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Category Archives: Entrepreneurship

TandemLaunch Associates Program

Leave a Comment Posted by on March 11, 2013

Associates Program

Entrepreneurship

Being the non-techie in the room

4 Comments Posted by on November 1, 2012

When I started at TandemLaunch, I came straight out of university and the closest thing I’ve ever came to an engineer was the plumber at my parent’s house. I had no idea what an FPGA was, never heard about C++ and only had a vague idea how computers work. Applying for a job at a tech start-up seemed kind of ballsy, but that’s how I am.

But I’m realizing more and more that a lot of project managers don’t have a clue what their engineers are doing (or are supposed to be doing.) The number of project managers who have a background in engineering is declining steadily – thanks to specialized degrees in project management and the flood of MBAs who think project management is “no big deal” because they took a class in it.

So how do you deal with this lack of knowledge? How do you get the engineers to respect you, even though they know much more than you about the work? Here are a couple of things that I found useful.

Be honest. Don’t pretend to know something you don’t. People with domain expertise will figure you out in a second. Pretending is never a good idea – and can destroy your credibility when you are called out on it. So just admit you don’t know. This is generally a good piece of advice – if you don’t know something, just admit it. Use your project management skills to gain credibility within your team instead.  Don’t make the fatal mistake of building a project plan in isolation of the project team that will be executing on it. Draw on your team (that’s why they’re there).

Be open. One of the things I love about the engineering team at TandemLaunch is that every single one of them is completely passionate about what they do. They just love their job. And as soon as you show interest in it and ask questions, they will love to teach you. Remember you are a part of a project team: a group of people with different skill sets working together towards a common objective.  Take the time to appreciate their contribution as much as you hope they will appreciate yours.

Learn. This is not just for your job, but for your life in general – why not learn coding? Sure, I’ll never be a software engineer, but at least I am able to understand what the engineers are talking about. The great thing is that there’s tons of free stuff out there. The standard sites are codeacademy, codeschool and udacity. There are also python classes over at kahnacademy. Which one is the best depends on what you want to do with your code. For web, JavaScript, HTML, Ruby and CSS are the ones to choose. For a more “hardware” approach (computing and the like), C/C++, Java and python. You could also look into some scripting language like perl, which is more for text/file processing. For something more UI oriented, C# and VB are the way to go.

Show your value. There are a couple of things that engineers – as a whole- are not really keen on or are not in a position to do. That’s why your role exists! So demonstrate your value here. In general, this seems to boil down to exact specifications. Nothing drives engineers crazier than ever-changing specs.

And if you want to hear this story from the other side, there’s an excellent blog post on the care and feeding of software engineers by Nicholas Zakas.

Entrepreneurship

When Co-Founder Asymmetry Works

2 Comments Posted by on October 30, 2012

A university student professor team

I recently listed co-founder asymmetry as one of the key failure conditions for startups. While definitely a major cause of startup collapse, there is one scenario where co-founder asymmetry can work well enough: university spin-outs where you have student-professor partnership.  Students don’t have the expertise and seniority of their professors, but typically have far more hours to put into a venture.  For this kind of relationship to work it is important that the expertise provided by the faculty member truly offsets the higher workload of the student. Just being a professor of high status isn’t enough (even if many professors would like to think so). Execution is king, so the high workload student has an intrinsic advantage in the value creation “competition”.

Professors likely have higher technical skill and prestige than their students but just having those isn’t enough. They need to find a way to inject these values into the start-up. Technology-wise, the professor has to be an innovation engine for the startup to offset the often relatively modest workload impact. Similarly, the prestige of the professor needs to translate into tangible opening of doors and recruitment of advisors. Both of these contributions also need to be maintained over time. Once a startup leaves campus it takes a certain kind of professor to remain deeply involved in an innovation function. Even rarer are professors that are able to continue to have a profound impact on the business side of the startup, through strategic guidance and door-opening.  If this sounds demanding, consider the fact that the student co-founder is probably working 80-100 hours per week for her co-founding stake.

I had the privilege of founding a company with a professor who truly made all these contributions and more. Himself a serial entrepreneur and inventor of over 100 patents, he brought deep expertise to the game and had a profound impact on the company. At the same time, I have seen many student-professor founding teams that don’t balance at all. Often, those are primarily on the institutionally determined hierarchical relationship.  Even if that relationship works during the first few months of the startup, as the startup gears up the professor will ultimately become an over-compensated co-founder which is almost guaranteed to lead to trouble down the road.  University startups in particular need to be prepared in advance to for these shifts in co-founder dynamics. A good choice is to reverse-vest founding shares at specific levels of impact (e.g. full involvement, advisory services, no contribution). Alternatively, the startup can issue fixed founder shares to all but then create a large additional incentive grant to operational co-founders.

Entrepreneurship, Spin-Off vs Start-Up , , , ,

Et pourquoi pas investir plus dans l’industrie de l’électronique?/ And Why Not Invest More in Electronics?

2 Comments Posted by on October 18, 2012

[English follows]

Au cours des dernières années, le réseau du capital de risque au Québec n’investit que très peu dans l’industrie de l’électronique et des technologies que l’on dit ‘’pures’’ et brevetées. Les investissements sont dirigés plutôt vers l’industrie du web.

Pourtant, l’industrie de l’électronique est un marché de 965 milliards et dont on prévoit une croissance de 7% par année d’ici 2015, en comparaison avec web 2.0 qui est prévu monter jusqu’à 380 milliards par 2015 entre le commerce électronique, la publicité, l’entreprise, et mobile. En plus des avantages d’un portefeuille d’investissement diversifié, je suis convaincu que le Québec pourrait faire le choix de se positionner comme chef de file dans cette industrie. Mes raisons ne sont pas seulement parce que le marché est en croissance continue, mais également parce que nous avons un bassin de main d’œuvre qualifiée au niveau de l’ingénierie (Polytechnique, Mcgill, Concordia, ETS, Sherbrooke, etc.) qui est accessible par les entrepreneurs.

Au Québec, nous avons une communauté créative, innovatrice, forte techniquement tant au niveau du logiciel et que de l’ingénierie.

Il serait également intéressant pour le Québec de ne pas tomber dans un domaine d’expertise qui pourrait entrer en compétition, par exemple, avec Silicon Valley qui se spécialise dans les technologies web et les semi-conducteurs.

TandemLaunch propose une industrie qui diffère des autres fonds québécois mais qui coïncide parfaitement avec les atouts de la main d’œuvre québécoise. Je maintienne la conviction que nous contribuent à une plus sain équilibre pour le Québec.

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And Why Not Invest More in Electronics?

In recent years, the venture capital community in Québec has invested very little in the electronics industry and core technology, focusing more on the web industry.

But the electronics industry is a $965 billion market which is expected to grow by 7% per year by 2015, compared with the web 2.0 industry which is forecasted to grow to roughly $380 Billion by 2015 between e-commerce, online advertising, enterprise, and mobile.   Apart from the benefits of more investment diversity, I am convinced that Quebec has an uncommon opportunity to position itself as a leader in this industry. This is not only because the market is constantly growing, but also because we have a highly skilled workforce in engineering (Polytechnique, McGill, Concordia, ETS, Sherbrooke, etc.) that entrepreneurs can access.

Quebec is a creative, innovative, technically adept software and engineering community.

It would be interesting to see Québec invest heavily in that community, and not focus an unbalanced number of investment dollars into market areas in direct competition with entrepreneurial powerhouses like Silicon Valley, for example.

I firmly believe that TandemLaunch is contributing to that balance by investing in core electronics technologies that are well tailored to the Québec labour market.

Entrepreneurship , , , ,

Building the Future of Ladies in Science

Leave a Comment Posted by on October 16, 2012

The issue of women in entrepreneurship and technology has been a bit of a preoccupation for me in the past few months, largely because despite our company’s commitment to diversity, we get very few female applicants.  Where are all the ladies who want to build businesses and work with cutting edge technology? For whatever reason, at the intersection of VC investment and tech women are underrepresented.

And so, as the academic type that I am, this weekend I had the good fortune to find myself at the McGill Women in Science, Engineering and Medicine Symposium in celebration of Carrie Derick, who became Canada’s first female professor.  The event seemed all the more a propos given the recently published US study finding that both male and female scientists rate CVs with a female name lower than the same CV with a male name on applicant’s perceived competence, hireability, and mentorability. The starting salaries respondents would be willing to offer the CVs with female names were also significantly lower. Ouch.

But I think the challenge for everyone, in and outside academia, is to understand how to tackle these largely unconscious biases we all have.  Because ultimately, in the words of NSERC President Suzanne Fortier, “The future is not for us to imagine, but for us to build.”

The female scientists who spoke at the symposium generally did not feel actively discriminated against, and all of them felt they were able to have successful personal as well as professional lives.  But, if I dare lean on the anecdotal science of Julie Payette (Astronauts are the best), the struggle is no longer for the top 10%, it is for the majority of people of average aptitude, and it is for the very definition of ‘normal’.  Our prejudices (gender or otherwise) actually have a whole lot to do with what we have learned from experience is ‘normal’. Until we approach gender parity in any group, our idea of the ‘norm’ for that group will be biased towards the dominating characteristics. The further a person is from that model of the norm, the more questions will be raised about how well they fit into that group, whether those differentiating characteristics are relevant to goodness of fit in that group or not.

Diversity has to be part of our reality before we will fully overcome our biases.  For those of us with influence over norm defining decisions (hiring, for example), that means we really need to be on our toes if we are going to create this kind of diversity. And why shouldn’t we?  There are very real benefits to diversity, from more intelligent organizations, to access larger talent pools.  We also need to prepare each other for the reality that overcoming these biases means work.

What appears to be the biggest problem for women in the more male dominated science and engineering fields right now is that while those females who make it into an undergraduate program tend to drop out along the educational trajectory at roughly the same rate as male students, very few enter into undergraduate degrees in technical fields to begin with.  You can’t help but wonder what that says about what girls are experiencing in the formative years leading up to their higher education decisions, and what inadvertent biases lead girls and boys to have very different learning experiences and opportunities. Things like recruiting boys for robotics, without approaching any girls (Don’t worry young Katie’s like me will butt in and volunteer themselves, but they’re not the only ones that could benefit from the opportunity)?

An especially poignant moment for me during the question and answer period following Payette’s talk, a young woman in the audience asked her how she dealt with self-doubt.  Payette’s response was one I never expected any human being to give; she said she never doubted herself, she just focused on her goal.  She largely credited this self-confident to very supportive parents.

Remember the stencil days?

That’s the self-confidence I want every child to grow up to have, so that they can take the risks achievement in business or academics requires, accept failure as part of the learning process, and spend their energy where it matters most – on being awesome (as an astronaut or otherwise).

Oh yeah, and make sure your daughter is proud of her grade 1 science project, even if she doesn’t get 1st place.  She was more interested in kaleidoscopes than competition anyway.

Entrepreneurship, People Management , , , ,

5 Reasons “Dumb Money” is OK

1 Comment Posted by on August 15, 2012

There is a common view in the start-up investment world that “smart money” is worth a lot more to a company than “dumb money”: the latter being worth just its monetary value, while the former might warrant additional considerations (e.g. board seats, etc.).

The use of a pejorative word like “dumb” has an unfortunate effect. Easily 90% of the Angel investors I know would describe themselves as “smart money” for the simple reason that no one wants to be dumb. Yet, I would argue that there is nothing wrong with “dumb money” as long as you know what you are getting into and keep the privileges narrow. I have raised financing from, or co-invested with, almost 100 Angels over the years. I would peg at least 90% of them as “dumb money” (including myself on some occasions).

That doesn’t mean that these individuals are dumb themselves. Most Angel investors, at least the true sort that made their own money, are highly accomplished professionals. But their money can still be dumb. There are 5 common reasons for this:

1. Expertise

The most obvious reason for an investor to be “dumb money” is a lack of relevant expertise. You can be a genius entrepreneur in real estate and make no contribution of value in a biotech investment.

2. Time (and Interest)

While expertise is the most obvious criteria, time is usually the biggest failure point. All the relevant expertise doesn’t help if the investor isn’t reachable (often in the tight time frame that a start-up needs). And good intentions don’t count. We all want to help, the question is whether or not we have the time to really do so.

3. Connections

In the days of the internet, one of the most common and less time-hungry, ways to help your start-up is to make introductions to other important people. In my experience, this only really works for people who are truly stars in a major hub (e.g. Silicon Valley). Anybody else will be of limited value. Just knowing others isn’t very helpful as any half-decent entrepreneur will be able to get those connections herself via tools like LinkedIn. What really matters is whether those important third parties actually care enough about your investor to do something for you. There are probably 1,000+ Angels who have Ron Conway or Dave McClure in their address book, but how many can make them actually invest in your venture? Similarly, corporate connections are also common but very difficult to convert into real value unless the connection has real interpersonal or professional depth (and the investor is willing to leverage this on your behalf)

4. Company Leverage

Even if the investor has plenty of relevant expertise, time and deep connections, it’s all for nothing if the company doesn’t leverage it. In my experience, a fair number of companies simply don’t reach out to their Angels beyond the legal requirements. Game over – everybody is dumb money at this point.

5. Relationship

Finally, “smart money” needs a strong relationship with the founders. If the investors don’t feel comfortable offering honest advice or the founders don’t listen then all the expertise in the world isn’t going to help.

Any one of these issues is enough to pull your investment into the “dumb money” bucket, regardless of how smart or successful your investor might be as a person. The key is to know what you are getting yourself into, what you expect out of your investors and how to match up privileges to those expectations.

Entrepreneurship , ,

Dealing with Suppliers

5 Comments Posted by on August 7, 2012

When shopping for suppliers for our S2 product, I was faced with some hard decisions: I was working in a start-up, I had no past supplier relationships, and did not have the resources to visit suppliers in person. I had to trust their websites and a few emails to make decisions about whether or not to work with them. I was in trial and error mode, which can translate into make or break costs when you’re a start-up. Supplier mistakes can really affect your cash flow and your schedule, and hence your whole business. Here are some tips for some of the product supply.

Quality Assurance & Customer Satisfaction

I had issues with suppliers every step of the way leading up to the product launch. The most deceiving one was when the product quality did not meet the requirements (Shipping boxes were the wrong size, parts of the product didn’t quite fit together, assembly instructions of subparts weren’t followed, and so on).  Were they bad suppliers or was it only miscommunication? I am still not sure. To avoid having errors in your order or poor quality products, ask as many questions as possible not just to make sure the product requirements are met but to gain insight into a supplier’  approach to customer satisfaction. What kind of pre-shipment testing do they do? Can you get a trial run or prototype made before ordering, or a sample sent? If they are confident about their supplies, they will be more than willing to show you what they have to offer (within limits). In my experience, even with specific descriptions of what I needed and followed up often over the phone, it seemed that some misunderstanding still came up and corrections had to be made. Possibly the more important thing I learned during this process was which suppliers were willing to make corrections at their cost for their mistake, or give me the refund I requested, and the ones who simply did not bother returning my calls.

Negotiate Payment Terms

This part is important in any business, but can really break you if you are a start-up. If you can create a chequings account and pay in 30 days after receiving your product, it allows you to better manage your cash flow, and will allow you to negotiate with suppliers if there are any issues with the shipment. In a small company, especially in a start-up, your suppliers don’t know you and may not trust you with a chequings account. They might require credit card payment even before the supplies are in production mode. In this case, you can negotiate including additional things in the package. If price and payment terms are not negotiable, you can deal on things like delivery time, shipping insurance, or refund policy for example. Establish what the priorities for your business are and try to include them in the deal.

Ask Others

Even if you have not dealt with a specific supplier before, try to see if you know anyone who has dealt with them and could give you an honest reference. You can even ask the supplier for references from some of his clients. If no one deals with the supplier you found, you might be safer sticking with people you have references or connections with. It will first allow you to establish a relationship to your advantage by leveraging people you have in common and second, you will know what to expect from them. If it happens that you are in a business where you don’t know people in the same industry that can hook you up, go with local suppliers. It will allow you to visit their offices, check out their product in person, and create a more personal relationship when meeting them face to face.  You also reduce your chances of having issues with shipping and handling if you can pick the product up yourself!

Create a relationship

Let them know you are a person, not a credit card number. Maintain regular contact with your suppliers, follow up, and coordinate with them. To create a trusting relationship, make sure the terms are as transparent as they can be and that you show a good image of yourself and your business by being punctual, thorough, polite, positive and reasonable. Be loyal to good suppliers and pay them on time. This will give you an advantage when dealing with them in the long term. Invite them to understand your product and your business; they might suggest better methods of doing things and new products that better suit your needs.

Suppliers can become a valuable ally. Chose them well and establish a positive relationship with the good ones. This being said, don’t put all your eggs in the same basket. You should never stop looking and shopping for new suppliers and better deals as you never know what can happen with your favourite suppliers. They might not be able to deliver on time, they might stop producing supplies you need, and they can go out of business. Keep notes of your dealing with suppliers during the trial and error stage and make a backup list of suppliers, your history with them, payments terms, prices, delivery times and overall relationship status.

Entrepreneurship ,

Why Large Co. has a Hard Time Disrupting the Market

1 Comment Posted by on April 24, 2012

By Anton Gravets

Everybody knows this story – Xerox, a massive company, builds the first personal computer that sits in a room collecting dust while Steve Jobs briskly walks past, yanks the idea and takes it to market. I really can’t speak to the accuracy of it, especially my oversimplified version of the story. However, it often serves as the example presenters use to explain the inability of big corporations to innovate. They also draw on the stories of Blockbuster, Kodak, Motorola, and Yahoo to make their case. This prompts a discussion on why big companies, with their abundant resources and expertise, are unable to bring disruptive technologies to market. Many list bureaucratic corporate cultures, leaders’ complacency, and a hesitance to cannibalize their own products with new offerings as the key causes.

But I’d like to add another little discussed disadvantage – probability. I believe that along with all the other reasons, a big company is less likely to disrupt the market because, in aggregate, startups have the probability advantage.

Picture that there is a market with a need – they need a way to send text based communication over the Internet. There are 50 companies that identify this as a need and take action.

Company 1, also known as “Goliath Co.“, is a big company, so they immediately assemble a team to address this need by developing a product. This team is very capable; they’ve got marketers, developers and a veteran project manager. They come up with product specifications of what the final result should look like and get going. Along the way, they deviate from the product specification but basically deliver what they initially promised. Unfortunately, their particular offering doesn’t quite address the needs of the complex market and they fail to create value for the consumer. All members of the team are fired and the project manager is forced to watch his Gantt charts burn on a pyre.

Companies 2-49 are small. However, they will go through basically the same process (minus the Gantt charts) and, sadly, produce similar results. They will each come up with a way to solve the problem, only to have the market reject it. They run out of cash and take jobs at Goliath Co. so they can pay back the loans they took out to pay for the startup costs.

Company 50 (aka “David Co.”) is also small and goes through the same process as Companies 1-49, but happens to get it right. Their final product is just what the consumer wanted. They immediately file for an IPO.

What are the stories that we’re reading in the news soon after these events?

“David tops our 50 most innovative companies list.”

“Goliath’s co-presidents step-down. New CEO promises to revitalize company with excellent marketing and PR campaign.”

It’s obvious what the conclusion is – startups are better at innovating. David defeated Goliath, but at what cost? David did it at the cost of the other David hopefuls. The startups, in aggregate, had 50 tries at it while Goliath had one. They stood on each other’s shoulders and had 5 feet on the other guy. What could Goliath have done differently then?

Perhaps Goliath should have assembled five different teams to take different approaches to solving the problem? It’s highly unlikely that this will happen. First there’s the matter of ego, as in, “We’re massive and should be able to figure out the solution from the first try.” If there are no ego problems and they decide to try the diverse approach, then that firm would have to bear the cost of the other 49 failures. I’m assuming Goliath is also developing a few programs besides this one, which makes it a very heavy failure burden.

But what about the advantage of having more productive resources? Here’s where I want to again bring up the idea that Goliath Co. has many projects going on at the same time. This particular project may seem pretty interesting, but their finance people projected an NPV of 5 million for it. They put some good developers on it, but the best guys are working on the digital toilet project with an NPV of 10 million. Their lack of focus distributes the resources based on projections of gains. While this could marginally improve the probability of success for a particular project or two, as a whole, I believe the big company loses its productivity advantage when they put all their best bets on the “big winners.”

I don’t think I can provide a definitive answer to the question of why start-ups can disrupt markets, leaving Large Co.’s in the dust, but I would like to contribute a small piece of the puzzle by suggesting that the probability of a new product succeeding plays a significant role. It’s highly probable that novel ventures will fail, but start-ups distribute the costs of failing across many independent founders.  A single firm has to absorb the cost itself. Therein lays the aggregate advantage for startups to out-innovate the likes of Large Co.

Note from the Editor: You could easily replace “startup” in this article with “university research lab.” Microsoft Research is one of the biggest corporate R&D groups on the planet with ~100 PhD level researchers.  That sounds like a big deal until you realize that the computer science department at McGill University has roughly the same number of PhD level researchers (professors, post-docs, adjunct/associate professors, etc.).  And that’s one of around 20 similarly sized universities in Canada, over 100 in North America, and more than 1000 globally. That’s not even counting smaller universities, or those PhD students doing nothing but research for those professors.  The university world has the biggest computer science R&D entity beat by 1000x. Now if someone were just to figure out how to leverage all those academics efficiently…  :-)

Entrepreneurship

5 Rules for Cofounder Heaven

4 Comments Posted by on March 27, 2012

Finding a good cofounder is a key ingredient of a successful startup.  Having had the opportunity to work with a variety of co-founders over the years, and now pairing up with individual co-founders for TandemLaunch portfolio investments, I have developed a couple rules of thumb for what to look for in co-founders.

 1.  Common Goals, and Values

Ensuring co-founders have common goals basically boils down to alignment of interest.  Startups typically fail due to a misalignment of interests, so you need to make sure right out of the gate that both founders have equal interest.  It doesn’t do you any good to have two superstar entrepreneurs if one of them wants to build the next Facebook, and the other wants to build a company to flip it for a million dollars in as short a time as possible.  Right around the time when you hit that million dollar milestone and you get the first offer, that founding group is going to implode.

The only thing that might just stop that entity from imploding is a set of common values, which hold social (and matrimonial) relationships together. At the end of the day, you cannot plan for all the possible contingencies, and you don’t know what’s going to happen down the road. What you can rely on are common value systems, and ways of making decisions about new issues.  People with common value systems will more likely than not arrive at consistent answers when the unforeseeable problems pop up.

It is not especially important that you have a particular set of values, just that the co-founders you select share the same values.  Mark Zuckerberg has a much more radical perspective on what constitutes fair play than some people, but that can work in a startup as long as the key players operate consistently based on the same value system. Values are also something that the majority of your employees should share. There’s no magic dividing line between founders and other employees when it comes to values.

2. Balanced Emotional Ownership

Co-founders need to have similar emotional ownership of the venture.  In other words, they should feel bad if things are not going well.  A co-founder should have significant emotional distress not just if the venture fails, but even if it’s not doing as well as it could.  Founders in general tend to be perfectionists, they tend to get upset when things could be better but aren’t, and so you want people who are driven towards improvement.

If you can achieve that with your employees, it will serve you well, but to varying degrees they are guaranteed to have less emotional skin in the game. They will at least have less financial skin in the game, which makes it harder to have the same kind of emotional response to ‘your baby’ having to be perfect.  In a lot of ways, the level of emotional ownership is precisely the difference between founders, early employees, and later stage employees. 

3. Similar Commitment

Founders need to be equally committed to the venture. That usually means a 24/7 commitment for all co-founders, being on the ball all the time, and generally being obsessed with pushing every hour possible into the venture.  While having both founders fully committed is the default scenario, it is possible to build a startup with co-founders who both have similar time constraints.  A lower time commitment will impact the kind of startup you can build, but if both founders are equally (less) committed, at least the startup shouldn’t blow up due to commitment asymmetry.

What I would strongly advise against is time commitment asymmetry.  The prime example is when one founder works full time, quits their job, and puts every living hour into the startup, while the other founder is hanging out on the edges, still has a job, puts in a few hours here and there, tries to help out, and maybe even had ‘the idea.’  This is a recipe for co-founder hell.

4. Similar Expertise

Co-founders should be of a similar weight class.  What I mean by this is that they need to have a similar reputation, influence, skill, capabilities, and so forth.  They don’t have to have the same skill (in fact it is probably good to have someone with technical expertise and someone with business expertise), but each founders’ level of expertise need to be similar.  So if one founder is an extremely well known innovator with three start-ups under her belt, then ideally the other one should have a similar configuration.  If you don’t, you have a situation similar to a time commitment asymmetry where one person does all the work, or in this case is responsible for all of the positive contribution to the company, and the other one doesn’t.  That will lead to relationship blow up scenarios at some point or another.

In this context, also avoid “single task” co-founders. You are looking for people who are first and foremost leaders. They might be technical leaders but they shouldn’t be just writers of code (or just accountants, etc.). That might work very well early on, but introduce great stress when your venture scales.

The only exception to these balancing issues, and one I’ve lived myself, is if you have a matching asymmetry somewhere else that offsets the imbalance (e.g. highly experienced co-founder with limited time vs. inexperienced co-founder full time). That’s very difficult to pull off but can work if the alignment of goals and values is very strong.

5. Relationship Distance

Co-founders should have some degree of distance in their relationship. This sounds counter-intuitive: “Why shouldn’t I be best friends with my co-founder as I will be spending so much of my time with her anyhow?” That’s precisely why you shouldn’t be best friends. Or married. Or siblings. And so forth. Unlike traditional business, startups go through massive amounts of change, stress and performance fluctuation. As a founder, you will already be deeply entangled with your venture at the emotional level. An additional layer of emotional involvement with your co-founder will make objective decisions even harder, decreasing the likelihood that significant founder relationship issues are dealt with before they become major problems, and ultimately having a negative impact on the stability of your startup in the long run.

Of course you need to like and respect your co-founder. But consider what would happen if you had to tell him that he isn’t performing or that his big idea isn’t panning out. If there is any emotional awkwardness in that imaginary dialog then you have a problem. I have seen family members sue each over their joint start-ups. You don’t want to go there.

Entrepreneurship, People Management , , , ,

How can a Startup sell its Products and Services to a Fortune 500 Company?

1 Comment Posted by on January 24, 2012

Are you a startup entrepreneur, have a great product, and want to sell it to the ‘big boys’? Selling to a Fortune 500 company is obviously not a walk in the park, but having one or more of them as your customers could be very rewarding and key to the long term success of your startup.

Consider not only the sales cycle and time invested to win such a deal, but also your ability to deliver on your sales promises and continuously maintain a healthy relationship with this new customer. Find out early on what their requirements are to have you on their “approved suppliers list”. The requirements (financial, certification, current customer base, etc…) will in many cases be exhaustive and designed to deter smaller companies from doing business “directly” with them. Large companies are risk averse and will actively avoid a situation whereby they start using the product or service of a company that will go bankrupt in a year or two. Remember this well when you design your sales pitch to them, since a major component of it should address risk reduction and containment.

For some startups, it may make more sense to partner with an already approved supplier and enter by the “backdoor”. Your partner will be their main interface and carry higher risk in return for a cut into your margin…, but forget about high margins anyway if you plan on dealing with large companies. Their purchasing machine is usually well designed to “crash” prices. The sale from a startup’s perspective is primarily valuable for future marketing purposes, rather than actually making a healthy margin; you will be able to leverage that 1 sale many times after that.

If you have decided you want a Fortune 500 company as your customer, and strongly believe you can deliver on your sales promises (and understand the perils of doing business with a Fortune 500 company), keep the following tips in mind while going through your sales cycle:

  1. Don’t pretend you are much larger as a company than what you really are! Let’s face it, they never heard about your company before, so they will be suspicious anyway. Turn your small size and startup spirit into an advantage. Show them the values of startups: innovation and speed of execution. These values are positive attributes that should be associated with your sales pitch and demonstrated along the sales journey. Most importantly, establish credibility early on and never lose their trust. This will be one of your most important assets that you can put on your startup balance sheet.
  2. Address their concerns about your small size and risks by showing them how you have planned your project to isolate them from risks, allowing them to only benefit. Legal and business models well carved out to help you win this business should be considered (I will discuss some of the sales models appropriate for startups in future posts).
  3. Be financially prepared to survive delivery milestones. For complex projects, it could take several delivery milestones before you get paid. Acceptance milestones are usually very rigorous, so be prepared? Of course, it would be much better if you get paid upfront a large chunk that helps you finance your project by your customer, but insisting on such conditions during negotiation may lower your chances of winning the contract (unless you have a very captive product with very little competition). The good news is some investors would be willing to finance your company or project once you have this contract, so you can negotiate a finance “option” early on, specific to this sale prior to winning the contract. This option means, if you win the contract you get financing, if not, you don’t get it.
  4. Don’t get caught up in your own world and the great technology you have developed. Nobody cares about you or your company (sounds rude, but every good sales person understands that!) Companies will care about: How their life after buying the product will be different? If you manage to persuade them that it would be much better, then you may have a chance of a second meeting. This is where you need to spend a lot of effort preparing for your sales pitch. Try to understand the company’s top strategic objectives, and programs (this is where they focus a lot, and allocate major financial and human resources).  The more your offering can anchor tightly into one or more of these strategic objectives and programs, the more likely you will be successful. Research the company well, speak with key people inside the company before your first sales pitch, and understand their customers…their customers should become the ultimate target customers for your partnership journey with this Fortune 500 customer.
  5. Find an internal champion! Your project will get lost in the maze of a big customer’s organization. Establishing a strong relationship with someone who believes in your project and who is influential could mean all the difference between winning a contract or no sale. Make sure the person has the influence to make things happen (that does not necessarily mean they need to be very high up in the hierarchy though). In a future post, I will also discuss how to build and effectively leverage power maps for your major customers further.
  6. Keep your sales pitch simple and professional. Spend some time designing a very effective pitch by virtue of simplicity so they can remember it well. Invest in creating some “Aha” moments through insights you present. Practice these very well. It is difficult to get a first meeting, but a lot more difficult to get a second one…you must earn it every time!  Remember to keep a professional attitude that matches their culture (attire, slides, business cards).

Last, but not least, be confident. You are dealing with normal people, many of whom fancy the idea of working for themselves or in startups (I was one of them!), and do exactly what you’re doing. They certainly want you to deliver your product. Your success in selling them your products & services is inspiring for many of them. So is your desire to succeed as an entrepreneur.

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