolvency approaching off the port bow.

I maintain my optimism by rejecting the ideas serving as the pillars of apathy.

I refuse to believe government programs launched in the Forties, Sixties, and Seventies are indestructible features of our lives, immune to repeal or reform. I don’t believe a nation with a 234-year history of courage and industry is destined to suffocate in a shallow pool of nanny-state cement, poured only a few generations ago. It will be difficult for the American giant to rise again… but history unfolds in the space between difficult and impossible.

There is no such thing as eternal legislation. Even the Constitution can be amended. It’s only a question of how much willpower it will take for us to cast aside the intolerable acts of our political class. We are descended from men who showed great vigor in resisting intolerable acts.

Moving Cash Into & Out of Your Bootstrapped Startup

Written by Sean Murphy. Posted in 2 Open for Business Stage, Rules of Thumb, skmurphy

  1. Don’t make an equity investment in your startup so that you can pay yourself a salary. Put enough money in to cover expenses in advance of revenue. Live off of savings.
    Why:  making an equity investment that you take back out as salary means that you are paying taxes for the roundtrip.  The combination of Federal, state, and local taxes will cut your runway by 20-30%.
  2. If the company needs more money to cover expenses in advance of revenue then make a loan to the company at a realistic interest rate.
    Why: if you choose to pay the expenses out of pocket they may not be deductible, if you buy additional stock in the company it is difficult to get the cash back out without paying taxes on it, either as dividends, salary, or bonus. The loan can be repaid and the only taxable component is the interest.
  3. Run consulting dollars through your new firm not your old one.
    Why: this revenue can be used to offset costs and extend your runway. This also enables you to get on the approved vendor list for a firm you may later want to sell  a product to.
  4. Don’t have one founder take a salary if both or all don’t get one.
    Why: this inevitably causes a disconnect in motivation for both parties.
  5. Have one founder write each check and another sign it.
    Why: do this from the beginning so that you minimize the risk of misunderstandings and have a simple review and approval process for expenses.

Classroom Habitudes Also Useful For Entrepreneurs

Written by Sean Murphy. Posted in Books, skmurphy

Angela Maiers wrote a book called Classroom Habitudes (hat tip to Dorai Thodla) that I picked up last year and finally got around to reading. Maiers defines habitude  as “a combination of habit and attitude. ” I was struck by how entrepreneurs would also be well served to cultivate them. She defines her six habitudes as

  1. Imagination. Discovery, innovation, creativity, and learning all begin with imagination.
  2. Curiosity. Champion learners are curious about everything. This inquisitive attitude fuels their unrelenting quest for continuous learning.
  3. Perseverance. Learners cannot go the distance without resolve, determination, firmness, and endurance.
  4. Self-Awareness.  Knowing yourself, knowing your strength, preferences, and areas of need is a critical characteristic of a successful learner.
  5. Courage.  Courageous learners understand that safe is risky. Success is the byproduct of taking risks.
  6. Adaptability. The world opens up for adaptable learners, as they approach each task, each challenge willing to be a beginner.

Maiers’ book reminded me of a great book by Gordon Mackenzie: “Orbiting the Giant Hairball.” He also talks in practical terms about fostering creativity and learning, but his focus is on the workplace. Mackenzie makes the point early on that if you go to a class of first graders and ask how many are artists , everyone jumps to their feet.  By the sixth grade only one or two in a class of thirty will even raise their hand.

He observes “every school I visited was participating in the suppression of creative genius.” Both books offer some prescriptions for how schools and firms can remedy this.

Don’t let your workplace and management style have the same affect on your partners and employees.

Finding a Co-Founder: 3 Months Is a Long Time

Written by Sean Murphy. Posted in skmurphy

This post builds on my earlier “Finding a Co-Founder” and “Compromise & Get Started” posts on the challenges with finding a co-founder for your software startup. It assumes you are working at least part time with a potential co-founder exploring if you can collaborate successfully and generate revenue from a new jointly developed product or service.  I think there can be a temptation to set a six to twelve month deadline to evaluate the working relationship. It’s something that I have done before and a timeframe that many entrepreneurs that I have compared notes with have also adopted.

I think this is a mistake. I think you have to give yourself 90 days to get to revenue based on the simplest product you can develop and sell that can be the great-grandparent of the “real product” that you are actually excited about.

Empires build Death Stars, rebels build X-Wing fighters.

This accomplishes several things:

  • It forces you to make compromises on your design, which should encourage you to start talking to prospects right away.
  • It focuses the team on what will generate near term revenue. It makes discussions with prospects probe what they will pay for is a useful counter-balance to a wide ranging discussion of what they want.
  • Whoever is in charge of sales/marketing/business development to focus on “sell what you have” instead of specifying a full wish list of features.  It’s no trick to use missing features as an excuse to delay the start of customer development activities like customer development and customer validation.
  • Team members focused on development have to prioritize their efforts to an agreed upon feature set so that the team can get to early revenue (and early shared success as a results) as quickly as possible.

A while ago we did a custom workshop for a team that had been working together for more than nine months. They had met with some success but wanted to focus on improving their ability to set and hit targets. As we went through a couple of exercises and an after action on a recent release it came out that one team member was almost out of money and worried about the team’s ability to execute.

Afterward the workshop the CEO complained to me about one of his co-founders who had been the most vocal about his concerns: “I don’t understand, we agree we would go without salary for a year. He is not being fair.” I said, “in my experience, a year is too long to ask folks to go without some kind of compensation. And it postpones the start of your sales and marketing process. It’s easy for me to tell you that it’s a mistake because it’s one that I have personally made before.”

Finding A Co-Founder: Compromise & Get Started

Written by Sean Murphy. Posted in 1 Idea Stage, skmurphy

Building on yesterday’s “Finding A Co-Founder” I want to identify a couple of common challenges to getting started with people you have had prior shared success with  and offer some suggestions for how to manage them.  I suggested the following approach:

  1. Make a list of everyone you have successfully collaborated with in the last decade or two.
  2. Recontact them and reconnect if you have lost touch.
  3. If their background, expertise and interest are a fit with your needs:  assume that it will take a month or two to come to a working arrangement and get started.

I want to focus on what can be involved in coming to a working arrangement and getting started.

One common challenge you can face as entrepreneur is to be  “in the grip of your new idea” to the extent it is hard to appreciate other perspectives.  Even before you talk to prospects (whose perspective is always valuable) you will normally talk with friends and former co-workers. They will offer three common suggestions:

  1. There are potential drawbacks or challenges to implementing your idea that you need to address.
  2. There are key details missing from your plan (e.g. step 2 in the “gnome underpants business model” ) that you often view as a minor detail but may in fact be a major stumbling block that require you to do more hard thinking.
  3. Some other ideas may be better for you to work on given your strengths and experience. Sometimes, if they are also entrepreneurial, it will be their idea. More on this in a minute.

These responses are different from what you may hear from friends who may not appreciate your entrepreneurial aspirations and  who will often offer these perspectives:

  1. If you are employed: “This is the Great Recession, don’t even think about quitting your job.”
  2. If you are not employed: “Don’t even think about starting a company, find a job until the economy improves.”

Note in both cases these are people you trust and who have your best interests at heart. The second group may even be right about your prospects for getting a startup off the group. But the second set is not a good place to recruit co-founders from. If they don’t have entrepreneurial aspirations, do not waste their time or yours trying to convince them to leave their job to start something with you.

The first group is much more promising. And in fact the primary stumbling block is often that they have ideas of their own that they want you to help them make real. There is a strong temptation to continue to talk to friends and former co-workers and then continue on to strangers in the hopes that someone will drop what they are working on and fully embrace your idea.  I think this is a mistake.

Building trust takes months and requires ongoing mutual expectation setting and delivery. If you can start working with someone that you have worked with previously and enjoyed some success with you have substantially reduced the risk of a breakdown in team dynamics. I think it’s better to compromise and start working where you compare notes in a co-working model to can help generate forward progress. Agree to spend one or two days per week assisting the other person, or trade-off one day a week with two other people each to explore their current best idea.

This will allow you get better at customer discovery and customer validation. You will have a useful emotional distance on their ideas and will be able to help even if you ultimately go your separate ways. And they can help you, creating accountability for results and progress that is harder if you are working alone.

It’s likely your idea is going to evolve in response to what you learn while exploring it and you may be able to come to a blended idea in a month or two. Worst case you have made forward progress, you have someone you can bounce ideas off of and get their perspective, and working on their project may also give you a useful frame of reference for evaluating your own ideas.

“Stand in the place where you are
Your feet are going to be on the ground
Your head is there to move you around.”

from lyrics to “Stand” by R.E.M

Finding A Co-Founder

Written by Sean Murphy. Posted in 1 Idea Stage, Rules of Thumb

What follow is based on both my direct experience and stories folks have shared at the Bootstrappers Breakfast® over the last few years. Your co-founder can come from one of three groups

  • friend, current co-worker,  former co-worker
  • friend of a friend or former co-worker, someone who trusts someone you trust
  • stranger / other

Make a list of everyone you have successfully collaborated with in the last decade or two.

Recontact them and reconnect if you have lost touch.

If their background, expertise and interest are a fit with your needs:  assume that it will take a month or two to come to a working arrangement and get started.

If they are not a direct fit explain the kind of co-founder or co-founders you are looking for. If they can introduce you to someone that they can vouch for, and vouch for you to the other person, take some time and work on a small project or two.

Allow three to six months to come to a working relationship. Consider adding your fried or former co-worker as an equity compensated advisor.

If you meet a stranger at a Meetup, a Startup Week, a Bootstrapper breakfast or other event  and do not have friend or former co-worker in common assume that

  • It will take working together on two or three projects of escalating complexity  before you can have enough data to be able to ask them to help you create a company.
  • You will need to meet as many folks that they have worked with as possible with relevant knowledge for your startup.  Create an informal advisory board (“kitchen cabinet”)  that has one or two folks  they know and one or two that you know.
  • You will need to allow three to nine months working on a few projects of escalating complexity before you can make a  final decision to go forward with them.

See also

Treat Social Capital With the Same Care as Cash

Written by Sean Murphy. Posted in Rules of Thumb, skmurphy

  • Actively  Manage Expectations With Clear Communications
  • Always Assume Everything You Do Will Become Public
  • Listen For What Isn’t Being Said
  • Predictable Behavior Inspires Trust
  • Trust Doesn’t Scale, It’s Knit by Aligning Actions With Prior Commitments

Related Posts

The Half-Life of Wisdom

Written by Sean Murphy. Posted in Quotes, skmurphy

Excerpts from section 7 “Seek Wisdom, Competence, and Confidence” of  “Slow Down to Speed Up” by  Ronald J. Stupak and David S. Greisler

The half-life of information is six months.
The half-life of wisdom is a lifetime.

The self is not infinitely elastic. It has potentials and it has limits. If the work we do lacks integrity for us, then we, the work, and the people we do it with will suffer.

Fundamentally, there must be a blend and a balance among your intellectual quotient, your emotional quotient, and your spiritual commitments, as you move from the notion of learning to the motion of acting. Thinking without action is futile, action without thinking is fatal, and doing either without a deep commitment to community, interpersonal collaboration, professional competence, and personal confidence is to fail.

Perpetual optimism, positive attitudes, and purposeful performance lead to positive actions.

Are You Generating iPad Fishbowl Leads?

Written by Sean Murphy. Posted in skmurphy

Two years ago we asked the question “Are You Generating iPod Fishbowl Leads” I was reminded of this by a recent post by Simon Favre “You Can’t Give Stuff Away Fast Enough” about his recent experiences at DAC 2010 working in both the Global Foundries (GF) and TSMC booths.

At TSMC, the attendees needed to get something like 8 stamps on a card to get the nice giveaway TSMC was providing. At GF, there were only 3 stamps. It turns out that when people have to collect a large number of stamps for one item, they will not stand at your booth any longer than it takes to get the stamp and maybe fill out a contact card to be entered in another drawing. When there are fewer stamps to collect, people will actually stay for several minutes and listen to a pitch. Sure, there were some people just wanting a free introduction to a topic outside their main area, but that’s OK. It’s good to spread the word, particularly about DFM. Some people were probably just being polite to listen before collecting the stamp, but still they listened. When there are too many stamps to collect, you don’t even get that. Bottom line, if you’re giving stuff away, you can’t give it away fast enough.

How would I change this? Require fewer stamps, but require the attendees to stand still for 5 minutes to hear a brief pitch to get the stamp. Maybe if it’s interesting and pertinent, they’ll stay longer than required, but they should have to stay at least a little while to get a stamp. In trying to get more partners into the pavilion, and get attendees to see more partners, it actually works against the partners. I had way more interested people listening and discussing at GF than at TSMC. Just my observations.

I think this points up a disconnect between marketing and sales in a large firm that can be fatal for a startup.  If you collect someone’s card because they wanted an iPad or other give-away, but they fundamentally have no interest in your product, you are creating an hour or more of wasted effort by your sales team per “unqualified lead.” In larger firms the marketing folks keep score on lead generation not revenue so they have  a perverse incentive to do this. In a bootstrapping startup everyone needs to realize that revenue is what keeps the lights on and the dream alive.

The more time you waste on irrelevant prospects is less time you can spend on the truly interested.  Even wasting five minutes of booth time pitching to the uninterested is less useful than being ready for a conversation with someone who is interested. I understand that you need to talk to a lot of prospects to find a few that are truly interested, and that it never hurts to tell your story to someone who is even mildly interested (although you might make exceptions for offering a lot of detail to competitors).

But as a startup you have to ruthless about prioritizing your sales efforts: this means you are asking as many questions of someone visiting your booth to make sure that they have a problem you can help solve or a need you can address as telling them about your product and your company. That way when you take their card or scan their badge you can make a note of the level of  follow up that is warranted.

It’s much more useful for a startup to come back from a show with five or ten very interested prospects and a few dozen  “warm leads” than hundreds of cards from visitors who wanted to win that iPad. In the latter case,  if you haven’t had the time to have a conversation and understand your visitor’s situation and issues, you will have no idea of who is really a hot prospect  and where to focus your efforts.

Kurt Keutzer on Engineering Entrepreneurship & EDA

Written by Sean Murphy. Posted in EDA, skmurphy

Kurt Keutzer was interviewed June 8, 2010 on the DAC website and he had a number of interesting things to say about engineering and entrepreneurship.  What follows are some excerpts but it’s worth reading the entire interview. I have added several hyperlinks for context.

Career advice he gives his students:

  • I think that every engineer needs to realize today that fundamentally they are a corporation of size 1. There’s no lifetime employment and a career is no longer a simple matter of riding the escalator in a big company. Individual entrepreneurship is a requirement, not an option.
  • Every engineer needs to know how to assess the value of the technology they are working on. They need to know the difference between a technology, a product, and a market-maker.
  • To do this they need to know how to identify a market, size it, and segment it. They need to understand the difference between technological advance and creating customer value, and that customers will pay for value and not, per se, technology.
  • To understand this they have to be able to take a step back from technology and see the world through the eyes of the customer.
  • In terms of career directions my advice is go where the growth is. In Foster’s classic S-curve [from "Innovation; The Attacker's Advantage], areas of technology tend to go through long fallow periods in which not much progress is made. Then there’s a period of explosive growth. Then there’s another long fallow period. You want to be right around the inflection point of explosive growth. Putting a lot of effort in an area, either too early or too late, will not yield results comparable to what even a modest amount of effort will yield when invested at the right time.

How would he  apply technology S curve analysis to EDA?

  • I wish I knew. EDA seems to be experiencing one of its longest plateaus in its history.
  • EDA and the semiconductor industry seem to be in what could be called a “non-virtuous cycle” (i.e., a vicious cycle). New generations of EDA tools are not improving individual productivity very dramatically even as Moore’s Law continues. So the cost of building chips, of which the principal component is human capital, has risen exponentially. This high cost has led to fewer and fewer leading-edge designs each year. This means that EDA companies must charge the leading-edge customers more and more to keep their revenues up. This means the cost of leading-edge design increases further. It’s a downward spiral.
  • FPGA suppliers have created another “non-virtuous cycle.” FPGA makers seek to control their own destiny by giving away tools for free. There are two problems with this.
    1. The tools FPGA vendors give away aren’t very good so designers aren’t very happy  with the flows. For example, I can’t get my students to use FPGAs anymore if they have the alternative to use software-programmable standard parts.
    2. Because the tools are free, third-party tool companies can’t get a foothold to provide better tools. I believe that poor tools and design flows is one of the biggest inhibitors to the growth the FPGA industry.

Update June-23-2010: Paul McCllelan offers this perspective on what’s holding EDA back in his “DAC 2010 Retrospective

EDA is still somewhat stuck in an outmoded style of design that assumes the chips are designed from scratch and then someone writes some software to run on them. In fact much of the software already exists: software generations are 10 times as long as chip generations, and chip design is increasingly about IP assembly rather than efficient design from scratch. I continue to believe that this block-level is an interesting choke point, with the potential to generate a virtual platform for the software developers and testers, and the potential to turn the design rapidly into an FPGA or SoC. But the tools don’t yet exist.

Beat The Clock

Written by Sean Murphy. Posted in Consulting Business

I picked up a used copy of Arthur C. Clarke’s “How the World Was One” which recounts the communications revolutions kicked off first by transatlantic cables starting in the 1860′s and by communications satellites in the 1960′s.  Fiber optic technology has revitalized underwater cables (see a great recap by Neal Stephenson in Wired “Mother Earth, Mother Board.”)

Writing in 1991, he opens with a memory of attending a lecture by the historian Arnold Toynbee in 1947 “The Unification of the World,” at a time when much of the world was still recovering from World War 2. Clarke characterizes Toynbee’s thesis that developments in transportation and communication would seen create a single planetary society as unusually farsighted.

Thanks to transistor and the microchip, that dawn has certainly arrived–if one uses a somewhat generous definition of the word culture… Nevertheless, Toynbee is essentially correct. Except for a few dwindling tribes in equally dwindling forests, the human race has now become almost a single entity, divided by time zones rather than the natural frontiers of geography.

As more and more startups add global team members or even start out as global teams, the key challenges to communication and coordination have less to do with distance and much more to synchronization and managing across different time zones. It’s much easier to manage a team 3,000 miles apart spread from Vancouver to Costa Rica than Palo Alto to Boston for example. Much less a global team where any three members span at least five time zones.

Skype, or other low cost VoIP solutions enable easy voice communication. Wikis and source code control repositories allow for the teams works product to be easily revised–sometimes recovered–so that a current snapshot of “the truth” about a product is always available to team members. So applications are being layered onto the basic communications infrastructure to make global teams (and their complex work relationships) more effective.

The rule of thumb a decade ago was to co-locate a team to make it maximally effective. That’s probably still true, but collaboration technologies now make it possible to include a more diverse, and often more collectively creative, group of team members. We find ourselves with a global practice now. Most of our clients are still in Silicon Valley, but perhaps a third at one any one time are “out of region” many 3,9, or even 12.5 hours away.

I have two observations about long distance work relationships:

  1. Time zones matter more than miles: once people are not in the same room the offset in their circadian cycles is harder to manage than geographic distance.
  2. Anthony Jay suggested  in “Corporation Man”  that managers should embrace systems that augment memory but distrust and minimize the use of systems that replace communication.  Because what matters in communication is not what’s said but what’s understood, synchronous communication enables you to quickly close the feedback loop to make sure that you understand what the other party meant and vice versa.

Collecting Unpaid Bills

Written by Sean Murphy. Posted in skmurphy

In 1995 I did some work for one of the early web startups in Palo Alto. They had delivered a number of database driven websites using a proprietary software technology that they had developed, and had sold the technology to several firms. But they had a problem, they had not been paid for a number of the technology sales and they were running out of cash.

I asked the CEO, “What do they say when you call them?”

He said, “We haven’t called them.”

I said, “Do you have their phone numbers? Do you mind if I try calling them?”

So I called them and asked “I am calling to check on your use of the XYZ web generator. Are you happy with the product?”

If they said no I would try and determine if it was something we could address. If they said yes I would say “according to our records we have not received your payment yet, can you please put a check for the $5,000 you owe us for the software in the mail today?”

Most of the firms using the product paid.

I was reminded of this reading Len Sklar‘s “Debt recovery – Do You Hate To Ask For Your Money?

Many business people not only feel uncomfortable about asking for the money they have so deservedly earned from providing their product or service, they handle their discomfort by simply not getting on the phone and asking or else by doing it clumsily – with unacceptable results.  And, asking in person can be even more discomfiting.

Len’s book “The Check Is Not In the Mail” covers credit policies and collections and is required reading for bootstrappers. It’s available used from Amazon and new from LenSklar.com.

Tips For Modeling & Managing Cash Flow

Written by Sean Murphy. Posted in skmurphy

There were a number of excellent suggestions from last  Tuesday’s Bootstrapper Breakfast with Rick Kadet on managing and modeling your cash flow.

Rick Kadet opened with  some good points about common mistakes founders make in modeling and managing cash flow:

  • They can focus too much on the current bank balance  and burn rate and neglect other cash commitments that flow from decisions that they have made: for example hiring your first employee or moving into a full time office can create a number additional expenses.
  • Forecasts, both for when a feature will be complete that may drive additional revenue and when a customer will close (and pay), are important and difficult. Because of this founders may neglect getting better at feature roadmap management or sales forecasting and inadvertently lose control of their destiny.
  • To avoid misunderstandings among the founding team, it’s important that a monthly balance sheet and income statement as well as a sources and uses of funds be prepared and reviewed as a group. This is in addition to reviewing the sales funnel and the development roadmap.
  • Also see Rick’s  “Bootstrappers Benefit From a Simple Financial Model” and his  notes on  “Good Cash Management Practices

There were a number of excellent observations and suggestions from attendees:

  • A startup is like a jet fighter, you have to be looking ahead to see what’s coming so that you can react. For example, if you are going to run out of funds at your current burn rate in three months and your sales cycle has been running six months from first contact you need to change something now. Start contacting more people, understand why they are falling out of the funnel, cut your burn rate.
  • If you are planning on seeking investment one of the most important things an investor is going to want to know is not how you will spend the money but your plans to pay them back with enough extra to meet their target rate of return.
  • Just because some of your customers are taking longer to pay, don’t make the mistake of slow paying employees (e.g. expense reimbursements or worse, salary) or smaller suppliers or contractors. Especially in a recession it’s better to negotiate  a more  favorable rate and pay promptly than to stretch out payments to earn interest on the funds.
  • Often a 2% discount for payment within ten or fifteen days will do more to get a larger firm to pay promptly than almost anything else.
  • If someone is working without pay they are effectively an investor. Keep lines of communication open, be clear what the financial situation is, and respect their investment.
  • Quickbooks is a good solution for managing the accounts for a startup. A shoebox full of receipts or a simple Excel model is probably not sufficient.
  • When it comes to financial arrangements it’s always a good idea to both shake hands on the deal but put it in writing to reduce the risk of miscommunication and misunderstandings. This applies equally to intra-company arrangements as dealings with outside consultants or suppliers.

Simple Client Satisfaction & Process Improvement Survey

Written by Sean Murphy. Posted in Consulting Business

Whether it’s a free phone call or a working session, a workshop, or a longer term engagement we normally send the following four question survey to all of the participants:

Please help us improve our engagement and service delivery processes.

Please take five minutes and answer the following four questions with one or two items that come to mind.

  1. What questions or suggestions that we offered were most useful?
  2. What were the least useful?
  3. What did we fail to do that you expected us to do?
  4. What else can we do to improve our practice.

We get a high response rate often learn things to do more of  (and less of) to improve our practice.  Feel free to adapt this to your own purposes.

For longer engagements we will often have a partner who had the little contact with the client (and who will therefore not be evaluated) call and ask these questions:  it’s always easier to give bad news indirectly and a disinterested party is better able to probe for the good and areas needing improvement.

Ben Yoskovitz: Start with Passion For Solving a Problem

Written by Sean Murphy. Posted in Rules of Thumb, skmurphy

Ben Yoskovitz has a great blog, his only defect is that he does not blog often enough. His two most recent have been direct hits on the need for entrepreneurs to focus on problem, work toward a clear understanding of it, and develop a passion for solving it.

Useless Feedback

Without a strong hypothesis and problem statement, there’s no reason to get feedback.

Asking a friend, “What do you think of my idea?” is almost completely useless.

Asking a friend (or someone else who isn’t as biased as your friend, “Do you have this problem, and how painful is it?” is a much more useful query.

Startups need to solve problems. Problems need to be defined. Define the problem that you’re tackling (without focusing on the solution) and get feedback on that.

Misplaced Passion is Common for Early Stage Entrepreneurs

But what we see quite regularly at the early stages of startups is not too much passion but misplaced passion.

Ask yourself this question, “Are you more passionate about the problem you’re solving or your solution?”

It needs to be the former — the problem you’re solving — because there’s a very, very good chance that your solution isn’t the right one. Or at minimum, it’s going to change significantly through many iterations.

When one of my partners–Anthony Scampavia–worked at Cisco he kept a question at the top of his whiteboard in his office for more than a dozen years:

What is the problem you are trying to solve?

Always a good question to start with.

You Must Be Mistaken

Written by Sean Murphy. Posted in Rules of Thumb, skmurphy

In one my my early jobs I worked with an extremely talented Vietnamese engineer who had gotten out of Vietnam after the fall of Saigon in a leaky fishing boat with his father and brother. It was a difficult journey but they managed to escape, avoid drowning,  and ultimately resettle in San Jose.

We were hired on the same day and went through orientation together.  He was quiet and kept to himself but we were assigned to the same project and  got to know one another over the course of a few months working together.

One day I said something that really made him angry.

I said “that can’t be right, you must be mistaken. You should try it again.” I think we were discussing which compiler switches needed to be set to solve a particular problem.

He said “when I tell you something, it’s because I have tried it and I know that it’s true.”

I hadn’t seen him angry before and was a little taken aback. But I realized that he was very serious and that I had screwed up and challenged him in a way that I had not intended.

I try and remember this when I am responding to folks who tell me something that is contrary to my personal experience.

Backing someone into a corner rarely works. I can often learn something new if I say something like this instead: “That’s interesting, I have never seen that happen before, can you tell me more about it?”

This also works with prospects, customers, co-workers, business partners, children, spouses, and most other humans.

Rick Kadet on Cash Management at Bootstrappers Breakfast Tue

Written by Sean Murphy. Posted in Events, skmurphy

The Silicon Valley economy continues to test bootstrapping entrepreneurs cash management skills.  I took a look at Silicon Valley bankruptcy case filing statistics for the last decade (in particular for the San Jose court)  prompted by two recent articles in the San Jose Business Journal:

May-1-2009 “Chapter 7 Bankruptcies up 35%

“We’re really seeing it across the board,” Murray said, from venture-backed technology companies whose investors have cut capital to hotels, restaurants, residential real estate developers and even a golf course. “It cuts across the entire economy.” The ripple effect is noticeable. “We get calls from some of our clients’ vendors saying if they don’t get that payment, we’re going to be forced into the same situation that the client is in,” Murray said. “What can we say? It’s unfortunate for everybody.”

Jan-29-2010:  “Bankruptcy Lawyers Work Overtime To Keep Up

“I’m seeing people every day who in a normal world would never ever meet with a bankruptcy attorney,” Michael Malter of Binder & Malter said. “I’m meeting people who tearfully tell me they’ve never missed a payment on anything in 30 or 40 years, and now they don’t know how they’re going to make ends meet. It’s a horrible plight, and I don’t see any end to it.”

Statistics are available here at http://www.canb.uscourts.gov/files/sjarchives.pdf

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
est*
6,132 6,316 7,382 8,237 7,952 9,635 2,722 4,454 7,692 11,494 15,890

I derived the estimate for 2010 based on the ratio of the first four months of claims to the total claim count in 2007, 2008, and 2009. Each year the January through April claims averaged about 29% of the year’s total.

2010 2009 2008 2007
Jan 977 656 412 269
Feb 1,039 744 581 323
Mar 1,366 1,000 607 338
Apr 1,226 935 614 367
Tot 4,608 3,335 2,214 1,297
YrTot 15,890 est 11,494 7,692 4,454
Ratio of first four months
to annual total.
0.29 0.29 0.29 0.29

The 2009 bankruptcy count was 39% more than 2003, the worst year of the dotcom meltdown, and the first four months of 2010 are running 38% above the first four months of 2009. Very sobering.

steaming hot coffee and serious conversation We have invited Rick Kadet of The Brenner Group, Inc to tomorrow’s Bootstrapppers Breakfast in Sunnyvale to  to discuss Effective Cash Flow Financial Strategies for early stage entrepreneurs.  Rick will provide a five minute overview of key principles that will be followed by our regular round the table discussion.

Rick is Vice President and Senior CFO Management Consultant with The Brenner Group, Inc., where, since 1998, he has engaged with over 60 valley firms as part-time CFO or financial advisor. Rick works with client firms on executive staff level financial management, financial reporting to boards of directors, financial and business planning, raising venture and debt capital, facilities, business infrastructure, business systems and risk management.

Whether you are actively bootstrapping a startup, considering entrepreneurship, or keeping a weather eye on the possibility of involuntary entrepreneurship as your next career stage, you are welcome to RSVP and join us. Please bring your questions and lessons learned.

Bootstrappers Breakfast meetings bring together entrepreneurs who are serious about growing their business and gives them a chance to compare notes on operational, development, and business issues with peers.

Postscript:  I overlooked this article in the San Jose Business Journal “Bankruptcy Filings Surge 40% This Quarter over last year” which indicates the San Jose filings may understate the degree of distress in Silicon Valley because many are headquartered in Delaware and filing there instead of locally:

John Murray, managing partner of Cupertino-based Murray & Murray PC, said consumer bankruptcies are up “dramatically,” and while business filings have also jumped, he expected a bigger spike in corporate, Chapter 11 bankruptcy protection cases in the San Jose court.

He said many companies based in Silicon Valley are incorporated in Delaware, so they’re filing for bankruptcy there. According to Murray, those courts are more favorable to bankrupt companies, and attorneys’ fees are usually approved “without question,” so a firm’s lawyer is more likely to suggest filing there.

Nevertheless, the economy has “lambasted” corporate America, and Murray’s law firm still handles bankruptcy filings from a range of industries. Currently, his clients include a semiconductor equipment company, a golf course, a restaurant, an online catalog firm and a residential real estate developer.

“A lot of companies are just throwing in the towel,” he said.

Update Mon-Jun-14: Rick Kadet has published a guest blog on “Bootstrappers Benefit From a Simple Financial Model” that offers tips for the practical challenges bootstrappers face in managing cash and other resources.

DAC 2010 Blog Coverage Roundup

Written by Sean Murphy. Posted in Blogging, EDA

We have been using our EDA Knowledge Portal to track DAC related stories, it’s now available on a subscription basis you are are interested.

You can also follow the #47DAC hashtag on twitter for breaking announcements during the conference. Last year’s roundup is available a DAC 2009 Blog Coverage Roundup.

Preparing For DAC 2010

Sunday Events
Note: I am worried that the default DAC website links will break in less than a year, they are tied to the top level DAC site not a DAC 2010 encoding. If anyone knows the permalinks for the DAC sessions please let me know. If you look at the DAC 2009 Blog Roundup the 2009 DAC sessions had a year encoded in the URL and they all still work.

Monday Events

Tuesday Events

Wednesday Events

Thursday Events

Recaps

Current count: 81 posts.

Original intro: If you write a blog post that reviews an event, a day, or DAC 2010 as a whole with some substantive commentary before the end of July I will include a link to it. Please leave a comment to let me know if I have overlooked or incorrectly categorized anything.

How Can I Improve This Blog?

Written by Sean Murphy. Posted in Blogging

Please use my contact form to let me know  “What Should I Do To Improve the SKMurphy Blog?” and enter enter your name and E-mail if you are open to answering my questions about your suggestion.

Update June 28: Dave Concannon really made my day with this tweet

Sean Murphy’s blog is fantastic, check it out if you haven’t already.

But I am still interested in how I can improve this blog for you.

A Recent Experience As A Beta User

Written by Sean Murphy. Posted in 3 Early Customer Stage

I check out a few new products every month that I think may be of use in our practice.  The following is a true story of a recent experience I had experimenting with a new B2B oriented one that I will call Hotel California. I have changed the name because I signed a license agreement which said that I would not disclose anything about my evaluation experience.

I E-Mailed the support alias the following note because I was in the “free beta” and wanted to know the full price.

So far it’s interesting but not compelling and I am trying to determine whether it’s investing more time. Depending upon your price point it may not be a fit with my needs. Currently I would rate it between $60 and $180 per year. If the cheapest option contemplated is more than the top of my range please let me know now and save my time.

I thought it was an accurate assessment of the likely value of the service if it was deployed in production. I assumed that I would have to pay that per seat for each additional person I extended access to. I got the following answer back from the “Director of Product.”  The only thing I have changed is the name of the product.

“We’re glad you’re finding Hotel California interesting.  This is just the tip of the iceberg.  We have many more  features coming soon.  You’ll definitely want to stay tuned.

As for cost,  our promise to our users is that the functionality you experience today will remain free. Our beta users are an integral part of our development, direction and success. As we collectively grow our product, our intention is to release a premium version at some point in the future – a premium product that will be worth the wait.”

An answer which I did not find particularly illuminating. It’s always a warning sign when a company can’t name a price. So I suggested as much in my reply

We don’t use free tools in our practice that clients may come to rely on. There are a number of startups developing similar applications that we think may be usefully incorporated into our practice. But I have learned through hard experience that an answer like yours means one of three things, none of them indicating that I should continue to invest my time in moving down the learning curve on your application.

  • It’s going to be expensive and once you get critical mass of enterprise users you will perhaps leave a free trial period but drop the free and just go premium.
  • If you can’t figure out how to take my money today you will run out of money, become fixated on raising another round based on eyeballs or beta users and likely fail.
  • If you don’t take my money then I don’t have a service level agreement with you which means that if I use your offering with my clients it puts my brand at risk. The marginal benefits of what you have shown are dwarfed by the risk of introducing a client to your application, asking them to sign your current agreement, and then having you fail to perform. Under your current agreement I have no recourse or expectation of performance. But my clients have an expectation that I won’t waste their time or use “flaky but free” apps that may inadvertently disclose their strategic intent.

Happy to schedule a call if you are serious otherwise I probably need to wait to understand your business model before I spend much more time.

No reply from the Product Director but about five days later I got a form letter from the Marketing Director asking me to take a survey and  invite two co-workers into the application, when two of my invites have signed up I would win a $20 gift card.  It seemed to me that they had missed an opportunity to ask what led to my valuation. I wrote back:

I have asked for pricing information. I am not willing to encourage anyone to use your service until the pricing plans are clear.

And I included a copy of my E-Mail to the Product Director. The Marketing Director was polite enough to write back (I have only changed the name of the product):

Hotel California is FREE and always will be.   In 2011 we will introduce a premium version that will be priced at $25 – $50 per month.  Through surveys like this our users are helping us build our product as well as helping us determine what to include in a premium version.  We will continue to maintain and update the FREE version with new content and new features as well.

This at least answered the question I had asked the Product Director. I wrote back:

Thanks for clarifying your pricing, you and the Product Director should compare notes, he never answered my E-Mail below. It sounds like the cheapest option contemplated is $25/month or $300/year which was above the top of my value range of $120-180 a year. Please delete my account.

Which led the Product Director to respond.

Thanks for the email and I’m sorry you’re not comfortable using our free software.
I can understand where you’re coming from and hope you reconsider once we release our premium addition, it’s going to be a real game changer.
Thanks again so much for your support, your account has been deactivated.

The software was not  compelling and their target price range was above my valuation. And I am not comfortable using free software with clients. And then I thought “de-activate” not delete, where have I heard of that before? So I wrote back.

Your price point is above my value range. Nothing you have demonstrated to date looks  like a game changer.  Unlike the Marketing Director you didn’t even have the courtesy to answer my question. Please delete all of the information you have collected on me, don’t Zuck with me by pulling a Facebook and “deactivate” my account. Please delete it.

Two days later I got another E-Mail from the Marketing Director suggesting that I take a survey and invite two co-workers that I could win a $20 gift certificate.

Update Mon-Jun-14: I got another e-mail today that indicated my original profile was still active and used to generate a report. I E-Mailed  the Marketing and Product Directors:

I have asked you to delete my account but I continue to get e-mail from you and it does not appear that my account has been deleted because you are updating me on a profile I had entered.
I would appreciate your prompt attention to this matter.

I got the following answer back about six minutes later from the Product Director:

Your account has been physically removed from our database.
You will now longer receive information from us.
Have a fantastic week.

One suggestion if you are developing a new service:  implement the “delete account” function sooner rather than later. I will have some other suggestions in a future post.

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