Categories
E2E: Scale

The Greatest Competitor You’ve Never Met

This post originally appeared on Michael Smerklo’s Forbes blog on May 24, 2019.

'"People are busy. There are six billion people on the planet yet none of them wake up in the morning and think: ‘Geez, I wonder if there is a new product out there I should know about.'"

-Marc Andreessen interview on Brian Koppelman’s podcast

As a venture capitalist, I’m fortunate enough to be pitched by startup companies with exciting new businesses every day, each one convinced that they are building a massive business or claiming to disrupt billion-dollar marketplaces. It’s a familiar feeling. As a former CEO, I was constantly being pitched new solutions that would claim to revolutionize our workplace efficiency or magically solve a major operational pain point. (To be fair, this unabashed determination is key to being a successful entrepreneur or salesperson).

In these meetings, almost every pitch deck has at least one slide dedicated to the 'competitive landscape' and without fail, this landscape shows up as a two-by-two grid with different variables on the X and Y axes (expensive, on premise, hard to implement, etc.). Basically, the attributes are contrived for a favorable outcome and the presenting company magically shows up in the enviable position of the upper right quadrant.

-Marc Andreessen interview on Brian Koppelman’s podcast

These charts, or at least the market research behind these charts, are required, and I encourage entrepreneurs and salespeople to include them in their decks. Because even with clear biases, they provide a framework for a debate on the various merits of the business and solution the company provides.

-Marc Andreessen interview on Brian Koppelman’s podcast

However, there is one competitor that is NEVER on the grid, which is shocking to me in today’s overfunded startup environment. I think this omission is the greatest mistake startups make when thinking about raising capital, and more importantly, the greatest mistake when they’re going to market to win new customers. I would like to introduce this ominous competitor more formally:

-Marc Andreessen interview on Brian Koppelman’s podcast

'Ladies and gentlemen, in this corner, please welcome the undisputed heavyweight champion of the world. The 800-pound gorilla in space. The meanest, nastiness, most diabolic competitor you or your sales team will ever face: STATUS QUO.'

Or, simply put: Selling against inertia (or 'do nothing,' 'no decision') is a bitch. Or, simply put: Selling against inertia (or 'do nothing,' 'no decision') is a bitch.

Most startups simply ignore this alternative, and do so at extreme peril. I see so many companies spending millions and millions of dollars on marketing, branding, sales training and various collateral pieces that all focus on known, existing alternatives in the marketplace. Look at just about any sales deck or website and you will how ABC SaaS company is so much better than XYZ SaaS company based on price, ease of use or other important differentiators.

This competitive analysis is then turned into 'features/benefits' based positioning and messaging, which drives marketing and sales efforts focused on generating leads, communicating the value proposition and determining pricing. All of these efforts are focused on displacing known alternatives. None of this effort goes to attack the real issue for most early stage companies: doing nothing.

In short, most sales – certainly in enterprise – and plenty of pitches are killed by the silent but deadly alternative: Status Quo. Why is it such a strong alternative?

1) Business leaders (buyers) are really, really busy. Per the Andreessen quote above, people are constantly overwhelmed, so doing nothing is always a viable, and almost always preferred alternative. In today’s oversaturated startup landscape, breaking through the noise is really, really hard. So naturally, change is resisted and Status Quo becomes the easy choice.

2) New means that something isn’t working. Something isn’t working means someone – usually a mid-level executive – has to raise their hand and say: 'Yes, I work really hard, I get paid a lot of money and have lots of people that work for me…but I really am not doing my job well, so I need to buy something else.' Trust me, those meetings really don’t tend to go over that well with the CFO. The saying used to go: 'No one ever got fired for buying IBM.' But in today’s world, it’s more accurate to say: 'No one ever got fired for NOT buying the latest and greatest customer analytics tool (i.e. for sticking with the Status Quo).'

3) Pretty good tends to be ok for now (or longer). Companies love to talk about how their product will be something akin to 'life changing,' but the reality is, outside of emergency situations, the current solution is adding some value and is likely keeping things afloat. In short, most of the time pretty good (Status Quo) is good enough. Personally, every time I think about spending $5k on a new Peloton bike, I look at my current alternative (old spin bike + iPhone) and think 'not perfect, but it works.'

The good news? Like most other issues, there is a simple first step to overcoming the oh-so-tempting Status Quo and it really starts with acceptance. Yes, accepting and acknowledging the competitor is the best place to start, and it goes a long, long way in addressing the downstream issues that Status Quo brings to the table. Once you accept this competitor, and the strength of acknowledging it, the following will happen:

1) Your product / solution will be seen in an entirely new light. Acknowledgement of the Status Quo is the first step towards reworking all aspects of storytelling for entrepreneurs, so call out the 800-pound gorilla in the room. You will notice an immediate change in the conversation. By simply calling out the option – 'Hey you could pass / skip this / do nothing' – your audience will naturally see you as more authentic. This acknowledgement alone will spark a much different discussion than previously experienced (even with the same customer or investor), and will set you apart from all the other pitches.

2) You will see your strategic position in an entirely new light. Once you’ve begun integrating the Status Quo into your narrative, you will find that you need to modify your message to address this alternative in all parts of your business: fundraising, marketing, sales and strategy. It might even go so far as to force you to reconsider or modify your entire product or business strategy. While this sounds daunting, it is a much easier and cost-efficient exercise to undertake as opposed to the alternative: the long, slow death of disinterest.

3) Your go-to-market strategy will never be the same. Once you start tailoring your messaging to address Status Quo, you will begin to actually strategize about ways to overcome this competitor in prospecting. Your value proposition will be stress tested and driven to be more specific. This may show up as more exact 'F/U/D' (fear / uncertainty / doubt), more detailed ROI calculations or more extreme positive outcomes from buying/investing in your solution. Whatever it is, some of the greyness will be forced out of the value proposition and it will make your pitch to prospects much more specific and sharp.

So next meeting, do something different. Call Status Quo into your leadership team meeting and give it the proper respect it deserves. Then, just like you would do when any new competitor shows up, roll up your sleeves and figure how to kick its butt. It might not be easy, but beating Status Quo might just be the most important victory that you and your team ever have on your track record.

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E2E: Scale

How Transparency and Becoming a B Corp Builds a Brand with Eric Korman

Eric Korman is the founder and CEO of Next Coast Ventures portfolio company PHLUR, a sustainable fragrance and candle brand.

What does it mean to be certified as a B Corp?

Well, since the start we made sure our sourcing decisions were made in alignment with the International Union for the Conservation of Nature, and we’ve had a give back program certified by 1% for the Planet, so now with the B Corp certification, we are further cementing our values as part of our corporate DNA. At a high level, a B Corp means optimizing your business by taking a multi-stakeholder approach to all your decisions instead of the traditional approach of only considering your shareholders as stakeholders. The interesting element of becoming a B Corp, is that by actually considering all of your stakeholders when you make business decisions, you ultimately create businesses that have higher returns to investors. Being certified also provides great partnership opportunities for like-minded organizations and targeted marketing opportunities to reach our customers.

At a lean startup with finite resources, how do you maintain a commitment to sustainability and transparency while still scaling a business?

To start, we made sure at least one of our founding team members had a deep background in sustainability and socially responsible practices. Part of her broadly-defined role was serving as goalkeeper to ensure that the decisions we were making upfront tied back to those values in the DNA of the brand. On a more ongoing basis, we’re taking the practices and the bones that she put into place and ensuring as we launch new products or look at a new partnership that we’re doing so through the same framework that she established. That doesn’t mean we don’t run into issues. Having values and intent doesn’t necessarily mean you’ll have all those priorities in practice on day one. You have to balance competing interests, and that’s what being a B Corp is about – considering all stakeholders does not imply satisfying all of them at once – that’s impossible. It’s simply going through the process of always trying to balance each individual decision in the best way possible, so that as a whole, things add up the right way.

Why do the extra legwork to become a B Corp?

It’s not a lightweight process, and as a startup we have plenty of things to do, so it certainly wasn’t going to be a day-one activity, but a couple of years in we felt that we were ready to undertake the certification. Ultimately, it adds a special halo to your brand, and speaks loudly to a specific group of potential customers. Customers who principally purchase from brands that are aligned with their value sets. Values such as sustainability, transparency and giving back to the community. If one of your goals is to be able to serve that constituency, I don’t think you can fake your way there. It doesn’t mean you necessarily have to be B Corp certified, but I do think it means consistently applying some specific values lens in everything that you’re doing that is going to ultimately touch the customer. We all fight so hard to acquire every customer that the last thing you want to do is lose a customer because something was very different than the way you positioned it originally. Do not get caught in those inconsistencies because the customer will ultimately figure it out.

What does it mean in practice to take a ‘multi-stakeholder approach’?

Essentially it means that you’re taking any decision as a business owner and looking at it as: How will this impact things like customers, our associates, team members and our community at large? That community can be the environment, or a community you’re physically part of, but it’s all the partners that you engage with as a business. So not only do you have to make decisions that collectively think about all these stakeholders, but you have to be transparent about how you make all those decisions, because by definition there is always going to be trade-offs.

What’s an example of how the B Corp certification process gauges your commitment to transparency?

One of the questions the B Corp certification process asks you is if you share your financial performance with all members of your organization – from entry level on up. Many organizations obviously don’t, the top leadership understands the company’s performance and nobody else has a full picture. While traditionally sharing that level of information was not done out of some misplaced fear, in reality sharing that information helps team members perform their roles better. Fundamentally, I believe team members perform better when they have context. And it’s simplest level, folks all across the organization need to make decisions without your involvement. How can they do so if they don’t even understand the basic financial structure and recent results of the business? Everything B Corp stands for ultimately goes back to how do you build a more creative and effective organization, which often is refreshingly the opposite of f typical business management conventions in a top-down, hierarchical structure.

How do initiatives like your give back program further your B Corp principles?

So interestingly we do not shout from the rooftops about our give back program. There are many customers who have no idea we have one, and we’re not spending a lot of time trying to change that aspect. Rather I believe the give back program is important as a grounding value of our company, and as we grow our team, I know it will be an important elements in terms of how we compete for talent at scale. It’s a great example of the multiple stakeholder approach. Because clearly giving back literally means were lowering our margin structure, but we believe it helps us attract better talent, which in turn helps us perform and compete better. I think employees want to be part of organizations that are giving back and are part of the community, there are countless studies that show that employees are driven to perform at their optimal level by elements that go well beyond simply cash compensation.

About Eric

Eric is the founder and CEO of PHLUR, a vertically integrated fragrance retailer and Next Coast portfolio company. He is the former president of Ralph Lauren Digital and Global E-Commerce where he was responsible for the company’s digital businesses. Prior to Ralph Lauren, Eric was president of Ticketmaster Entertainment Inc. where he was part of the management team that drove the successful public spin-off of Ticketmaster from IAC (InterActiveCorp) in 2008. He later helped lead the merger of Ticketmaster with Live Nation. Previous to Ticketmaster, Eric was a strategy and corporate development executive at IAC. Eric has served on the Board of Directors of Points International (PTS), Active Network Inc., BET Digital and OpenTable Inc. (OPEN). He received his MBA in finance from the J.L. Kellogg Graduate School of Management at Northwestern University and his B.A. in economics from Emory University.

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E2E: Scale

7 Things an Entrepreneur Should Consider Before a Sale

At Next Coast, we’ve been fortunate enough to have some portfolio companies that recently exited via acquisition and it’s given us a birds-eye view on just how important it is for entrepreneurs to prepare for such a big moment. The sale process is chaotic, unpredictable and stressful and must be managed alongside the day-to-day operations of a scaling a startup. So we reached out to the legal experts over at DLA Piper to give us the nitty-gritty details on what entrepreneurs should expect during this process – and how they can prepare for it. It’s detailed, but that’s exactly what you’d expect from a great legal team helping you cross your t’s and dot your i’s during the roller coaster of the sale process.

By Sam Zabaneh and Brent Bernell, DLA Piper

We see it every day: An entrepreneur builds an amazing business, navigates the perils of raising capital and reaches that transformational moment – the liquidity event – only to be confronted with the enormity of the process. While nothing can truly prepare an entrepreneur for their first sale of a company, we hear time and again from our clients about steps they wish they had taken earlier to make the process run more smoothly. Here are seven pieces of practical advice to help an entrepreneur prepare for this exciting moment:

1. Get organized

Entrepreneurs wear many hats, and bouncing between being head of product, vice president of sales, director of business development and chief people officer, they can sometimes forget how important it is to keep the legal side of their business in order. Entrepreneurs tell us that selling their companies made them wish that they had gotten organized sooner, and for one simple reason: due diligence. In a sale process, buyer due diligence can be a significant burden, particularly when coupled with negotiating the substantive deal points and running a business. Entrepreneurs can ease the burden by getting organized early and staying current. Entrepreneurs should create a contract log and organize all contracts, preferably into an electronic data room. This allows them to be more responsive with minimal effort when a buyer requests contracts for significant customers and vendors.

2. Understand your contracts

Entrepreneurs often tell us that they wish they had taken more time to understand the various contracts that they have already entered into as they built their businesses. As part of the sale process, the buyer and its attorneys will look through significant contracts to identify potential red flags. These can include terms that limit the company’s ability to expand its business (such as non-competition provisions), lock the company into always giving a customer its best pricing (often referred to as a “most-favored-nation” clause) or expose the company to significant potential liability (often through unlimited indemnification obligations). While the main goal should be to avoid these types of provisions, new companies must agree to them from time-to-time in order to close a big sale or secure an important relationship. Sophisticated buyers may find these red flags and make them a significant deal point that results in adjustments to the purchase price or requires special indemnities by the company in favor of the buyer. By understanding existing contracts and putting in place an organized and disciplined contracting approach (including signing authority), entrepreneurs can get ahead of these potential issues – and possibly avoid them altogether.

3. Don’t forget IP assignment agreements

Entrepreneurs are often diligent about the need for trademarks, copyrights and patents, but they often forget how important it is to make sure that the company’s intellectual property, or IP, is secured. During the sale process, a company’s intellectual property history, and how well the company has protected its assets, will be closely scrutinized by the buyer. A company will almost certainly have to prove that all employees and contractors (or at least all individuals that have generated IP) have signed an agreement to protect proprietary information and assign any intellectual property to the company.

Determining whether every employee and contractor has signed an agreement can be a burdensome task, and having gaps in the documentation can make a buyer nervous. Entrepreneurs need to be disciplined in having every employee or contractor sign an agreement and organize them in a central location. This will help entrepreneurs lock up their IP, give comfort to prospective buyers and minimize the risk that an entrepreneur has to concede value to a buyer or chase down current or former employees for IP assignments on the eve of a transaction. We provide our entrepreneurs forms of these agreements, often referred to as PIIAs or EPIAs for employees, and consulting agreements or MSAs for contractors.

4. Run your liquidation waterfall scenarios

As a company evolves, it may develop a complicated capitalization structure with different classes of stock and other convertible instruments (like warrants) that will need to be paid out in a sale transaction. The willingness of these different groups to consent to a deal will depend in large measure on what level of return they are receiving. Understanding how the money will be allocated in a sale transaction can be very complicated and can vary significantly depending on the valuation.

Building out a liquidation waterfall model and updating it for each financing round will make it easier to assess different opportunities and understand where the economic interests of their different stakeholders diverge. Although all companies will need to go through this exercise as part of the sale process, entrepreneurs that do this early will be better prepared to enter into negotiations, evaluate different proposals and manage their stakeholders to a successful closing.

5. Know your approvals

One thing that can come as a surprise to entrepreneurs is how many of their stockholders are required to consent to a sale of the company. Over the course of raising financing rounds, different classes of stock may negotiate for the right to block a sale of the company. Even if the stockholders from that class are no longer the most senior holders or actively engaged with the business, they could still hold those rights. Knowing what approvals are required in advance will help an entrepreneur manage outreach to the most important stakeholders and avoid any last-minute delays or surprises. Understanding the impact of these provisions can also allow entrepreneurs to hold the line during financing negotiations to avoid overly-complex approval processes.

6. Talk to your employees about equity

Employee equity is one of a company’s most important retention tools, and while most companies will discuss it briefly when giving out awards, they rarely provide education to employees about the awards and their terms. Entrepreneurs tell us that they wish they had been more proactive in discussing equity awards with their employees, including what happens upon a sale and how different scenarios can impact tax burdens. By doing so, they could have gotten ahead of the inevitable questions that pop up in the sale process and helped their employees maximize the value of their equity awards.

7. Build a deal team – before there is a deal

A sale opportunity can come out of the blue or it can be the result of a deliberative process, but both scenarios require entrepreneurs to have a team of trusted advisors to assist them during the process. While entrepreneurs will naturally look to their senior management team and board of directors to help them in the process – which they should – having skilled lawyers, bankers and accountants is equally important.

A company can always retain advisors after an offer comes in, BUT having someone you trust, who understands your business and can give you advice in advance of the offer, can be invaluable. Entrepreneurs often tell us that they would not have been comfortable relying on advice from even the most experienced advisors without that level of pre-existing trust.

While some of these items seem like common sense, we regularly hear from entrepreneurs that these seemingly simple actions are often overlooked as they keep their focus on building their businesses – leading to issues when sale negotiations are in the home stretch. By being proactive and planning ahead, entrepreneurs can better position themselves to get the most out of their sale transaction.

About Sam and Brent

Sam Zabaneh is a partner at DLA Piper LLP (US) in Austin, Texas and chair of DLA Piper’s Texas Corporate & Securities practice. Brent Bernell is a corporate associate in the Austin office. Together with the rest of the DLA Piper corporate team in Austin and across the globe, they help guide entrepreneurs and technology companies throughout their life cycle, from idea to public company or liquidity. You can find out more about how Sam, Brent and DLA Piper help entrepreneurs grow their businesses here.

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E2E: Scale

Are You a Glass Eater?

By Next Coast Ventures

We often get asked what an ideal investment looks like for us. What metrics do we look at to assess a business model? What’s our sweet spot? What makes us write the check?

Listen to our co-founder Michael Smerklo’s full breakdown of what makes us write the check:

We joke that we have a highly proprietary secret formula, unique to us, that’s been developed in a lab after years of trial and error. We joke because so much of venture investing relies on going with your gut and focusing more on the people you choose to work with than on the business ideas you choose to work on.

But when we get asked about what makes our firm write a check, we reveal that our “secret formula” boils down to: Is it a big market? Is their solution disruptive? Is it a business play or sector we know about? And most importantly: is the entrepreneur a glass eater?

This is where the gut part comes in. If the business model is disruptive, the market is huge and the margins are great, none of that matters if the entrepreneur is not relentless about improving and growing the business. We spend a lot of time on entrepreneur-to-market fit, more than other firms in our opinion, and that means more than just determining if the entrepreneur well-positioned to build a great business.

“Glass · eat·er (noun): an entrepreneur that simply will not quit”

We have that term that we call a glass eater. If you’ve ever met an entrepreneur that will not quit, where he or she is committed day in and day out to building an amazing business, that’s a glass eater. It’s almost maniacal. But frankly, that’s the type of mentality you HAVE to have because the odds are so stacked against you in this business.

Just think of how many panels have you sat through where you hear CEOs talk about how “tough” it is to be a founder and the “challenges” and “difficulties” of starting a business. And those are the people who have had great success! Those are glass eaters that have reaped the benefits of swallowing all that glass and have tasted success. Imagine what it takes to keep swallowing all those hardships and sacrifices when you still haven’t gotten to that point. And to wake up every morning and it all over again.

That’s the commitment and the drive we’re looking to partner with. That’s what makes us write the check. So before you make the decision to quit your job, you have to do a gut check to make sure you’re ready for the glass-eating level of commitment entrepreneurship will ask of you.

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E2E: Scale

I Am the CEO, Why Am I Confused About How I Should Spend My Time?

How a simple 2 x 2 matrix can help you become a better entrepreneur by understanding the key differences between efficiency and effectiveness.

A recently published New York Times article talked about how our brain tricks us into doing less important tasks, shining a light on how complicated the delicate art of time management can be.

You’d think that, living in an era of technology-enabled efficiency like we do, it would be simple to manage our time. We have time management apps to handle deadlines, reminders, workflows and all the nitty gritty details of delegation. But most of these solutions are focused on EFFICIENCY (doing things right), not on EFFECTIVENESS (doing the right things).

As an entrepreneur, this problem is multiplied exponentially. How and where you spend your time is more valuable than anything you have in your control. Before you ever get to automated workflows and collaborative calendars, you first need to figure out the basics of delegation.

I struggled with this topic as a young entrepreneur and tried every trick imaginable. I found myself wasting hours on tasks someone else could do better, perhaps because I enjoyed doing them. Other tasks I mindlessly handed over to others in the spirit of delegation, even though I was uniquely qualified to complete the task myself.

Unless you are acting as a sole proprietor, the challenge of balancing time management, capital utilization and strategic priorities is a never ending tug of war. And as your business starts to grow and scale, this tug of war becomes increasingly complex. You are faced with countless things to do with limited capital, time and team members.

Michael Smerklo, Co-Founder and Managing Director of Next Coast Ventures

At some point along my entrepreneurial journey—about the time that I was about to either get fired or committed to a mental institute—one of my mentors shared with me a simple four-step process based on the Eisenhower Matrix that helped me with this never-ending dilemma of time management. In fact, this exercise became an annual obsession for me as I sought the optimal formula for entrepreneurial success – in a growth company, the CEO’s job changes almost every three to four months

Step One – Use a 2×2 matrix to figure out what you are uniquely qualified to do

First, create the following 2×2 grid, with the y-axis describing your skill (either good or bad) and the x-axis describing your passion (love or hate) and list a couple of business functions that fit in the various boxes. The key is to figure out exactly what box a particular skill should fit in.

Here are the high level definitions in a bit more detail:

  • Upper Right – I am good / I love it: What task are you, as CEO, really good at doing? Not the things you think you are good at, but rather things that you have verifiable proof that you are uniquely qualified to complete. The key here is not only to determine what you are good at, but to assess how much you enjoy this part of your job.
  • Upper Left – I am good / I hate it: What are the tasks that you are actually quite accomplished at (naturally or from prior training) but bring you no pleasure? For example, I started my career as a CPA so I was actually very good at the financial part of the business, but I dreaded the annual budgeting process. The key here is to feel okay with this box too—not one loves every aspect of the job, not even the CEO.
  • Lower Right – I suck / I love it: This is a pretty dangerous quadrant and one that is likely the hardest to have an accurate read. Do you love engaging in deep product reviews … but flunked out of CS early on in college? Do you see yourself as a natural born sales person, but have never carried a quota in your life? Look long and hard at this box — as it is really, really is an important exercise in self awareness.
  • Lower Left – I suck / I hate it: Usually this seems to be an easy box to fill out, but this quadrant can be a real trap for a lot of entrepreneurs. The key is to make sure you really do suck at the function versus just don’t enjoy it. It is really easy to confuse these two emotions (enjoyment versus proficiency). Challenge yourself to make sure you aren’t actually quite good at something you don’t enjoy or vice versa.

Step 2 – List your company’s top priorities for the next six to twelve months

This should be pretty straight forward from your budget or business plan. Think of the four to five things that if completed will really move the needle for your business. Do you need 20 paying customers in the next 12 months? Is launching the next version of your product critical to moving the business forward? Or maybe your key outcome is centered around international expansion?

As a guide, these should be the tied to key metrics that you have shared with your board or that you have decided are critical for your next round of funding. Basically, your goal here is to list the four to five things that really are “make it or break it” for your business in the next 12 months. Here is an actual list I kept on my desk as a CEO—I called them the “Things That Matter” or TTM.

Step 3 – Compare your grid with your top priorities

Next, take a quick look at your grid. Take special note of how many of the top priorities for the business fall into the upper right quadrant of your grid. Here is an image of my grid from the early days of my CEO tenure:

By reviewing this grid against your top priorities, you can quickly determine where the gaps are and make decisions as to what you will focus on personally. You can also see where some big gaps might be and these should be your immediate focus as it relates to your team.

If your top goal is to acquire 10 new customers, but you hate selling, you better have a great sales leader on your executive team. If not, get hiring ASAP! On the other hand, if “get MVP in the market” is your key goal and you just happen to have spent five years in Product Management at Google, chances are that you can drive this outcome without a big external hire.

Step 4 – Allocate your time based on the grid

One mantra I learned early on was another simple concept: It is far easier to use the skills you already possess than to acquire new ones. In short, spend your time playing to your strengths and hire a team to overcome your weaknesses. For the grid, this means spending as much of your time in the upper right quadrant (good, love) and building out a team for the other areas of the matrix.

By using this quick four step process – and comparing it to your top business priorities – you can quickly see what areas you should engage in (even temporarily) and what areas you should quickly seek help in. This is, after all, the essence of effective delegation and time management.

NOTE: This post was originally published on Richtopia.

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E2E: Scale

The Dos and Don’ts of Working with the Media if You’re a Startup

At Next Coast, we believe that working with local press can be a great way to increase awareness about your startup. It can help with fundraising, hiring, customer acquisition and overall company and product awareness. For technology reporters covering busy markets like Austin, there’s an overwhelming amount of information for them to sort through, so it’s crucial to know how to approach the press. In our experience helping our portfolio with press relationships, there are some highly practical tips of building relationships with the media. So we went straight to the source and spoke to three of Austin’s top technology reporters to compile a list of the dos and don’ts of working with the media. If you’re a growing startup, here’s what you need to know.

Press Releases:

Pitching Stories:

Your Website:

Building Relationships with the Media:

SXSW:

Topics and Trends of Interest:

About the Reporters:

Mike Cronin covers technology, startups and finance in Central Texas for the Austin Business Journal. His more than two decades in journalism has included working with Bill Moyers and at Minnesota Public Radio, The Arizona Republic and Texas Watchdog. He can be reached at mcronin@bizjournals.com.

Lori Hawkins writes about business for the Austin American-Statesman and 512tech.com. She focuses on entrepreneurs, high-tech startups and the venture capital industry. She can be reached at lhawkins@statesman.com.

Brent Wistrom is the founding writer of Austin Inno, which provides in-depth coverage of the Austin tech and startup ecosystem through its website and its daily newsletter, The Beat. Austin Inno, which launched in 2015, is part of a network of American Inno publications in nine metro areas across the country. Brent works closely with Atlanta Inno, one of the newest Inno markets. He can be reached at bwistrom@americaninno.com.

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E2E: Scale

Why Collaboration is King in Venture Capital

How many Gen Xers and Millennials does it take to assess a product targeted at digital natives?

Earlier this year, I organized a SXSW panel about how Millennials and Gen Z – what we call digital natives – are completely overhauling time-honored industries, which are often dominated by brick and mortar. The panel featured some of Austin’s top founders and was moderated by Next Coast co-founder Michael Smerklo, who has a long track record as a successful entrepreneur and investor. I caught myself chuckling a little bit during Michael’s introduction to the panel, under my breath of course, as he started running through statistics about the behavior of digital natives and how none of them applied to him – you can hear the clip below. He asked everybody in the room to raise their hand if they considered themselves to be a digital native. Almost everybody did, which isn’t that surprising at SXSW. But Michael, whose job it is to write smart checks for entrepreneurs targeting that demographic, didn’t.

While Michael admittedly has youthful enthusiasm and is extremely tech-savvy, he is actually Gen X. As is our other co-founder Tom Ball, who is even tech savvier. They grew up in an era before smartphones were the norm and Mark Zuckerberg had no effect on their college experience. I, however, am a Millennial, and while I grew up during the days of dial-up, I was still tagging friends in Facebook photos in real-time during my college years. So there’s a generational gap that exists, and yet we all work for the same VC firm that’s committed to helping the best entrepreneurs with innovative technology disrupt huge markets. Which brings me to the question: How many Gen Xers and Millennials does it take to assess a product targeted at digital natives?

Dagney Pruner, Director of Marketing at Next Coast Ventures

Let me preface this generational quandary by saying it’s a crucial one for a venture capital firm to solve. One of the biggest trends we believe in at our firm is the rise of digital natives and how that is going to change business models, industries and the needs of consumers. It’s a trend that’s not going away anytime soon. They will have more purchasing power than any other generation in the upcoming years, and we’ll be investing in companies relying on that fact. So as investors, we have to find a strategy to identify great products and business ideas that target this demographic. We even brought on a Venture Partner that focuses solely on studying generational behavior, that’s how big of a trend we think this is.

So how many Gen Xers and Millennials does it take? The answer is all of them – all of them at your firm, at least. Next Coast is not a large shop personnel-wise. Michael and Tom have carefully curated a team that come from different backgrounds, both personally and professionally, because they understand that no two perspectives are the same – and no two are ever ‘right.’ In my year at the firm, I have come to learn that they don’t let people into the fold whose opinions they don’t value. They don’t believe in inviting you to the party but not asking you to dance. Collaboration is key – and it’s especially important when you’re doing diligence on an idea that bridges generational gaps.

When an impressive entrepreneur comes in with an idea targeted at digital natives that piques our founders’ interest and the diligence process gets underway, it’s not just about looking through balance sheets and making customer calls. It’s about making sure this idea works in practice, not just on paper. Our founders ask us to help them try out the products or test the platform, and by ‘us’ I mean our whole team, whether it’s our MBA fellow or our office manager. We’ll compare notes and user experiences, and a common refrain we hear is: “Interesting, I never would have thought of that.”

Dagney Pruner, Director of Marketing at Next Coast Ventures

That’s because we all bring different pain points, expertise and perspectives to the table, and that diversity of thought is especially crucial when it comes to vetting an idea where the founders of a venture capital firm ARE NOT the target demographic. They may have decades more experience in investing under their belts, but they didn’t grow up in an era where shopping online WAS shopping, and they’re humble enough and smart enough to do something about it.

For example, when we were initially looking at EverlyWell, a company that focuses on online health testing, everybody in the office got together and tried out one of their tests. We know you cannot glean the complete user experience simply from reading a company deck. We compared our experiences – illuminating as it crossed over the digital and non-digital divide – and Michael and Tom realized that the idea behind EverlyWell was bigger than they originally thought. Not only did it resonate well with us digital natives in the firm, but we thought it was likely valuated as much by all Millennials and Gen Z who had experienced these pain points. When our firm sees something like this our founders get super, super excited because they know that most groundswells in consumer behavior start from the younger generations and have the potential to expand to broader audiences. Now, we are proud to count EverlyWell as a proud part of our expanding portfolio.

Next Coast portfolio CEO Julia Cheek discussing EverlyWell and our SXSW Panel.

I genuinely believe our firm would not have known the full extent of EverlyWell’s potential without the Millennial perspective. Our founders’ commitment to collaboration and willingness to learn from perspectives younger than theirs is what makes them different. I believe that with a continued commitment to this modus operandi, Next Coast will always be equipped to assess businesses targeting this crucial piece of the market and will attract entrepreneurs that understand the value of that approach. Venture capital firms will throw around the words “partnership” and “collaboration” when they talk about their investment ethos, but if you want ensure they are truly grasping a company’s full potential, make sure they are practicing what they preach.

About Dagney

Dagney is the Director of Marketing at Next Coast Ventures. Prior to Next Coast, she received her Master’s in Journalism from the University of Texas at Austin with a focus in business. She previously worked as an algorithmic salestrader at Credit Suisse in New York City after graduating from The University of Virginia as a Jefferson Scholar.

Categories
E2E: Scale

Advice for Entrepreneurs on Board Management: Mind the Information Gap

This post originally appeared on Forbes.com on March 28, 2018 where Michael Smerklo is a regular contributor.

This post originally appeared on Forbes.com on March 28, 2018 where Michael Smerklo is a regular contributor.

When you’re a CEO, you have countless things to do every day. You are always pressed for time, you’re being pulled in a million different directions and you’re hyper-focused on growth. So you have to prioritize these never-ending tasks, and it’s only natural that tasks with *seemingly* little value-add get pushed to the bottom of the to-do list. Frankly, that’s how I used to feel about my Board of Directors.

I felt it was a ‘necessary evil’ of my new gig as CEO: one that I knew I had to eventually deal with, but felt wasn’t going to be instrumental in helping my company. I didn’t get much insight from them when we met so why should I dedicate any of my already-sparse time investing in a relationship with them, right? Wrong. I was very wrong.

Michael Smerklo, co-founder and managing director of Next Coast Ventures

One, simple conversation with a mentor led me to realize that a Board can be the pivotal difference between success and failure during your entrepreneurial journey. You will be tempted to de-prioritize your Board in lieu of other initiatives that seem more important, and frankly are more enjoyable. Resist that temptation. You just have to take a step back and learn how to handle them and their expertise in the context of you and your company’s goals.

Before I divulge the conversation that changed my perspective on my Board, let me assure I was making classic “Founder moving to CEO” mistake.

For the first few years I was running my company, I didn’t really engage my Board in a strategic manner and kept most of the meetings high-level – making sure that I had every question answered before I even walked into the boardroom. I would fill my Board decks with pages of details on topics I knew I felt were solid, preventing any sort of critical discussion from materializing.

I wasn’t trying to hide anything, I just wanted to ‘check the box’ of my Board meeting as quickly and painlessly as possible because I didn’t understand how to get much from them – individually or collectively. I was treating my Board as an overlord that needed management instead of an arrow in my leadership quiver, and my frustration grew after every Board meeting when I realized these meetings were often interesting, but never compelling.

Although the change in how I approached my Board did not happen overnight, I owe a debt of gratitude to one of my best Board members, Bruce Dunlevie, founding partner of Benchmark Capital, the preeminent venture capital firm in Silicon Valley. Bruce could see what was happening from a mile away – he had seen so many other entrepreneurs fall into this trap – and he could empathize with me and my effort to deal with a powerful Board.

So after one particularly frustrating meeting, he pulled me aside and asked me one critical question that changed how I viewed my relationship with my Board by focusing on what I now call the: ‘Entrepreneur-Board Information Gap.’ He asked:

“Mike, does anyone on the Board know as much as you do about your business? Seriously – how big is the gap between what you know about the operations versus what the Board even understands about the business. Have you taken this gap into consideration when building the Board agenda and supporting materials?”

As I reflected on this question – keep in mind, reflecting on questions like these is not a natural exercise for most entrepreneurs – I quickly noted that I spent at MINIMUM 80 hours a WEEK thinking about my business, while my average Board member thought about the same topic for AT MOST 40 hours a YEAR. This is a HUGE discrepancy, and noticing this delta – this gap – is probably the most important realization for any entrepreneur managing their relationship with their Board, setting an appropriate agenda or building a compelling Board deck.

Simply put, the biggest mistake most entrepreneurs make when working with their Board is not minding the information gap – the Entrepreneur-Board Information Gap, let’s call it ‘EBIG.’

The EBIG dictates one, simple rule: don’t attempt to get your Board up to the same level of understanding as yours, rather, use this information gap to your advantage. That is, being aware of the EBIG and how to leverage it becomes the key to turning your Board into one more arrow in your quiver that will help you build an amazing business.

One specific way that minding the EBIG changed my approach to my Board was learning to strike a balance in my Board materials that was a good mix of key operational updates and open-ended strategic discussion. You will be amazed at how much you can get out of your Board in short order when you stop spending all your time trying to get them up to speed, or wasting time prepping abundant Powerpoint slides in an attempt to answer every question in advance of the meeting.

For instance, I used to spend 90 minutes of a four-hour Board meeting – and hours of prepping the meeting – providing an ‘executive summary’ of the current state of operations of my global business. I thought: How could they really give me any feedback if they didn’t thoroughly understand the state of the business that I worked with every day? But then I thought of the EBIG.

My Board of seasoned executives wasn’t there to dive into the details of the operations. That was a waste of their valuable time, and a waste of mine. They didn’t need those details to understand the big picture of the business and provide me with the high-level insights I was desperately seeking.

Instead, after Bruce’s invaluable feedback and direction, I modified my typical 15-page ‘executive summary’ down to one slide. This slide had three sections: 1) What’s Working, 2) What’s Not Working and 3) Implications (of both). This one-page slide served as the springboard for repeatable, meaningful and open-ended Board discussions thereafter.

So no matter how busy you get, or how much is on your plate as a CEO and an entrepreneur, remember that working with your Board is a non-negotiable part of your job description and a necessary component to making your company successful. So don’t resist their feedback. Instead, take a step back, reflect on where you could use input and present it in a way to make that easy – or as I like to say: mind the EBIG.

Bruce Dunlevie

Building these types of judgment-free relationships is an endeavor that lasts a lifetime, and like any good relationship, having a strong network takes upkeep. It’s an active exercise, not a passive one. Just as you evolve as an entrepreneur, your mentorship circle should evolve as your business and personal needs change.

For example, when I was first getting started, it was critical for me to get advice from those who were highly engaged in startups and understood all the key issues that getting a business off the ground entails. Simple suggestions about hiring, board meeting agendas or what payroll systems work best all helped me avoid mistakes others had already made and also saved me countless hours.

However, when my company was a more mature and I was working to shift my business model, I proactively shifted my mentorship circle.

Whenever I am fortunate enough to retire and look back at the ups and downs of my career, I am going to have a lot of thank you notes to write. Without my mentors, it wouldn’t have just been a dealbreaker for some investors I met along the way, it would have been a dealbreaker for my career. So do some self-reflection, check your pride at the door and seek out those who will be able to make you a better entrepreneur, and a better person. It is the weak leader who believe they need to do it all themselves.

For instance, Ben’s advice on hiring was critical to me when I was going through the startup phase and hiring the first 50 employees. However, the ‘critical’ input I needed running a 3,000 person, publicly traded business was much different. I found myself needing to recalibrate my mentorship network. So I—once again—made sure my humility was still fully intact and proactively sought out seasoned, C-suite executives to help guide me through this new phase of my career.

Categories
E2E: Scale

A Bad Board of Directors Can Ruin Your Company

Note: This article originally appeared on Entrepreneur.com on February 2, 2018. It has been republished here with the permission of its author, Neal Dempsey. You can find the original article here.

Companies live or die by the people who run them. The product is almost insignificant compared to the influence of humans, good and bad. That includes the board of directors. Founders should take great care when choosing their board members because an inexpert board of directors can bring a company down.

Not every company has choices about investor money or the board members assigned by the investors. However, think of investors and board members like a marriage. You’re going to be together for 7-10 years, so you’d better be sure it’s a good match.

While investors perform extensive due diligence on companies before giving money, founders don’t often take the time to scrutinize investors. That’s a mistake. It’s not only your right, but it’s your fiduciary duty to research your investors. Spend time with them – get to know them. Understand their strengths and weaknesses, just as they understand yours. Make sure you call other companies they’ve invested in and get a good understanding of how they work with their investments, function as a board member and interface with the CEO and management.

Neal Dempsey, Managing General Partner, Bay Partners

Just because an investor has previous successes doesn’t mean he or she is a good match for your company. Your board members need to understand how fragile companies are in the early days. They need to know how to move the company to a more secure position in the market. Maybe the board member has a big name with a big company, but that may not be what your company needs. Chances are, that person will give advice based on what a big corporation would do, and that can drain your resources and cash. Small companies need to be lean and act quickly. Big companies function on big revenues and slow, bureaucratic decision-making. If your potential investor or board member doesn’t understand the difference, he or she may not be right for you.

Early stage board members need to be more hands-on with the company. For example, one investor I know sat on the board of an early-stage company that was about to run out of cash in 30 days. Giving advice wasn’t enough. He worked with the founders to develop a tactical plan that would bring in the customers and cash they needed to survive. The founders drew a 30-day calendar on a white board. They labeled each day with a minimum new revenue number required to meet the 30-day survival plan. The investor was in the office every day during that time, helping them navigate challenges and find additional customers and revenue sources. Investors need to be big picture, strategic thinkers. But sometimes, they need to be doers and make things happen for the company. Investors and board members may not manage the company day-to-day, but in the early stages, board members are almost part of the executive team.

Choose board members with a breadth of experience that rounds out your management team. If you’re a technologist, bring on advisors who are good at sales and marketing. If the CEO is a sales expert, include a product development or technical advisor. Seek a human resources specialist to think through strategic hires. The board should complement the founders’ skill sets and bring needed expertise for growing and pivoting the company as needed.

On the other hand, the board shouldn’t run the company in place of the CEO. The CEO still needs to have the final say. One founder I know deferred to the board’s insistence on a particular hire to lead the North American office. The CEO did not think this person had a good understanding of early-stage companies, the market or his customers. The board liked this guy because he had successfully run divisions of big companies. In fact, the board all came from big corporations, so they were most comfortable with like-minded, big company people. The founder hired the person despite his apprehensions, solely on the recommendation of the board. That hire almost ended his company. The new hire spent most of the company’s investment money on all the wrong things and accomplished none of the company’s goals. The hire set the company back years because they couldn’t get a second round of funding. The board misguided the CEO because they didn’t have early-stage experience. Today, the founder says his big regret was not only choosing a board who didn’t understand his business, but blindly following their advice.

Conversely, one of the companies I invested in had a CEO who was quite skeptical about taking investor funding. She carefully interviewed each potential investor. One venture capital (VC) firm pulled what we call a “bait and switch.” They put their top leader forward while courting the company, and then when they were ready to close the funding round, assigned a younger, inexperienced associate to sit on this company’s board. The VC firm thought they had the deal locked in, but the CEO did not respect the inexperienced board member and as a result declined the funding deal. Stunned by her decision to leave them out, the VC firm begged to repair the relationship. The founder only let the investors join the funding round once she noted in the contract that the young associate would not be allowed to sit on her board or advise her company, and the most senior partners would be the only ones to interact with her. That was a brave decision, but she knew over time, that board member would be fatal to her company. A lesser funding round might make things harder in the short-term, but avoiding a toxic board member was the right long-term decision. In the end, by standing up to the investors, she got everything she wanted.

Be as selective with your investors and board as you are when choosing a spouse. Find investors with experience in your market and early-stage companies. Don’t worry about getting the flashiest name you can get. Make sure advisors truly understands your vision, business and bring real value. Get reference checks from their portfolio companies, customers and employees. Learn what they’re like in the heat of battle when things are tough, because there will inevitably be hard times. How do they solve problems? How do they mentor founders through the difficult trials? Turn down a bad investor or board member if necessary. Most importantly, be the driver of your company, even after you’ve selected your board. Follow your gut. Chances are your instincts are right.

About Neal

Neal Dempsey is the managing general partner at Bay Partners. He joined Bay Partners in 1989 and focuses on SaaS, software, enterprise, Internet and eCommerce companies. He created the Dempsey Foundation and founded the Center for Innovation and Entrepreneurship at the University of Washington Foster School of Business. He had 3 IPOs in 2012 with Eloqua (which was acquired in 2012 by Oracle for $871 million), Enphase Energy ($242 million) and Guidewire Software (market cap: $2.09 billion). Dempsey is an adventurer who has climbed six of the seven tallest summits in the world. He says of his propensity for risk: “My philosophy is to always do something that scares you, which includes investing sometimes. But that’s when I feel most alive.”

Categories
E2E: Scale

To Avoid An Entrepreneur’s Biggest Dealbreaker, Find A Mentor

This post originally appeared on Forbes.com on December 5, 2017 where Michael Smerklo is a regular contributor.

Entrepreneurs walking into a meeting with potential investors are usually armed to the teeth with data points about their business idea. Looking to avoid investors’ dealbreakers, most spend hours prepping for questions about their competitors and the market size for their product.

However, when entrepreneurs sit down with me to talk about investing, I ask them two seemingly unusual questions that can make or break my decision:

‘Can you tell me what mentors you have now? How do you lean on these relationships to help solve any key problem you are facing?’

Why hang so much on a question that has nothing to do with a business model? Because unlike any other profession, being an entrepreneur means fully committing to the successes and failures of an enterprise. The roller coaster of emotions that an entrepreneur faces is staggering. There are extreme highs that bring moments of euphoria and excitement, followed quickly by extreme lows—often in the same day—that breed crippling self-doubt.

Michael Smerklo, co-founder and managing director of Next Coast Ventures

It is a heavy, heavy burden and one that you should not bear on your own. In order to not only be able to pick yourself up after these roadblocks, but to move on constructively, you must have one simple thing: a mentor. There is no way around it.

It could be a loss of a major customer, a new unexpected competitor or an unfortunate series of poor judgment calls that can short circuit your confidence and leave you questioning your ability to remain as captain of the ship. Mentors give you the context, guidance and support you need when you may not know how to move forward. Without them, you are blindly riding the roller coaster instead of using the latest GPS technology to navigate the best path.

Now I have to admit, acknowledging I needed to curate a support system to give me guidance during these troubling times in my own entrepreneurial journey was one moment of realization. But being able to actually swallow my pride, ask peers for help and incorporate their advice into my business practices was a whole different obstacle to overcome.

Soliciting this type of help is not a weakness, it is a strength. Pride has no place when it comes to building your mentor-mentee relationships.

I remember early on in my career I took my first operating role with a then-unknown CEO named Ben Horowitz. I was tasked with hiring team members and was frustrated with how many interviews my star candidates were forced to go through just to get an offer. I had always thought I was great at spotting talent and didn’t understand why I was unable to get handle on the hiring process. So I complained to Ben—loudly, as usual—about this seemingly unnecessarily elongated exercise. I will never forget his response. He had seen the culture get eroded at Netscape by a failed hiring process and he was committed not to repeat it, he told me: ‘The first 10 employees are key, they hire the next 50 employees. And once that is done, the culture of the organization is largely set. That is why we are so focused on making sure we all hire great employees from the start.’

That type of advice from a mentor is invaluable and was incredibly important to me not just when I first heard it, but also a few years later when I was starting out as a first-time CEO. But taking that advice meant I had to step back, swallow my pride and recognize how little I knew about building a culture and an organization. Once you have your first powerful mentor-mentee moment like this, it becomes easier to see the value of these relationships.

So now that you’ve realized you need a mentor and you are willing to be open about your self-doubt, now what? Picking an effective mentor requires just as much self-reflection.

There are three things you should look for when tracking down a mentor:

  • Somebody who knows you and understands how you think
  • Somebody who understands the subject matter that you are dealing with
  • Somebody who has the wherewithal to give you objective advice

A mentor that encompasses these three attributes will be able to help you get to the root of the issue, empower you to regain your courage and equip you with tools to go back to doing what you do best: building an outstanding business.

Once I realized that I needed to be on the lookout for mentors like these, I naturally became more enthusiastic, self-aware and open to networking. Sure, I proactively sought out these relationships at industry events or through my existing network, but as I humbled myself and opened up to the idea of asking for help, these beneficial relationships also began to happen organically. It’s not just about blindly asking people on LinkedIn for coffee, it’s about approaching people with as much thoughtfulness and consideration as you would potential investors for your dream business.

As my mentorship network grew, I realized that each mentor offered me a different perspective and that the more data points I had, the clearer my vision was of how to move forward.

That’s why having one mentor is necessary, but having half a dozen is fantastic.

Building these types of judgment-free relationships is an endeavor that lasts a lifetime, and like any good relationship, having a strong network takes upkeep. It’s an active exercise, not a passive one. Just as you evolve as an entrepreneur, your mentorship circle should evolve as your business and personal needs change.

For example, when I was first getting started, it was critical for me to get advice from those who were highly engaged in startups and understood all the key issues that getting a business off the ground entails. Simple suggestions about hiring, board meeting agendas or what payroll systems work best all helped me avoid mistakes others had already made and also saved me countless hours.

However, when my company was a more mature and I was working to shift my business model, I proactively shifted my mentorship circle.

For instance, Ben’s advice on hiring was critical to me when I was going through the startup phase and hiring the first 50 employees. However, the ‘critical’ input I needed running a 3,000 person, publicly traded business was much different. I found myself needing to recalibrate my mentorship network. So I—once again—made sure my humility was still fully intact and proactively sought out seasoned, C-suite executives to help guide me through this new phase of my career.

Whenever I am fortunate enough to retire and look back at the ups and downs of my career, I am going to have a lot of thank you notes to write. Without my mentors, it wouldn’t have just been a dealbreaker for some investors I met along the way, it would have been a dealbreaker for my career. So do some self-reflection, check your pride at the door and seek out those who will be able to make you a better entrepreneur, and a better person. It is the weak leader who believe they need to do it all themselves.