A VC in Vacationland

Failure IS an option, perhaps a requirement for start ups...check out this video

http://www.avc.com/a_vc/2012/05/startupstories.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+AVc+%28A+VC%29

Managing Your Start-up: How to Get Buy-In for Needed Change in your Company

Roger Jones, a top management consultant and good friend, provides some interesting insights into how you can get buy-in for transformative change in your company: "Firstly I suggest that leaders have to act in a way that is consistent with the change they want to see in others. In other words, they have to lead by example. I get Einstein to help out with a few well-chosen words. (I was in Princeton last week where he did much of his work). Secondly, it's not surprising that leaders get frustrated when their attempts to change an organisation are mired in resistance. "You may see the need for change", I counsel, "but you need to arrive at a shared epiphany". The simple truth is we resist change if we see it to be pointless or harmful. It's a leader's job to have stakeholders realise that change is essential and beneficial. Having witnessed so many failed change initiatives, I've prepared a 6-page complimentary ebook that sets out a few lessons and ideas. Do you lead by example? Many leaders can't get buy-in because their behaviour is inconsistent with their rhetoric. "Do as I say and not as I do", is the message received. What's often lacking is integrity. During the recession of the early 80's, the Chairman of a £3 Billion-turnover UK company visited each Office and Plant.  He was an elderly man, a decade or so past retirement age.   While his visits were typically unannounced, they were widely welcomed.   He would arrive in a 15 year old car, and often bring his own lunch. Failing that, he would eat in the canteen.   The message was clear: we don't waste a penny, we're all in this together, we will each make sacrifices. In recent times in the UK, we've heard from both the government and the Opposition that "we're all in this together". Does this ring true? In the Daily Mail, Mr Miliband admitted Mr Osborne* had been 'onto something' when he coined the slogan before the last election - and that it had helped convince voters that austerity meant "shared sacrifice".   Will "shared sacrifice" affect the remuneration and benefits of MPs, or is it code for cuts and tax increases for the rest of us?   Leading by example, and integrity Leading by example requires integrity: consistency of actions, values, methods, measures, principles, expectations, and outcomes. Teaching by example   As Einstein observed, "Example is not only a way to teach; it is the only way to teach." What if the dominant culture within your organisation was leadership by example? I argue that judging people by what they do (their integrity), rather than what they say (their stated intent) would have a profound effect. The emphasis within the organisation will be on the positive and active position. Too much time is typically devoted on seeing what is wrong with a process, plan, system or person. Not enough time is spent on creating the solution. Question: Who gets more air time at your meetings? The expert who is perpetually critical of the way it is, or the hands-on pragmatist who can both propose and implement a solution? The answer to this question lies with leadership. Do you set a can-do example, or are you inclined to allow meetings to dead-end with little or no agreement on a solution? Does your leadership team teach by example, and if so are these positive and active examples? As the late Jack LaLanne said, "If you want to change somebody, don't preach to him. Set an example and shut up." Leading by example is wise leadership. Stories of the 'way we do things' are the foundations of culture. Wise leaders tell stories of a way of life, and act accordingly. By doing so, they are judged to be authentic, and worthy of respect. And people follow leaders whom they respect.  Arriving at a shared epiphany It's not surprising that leaders get frustrated when their attempts to change an organisation are mired in resistance. "You may see the need for change", I counsel, "but you need to arrive at a shared epiphany". The simple truth is we resist change if we see it to be pointless or harmful. It's a leader's job to have stakeholders realise that change is essential and beneficial. Before change can happen, a series of internal agreements must be reached since "the way things have always been done" is being challenged. People will only do what they are comfortable with and what they have agreed to do. It's nonsense to assume that people will change because they have been told to. It's also a fatal strategic error, in that it results in active and passive resistance. A crucial point is this: you have created a business system that is intentionally impervious to change (or it wouldn't be a system). You are changing the rules and that has multiple effects. Imagine announcing in Manchester United's dressing room that the club would in future be playing Baseball. Is this any more challenging than recreating a hardware vendor as an Information Service provider? Possibly not. Yet the latter has not only been proposed, it's been attempted - and without the buy-in of key stakeholders. We live in exponential times. The rate of change is breathtaking. In many cases we need to develop disruptive strategies, and innovative or unexpected solutions. As captain of the ship we have a perfect view to the horizon. We can see the need for change. We can chart a course. We've experienced our epiphany. But what if the vessel has the responsiveness of a supertanker? It's no good yelling louder that the course must change, we need to create a vessel that is more responsive. A lot is talked about shared vision, but it's rarely shared. It's more often imposed. I'll leave the final words to New York Times best-selling author Peter Gruber. "Over the years, I've learned that the ability to articulate your story or that of your company is crucial in almost every phase of enterprise management. It works all along the business food chain: A great salesperson knows how to tell a story in which the product is the hero. A successful line manager can rally the team to extraordinary efforts through a story that shows how short-term sacrifice leads to long-term success. An effective CEO uses an emotional narrative about the company's mission to attract investors and partners, to set lofty goals, and to inspire employees."

 

Supply Chain Innovators: ecoATM--an ATM for Used Electronic Products

Image via CrunchBase

Tired of trying to sell that old phone on eBay? Or finding a charity who will take it? Or giving it for free to Verizon, who then certainly resells it? Then ecoATM is for you. And it solves a big supply chain  problem--making it easy to recycle small electronic products that often just end up in landfills.

According to Xconomy, ecoATM, a company that creates kiosks that automate the buy-back of used mobile phones and other used portable electronics directly from consumers, has raised $17 million in funding from Claremont Creek Ventures, Coinstar, TAO Ventures, PI Holdings, Moore Venture Partners, AKS Capital and Koh Boon Hwee.  Coinstar operates the change conversion kiosks and owns DVD kiosk service Redbox. The company previously raised $14.4 million from Coinstar, Claremont Creek Ventures, and others.

Here’s how ecoATM works. The seller places their phone into the kiosk (the company says it will not damage the phone nor read/copy any personal data from the device). The kiosk then visually identifies the phone as best it can from a database of around 4,000 devices and uses visual recognition technology to determine if the device has been damaged, and also offers up a device-compatible cable connection which allows it to analyze whether or not the device boots.Based on the type of phone and the shape it’s in, ecoATM makes an offer. Users can then cash out (or cancel the transaction and get their phone back at any time), with the option to donate any percentage of the sale to any one of many charities. The kiosk also accepts MP3 players and others gadgets.Every week, the company picks up the phones sold and sells these to middle market electronics refurbishers, who fix the devices up and resell them or sell the parts to other electronics companies.

Tom Tullie, Chairman and CEO of ecoATM, states that currently there are around 50 ecoATM kiosks operating in the U.S., mostly in California, for now. They are located primarily in malls, grocery stores and big-box retailers, and there is one on the Microsoft Corporate Campus. In addition, ecoATM announced it has been awarded a Phase II grant for up to $1 million from the National Science Foundation. The NSF received 171 Phase II proposals in July 2011, and ecoATM’s grant was one of only about 60 Phase II Awards NSF granted in fiscal year 2012. And ecoATM won the 2011 Crunchie Award for Best Clean-Tech Startup.Tullie says the new funding will be used toward mass commercialization and a national roll-out. 

 

Managing Your Start-up: The Wal-Mart Syndrome

It happens at almost every start up I have worked with over the last decade--the emergence of a huge potential client who wants to pay a lot of money to use your technology. Sounds simple enough and could be a breakthrough event for the company, right? The Board gets all excited along with the founders-- "This could be the deal we have been waiting for!" Or it could be a disaster.

I call it the Wal-Mart Syndrome, but not to single out the world's largest retailer as the offender. Numerous large companies have been known to play the game. Here's how it goes:

The Large Potential Customer (LPC) is a known consumer of innovative technologies like yours. They approach your sales guy with a request for a demo. The demo goes great, the company asks for a proposal to get going immediately. Then the fun starts...

Your proposal/contract language is great, except for a few changes suggested by our Legal Department, the LPC says. Like giving them a copy of your source code so they can adapt it to their needs, but still supported by you with all upgrades in the future. (Note: this was a request made more than once among my portfolio companies.) And all changes you might make for us become our IP that cannot be used in your future versions of your software. The list of demands can go on and on, but end up making such a deal not very interesting.

My companies walked away from these deals, in spite of the potential to acquire a world-class client and get paid a lot of money. Truthfully, the long term cost was not worth the publicity. When we walked away from one such deal, a competitor walked right in and took the "prize". They are cursing that deal to this day, partly due to lost IP and partly due to the deal they signed required them to make any changes the client requested for up to 5 years from contract inception (without cost).

Having said all this, I have signed mega deals with world-class companies which were very successful for both parties. You just have to be very careful up front in choosing your partners....

Managing Your Start-up: Complying with EU Safe Harbor Regulations

A candidate icon for Portal:Computer security (Photo credit: Wikipedia)

The U.S. Department of Commerce requires all organizations that accept personal data from the E.U. and Switzerland to comply with the U.S.-E.U. Safe Harbor and U.S.-Swiss Safe Harbor program.  This program requires organizations in the U.S. who accept data from the E.U. and Switzerland to make legally binding representations that they will address and implement safeguards that meet the data transfer standards under E.U. privacy law.  Non-compliance with the Safe Harbor program can result in federal and state government enforcement, European Data Protection enforcement, civil penalties (up to $12,000 per day for violations), de-certification or permanent ineligibility for Safe Harbor, and reputational sanctions.

Companies certifying under the Safe Harbor program must adhere to the program's 7 Privacy Principles:  (1) Notice, (2) Choice, (3) Onward Transfer, (4) Security, (5) Data Integrity, (6) Access, and (7) Enforcement.

 

(1)  Notice

• Organizations must notify their customers about how their personal information will be collected, used, and disclosed. 
• Organizations must provide contact information within the company for any questions or complaints about privacy related matters.
• Clear and conspicuous language must be provided at the time of collection.

(2)  Choice and (3) Onward Transfer

• Individuals must have the opportunity to choose whether their personal information is disclosed to independent third parties.
• Individuals must be able to choose whether their personal information are used for purposes that are not compatible with the original notice provided to them.
• Notice and choice principles also apply when data is transferred to independent third parties.
• If the data is being transferred to an independent third party, the individual must be given the opportunity to opt-out; if sensitive information is involved, opt-in consent must be obtained.

(4)  Security

• Organizations must take reasonable precautions to protect personal information from loss, misuse, and unauthorized access, disclosure, alteration, and destruction.
• Such examples of reasonable precautions include without limitation implementing policies and training, encrypting backup tapes, limiting access to personal data on a need-to-know basis, securing areas with access to sensitive data, terminating promptly data access for departing employees.

(5)  Data Integrity and (6) Access

• Organizations must take reasonable steps to ensure that data is reliable, accurate, complete and current.
• Individuals must be provided with access to and have the ability to correct, amend or delete inaccurate information (exceptions include: if the burden or expense is disproportionate to risks to the individual’s privacy; or if the rights of other persons would be violated).
• Organizations should only collect and process personal data that is relevant for the business purposes for which it was collected.

(7)  Enforcement

• Organizations must include mechanisms for ensuring compliance with the Safe Harbor Principles (e.g., monitoring/auditing).
• Organizations must make readily available and affordable independent recourse mechanisms.
• Organizations must have in place follow-up procedures for verifying assertions regarding privacy practices.
• Organizations have an ongoing obligation to remedy problems arising from non-compliance. 

 

Board Responsibilities: Strategy & Succession, Among Others

Image via Wikipedia

Carly Fiorina, former head of H-P, candidate for California Governor, etc. etc. was on CNBC's Squawk Box recently. She was speaking about the key responsibilities of company Boards of Directors. Strategy and succession planning were the two primary responsibilities she cited. And it got me thinking about what other responsibilities start-up boards should have. Here are a few more:

Mentoring the Senior Executives--Founders are often long on ideas and short on business sense. Making sure that sustainable business models are part of the overall strategy is a critical role for board members.

Introductions to potential investors, partners, customers--this is the most valuable contribution of board members. Choosing people with extensive industry networks lets you tap a wide range of potential customers, find new employees and explore teaming with channel partners.

Cheerleaders--Being an entrepreneur is tough, really tough. Having board members who can help you over the rough spots by being good listeners, willing to pitch in and help and advise in key areas is invaluable.

Supply Chain Innovators: Alice.com to sell/deliver basic household goods

Image via CrunchBase

 According to Xconomy, Alice.com, an e-commerce platform exclusively for household goods, received $3 million in funding from private Spanish investors.

Instead of acting as a go-between for manufacturers and customers, Alice.com is a platform for companies to sell toilet paper, laundry detergent and everything else that makes your house needs directly to you. Companies such as Proctor and Gamble, BIC, and 3M partner with Alice.com to sell their products on the site and can offer lower prices since they don’t have to go through retailers. Alice.com also offers auto-shipments of household goods you use frequently — think toilet paper, toothpaste, and soap. Shipping costs are  free and the site offers instant coupons from manufacturers.

Alice.com, which launched in June 2011, has gained a lot of popularity for being a simple marketplace for household goods, especially for those who can’t remember to pick up household essentials before they run out. Unlike its competitors — Amazon, Drugstore.com — Alice.com relies completely on ad revenue to make money, which keeps costs lower than other sites. The company handles the order and shipping processes for the manufacturer, but doesn’t take a cut of the sale. Alice.com also has an iPhone app for on-the-go shopping.

“Over the past several months we have experienced significant momentum and promising sales numbers as more consumers realize they can shop for household essentials on line. This round of funding allows us to accelerate our growth and propel us forward as the leading, retail marketplace for household essentials,” said Brian Wiegand, CEO and co-founder at Alice.com said in a statement.

Co-founders Brian Wiegand and Mark McGuire sold social shopping company Jellyfish to Microsoft for $50 million in 2007 before working on Alice.com.

Alice.com recently merged with Spanish company Koto.com and has launched a new site for the European consumer market. The company has raised $18.2 million to date from DaneVest Tech Fund, Kegonsa Capital Partners, and private investors. Alice.com is headquartered in Middleton, Wisconsin.

It's a bit unclear that one goes on line to order toilet paper if you run out.  Perhaps a visit to the local convenience store is more in relevant, given the shipping delays. But the concept is an interesting one that dis-intermediates the retailers, letting consumers who plan a bit in advance order directly from manufacturers. Look at the success, and subsequent sale to Amazon, of diapers.com as an example of building a disruptive business off of selling consumer basics on the web. 

 

Managing Your Start-up: Make Money by Listening, not Talking

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I get to listen to a lot of pitches by entrepreneurs every week. Often, they launch right into their spiel without spending any time trying to understand their audience. I politely interrupt and make sure they know why I am interested in their idea and what I want to know about it.  Sounds pretty fundamental, right? I can understand why they want to get right into their great ideas, but the behavior is rude and condescending.  Unfortunately, the behavior can also continue inside their company.

The one big lesson I learned in 35 years of consulting (note Bold and Capitals following...) is that YOU MAKE MONEY BY LISTENING, NOT TALKING. As an entrepreneur, you have to communicate with your employees, your customers, your partners, your investors, etc, etc. Think about how much time you spend listening and how much talking.  It should be 70 or 80% listening. Got some people on the team that don't say much?  Ask a lot of questions to be sure that you understand where they are coming from.

You will be much better off taking in as much information as possible in building your company.  As a consultant, the more I knew about a client, the more I could help them.

 

Supply Chain Innovators: Stitch Labs--better managing small business orders and shipping

Neeeewww Stitch Lab! (Photo credit: average_jane_crafter)

Stitch Labs, a start-up that helps small businesses manage inventory, orders, and shipping, has secured $1 million in seed funding from True Ventures, according to VentureBeat.

Co-founder and chief executive Brandon Levey began working on Stitch Labs in 2011 when he was running his own design and manufacturing company. He was frustrated with the lack of software available to small businesses to manage inventory and sales.

Co-founder Jake Gasaway told VentureBeat in an interview that Stitch Labs really took off after it integrated with Etsy and Shopify. Many of the millions of Etsy users began making their way over to Stitch Labs and became paying customers, which helped the company gain attention from venture capital firms. Stitch Labs attributes its seed funding to showing VCs that they could build a business that generates revenue and could convert people into paying customers.

Stitch Labs manages contacts, inventory, sales, invoicing, and shipping for on-line businesses. It displays all relevant information in a dashboard, so business owners can manage orders, payment, and many other aspects of their operations. The company also integrates with the shopping cart platforms from Etsy and Shopify and can manage data from several different business, both on-line and off, in one dashboard. Pricing starts at $12 per month for single-person businesses, up to a monthly fee of $80 for larger companies.

Stitch Labs will use the funding for product development and customer growth. The company is also hiring new employees.  Stitch was founded in 2011 and is based in San Francisco, California. This is the first round of funding the company has received.

 

Book Review: The Industrial Revolutionaries

Cover via Amazon

Entrepreneurs have never had it easy. Gavin Weightman's fascinating journey (The Industrial Revolutionaries)on start ups from the Industrial Revolution into to early 1900's makes that very clear.

Weightman traces entrepreneurial activity in Europe, America and Japan from 1776 until WW I, moving seamlessly between countries, inventions and people who helped make the world what we know it today. And one of the fascinating facts is that the earliest entrepreneurs, who put the world on the track to electric lighting, wireless telegraphy and automobiles often were the losers in the game. Who knew that Samuel Morse invented neither the telegraph or the "Morse" code?  Morse, for example, was a fantastic marketer who co-opted others inventions as his own in the era of poorly written and unenforced patents across international boundaries. Other entrepreneurs simply copied inventions without innovation, such as the Japanese in the early 20th century.

Perhaps the most interesting observation is Weightman's last one. In the Postscript, he observes that the grand master reporter of the Industrial Revolution, Adam Smith missed the boat on what was happening around him. For example,he was familiar with the steam engine, but never understood the importance of them in revolutionizing manufacturing. Such is also true today, in that no matter how smart we are, it is difficult to predict how innovations will change our lives.  I guess that's just part of our human experience.